McSeveny v Ultimate IP Holdings Pty Ltd

1. [1]

   The cross-claimants, by a notice of motion filed 15 March 2018, seek leave to amend their amended cross-claim in the form of a document attached to the notice of motion. The plaintiff/cross-defendant opposes leave being given. A slightly altered document was put forward at the hearing of the motion. That document was marked MFI1, and it is that document which forms the basis for this judgment.

History of the pleadings

1. [2]

   The proceedings commenced by the filing of a statement of claim on 22 October 2015. The plaintiff claimed an amount of $2,060,000 together with interest, then amounting to $304,350 from four defendants. The first defendant, Ultimate IP Holdings Pty Ltd (Ultimate IP), was said to owe the money under an arrangement constituted by two agreements called an Asset Sale Agreement and a Licence Fee Agreement made on 3 July 2011. The agreement involved a parcel of intellectual property rights comprising ten registered trademarks. The second, third and fourth defendants (respectively Timothy Hennessy, Paul McCloskey and Matthew Nielsen) were sued as guarantors of the obligation of Ultimate IP.

2. [3]

   The claim was that Ultimate IP would pay a licence fee to the plaintiff in the sum of $3,000,000. Payments were to be made by instalments in the sum of $50,000 per calendar month commencing 30 August 2011. Various payments, most being less than $50,000 per calendar month, were made until 4 March 2014. Thereafter, it is alleged that Ultimate IP failed to make any further payments.

3. [4]

   A defence was filed on behalf of the first, second and third defendants which, in substance, asserted that: (1) until 29 July 2011 the trademarks were registered in the name of a company called Sevcoy Pty Ltd in respect of which the plaintiff was a director; (2) from 29 July 2011 the trademarks were transferred to a company called Patima Pty Ltd of which Mr Hennessy and Mr McCloskey were directors; (3) there was a total failure of consideration by the plaintiff; (4) an express condition of the Licence Fee Agreement that there be a satisfactory completion of the Asset Sale Agreement was not fulfilled; and (5) payments made of $390,000 to the plaintiff by the first defendant were made under a mistake. No appearance or defence has been filed by the fourth defendant.

4. [5]

   On 31 October 2016 an amended statement of claim was filed. The amended statement of claim added two further defendants being 2Chillies Pty Ltd -formerly Patima Pty Ltd - (the fifth defendant), and Millenium Properties International Pty Ltd (the sixth defendant).

5. [6]

   The amended statement of claim made the same claim but pleaded a far more complicated arrangement, or alternative arrangements, involving various combinations of the defendants. As a further alternative way of pleading the claim, the money was said to be owing as a result of estoppel arising from representations made by the defendants, estoppel by convention and promissory estoppel.

6. [7]

   A further claim was added against Millenium based on a contract of sale between the plaintiff and a company called ZOC Holdings Pty Ltd as vendors, and Millenium as purchaser, in relation to land at 15 Millenium Circuit, Helensvale, Queensland. The claim was said to be that, under the terms of the contract, the purchase price was to be paid in various ways and to various parties, with $260,365 ultimately due to the plaintiff. That amount was alleged not to have been paid giving rise to damages for breach of contract.

7. [8]

   Defences were filed by the first, second and third defendants (in one pleaded document) and by the fifth and sixth defendants (in another pleaded document) both filed 14 February 2017. The defences referred to at [4] (1) to (4) above were again pleaded, but not the defence of the payment of $390,000 under a mistake of fact. In addition, the defendants denied the existence of an estoppel, asserted that the plaintiff could not demonstrate a detriment arising from the defendants’ resiling from the alleged representations, and asserted that the land sale contract claim had no connection with New South Wales with the result that this Court has no jurisdiction to determine the matter.

8. [9]

   Prior to the amended statement of claim being filed, Ultimate IP filed a cross-claim against the plaintiff on 18 January 2016 claiming $390,000 which had been paid to the plaintiff arising out of the Asset Sale Agreement and the Licence Fee Agreement. The monies were said to have been had and received by the plaintiff to the use of the first defendant/cross-claimant. That cross-claim appeared to relate specifically to the substantive defence referred to at [4](5) above.

9. [10]

   On 16 March 2017 Ultimate IP filed an amended cross-claim against the plaintiff. 2Chillies was joined as the second cross-claimant. The relief claimed was in the form of: (1) restitution; (2) damages; (3) interest; and (4) costs.

