FEDERAL COURT OF AUSTRALIA

Vintage Developments Pty Limited v GHD Pty Limited (No 2) [2006] FCA 1437

PRACTICE AND PROCEDURE – application to amend pleadings – capacity of applicant – acts as trustee rather than on its own behalf – leave to amend granted – whether “otherwise order” provision of O 13 r 3A applies – amendment pre-dates expiry of limitation period – application to substitute applicant for incoming trustee pursuant to O 6 r 10(2) and O 6 r 11(1)(d) – substitution or addition of party – interest or liability not yet passed to incoming trustee – leave refused

Federal Court Rules O 6 r 10, O 6 r 11, O 13 r 2, O13 r 3A

Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 cited

Vintage Developments Pty Limited v GHD Pty Limited [2006] FCA 531 cited

Worrell v Westpac Banking Corporation (1994) 51 FCR 304 cited

Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 All ER 519 cited

VINTAGE DEVELOPMENTS PTY LIMITED (ACN 067 567 006) AND ERROL INVESTMENTS PTY LIMITED (ACN 001 183 277) v GHD PTY LIMITED (ACN 008 488 373), HUNTER VALLEY ESTATES PTY LTD (ACN 010 857 717) AND GRANT HEATON JOHNSTON

NSD 1262 OF 2005

BENNETT J

30 OCTOBER 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  Leave is granted to the applicants, pursuant to Order 13 rules 2(1), (2) and (6) of the Federal Court Rules, to amend the further amended statement of claim and the application in terms of the draft second further amended statement of claim and the draft further amended application exhibited to the affidavit of Mark Desmond Chapple sworn on 11 September 2006 at pages 1 to 52 of exhibit “MDC-4”.

2.                  The costs of the applicants’ notice of motion dated 11 September 2006 are reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

1                                             At issue in this notice of motion to amend the application and statement of claim is the capacity in which the second applicant brings the proceedings. The current statement of claim, the further amended statement of claim filed on 2 December 2005, alleges that Errol Investments Pty Ltd acts and acted on its own behalf.

2                                             The amendments sought to be made by the applicants may be separated into two categories. In the notice of motion, which was filed on 11 September 2006, the applicants sought a declaration as to the effect of actions taken before and after the second set of amendments. That order is not pressed.

The first set of amendments

3                                             The evidence in support of this motion is that Errol Investments agreed to purchase certain land (‘the Rothbury land’) from Hunter Valley Estates Pty Ltd by agreement made on 4 December 1999 (‘the Rothbury contract’). The applicants allege contraventions of the Trade Practices Act 1974 (Cth) (‘the Act’) by the respondents in connection with that transaction.

4                                             The first set of amendments in the proposed second further amended statement of claim purport, relevantly and in summary:

·                    to specify that the second applicant, Errol Investments, sues as trustee for the Shellharbour Unit Trust;

·                    to allege that Errol Investments determined that it would seek to acquire ownership of certain land on behalf of the Shellharbour Unit Trust in its capacity as trustee for the Shellharbour Unit Trust; and

·                    to allege that Errol Investments’ actions in relation to the purchase of the Rothbury land were in part as trustee for the Shellharbour Unit Trust;

rather than on its own account.

5                                             The Court has a general power of amendment (Federal Court Rules O 13 r 2(1) (‘the Rules’)). Order 13 r 2(2) provides that all necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.

6                                             Errol Investments relies upon specific provision in the Rules to permit the first set of amendments.

Order 13 rule 2(6)

7                                             Order 13 r 2(6) provides for amendment to alter the capacity in which a party sues if the new capacity is one which that party had at the date of the commencement of the proceedings or has since acquired.

8                                             The applicants’ evidence is that the Shellharbour Unit Trust Deed dated 9 June 1997 (‘Shellharbour Trust Deed’) established the Shellharbour Unit Trust with Errol Investments named as trustee of that trust. The Appointer, being the person entitled to act as appointer of the settlement, was John Robert Stevens. On 1 December 1999, the minutes of a meeting of Errol Investments as trustee of the Shellharbour Unit Trust record that it was resolved that the contract to purchase the Rothbury land would be executed by Errol Investments as trustee for the Shellharbour Unit Trust. That is, it was in the capacity as trustee that Errol Investments purchased the land and was the recipient of the alleged conduct in contravention of the Act. The evidence of the solicitor who drafted the application and statement of claim in these proceedings is that at the time of drafting the pleadings he had not seen the Shellharbour Trust Deed.

