FEDERAL COURT OF AUSTRALIA

Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304

FEDERAL COURT OF AUSTRALIA

Keynes v Rural Directions Pty Ltd (No 4) [2011] FCA 304

CORRIGENDUM

1.        In the final sentence of paragraph 24 (page 8) the words ‘these claims’ are added and the sentence now reads:

‘It does submit that leave to amend to introduce these claims should be refused for other reasons.’

Associate:

Dated:    13 May 2011

THE COURT ORDERS THAT:

The Amended Notice of Motion filed on 22 December 2010 be dismissed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

Introduction

1    This is an application by amended notice of motion by the plaintiffs in a proceeding in this Court to set aside orders made by the Court.

2    On 3 June 2009 I made the following orders in the proceeding:

1.    Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), there be judgment for the Third Defendant against the Plaintiffs in relation to that part of the proceeding which relates to the contracts between the Plaintiffs and the Third Defendant pleaded in paragraphs 31 and 41 of the Amended Statement of Claim.

2.    Pursuant to O 11 r 16 of the Federal Court Rules, the Amended Statement of Claim, in so far as it relates to the contract between the Plaintiffs and the Third Defendant pleaded in paragraph 25, be struck out.

3.    The Plaintiffs be refused leave to file and serve the Second Amended Statement of Claim against the Third Defendant.

4.    The Plaintiffs and the Third Defendant have leave to make further submissions on the Plaintiffs’ proceeding against the Third Defendant.

5.    The Plaintiffs be refused leave to file and serve the Second Amended Statement of Claim against the Fourth Defendant.

3    The plaintiffs seek an order that the above orders be set aside.

4    On 16 June 2009 I made an order as follows:

1.    Pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), there be judgment for the fourth defendant against the plaintiffs in proceeding SAD 110 of 2008.

The plaintiffs seek an order that that order be set aside.

5    My reasons for making the above orders are reported in Keynes v Rural Directions Pty Ltd (No 2) [2009] FCA 567; 72 ACSR 264.

6    The plaintiffs appealed from my decision. The Full Court of this Court granted the plaintiffs leave to appeal but dismissed the appeal. The Full Court’s reasons are reported in Keynes v Rural Directions Pty Ltd [2010] FCAFC 100; (2010) 186 FCR 281.

7    The present application is an application by the plaintiffs to set aside the judgments given in favour of the third defendant and fourth defendant.

8    The plaintiffs’ claim against the third defendant as pleaded related to three contracts which I described in my reasons as the ABB Grain basis contract, the ABB Grain first forward contract and the ABB Grain second forward contract ([9]). The summary judgment referred to in order number 1 made on 3 June 2009 relates to the two forward contracts. No judgment has been entered in relation to the ABB Grain basis contract and as far as that contract is concerned the plaintiffs’ action against the third defendant will proceed in relation to that contract subject to the provision of a satisfactory statement of claim.

9    By contrast the plaintiffs’ claim against the fourth defendant as pleaded related to one forward contract and the judgment referred to in order number 1 made on 16 June 2009 is judgment in the proceeding.

10    It is not clear to me whether the plaintiffs maintain their application to set aside orders 2 to 5 inclusive, made on 3 June 2009. In the amended notice of motion presently before me the plaintiffs seek leave to file a document described as ‘Proposed Further Second Amended Statement of Claim’ which is exhibited to an affidavit of the plaintiffs’ solicitor sworn on 13 January 2011.

11    I should mention at this point that the plaintiffs have put forward a number of statements of claim or proposed statements of claim. I will refer to some of them in the course of these reasons so it is convenient if I identify them now. The plaintiffs’ Statement of Claim was filed on 4 August 2008. The plaintiffs’ Amended Statement of Claim was filed on 18 November 2008. A document described as Second Amended Statement of Claim was exhibited to an affidavit of the plaintiffs’ solicitor sworn on 4 February 2009. That is the document referred to in orders numbered 3 and 5 made on 3 June 2009. The plaintiffs lodged a document described as Proposed Third Amended Statement of Claim on 13 August 2009. Finally, there is the document described as Proposed Further Second Amended Statement of Claim exhibited to the affidavit of the plaintiffs’ solicitor sworn on 13 January 2011.