10. [11]

    The amended cross-claim first sought repayment of the $390,000 on the basis that the plaintiff did not have and never had any interest in Sevcoy’s assets, with the result that no interest in those assets passed from the plaintiff to Ultimate IP. In that way there was said to have been a total failure of consideration with the result that the plaintiff had not received the sum of $390,000 to the use of Ultimate IP.

11. [12]

    In the alternative, it was pleaded that the obligation on Ultimate IP to make payments to the plaintiff was subject to and conditional upon the satisfactory completion of the 3 July agreement. It was asserted that the 3 July agreement was not completed satisfactorily or at all with the result that the payments had been made under a mistake of fact. A claim was made for the sum of $390,000.

12. [13]

    Those claims can be seen to be related to the defences set out above at [4].

13. [14]

    An additional claim was included in the amended cross-claim called a warranty claim. This claim was pleaded on the basis of the plaintiff and the fourth defendant, Matthew Nielsen, being the guarantors of the Asset Sale Agreement. The amended cross-claim asserted that the plaintiff owed an unconditional and irrevocable principal obligation to guarantee to 2Chillies the due and punctual performance and observance by Sevcoy of all obligations contained in the Asset Sale Agreement, and to indemnify 2Chillies against any loss incurred by it out of any breach or non-observance by Sevcoy of a guaranteed obligation.

14. [15]

    The amended cross-claim went on to assert that Sevcoy breached the warranties in Schedule 3 of the Asset Sale Agreement in the following ways:

15. [16]

    The amended cross-claim then set out matters concerning the incurring of various indebtedness by 2Chillies as well as identifying other loss it had suffered. The amended cross-claim claimed an indemnity from the plaintiff pursuant to the guarantee he had given in respect of the Asset Sale Agreement. Damages and interest were claimed.

The proposed amended cross-claim

1. [17]

   The cross-claimants now seek to amend the existing amended cross-claim in the following ways:

   1. (1)

      To add claims for relief under ss 236, 237 and 243 of Schedule 2 of the Competition and Consumer Act 2010 (Cth), (the Australian Consumer Law);

   2. (2)

      In the alternative to (1), to seek a declaration that the plaintiff is entitled to receive a specified shareholding in satisfaction of his claim for damages;

   3. (3)

      To claim damages for negligent misrepresentation;

   4. (4)

      To seek rescission of the Licence Fee Agreement;

   5. (5)

      To add the second and third defendants as cross-claimants.

2. [18]

   The relief claimed is as follows:

3. [19]

   It may be noted that there is no other claim for damages than those in prayers 3a and 5, yet the warranty claim which seeks damages remains in the proposed amended cross-claim. I shall assume that the omission is inadvertent.

4. [20]

   I shall refer to Ultimate IP and 2Chillies as the existing cross-claimants and to Mr Hennessy and Mr McCloskey as the proposed cross-claimants.

5. [21]

   It is not apparent from those prayers for relief what relief is sought by the proposed cross-claimants. However, an examination of the pleading shows that they seek the relief in prayers 4, 5 and 6. In addition, in the alternative to the claim for damages made by the existing cross-claimants under the ACL, all of the cross-claimants seek a declaration (paragraph 52 (d)) that the existing cross-claimants are not obliged to pay $3 million pursuant to the Licence Agreement, and the proposed cross-claimants are not obliged to guarantee such payment. Accordingly, that relief relates to the ACL claim.

6. [22]

   In relation to the ACL claim and the claim for negligent misrepresentation, three representations are pleaded. The first is said to have been made on 22 July 2011 when the cross-defendant represented to 2Chillies, Mr Hennessy and Mr McCloskey that Sevcoy’s accounts payable balance was $1,004,193 or $1,181,913, and Sevcoy’s accounts receivable balance was $1,533,000 or $1,533,464.67.

7. [23]

   The second representation was said to have been by the cross-defendant on 22 July 2011 to all of the cross-claimants that the Book Debts as defined in the Asset Sale Agreement were accurate as at the date of the Asset Sale Agreement and would be so at Completion.

8. [24]

   The third representation was said to have been by the cross-defendant on 22 July 2011 to the cross-claimants that Sevcoy had disclosed to 2Chillies all information relating to the Assets and Sevcoy’s business necessary for 2Chillies to make an informed assessment of Sevcoy’s business. The cross-claimants claim that, in reliance upon each of the representations, 2Chillies executed the Asset Sale Agreement. Each of the representations was said to be false and untrue.