9                                             The title of the purchaser as specified in the Rothbury contract is Errol Investments, without qualification. In the ‘Special Conditions to the contract for sale of land’, the purchaser is described as Errol Investments ‘as trustee for Shellharbour Property Trust’. I am satisfied that that should have read the Shellharbour Unit Trust and that the Rothbury contract supports a finding that Errol Investments purchased the Rothbury land as trustee, at least in part, for that trust.

10                                          The evidence is also that, as at 11 September 2006, the beneficiaries of the Shellharbour Unit Trust remain unchanged and that Errol Investments has held the position of trustee of the trust since its establishment on 9 June 1997.

11                                          One other matter should be noted. After Errol Investments entered into the contract to purchase the Rothbury land but prior to completion, it executed a Declaration of Trust on 1 February 2000 (‘the Vintage Trust’) to the effect that it held part of the land (‘the Vintage land’) in trust for another beneficiary, Stevens Developments (NSW) Pty Ltd. Stevens Developments is the first applicant, now known as Vintage Developments Pty Ltd. The beneficiary of the remainder of the Rothbury land (‘the Shellharbour land’) remained the Shellharbour Unit Trust.

12                                          An issue has been raised as to the identity of the beneficiaries for whom Errol Investments held the Rothbury land in trust. The respondents point to an apparent discrepancy between the minutes that authorise Errol Investments to purchase the whole of the Rothbury land in trust for the Shellharbour Unit Trust and the Vintage Trust which provides that part of the land is to be held in trust for Vintage.

13                                          The cause of action brought by Errol Investments in these proceedings is held on behalf of the beneficiaries of the Shellharbour Unit Trust. There does not seem to be an issue that the capacity in which Errol Investments held the property was as trustee and that Errol Investments has acted in the capacity as trustee since the commencement of these proceedings.

14                                          I am satisfied on the evidence that it is arguable that the Rothbury land was purchased by Errol Investments at least in part as trustee for the Shellharbour Unit Trust. It may also be the case, in light of the Vintage Trust, that part was held as trustee for Vintage. Accordingly, it is appropriate to amend the application and the statement of claim to alter the capacity in which Errol Investments sues and the consequential amendments related to capacity.

The respondents’ submissions

15                                          The respondents do not object to the amendment to reflect capacity. The second respondent seeks an order pursuant to Order 13 r 3A of the Rules that the amendment date from the date of making the amendment and not from the date of commencement of proceedings. It seeks the order as the relevant limitation period has now expired.

16                                          Order 13 r 3A(1) provides:

‘Unless the Court otherwise orders, an amendment of a document that is made under rule 2 or 3 takes effect:

(a) if the amendment is made under paragraph 2(7)(b), subrule 2(8) or subrule 3(3) – on the date when the amendment is made; and

(b) in any other case – on the date when the document was first filed.’

17                                          Paragraph (7)(b) of O 13 r 2 allows amendment to add a new claim for relief or foundation in law for a claim for relief arising out of facts or matters that have occurred or arisen since the commencement of proceedings. Subrule 2(8) allows amendment to plead a fact or matter that has occurred or arisen since the commencement of proceedings. The claim for relief arises from matters that occurred well prior to the commencement of the proceedings. It follows that paragraph (7)(b) and subrule (8) of O 13 r 2 have no application.

18                                          Order 13 r 3(3) corresponds to O 13 r 2(7) and (8) and applies to amendments made prior to the close of pleadings. It has no relevant application.

19                                          Subrule 2(9) refers back to paragraph (7)(b) and subrule (8) and qualifies them to preclude any amendment that has an effect inconsistent with a statute of limitation. As this subrule only limits amendment under paragraph (7)(b) and subrule (8), it has no relevant application.

20                                          Accordingly, unless the Court otherwise orders, O 13 r 3A(1)(b) applies and the amendment takes effect when the documents to be amended, the application and statement of claim, were first filed.

Should the Court apply the “otherwise order” provision of O 13 r 3A?

21                                          Hunter Valley submits that the Court should “otherwise order” so that the first set of amendments take effect from the date on which they are made. It submits that the amendments effect a new cause of action because the damages after amendment are to the benefit of the beneficiaries of the Shell Harbour Trust and not Errol Investments. Hunter Valley accepts that the cause of action is a claim for damages pursuant to s 82 of the Act but submits that the recipients will be the beneficiaries of the trust rather than Errol Investments.