12    The plaintiffs submit that the judgments given under s 31A of the Federal Court of Australia Act 1976 (Cth) (‘Federal Court of Australia Act’) should be set aside because they have an argument not previously considered by me or by the Full Court which has a reasonable prospect of leading to the relief they seek in relation to the ABB Grain forward contracts and the Glencore Grain forward contract. That argument is identified in the Proposed Further Second Amended Statement of Claim. In addition, there are two arguments identified in the Proposed Further Second Amended Statement Claim which the plaintiffs wish to pursue against the third defendant.

13    The plaintiffs’ argument which is common to both the third and fourth defendants is described by the third defendant as the ‘New Arrangement Claim’. For convenience, I will use that description. The argument is reflected in paragraphs 50A and 50B of the Proposed Further Second Amended Statement of Claim.

14    Those paragraphs are in the following terms:

50A    Prior to entering the First Forward Contract, the plaintiffs, through their agents Timothy and Elizabeth Keynes (‘the Agents’), knew that amongst grain growers and grain traders there was an informal agreement, understanding or arrangement in respect to forward grain contracts, that:

50A.1    in the event, that the grain grower suffered a production failure which would either prevent or impair that grower’s ability to deliver to a forward grain contract;

50A.2    despite the written terms and legal effect of the forward contract;

50A.3    the grain trader, who was the purchaser under that contract, would relieve the grower of the obligation to deliver under that forward contract, and

50A.4    permit the grower to washout his or her obligations in the manner described in paragraph 56 hereof and would thus permit the grower to wholly settle his or her obligations by cash within the meaning of s 761D(3)(a)(ii) of the Act.

PARTICULARS

(a)    The Agents were informed by different employees of the First Defendant in or about mid 2006 that there was a universal practice within the grain industry that in the event that a grain grower was unable to deliver to a forward sale, be it a basis contract which had become deliverable or a forward contract, by reason of a production failure then that contract would be washed out in the manner described in paragraph 56 hereof; and

(b)    the Agents had in 2006 washed out some forward sales in the same manner as is described in paragraph 56 hereof.

50B    This informal agreement, understanding or arrangement was a trade custom or useage in the grain industry, and was known to the Third and Fourth Defendants prior to the making of the First Forward Contract. In fact it was the Third and Fourth defendants’ primary objective that, in the event that the price rose between the time the Forward Contracts were made and the time that delivery fell due, to be paid the difference between the contract price and the current market price at the time of delivery. It was a matter of commercial indifference to the Third and Fourth defendants whether the contracts were washed out or delivery was made under them.

15    The second argument which the plaintiffs wish to raise against the third defendant is described by the third defendant as the ‘Basis Contract PDS Claim’ and again for convenience I will use that description. I do not need to set out the proposed pleadings. The essence of the argument is that but for the third defendant’s failures in relation to the ABB Grain basis contract the plaintiffs would not have entered into that contract nor would they have entered into the ABB Grain first forward contract and the ABB Grain second forward contract.

16    The third argument which the plaintiffs wish to raise against the third defendant is described by the third defendant as the ‘Misleading Washout Claim’ and again for convenience I will use that description. The argument is set out in paragraphs 56C – 56D of the Proposed Further Second Amended Statement of Claim. Those paragraphs are in the following terms:

56C    On or about 14 February 2008 the first plaintiff (‘Keynes’), as agent for the plaintiffs, had a meeting with Stephen Howells (‘Howells’), who was acting as agent for the Third Defendant. In that meeting Howells represented to Keynes that the plaintiffs’ liability in respect of washout costs under the First Forward Contract was $158,628, whereas in fact it was $126,255 (‘the First Washout Representation’).

56C.1    The First Washout Representation was conduct which was misleading and deceptive, or which [sic] likely to mislead or deceive within the meaning of section 52 of the Trade Practices Act 1974 (C’th) (‘the TPA’).

56C.2    The First Washout Representation was made in the course of trade and commerce.

56C.3    In reliance on the First Washout Representation, Keynes agreed, on behalf of the plaintiffs, to enter into the Third Washout Contract.

56C.4    Had Keynes known that the true washout liability was $126,255 he would not have agreed to enter into the Third Washout Contract in the amount of $158,628.