9. [25]

   It was further pleaded, in addition to Ultimate IP and 2Chillies suffering loss and damage, that the Licence Fee Agreement was void or unenforceable and, in the alternative, that the obligation of Ultimate IP to pay the cross-defendant $3,000,000 with Mr Hennessy and Mr McCloskey guaranteeing such payment, was at all times unenforceable. The representations were alternatively pleaded as amounting to negligent misrepresentation.

Submissions

1. [26]

   The cross-claimants submitted that the amendments would facilitate the purpose of s 64(2) of the Civil Procedure Act 2005 (NSW) by enabling the determination of the real questions raised by the proceedings. Those questions were reflected in the cross-claimants' evidence already filed. The cross-claimants pointed to what was contained in the evidence of Mr Hennessy and Mr McCloskey concerning the representations made by the cross-defendant during the negotiations that preceded the execution of the Asset Sale Agreement.

2. [27]

   The cross-claimants submitted that the proposed amendments were being made for a proper purpose because they are consequential upon, and have been informed by, the preparation of the cross-claimants' evidence. The proposed amendments are not so obviously futile that they would be liable to be struck out if they had appeared in the original cross-claim.

3. [28]

   The cross-claimants submitted that the new causes of action arise out of the same facts or substantially the same facts that underpin the amended cross-claim filed on 16 March 2017. The representations are said to be contained within three documents being:

4. [29]

   The cross-claimants submitted that those representations also inform the content of the warranties as to Sevcoy's assets and liabilities that were made in the Asset Sale Agreement and which it is alleged were breached. The cross-claimants submitted that the ACL claim and the negligent misrepresentation claim are, in substance, alternative legal claims to the Breach of Warranty claim, as they all relate to the same wrongdoing.

5. [30]

   The cross-claimants submitted that having regard to ss 56 to 58 of the Civil Procedure Act, the dictates of justice suggest that leave be given to the cross-claimants to amend their claim. Any delay in seeking leave to file a further amended cross-claim must be weighed against the potential prejudice to the plaintiff if the amendments are allowed. The cross-claimants submitted that the delay is explained in part by the retention of new counsel in late 2017 and the fact that it became apparent during the course of the preparation of the evidence of Messrs Hennessy and McCloskey that the pleadings would require amendment to reflect their evidence. The cross-claimants submitted that the delay will not result in any material prejudice to the plaintiff because no hearing date has been allocated. The cross-claimants submitted that the plaintiff has adduced no evidence of prejudice.

6. [31]

   The cross-claimants submitted that, to the extent that possible limitation issues are raised, it is generally inappropriate to deal with the issue of limitation defences when application is made to amend pleadings at an interlocutory stage. Reference was made to Wardley Australia Limited v The State of Western Australia (1992) 175 CLR 514 at 533. The cross-claimants submitted that, in any event, negligent misrepresentation is a common law action which by dint of s 74 of the Limitation Act 1969 (NSW) would not be time-barred. The cross-claimants submitted that if it is ultimately determined that the proposed causes of action are statute-barred, the plaintiff will succeed in having those parts dismissed from the cross-claim at the final hearing.

7. [32]

   The cross-defendant submitted that the proposed amendments to the cross-claim will inevitably delay the proceedings further. The cross-defendant submitted that the cross-claimants have not provided an adequate explanation for the delay in preparing the proposed amendments. That is particularly so when the cross-claimants argue that the source of the alleged representations in the ACL Claim and the Negligent Misstatement Claim are warranties that form part of the basis of the existing breach of warranty claim.

8. [33]

   The cross-defendant submitted that the proposed amendments disclose no reasonable cause of action. This is because, in order to establish that the cross-defendant relevantly owed a duty of care to the cross-claimants, those parties must have been "vulnerable" in the sense of being unable to protect themselves from the alleged economic loss suffered. Reference was made to Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515; [2004] HCA 16 and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36. The cross-defendant said that, so far from the cross-claimants being unable to protect themselves, they specifically sought to protect themselves by obtaining contractual warranties relating to the risk to which they now say they were vulnerable.

9. [34]

   The cross-defendant submitted that the claim for a declaration that the cross-defendant is entitled to receive a shareholding in a new company in satisfaction of his claim for damages is not available based on the terms of the Licence Fee Agreement. The cross-defendant submitted that while he has the right to request such an arrangement, that is a form of security available to him and is not a substitute remedy.

10. [35]

    The cross-defendant submitted that a claim for relief under ss 236 or 237 of the Australian Consumer Law must be commenced within six years after the day on which the cause of action that relates to the conduct accrued. The cross-defendant submitted that the cross-claimants' case is that the alleged overstatement of debtors and understatement of creditors meant that the business acquired by 2Chillies was less valuable. In that way the loss was suffered upon the execution of the relevant transaction documents on 22 July 2011. At the latest, the cause of action accrued no later than 10 November 2011, being the date of an email and attachment sent from Mr Munro to the cross-defendant.