22                                          Further, it points to uncertainty by reason of the further declaration of trust that occurred between exchange and settlement of the Rothbury contract. This gave rise to the alleged circumstance I have noted that part of the land, the Shellharbour land, was purchased as trustee of the Shellharbour Unit Trust and part, the Vintage land, as trustee of the Vintage Trust for the benefit of the first applicant.

23                                          Ms Richards appears for the third respondent and adopts Hunter Valley’s position. She submits that, other than as provided for specifically by the Rules, an amendment can not be made outside the limitation period that introduces a new cause of action. That proposition does not seem to be in dispute.

24                                          Mr Lancaster and Mr Kell, who appear for Errol Investments, submit that the evidence reflects a misdescription because it establishes, arguably, that at all times from December 1999 to the commencement of the proceedings and to the present day Errol Investments was acting as trustee for the Shellharbour Unit Trust and at no times on its own behalf. They submit that there is no new cause of action to correct that misdescription. As to the identity of the recipient of damages, he submits there is no change. Any loss suffered by Errol Investments was suffered as the trustee of the trust; the assets of the trust were reduced. As the pleading stands, there is no claim for consequential damages by the beneficiaries of the trust. The only claim is for damages suffered by the trust. That has not changed because at all times the damage suffered by Errol Investments was as trustee of the trust. In their submission, that is the reality if the cause of action is made out.

25                                          I am satisfied that the claim for damages and the cause of action have not changed. There presently is no new alleged conduct or representation, no new alleged reliance and no new alleged loss. Only the capacity of the party bringing the cause of action is clarified. Any monies obtained by way of damages will become part of the trust property rather than part of Errol Investments’ property. The Rules recognise the right to seek amendment to reflect a change in capacity and do not make specific provision that such amendment date from the date of the making of the amendment. There is no reason at this stage to invoke the power to order otherwise than as provided by O 13 r 3A(1)(b) of the Rules.

26                                          Further, the effect of such an order would be to deprive the second applicant of the right to bring a cause of action simply because of an error in the characterisation of the company as a trustee, which character existed at the time the cause of action accrued and when the pleading was filed.

27                                          The amendment to change the capacity of Errol Investments takes effect when the application and statement of claim were filed.

Is the proposed second further amended statement of claim the first pleading against Mr Johnston?

28                                          Mr Grant Johnston submits that this is the first time that the applicants have applied to the Court for an order to amend the application and pleadings in a way that brings him in as a respondent.

29                                          As set out in Vintage Developments Pty Limited v GHD Pty Limited [2006] FCA 531 at [10] (‘Vintage (No 1)’), the further amended statement of claim was filed with the leave of the Court, which leave, obtained in November 2005 and prior to the expiry of the limitation period, did not extend to joining Mr Johnston. I gave leave for that joinder on 11 May 2006 and no further order was sought from the applicants as to leave to file a second further amended application and statement of claim.

30                                          The submission now is that, despite the decision in Vintage (No 1), this is the first amendment to the application and statement of claim to effect that joinder, so that the proposed second further amended statement of claim discloses a new (and statute barred) cause of action as against Mr Johnston.

31                                          In Vintage (No 1), I granted leave to join Mr Johnston to the proceedings. That is, he was joined to the proceedings as pleaded in the pleadings filed on 2 December 2005. Those pleadings constitute the original claim against him. The circumstances, put shortly, were that an amended application and further amended statement of claim were filed within the limitation period naming Mr Johnston as a respondent. Leave that had been given to file the amended documents did not extend to leave to include Mr Johnston as a respondent, nor to include allegations or orders against him. Many of the arguments put by Ms Richards were canvassed in Vintage (No 1). It is the case, as I noted at [24] and [27], that leave was not sought further to amend the amended statement of claim to permit the pleading against Mr Johnston, as pleaded in the further amended statement of claim. However, as I discussed at [33], the further amended statement of claim filed within time may be considered as a fresh pleading as against Mr Johnston. It was put in Vintage (No 1) that Mr Johnston should not be joined because it was a futility as the limitation period would apply because the proceedings had not commenced on 2 December 2005 but would only commence on the date of joinder. I rejected that submission.