By reason of the matters pleaded above this Honourable Court should, pursuant to its powers under section 87(1) and (2)(b) of the TPA, vary the Third Washout Contract by reducing the liability from $158,628 to $126,255.

56D    On or about 3 April 2008 the first plaintiff (‘Keynes’), as agent for the plaintiffs, had a meeting with Roger Laube and Ben Simpson, who were representatives of the Third Defendant and acted as agents for the Third Defendant (‘the ABB Representatives’). In that meeting the ABB Representatives represented to Keynes that the plaintiffs’ liability in respect of washout costs under the First Forward Contract was $132,000, whereas in fact it was $73,800 (‘the Second Washout Representation’).

56D.1    The Second Washout Representation was conduct which was misleading and deceptive, or which [sic] likely to mislead or deceive within the meaning of section 52 of the Trade Practices Act 1974 (C’th) (‘the TPA’).

56D.2    The Second Washout Representation was made in the course of trade and commerce.

56D.3    In reliance on the Second Washout Representation, Keynes agreed, on behalf of the plaintiffs, to enter into the Fourth Washout Contract.

56D.4    Had Keynes known that the true washout liability was $73,800 he would not have agreed to enter into the Fourth Washout Contract in the amount of $132,000.

By reason of the matters pleaded above this Honourable Court should, pursuant to its powers under section 87(1) and (2)(b) of the TPA, vary the Fourth Washout Contract by reducing the liability from $132,000 to $73,800.

17    The second and third arguments are probably clear enough, but the relevance of the first argument requires some elaboration.

18    The plaintiffs’ causes of action against the third and fourth defendants respectively depend upon the contracts constituting ‘financial products’ for the purposes of the Corporations Act 2001 (Cth) (‘Corporations Act’) Ch 7 Pt 7.1. Section 764A provides that a number of things are financial products for the purposes of Chapter 7 and those things include a derivative. Section 761D sets out the meaning of a derivative. Subsection (1) provides that an arrangement is a derivative if the conditions in subsection (1) are satisfied. Subsection (3) provides relevantly as follows:

Subject to subsection (2) the following are not derivatives for the purposes of this chapter even if they are covered by the definition in subsection (1):

(a)    an arrangement in relation to which subparagraphs (i), (ii) and (iii) are satisfied:

(i)    a party has, or may have, an obligation to buy, and another party has, or may have, an obligation to sell, tangible property (other than Australian or foreign currency) at a price and on a date in the future; and

(ii)    the arrangement does not permit the seller’s obligations to be wholly settled by cash, or set-off between the parties, rather than by delivery of the property; and

(iii)    neither usual market practice, nor the rules of a licensed market or a licensed CS facility permits the seller’s obligations to be closed out by the matching up of the arrangement with another arrangement of the same kind under which the seller has offsetting obligations to buy;

but only to the extent that the arrangement deals with that purchase and sale.

19    There has been no dispute in this proceeding that subparagraph (i) was satisfied in the case of the three forward contracts. There was a dispute at the time of the applications for summary judgment as to whether subparagraphs (ii) and (iii) were satisfied. I held that they were and my conclusion was upheld by the Full Court. In other words, in the case of subparagraph (ii) I held to the required standard under s 31A of the Federal Court of Australia Act that the arrangement did not permit the seller’s obligations to be wholly settled by cash, or by set-off between the parties, rather than by delivery of the property.

20    The plaintiffs’ New Arrangement Claim starts with the definition of ‘arrangement’ in s 761A of Ch 7. The definition is in the following terms:

arrangement means, subject to section 761B, a contract, agreement, understanding, scheme or other arrangement (as existing from time to time):

(a)    whether formal or informal, or partly formal and partly informal; and

(b)    whether written or oral, or partly written and partly oral; and

(c)    whether or not enforceable, or intended to be enforceable, by legal proceedings and whether or not based on legal or equitable rights.

21    The plaintiff also referred to the section which provides that in certain circumstances two or more arrangements may be considered a single arrangement (s 761B).