11. [36]

    The cross-defendant submitted that where persons are added to a claim the date of commencement of the proceedings in relation to those persons is the date on which the order is made or such later date as the court may specify under r 6.28 Uniform Civil Procedure Rules 2005 (NSW). In that way, the cross-defendant submitted, the claim is statute-barred as far as the new cross-claimants are concerned.

12. [37]

    In relation to the negligence claim and the ACL claim, the cross-defendant submitted that if the proposed amendments are to be permitted, it would be appropriate to reserve to the trial judge determination of the date by which any amendments are to take effect so as to preserve the parties' positions in respect of the limitation period.

13. [38]

    The cross-defendant submitted that he suffers prejudice by having to undertake factual and other inquiries for the purpose of preparing a defence to the amended cross-claim. He submitted that most of the germane documents would be the records of Sevcoy, and he has had no access to those records since they were made available to 2Chillies at the time of the transaction. In any event, it appears from the return of the subpoena issued to Sevcoy that some of the records no longer exist.

14. [39]

    The cross-defendant submitted that the proposed amendments introduce for the first time apportionable claims. In that way it will be necessary to identify potential concurrent wrongdoers. Mr Munro has been identified as one such wrongdoer, but the cross-defendant submits that others may be identified.

15. [40]

    The cross-defendant submitted that the proposed amendments seek to raise for the first time a "no transaction" case. That involves a new, different legal and factual inquiry, requiring a comparison between the position of the cross-claimants having entered into the transactions, and their position if the transactions had not been entered into.

16. [41]

    The cross-defendant submitted that there are certain pleading difficulties, particularly by the lack of particularisation of loss and damage and in relation to relief claimed concerning the Licence Fee Agreement.

Consideration

1. [42]

   The cross-defendant accepted, for the purpose of this amendment application only, that s 65(2)(c) of the Civil Procedure Act could operate in the case of the ACL Claim so far as those claims relate to the existing cross-claimants, Ultimate IP and 2Chillies. The cross-defendant accepted that, if the proposed amendments in relation to those cross-claimants were permitted to be made, it would be appropriate to reserve to the trial judge determination of the date by which any amendments are to take effect so as to preserve the existing parties' positions in respect of limitation periods.

2. [43]

   In those circumstances, subject to determining the question of prejudice to the cross-defendant if the amendments were allowed, leave should be given to the existing cross-claimants to add the claim under the Australian Consumer Law. I will deal with the question of prejudice to the cross-defendant later in this judgment.

3. [44]

   As far as the further cross-claimants are concerned, the ACL claim is statute barred because loss could not have been sustained later than November 2011. The limitation period for bringing such a claim is six years after the day on which the cause of action accrued: Australian Consumer Law s 236(2) and 237(3). This matter scarcely admits of argument, and the admonition in Wardley (at p 533) is not apt for this proposed amendment. The only basis upon which the claim by the new cross-claimants could be brought would be if s 64 or s 65 of the Civil Procedure Act 2005 (NSW) operated to permit the bringing of the claim.

4. [45]

   Those sections provide as follows:

5. [46]

   The Uniform Civil Procedure Rules are also relevant. The Rules relevantly provide:

6. [47]

   Neither party addressed the question of whether s 65 enabled an otherwise statute-barred action to be added by way of amendment where that action was governed by Commonwealth law. My attention was drawn to Idoport Pty Ltd & Anor v National Australia Bank Ltd & Ors [7] [2000] NSWSC 599 where Einstein J rejected an argument that s 74 of the Limitation Act 1969 (NSW) applied to claims under the Trade Practices Act 1974 (Cth) and Fair Trading Act 1987 (NSW).

7. [48]

   Agtrack (NT) Pty Ltd v Hatfield (2005) 223 CLR 251; [2005] HCA 38 would suggest that s 65 would not be available to permit a statute-barred claim under Commonwealth law to be made, and to that extent Australia and New Zealand Banking Group Ltd v Larcos (1987) 13 NSWLR 286 may no longer be good law. Although the decision of the Court of Appeal of the Supreme Court of Victoria in PSL Industries Ltd v Simplot Australia Pty Ltd (2003) 7 VR 106; [2003] VSCA 7 is to the same effect, and Larcos was said to be supportive of the decision, the decision in Larcos has been criticised by the NSW Court of Appeal in Air Link Pty Limited v Paterson (No. 2) (2003) 58 NSWLR 388; [2003] NSWCA 251 at [139]-[140].