32                                          It follows that I did not consider that the proceedings against him were only commenced on the date of the order for joinder. I am still of that view. It then follows that I reject the submission that the proposed second further amended statement of claim discloses a new cause of action against Mr Johnston. This did not necessarily obviate, however, the need to seek leave to amend the statement of claim by way of the amendments disclosed in the documents filed on 2 December 2005 or an order otherwise recognising that those documents also constituted the commencement of proceedings against Mr Johnston.

33                                         This is an interlocutory application for an order under O 13 r 2(6) of the Rules. It is, of course, open to Mr Johnston, or any of the respondents, to plead a limitation defence, as to liability or nature of damages sought. It may be that, as the facts develop, for example with respect to the nature of the trusts and the identity of the beneficiaries, further examination will be appropriate.

The second set of amendments

34                                          The second set of amendments are set out in the proposed third further amended statement of claim. They relate to the substitution of Errol Investments as second applicant with Errol Nominees Pty Ltd upon the replacement of Errol Investments by Errol Nominees as trustee of the Shellharbour Unit Trust.

35                                          The parties have agreed that, in summary, Errol Investments is a company with assets other than the property of which it is the trustee and those other assets are caught up in a significant multi-party transaction for the sale of certain assets and businesses (involving persons related to Errol Investments and third parties) as provided for in an Implementation Agreement dated 31 August 2006. It is a condition precedent to the Implementation Agreement that Errol Investments be replaced as the trustee of the Shellharbour Unit Trust and transfer legal title to all Shellharbour Unit Trust property from Errol Investments to a third party “Non Group Entity”. That proposed Non Group Entity as replacement trustee is Errol Nominees. The transactions that have led to these proposals are unrelated to the course of these proceedings.

36                                          The relevant documentation to give effect to that replacement and transfer have been executed and placed in escrow pending leave of the Court to substitute Errol Nominees as trustee. That is, they are not yet effective and the deed of assignment is undated. The substance of the second set of amendments is to substitute the trustee in these proceedings. This course was explained by Mr Lancaster to be considered by the applicants to be preferable to a possible strike-out application if the substitution were effected prior to orders of the Court or an application for a conditional order, which the applicants considered inappropriate.

37                                          There seems to be no dispute that the Shellharbour Trust Deed provides for the resignation of the existing trustee and the power of the appointor, Mr John Robert Stevens, exercisable at any time to remove and appoint the trustee.

38                                          Errol Investment’s position is straightforward. It sues in these proceedings as trustee of the Shellharbour Unit Trust. The beneficiaries of that trust, who are the prospective beneficiaries of the relief claimed in these proceedings by the suit of Errol Investments, have not altered. The order for substitution sought is simply to reflect the replacement of Errol Investments by Errol Nominees as trustee of the trust. Errol Investment relies on O 6 r 10(2) read together with O 6 r 11(1)(d) as providing the basis for the substitution order sought.

39                                          Mr Johnston submits that this is not a case for substitution of an applicant. The applicable order is then said to be O 6 r 11(3). On this basis Errol Investments is removed as a party and Errol Nominees added, with the result that the cause of action by Errol Nominees commences on the date of its joinder and outside the limitation period.

40                                          Order 6 r 10(2) provides for the “addition, removal or re-arrangement” of parties where the interest or liability of a party passes by assignment, transmission, devolution or otherwise to another person. Order 6 r 11(1)(d) provides that the powers of the Court under O 6 r 10 include the making of orders relating to the substitution of one party for another. Where an order for substitution is made, unless the Court otherwise orders, all things done in the proceeding are taken, effectively, to have been done by the new party (O 6 r 11(2)). Where a party is added pursuant to an order under O 6 r 10, the date of commencement of proceedings as far as concerns that new party is the date of the amended originating process (O 6 r 11(3)).

The respondents’ submissions

41                                          GHD Pty Ltd raises two matters. First, it submits that the Court’s powers to make a substitution order do not arise. GHD’s submission is that the Court’s power under O 6 r 10(2) arises only ‘[w]here the interest or liability of a party passes by assignment, transmission, devolution or otherwise to another person’ and that the condition, to be met, must have occurred historically or be contemporaneous with the order. That is not the case here. Following from this, it is submitted that the appropriate order, where the new trustee’s rights vest only at a future date, is addition.