22    The plaintiffs’ submission is that both myself and the Full Court considered whether subparagraph (ii) of s 761D(3)(a) was satisfied only by reference to the three forward contracts themselves. The New Arrangement Claim is that in addition to the contracts themselves there was a trade custom or usage in the industry which allowed a grain grower to washout his contract in the event of a production failure. The plaintiffs’ argument is that this new argument means that subparagraph (ii) was not satisfied in the case of the three forward contracts and, therefore, the forward contracts were not excluded from being derivatives by virtue of s 761D(3) of the Corporations Act. In support of their New Arrangement Claim, the plaintiffs tendered an affidavit of Elizabeth Jane Keynes (the second plaintiff) sworn on 21 December 2010. The third defendant and the fourth defendant objected to substantial parts of the affidavit. I said that I would rule on the admissibility of the affidavit in the course of my reasons dealing with the application and I do so later in these reasons.

23    Before leaving the provisions of the Act, it should be noted that s 765A(1)(a) provides that despite anything in Subdivision B or Subdivision C of Chapter 7 Part 7.1 Division 3, so much of an arrangement as is not a derivative because of s 761D(3)(a) is not a financial product for the purposes of Chapter 7.

24    As I understand it, it is common ground between the parties that the New Arrangement Claim can only be raised in the event that the judgments are set aside. The plaintiffs’ contention that the judgments should be set aside was the main issue on the hearing of the application. The other claims which, as I have said, are only relevant in relation to the third defendant – the Basis Contract PDS Claim and the Misleading Washout Claim – are not said by the third defendant to be precluded by the judgments. It does submit that leave to amend to introduce should be refused for other reasons.

Setting aside summary judgment

25    The first matter is to identify the relevant principles on an application to set aside summary judgment given under s 31A of the Federal Court of Australia Act.

26    The relevant orders have been entered. The Court’s power to set them aside is contained in O 35 r 7(2) of the Federal Court Rules. That subrule provides as follows:

(2) The Court may vary or set aside a judgment or order after the order has been entered where:

(a)    the order has been made in the absence of a party, whether or not the absent party is in default of appearance or otherwise in default and whether or not the absent party had notice of the motion for the order;

(b)    the order was obtained by fraud;

(c)    the order is interlocutory;

(d)    the order is an injunction or for the appointment of a receiver;

(e)    the order does not reflect the intention of the Court; or

(f)    the party in whose favour the order was made consents.

27    The submissions made to the Court proceeded on the assumption that the orders were interlocutory orders and that the relevant paragraph is (2)(c).

28    Before 1 January 2010 there was considerable debate in the authorities as to whether judgment under s 31A was final or interlocutory for the purpose of determining whether leave to appeal was required under s 24(1A) of the Federal Court of Australia Act: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372; Kowalski v MMAL Superannuation Fund Pty Ltd (2009) 178 FCR 401. The matter is now the subject of a specific statutory provision to the effect that for the purposes of the leave to appeal provisions (s 24(1A) and (1C)) an order granting or refusing summary judgment under s 31A is taken to be an interlocutory judgment (s 24(1D)).

29    The third defendant was prepared to argue the matter on the basis that judgments under s 31A were also interlocutory for the purposes of applications to set them aside. However, it also indicated that it wished to reserve its position on this matter should there be an appeal to the Full Court from my judgment.

30    Even though the orders are interlocutory the need for finality in litigation is still important. Furthermore, there is a wide variety of interlocutory orders or judgments and judgment under s 31A of the Federal Court of Australia Act has many of the characteristics of a final judgment. Not only was there an avenue of appeal in this case but an appeal was taken and was unsuccessful. These considerations suggest to me that even though the orders are interlocutory the cases dealing with the setting aside of final judgments provide guidance and that the power to set aside the judgments should be exercised only in special or exceptional circumstances.

31    There are a number of authorities on the power of the Court to set aside final judgments. It is sufficient for me to refer to the following authorities. In Autodesk Inc v Dyason (No 2) (1993) 176 CLR 300 at 301-302, Mason CJ referred to the jurisdiction of the Court to re-open a judgment and grant a rehearing as one to be exercised with great caution having regard to the importance of the public interest in the finality of litigation (see also Wentworth v Woollahra Municipal Council (1982) 149 CLR 672; Smith v NSW Bar Association (1992) 176 CLR 256. In De L v Director-General NSW Department of Community Services [No 2] (1997) 190 CLR 207 Toohey, Gaudron, McHugh, Gummow and Kirby JJ said (at 215):

The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded ‘on a misapprehension as to the facts or the law’, where ‘there is some matter calling for review’ or where ‘the interests of justice so require’. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required ‘without fault on his part’, ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case.