8. [49]

   It is not necessary to decide this point, and I should not do so in the absence of full submissions from the parties. In any event, the reservation of the limitation point as far as the existing cross-claimants are concerned to the trial judge will enable the matter to be argued at that time with respect to the proposed cross-claimants.

9. [50]

   The cross-defendant opposes this amendment being allowed on the basis that the proposed amendment has no reasonable prospects of success.

10. [51]

    The Licence Agreement relevantly provides:

11. [52]

    It is not easy to determine what the parties intended by this arrangement. In the first place, it is not clear if a default occurs prior to the passing of three consecutive months in which no payments are made. Alternatively, it is not clear if two events of default are being referred to with different results. The last quoted paragraph might be referring to a default in a single month’s payment in which case the new company would be set up. However, the penultimate paragraph might be providing for the trademarks to revert to the cross-defendant in the event that no payment is made for three consecutive months. That does not appear to be a practical result if a new company has been set up and the trademarks were transferred to that company.

12. [53]

    If there is only one event of default, namely three consecutive months with no payments, it is not clear if alternative remedies are being provided with the cross-defendant first having the right to request that the trademarks revert to him.

13. [54]

    In my opinion, it is not necessary to try to construe the Licence Agreement. No purpose would be served by permitting this claim to go forward because the declaration would not resolve any issue in dispute between the parties. All that the cross-claimants seek is that the cross-defendant is “entitled” to receive in satisfaction of his claim for damages the shareholding in the new company. That is reinforced by the pleading in paragraph 54 of the proposed amended cross-claim. The declaration does not seek that the cross-defendant is “required” to receive the shareholding in the new company in satisfaction of his claim for damages as the last quoted paragraph in the Licence Agreement might suggest. If the declaration as sought were made, it would still be open to the cross-defendant to refuse to accept the new shareholding and insist on his right to damages.

14. [55]

    The penultimate paragraph quoted from the Licence Agreement appears, as the cross-defendant submits, to be a form of security to him until payment is made in full, but he has no obligation to require the trademarks to revert to him until payment is made in full in lieu of seeking damages as he has done.

15. [56]

    This amendment is disallowed.

16. [57]

    The cross-defendant resists this proposed cause of action on the basis of what might be called the doctrine of vulnerability from cases such as Woolcock and Brookfield.

17. [58]

    In the first instance, and subject to the cross-defendant’s submissions on prejudice, I consider that the existing cross-claimants should be permitted to make the claim based on negligent misrepresentation because s 65(2)(c) is satisfied. I consider that the representations which are pleaded to give rise to this cause of action are the same as or sufficiently similar to the matters pleaded in respect of the existing breach of warranty claim.

18. [59]

    However, it is at that point that there is a need to consider the cross-defendant’s submission concerning the doctrine of vulnerability on the basis that, if that argument is upheld, amendment to make the negligent misrepresentation claim would be futile and therefore disallowed.

19. [60]

    In Woolcock the joint judgment of Gleeson CJ, Gummow, Hayne and Heydon JJ said:

20. [61]

    In Brookfield, Hayne and Kiefel JJ said at [57]:

21. [62]

    In the same case, Crennan, Bell and Keane JJ said at [130]:

22. [63]

    In his written submissions, counsel for the cross-defendant put the matter this way:

23. [64]

    I accept the force of those submissions. It may well be that the provision of warranties in that way will ultimately be found to be a complete answer to the claim for negligent misrepresentation. The difficulty is, however, that this is an interlocutory application for leave to amend. The resistance to this claim is that it is so obviously futile that it should not be permitted to go forward. It is generally accepted that the test of futility in relation to amendment is the same test as is applied on an application for summary judgment or summary dismissal, namely that it fits within a description in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.

24. [65]

    In order to determine whether the cross-claimants were vulnerable in a way that would entitle them to succeed in this claim, it would be necessary to consider the evidence of the relationship between the parties leading up to the making of the arrangement. That is a factual matter which it is inappropriate to explore on an interlocutory application to amend pleadings. I do not think that it is so clear that the existence of the warranties is a complete answer to this claim.