42                                          Secondly, GHD points out that the two sets of amendments, viewed together, change the applicant from a company simpliciter to a trustee to a new trustee. It is more appropriate, GHD submits, that this change be characterised as an addition, not a substitution. Those submissions were adopted by Hunter Valley.

43                                          Mr Johnston submits that, where Errol Nominees has not existed before this year and therefore did not exist when the cause of action arose, or when proceedings were commenced and where the application for substitution is based on internal commercial imperatives of the applicant, the appropriate order is not for substitution but for addition as a party.

Consideration

44                                          The rights of Errol Nominees do not extend back to the date on which proceedings were commenced (cf Worrell v Westpac Banking Corporation (1994) 51 FCR 304). Indeed the rights of the proposed party have not yet come into existence. What is proposed, however, is that the rights of the new trustee will substitute for the rights of the existing trustee, which do extend back to the date on which proceedings were commenced.

45                                          A new trustee may by registered deed be appointed in place of a trustee (s 6(1) Trustee Act 1925 (NSW) (‘Trustee Act’)). Section 6(8) provides that a new trustee appointed under this section may in all respects act as if the new trustee had been originally appointed a trustee by the instrument creating the trust. Errol Investments submits that this is reflected in O 6 r 11(2) which should therefore be applied.

46                                          In Yorkshire Regional Health Authority v Fairclough Building Ltd [1996] 1 All ER 519, the United Kingdom Court of Appeal considered the meaning of a “new claim” in s 35(2) of the Limitation Act 1980 (UK) and O 15 r 7 of the Rules of the Supreme Court (UK) as those provisions then provided. Order 15 r 7 relevantly provided:

‘(1) Where a party to an action dies or becomes bankrupt but the cause of action survives, the action shall not abate by reason of the death or bankruptcy.

(2) Where at any stage of the proceedings in any cause or matter the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may, if it thinks it necessary in order to ensure that all matters in dispute in the cause or matter may be effectively and completely determined and adjudicated upon, order that other person to be made a party to the cause or matter and the proceedings to be carried on as if he had been substituted for the first mentioned party.’

47                                          The Court observed that the rule of court, which is cast in similar but not identical terms to O 6 r 10 of the Rules contains no reference to limitation and commented ‘[t]his is as it should be, since the circumstances in which the rule may be invoked do not give rise to any question of limitation’ (at 523). The Court recognised that the new party is substituted because he or she has succeeded to a claim or liability already represented in the action and sues or is sued in respect of the existing cause of action. It concluded that ‘the expiry of the limitation period is completely irrelevant’ (at 523). While the English O 15 r 7 specifically provided for ‘the proceedings to be carried on as if he had been substituted for the first mentioned party’ and those words are not present in O 6 r 10 of the Rules, the logic of the Court of Appeal is persuasive.

48                                          I also note that in Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709, an assignment of the legal ownership of a debt was made after the expiry of the limitation period. The Court permitted the substitution of the new legal owner.

49                                          The question is whether Errol Nominees, if it were the trustee, is added or substituted as a party. It is not uncommon for trustees to be changed. In ordinary circumstances it should not follow that questions of limitation thereby arise. If in such a case, the new trustee were added rather than substituted, the beneficiaries would lose their rights to bring proceedings. Consistent with the provisions of the Trustee Act and the authorities I have cited, I am of the view that the amendment sought is best characterised as a substitution.

50                                          The fact, however, is that the condition that gives rise to amendment under O 6 r 10(2) has not occurred as there has not yet been a passing of interest by assignment or otherwise. The occasion has not arisen to make the order for substitution sought.

Conclusion

51                                          It is arguable that the Rothbury land was purchased by Errol Investments in part as trustee for the Shellharbour Unit Trust and in part as trustee for Vintage. Leave should be granted to the applicants to amend the application and the statement of claim to clarify the capacity in which Errol Investments brings these proceedings. No order should presently be made that those amendments take effect otherwise than as provided by O 13 r 3A of the Rules.

52                                          No relevant interest or liability has yet passed between Errol Investments and Errol Nominees. Accordingly, no order should be made pursuant to O 6 r 10(2) and O 6 r 11(1)(d) of the Rules to substitute Errol Nominees for Errol Investments as the second applicant.

53                                          I have been asked to reserve the question of costs and I do so.

Associate:

Dated: 3 November 2006