32    The third defendant referred to a passage in the reasons for judgment of McLelland J in Brimaud v Honeysett Instant Print Pty Ltd (1988) 217 ALR 44 at 46-47. I did not understand the plaintiffs to take issue with any of the principles stated in the passage. Although lengthy, I set it out in full:

The private injustice and public undesirability of permitting the relitigation of matters already litigated once is recognised in a number of principles of law, notably the rules relating to res judicata and issue estoppel, the more flexible rules under the rubric of vexation and abuse of process illustrated in such cases as Stephenson v Garrett [1891] 1 QB 677 and Hunter v Chief Constable, West Midlands Police [1982] AC 529 ; [1981] 3 All ER 727, and the restrictive provisions governing the adducing of further evidence on the hearing of an appeal even by way of rehearing: see, for example s 75A(8) of the Supreme Court Act 1970 (NSW).

Interlocutory orders, of their very nature, create no res judicata or estoppel, and the court retains jurisdiction to set aside, vary or discharge an interlocutory order up to the time of the final disposition of the proceedings. However the general rationale of the principles last referred to applies even in the case of interlocutory orders. It would be conducive to great injustice and enormous waste of judicial time and resources if there were no limit on the power of a party to have any interlocutory application or order relitigated at will.

The overriding principle governing the approach of the court to interlocutory applications is that the court should do whatever the interests of justice require in the particular circumstances of the case. In giving effect to that general principle, and in recognition of the public and private interests earlier referred to, rules of practice have been developed in accordance with which the discretionary power of the court to set aside, vary or discharge interlocutory orders will ordinarily be exercised. Not all kinds of interlocutory orders attract the same considerations. For present purposes one may put to one side orders of a merely procedural nature (as to which see for example Wilkshire & Coffey v Commonwealth (1976) 9 ALR 325) and injunctions (or undertakings) made or given by agreement and without contest “until further order” (as to which see for example Warringah Shire Council v Industrial Acceptance Corp (unreported, SC(NSW), McLelland J, 22 November 1979).

In the present case I am dealing with an interlocutory order of a substantive nature made after a contested hearing in contemplation that it would operate until the final disposition of the proceedings. In such a case the ordinary rule of practice is that an application to set aside, vary or discharge the order must be founded on a material change of circumstances since the original application was heard, or the discovery of new material which could not reasonably have been put before the court on the hearing of the original application: see Woods v Sheriff of Queensland (1895) 6 QLJ 163 at 164–5; Hutchinson v Nominal Defendant [1972] 1 NSWLR 443 at 447–8; Chanel Ltd v F W Woolworth & Co [1981] 1 All ER 745 ; [1981] 1 WLR 485; Adam P Brown Male Fashions v Philip Morris (1981) 148 CLR 170 at 177–8; 35 ALR 625 at 629–30; Butt v Butt [1987] 1 WLR 1351 at 1353; Gordano Building Contractors Ltd v Burgess [1988] 1 WLR 890 at 894.

33    Of the two limbs referred to by McLelland J in the last paragraph it is difficult to conceive of how the first limb – a material change of circumstances since the application for summary judgment was heard – would have any role to play where the interlocutory order is the giving of summary judgment under s 31A. By contrast, the second limb – the discovery of new material which could not reasonably have been put before the Court on the hearing of the original application – might have work to do.

34    The plaintiffs submitted that the test I should apply is as follows:

[the plaintiffs] show that there existed some matter, factor or other consideration, which was not taken into account at the time the original decision was made, and which, if it had been taken into account when the original decision was made, would have led to a different outcome.

35    I would firmly reject the above as a statement of the relevant test. It seems to me that it cannot be the case that a party can have a judgment given under s 31A set aside simply on the basis of the introduction of a new argument or new evidence (in the sense of evidence not put forward on the original application) that would have led to a successful defence of the summary judgment application. Such a test would mean that a party could either deliberately or negligently hold back part of its case on the application for summary judgment, appeal unsuccessfully and then apply to set aside the summary judgment on the basis of a new argument or new evidence. To my mind, that cannot be correct.