25. [66]

    That, however, leaves for consideration the position of the new cross-claimants. As an alternative to the claim for damages made by the existing cross-claimants, all of the cross-claimants seek a declaration that they are not and never were bound to perform the Licence Fee Agreement and, in the alternative, they seek rescission of the Licence Fee Agreement. That relief is sought on the basis that the cross-claimants establish the cause of action for negligent misrepresentation. It is not clear how relief in the form of a declaration is appropriate if negligence is established but, presumably, s 75 of the Supreme Court Act 1970 (NSW) may enable such a declaration to be made.

26. [67]

    On the other hand, it is not clear on what basis rescission of the Licence Fee Agreement would be ordered on the basis of a finding that negligent misrepresentations had been made by the cross-defendant. Ordinarily, the remedy for negligence is damages. No point was taken about that at the hearing of the application. I shall assume, for present purposes, that such relief is available.

27. [68]

    The relief, nevertheless, depends on negligence being established. In those circumstances, the claim ought to have been made within six years of the suffering of damage, which seems to be accepted as being no later than November 2011. The question in those circumstances is whether ss 64 or 65 of the Civil Procedure Act permit the claiming of such relief by the proposed cross-claimants.

28. [69]

    Although s 65(2)(c) would permit the existing cross-claimants to bring the claim for negligent misrepresentation, the application by the new cross-claimants is not within s 65(2) at all. The words in the chapeau to the sub-section refer to the “plaintiff in any such proceedings” which in the present case must mean “the existing cross-claimants”. Nor can the application be regarded as one by the existing cross-claimants to correct a mistake in the name of a party to the proceedings.

29. [70]

    Section 64 is the basis of the jurisdiction to amend generally. Thereafter, the right to amend by adding a party to the proceedings is governed by the Rules. Rule 19.2(4) makes clear that if a person is added as a party under that Rule, the date of commencement of the proceedings in relation to that person is taken to be the date on which the amended document is filed. Rule 6.28 is to similar effect if the Court orders that a person be joined as a party. However, the Rule enables the Court to specify a date after the date of joinder.

30. [71]

    The cross-claimants submitted that the joinder the proposed cross-claimants seek is more akin to r 6.19 than 6.28, with the result that the date of the commencement of the proceedings on the claim brought by them is the date of filing the original cross-claim: In the matter of Bias Boating Pty Ltd [2017] NSWSC 1524. I do not agree. In Bias Boating the defendants had been joined in the originating process, but leave was subsequently sought to join them in the same proceedings pursuant to r 6.19. As Brereton J made clear, the joinder in the originating process, although irregular, was not a nullity. In that way, they were not being joined by order of the Court but were joined as an act of the plaintiff: see at [4]-[11] and [16].

31. [72]

    The cross-claimants also rely on s 64 of the Civil Procedure Act and the width of the power contained therein as established by Greater Lithgow City Council v Wolfenden [2007] NSWCA 180; East West Airlines Ltd v Turner (2010) 78 NSWLR 1; [2010] NSWCA 53 and Jones Lang LaSalle (NSW) Pty Limited v Taouk [2012] NSWCA 342.

32. [73]

    In Greater Lithgow, a plaintiff had commenced proceedings in the District Court within time alleging that his epilepsy was caused by his exposure at work to chemicals. He did not in his original statement of claim rely on a frank injury which he had suffered. After the limitation period expired for a claim based on the frank injury he was granted leave to amend his statement of claim in the District Court to make that claim against the same defendant. The defendant sought leave to appeal against that decision. The defendant had argued that s 65 was a code governing the right to amend where a statute barred cause of action was to be added.

33. [74]

    In dismissing the appeal Handley AJA (with whom Campbell JA and Young CJ in Eq agreed) said at [12]:

34. [75]

    His Honour then discussed the history of the previous Rules of Court that are now to be found as ss 64 and 65 of the Civil Procedure Act and the overturning of the rule in Weldon v Neal (1887) 19 QBD 394. His Honour quoted from the judgment of Glass JA in McGee v Yeomans [1977] 1 NSWLR 273 at 280 where Glass JA said:

35. [76]

    Justice Handley then went on to say:

36. [77]

    East West Airlines Ltd v Turner concerned proceedings where the parties agreed and the Court of Appeal held that the prospective defendant sought to be added fell within s 64(4), namely, that there was a “mistake in the name of a party”. The defendant sought to argue, however, that r 6.28 applied so that the date of commencement of the proceedings against the defendant was the date on which the order was made adding the defendant as a party. In that way the claim would have been statute barred.