36    The plaintiffs also made submissions as to how I should approach the application of s 31A assuming their test was the correct one. They referred to the recent decision of the High Court in Spencer v Commonwealth (2010) 241 CLR 118; 269 ALR 233 (‘Spencer’). My attention was directed to passages at 131-132 [24]-[26] per French CJ and Gummow J and at 138-141 [49]-[60] per Hayne, Crennan, Kiefel and Bell JJ. No doubt when considering whether to set aside an order not only the nature of the order but also the conditions necessary for it to be made need to be borne in mind. However, as I have said, I do not accept that the test formulated by the plaintiffs is the correct one and I do not need to discuss the decision in Spencer in any further detail.

37    It seems to me that where the order is an order for summary judgment and that order has been the subject of an unsuccessful appeal the principle of finality of litigation must be given considerable weight. At the very least, an applicant for an order setting aside summary judgment would need to show new evidence and argument which would affect the result and the applicant would need to provide a clear and satisfactory reason as to why the material was not put forward on the application for summary judgment. It may be that this is understating the test and that it is subject to other qualifications and requirements, but it is a sufficient statement for present purposes because I am satisfied the plaintiffs have not met it.

38    In this case there is no explanation from the plaintiffs as to why the evidence of Mrs Keynes and the allegations in paragraphs 50A and 50B were not advanced at the time of the application for summary judgment and I do not think the argument the plaintiffs now wish to advance is sufficiently strong to warrant an order setting aside the judgments.

The explanation relating to the New Arrangement Claim

39    On 7 December 2010 the plaintiffs issued a notice of motion seeking an order that they be permitted to file and serve a Further Amended Statement of Claim containing two additional paragraphs, being paragraphs 50A and 50B. An affidavit of the plaintiff’s solicitor which accompanied the notice of motion stated, relevantly:

2.    The Full Court of this Honourable Court delivered its reasons for Judgment in respect of the Plaintiff’s appeal from the decision of His Honour Justice Besanko on the 13th August, 2010. I have received advice that the Full Court left open the following issue, namely if:

2.1    the arrangement, as that term is defined by sections 761A and 761B of Chapter 7 of the Corporations Act 2001 (C’th) (‘Chapter 7’), between the Plaintiffs and the Third and Fourth defendants respectively,

2.2    were subject to an understanding that, in the event that the plaintiffs suffered production failure,

2.3    the third and fourth defendants would permit the plaintiffs to wash out or cash settle those Forward Contracts pleaded in the Amended Statement of Claim

those Forward Contracts may then constitute financial products within the meaning of Chapter 7.

3.    The Plaintiffs seek the leave of this Honourable Court to further amend their Statement of Claim by the addition of paragraphs 50A and 50B in the form of the draft being now produced to me and marked with the letters ‘RLP 1’.

There were obvious difficulties with an application in this form in view of the fact that I had made orders striking out the Amended Statement of Claim and refused leave to file and serve the Second Amended Statement of Claim.

40    By affidavit sworn on 13 December 2010 the plaintiff’s solicitor said that he had been advised by the plaintiffs’ counsel to seek further amendments to ‘their Statement of Claim’.

41    On 22 December 2010 the plaintiffs filed with leave an Amended Notice of Motion in which the following orders were sought:

1.    That paragraph 1 of the orders made this Honourable Court on 3 June 2009, paragraphs 1, 2, 3, 4 and 5 of the orders made by this Honourable Court on 16 June 2009 and paragraph 1 of the orders made by this Honourable Court on 26 June 2009 in the within proceedings be set aside.

2.    That the plaintiffs have leave to file and serve the second amended statement of claim which is exhibit ‘RLP 1’ to the affidavit of Ross Lindsay Proud sworn on the 4th day of February 2009 containing the additions of paragraphs 50A, 50B, 56C, 56D and, in respect to the prayer for relief, paragraphs 4 and 5 in the form being the exhibit ‘RLP 1’ to the affidavit of Ross Lindsay Proud sworn on the 13th day of December 2010.

42    Again there were difficulties with this application in view of the fact that there was no extant statement of claim.

43    On 22 December 2010 the plaintiffs filed the affidavit of Elizabeth Jane Keynes sworn on 21 December 2010. I will discuss the contents of this affidavit later in these reasons.