37. [78]

    The present proceedings do not involve s 64(4). However, it is significant that the Court of Appeal, in accepting the plaintiff’s argument in the case, said at [54]-[55] that the defendant’s argument would mean that a statutory enactment, s 64(4), would give way to subordinate legislation, namely, r 6.28 UCPR. The Court said further that there was no reason for r 6.28 to apply to the exclusion of other rules or the Act itself because the legislative scheme included both the Act and Rules).

38. [79]

    In Street & 7 ors v Luna Park Sydney Pty Ltd [2006] NSWSC 230 Brereton J said:

39. [80]

    Further, in Ahmed v Harbour Radio Pty Ltd [2010] NSWSC 676 the plaintiff sought to amend a statement of claim by adding a party outside the limitation period. The plaintiff relied on s 64(1)(b) and s 65(2)(c) of the Civil Procedure Act. Justice Simpson, in rejecting the application, said:

40. [81]

    In Jones Lang LaSalle Meagher JA (McColl JA and Sackville AJA agreeing) said at [19]:

41. [82]

    The decisions in Ahmed and Street are reconcilable with the decision in Greater Lithgow because in Greater Lithgow all that was sought to be added was a further cause of action against the same defendant. They are not inconsistent with East West Airlines because that case was concerned specifically with a mistake in the name of the party and s 64(4).

42. [83]

    However, it is not easy to reconcile what was said by Meagher JA in Jones Lang LaSalle at [19] with those decisions. Although Jones Lang LaSalle did not involve the joinder of a party where the claim against the party was statute-barred, Meagher JA said that the power in s 64(1) enabled the adding of a party even if the claim was statute barred and was not covered by s 65. Nothing was said suggesting that Street or Ahmed were wrongly decided, probably because there was no issue in that case about adding a defendant where the cause of action against it was statute-barred.

43. [84]

    It is, nevertheless, difficult to see how Street and Ahmed can be correct if I have correctly understood Meagher JA’s statement in Jones Lang LaSalle. It seems to me, with great respect, that neither Greater Lithgow nor East West Airlines support the width of the statement that s 64 enables a statute-barred party to be added, except in the case of a mistake in the name of the party. That was the situation in East West Airlines, whereas all that was permitted by way of amendment in Greater Lithgow was a further claim against the same defendant.

44. [85]

    Nor is it apparent to me what work rr 6.28 and 19.2(4) have to do if s 64 enables the adding of a party where there is a statute-barred cause of action, and the usual principle applies that the amended claim takes effect from the date of the originating process . I well understand the point made in East West Airlines at [54] that a statutory enactment should not give way to subordinate legislation. However, the court there made the further point at [55] that the legislative scheme consisted of both the Act and Rules, with the result that they had to work together. In that case, the court was dealing with a mistake in the name of a party where provisions dealing with that issue had to be given the “widest interpretation which language will permit”: Bridge Shipping Pty Ltd v Grand Shipping SA (1991) 173 CLR 231. Both ss 64 and 65 dealt specifically with that issue and, in the light of what was said in Bridge Shipping, it was clear that the rules were subject to those provisions.

45. [86]

    Neither ss 64 nor 65 deals specifically with adding a party other than where there has been a mistake in the name of a party. It appears to be the case that the Rules deal with that issue, in reliance on the general power found in s 64(1) and (2).

46. [87]

    However, I am bound by judgments of the Court of Appeal, and I should not decline to follow unanimously declared obiter dicta.

47. [88]

    It should also be noted that none of the cases deal with the addition of a plaintiff, in contradistinction to a defendant, where the plaintiff’s claim was statute barred.

48. [89]

    For the reasons I have given, s 65 would not appear to be relevant because the new cause of action is relevantly that which the proposed cross-claimants (and not the existing cross-claimants) wish to bring against the cross-defendant. While s 64(1) has been held to be a wide power, that has been in the context of an existing party seeking leave to amend either by adding a cause of action against the existing defendant or by adding a further defendant. On its face, s 64(1) says nothing about the right of a new party to join an existing party to bring a new claim.

49. [90]

    I do not consider that it is necessary for me to resolve this proposed amendment by the proposed cross-claimants by reference to ss 64 and 65, because s 74 of the Limitation Act 1969 (NSW) appears to provide its own answer.

50. [91]

    Section 74 of the Limitation Act relevantly provides:

51. [92]

    The situations where s 74 has application were discussed by Giles J (as his Honour then was) in Nelson v Wyong Shire Council (1989) 68 LGRA 164 at 168 where his Honour said this:

52. [93]

    That approach of Giles J was impliedly approved by the Court of Appeal in Creevey v Barrois [2005] NSWCA 264 at [47] as follows:

53. [94]

    In the present case Mr Hennessey and Mr McCloskey were named as defendants in the original statement of claim filed 22 October 2015. At that date any claim they might have for negligent misrepresentation had not expired. The bringing of the action against those parties by the plaintiff stopped time running for any cross-claim that they may wish to bring against the plaintiff.

54. [95]

    Section 74, as I have already noted, is not available to the proposed cross-claimants in respect of the ACL claim: Idoport Pty Ltd & Anor v National Australia Bank Ltd. That is because s 74 operates only for the purposes of the Limitation Act.

55. [96]

    It should be added that, since the existing cross-claimants will be permitted to amend to bring the claim under the ACL and the negligent misrepresentation claim, which, in the latter case involves the claim for rescission of the Licence Fee Agreement, and since Mr Hennessey and Mr McCloskey are defendants in the claim made by the plaintiff, it seems somewhat artificial to preclude them being allowed to claim rescission of the Licence Fee Agreement along with the existing cross-claimants. Section 74 of the Limitation Act appears to cater for that situation.

56. [97]

    The amendment by the proposed cross-claimants to join the negligent misrepresentation claim should, subject to consideration of matters of delay and prejudice, be allowed.

Prejudice

1. [98]

   I was informed by senior counsel for the cross-claimants that, at the time the application to amend was made, the evidence had closed, the amendments would not require new evidence, and no hearing date had been allocated. I was advised by counsel for the cross-defendant that the position with regard to the service of evidence was that the defendants/cross-claimants have served their evidence but the plaintiff/cross-defendant has not served his evidence in reply or in response to the cross-claim. Counsel for the cross-defendant appeared to accept that the limited nature of the damages being sought by the cross-claimants would obviate the need for expert evidence.

2. [99]

   In circumstances where the ACL claims and the negligent misrepresentation claim by the existing cross-claimants arise out of the same or similar facts as the existing warranty claim, it is difficult to see how the cross-defendant is prejudiced by having to meet the new claims. The cross-defendant said that there is concrete prejudice in relation to the availability of documents, particularly in relation to Sevcoy. However, the position in that regard has not changed and will not change as a result of the amendments. Further, it is not easy to see what real prejudice is suffered by the cross-defendant having to identify other persons who might have a liability under Pt 4 of the Civil Liability Act 2002 (NSW). That is the more so when evidence is only at the stage I have mentioned.

3. [100]

   The likelihood of a case of this order being heard prior to 2019, or the very end of 2018, seems remote. In that way, the finalisation of pleadings and the service of any further evidence that may needed should not delay the hearing.

4. [101]

   As to the explanation for the late application to amend, senior counsel for the cross-claimants frankly said that the amendments are put forward because he recently came into the matter and saw a need to amend in the ways put forward particularly to make the pleadings consonant with the evidence. Although on one level that is not an entirely satisfactory explanation, it is a reason for amending that is frequently put forward. Whether in a particular case it is a satisfactory explanation might turn on the history of the proceedings and, particularly, the stage that the proceedings have reached when the amendment is sought.

5. [102]

   It is of course necessary to bear in mind what was said in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27. Nevertheless, I also have regard to what was said by the Full Court of the Federal Court in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261; [2010] FCAFC 101 at [51]-[52] as follows:

6. [103]

   The rather weak explanation of a new counsel’s eye on the proceedings must be balanced particularly against prejudice that might be suffered by the opposing party, and by reference to the stage the proceedings have reached. In the present case, I have determined that the prejudice is minimal, particularly because of the nature of the amendments and by reason of the fact that no hearing has yet been allocated for the matter. The fact that a hearing date is some distance away favours the party seeking to amend.

Conclusion

1. [104]

   I make the following orders:

   1. (1)

      Grant leave to the cross-claimants to amend the Amended First Cross-Claim filed 16 March 2017 by:

   2. (2)

      The solicitors for the plaintiff/cross-defendant are to inform the solicitors for the defendants/cross-claimants by 7 September 2018 if they agree with the form of the Further Amended Cross-Claim.

   3. (3)

      If consent is given to the form of the Further Amended Cross-Claim the Further Amended Cross-Claim is to be filed and served by 11 September 2018;

   4. (4)

      The defendants/cross-claimants are to pay the plaintiff/cross-defendant’s costs thrown away by reason of the amendments.

   5. (5)

      Stand over the proceedings to 14 September 2018 to hear submissions on the costs of the Notice of Motion and any disputes concerning the form of the Further Amended Cross-Claim.