44    On 14 January 2011 the plaintiffs filed and served a further affidavit from their solicitor. It is in the following terms:

2.    Following the hearing of the matter before the Honourable Justice Besanko on 15 December, 2010 Counsel has given further consideration to the proposed amendments to the Proposed Further Second Amended Statement of Claim in consequence of submissions and comments made during such hearing with respect to the reasons expressed by His Honour in his Reasons for Judgment dated 3 June, 2009.

3.    Some further amendments have been drawn to the proposed Amendments contained in the Exhibit ‘RLP 1’ to the affidavit of Ross Lindsay Proud sworn on 13 December and filed herein. Now produced and shown to me and marked with the letters ‘RLP 2’ is a copy of the Proposed Further Second Amended Statement of Claim with all proposed amendments shown in pink typeface.

45    The second order in the Amended Notice of Motion seeks leave to file and serve the Proposed Further Second Amended Statement of Claim.

46    The plaintiffs contend that they raised the New Arrangement Claim in the proposed Second Amended Statement of Claim which was annexed to their solicitor’s affidavit sworn on 4 February 2009. There are a number of difficulties with that submission. It is not clear from the pleading whether the plaintiffs were alleging a general right to washout or a right that only arose in the event of production failure. Nor was it clear to what extent the plaintiffs were relying on the fact that the contracts were washed out to establish the arrangement.

47    At all events the plaintiffs had the opportunity and did to a point raise these matters in the Full Court. The Full Court said (at 291 [25], 294-295 [38] and [39]):

The primary Judge understood the relevant ‘arrangements’ to be the forward contracts, although his Honour also recognized that the applicants were seeking to find some support for their case in s 761B. That section provides that in certain circumstances, two or more ‘arrangements’ may be treated as, together, constituting a single arrangement. Before us, the applicants assert that the relevant “arrangements” might include ‘arrangements or undertakings’ as to performance or breach of the contracts occurring after they were made. Given that the applicants’ case depends upon the existence of an obligation to give a PDS at or before the making of each contract, it is difficult to see how events after the contract date can be relevant. In any event, it is fairly clear from paragraphs 31, 32, 41 and 42 of the amended statement of claim that the relevant financial products, as there pleaded, are the forward contracts. Similarly numbered paragraphs in the proposed second amended statement of claim are to similar effect. The applicants’ written submissions also proceed generally on that basis. See para 6. It is at para 12-16 that they implicitly seek to establish a wider case, but without alleging any specific additional aspects of the relevant ‘arrangements’. In the absence of any pleaded or otherwise identified arrangements going beyond the forward contracts, we proceed on the basis that they are the relevant arrangements.

…

We have already said something about paras 12-16 of the applicants’ submissions in which they seek to raise a case based upon an assertion that the relevant financial products might include elements other than the forward contracts. We do not accept that such an argument is raised by the amended statement of claim or the proposed second amended statement of claim. Further, the applicants’ submissions lack particulars of such further elements. The applicants seem to submit (applicants’ submissions at paras 13 and 14) that for the purposes of s 761D(3)(a)(ii) the fact that all three forward contracts were, in the event, wholly or substantially ‘cash settled’ should be taken into account as part of the relevant ‘arrangements’. They also submit that the word ‘permit’ should be given its ‘ordinary meaning which would include not only when a person has a right to washout but also where washing out the contract is within the contemplation of the parties as the likely, and for that matter, the only practical consequence of a production failure’.

We cannot see how the actual consequence of a production failure can be taken into account in determining whether a proposed transaction will engage s 1012B of the Corporations Act. As to the understanding of the parties at the time of contract, it is possible that such understanding might go beyond the terms of the contract, but no such case has been pleaded or appears from the evidence. In reality, the submission merely alleges that the parties expected that in the event of operational failure, the washout provisions would operate. This seems to be little more than an argument as to the proper construction of the washout provisions.

48    It seems to me that to the extent that a claim akin to the New Arrangement Claim was raised by the plaintiff it was dealt with by the Full Court. However, the New Arrangement Claim as now formulated is brought forward without any explanation as to why it was not brought forward at the time of the application for summary judgment other than the fact that it is now brought forward on the advice of counsel.

The merits of the New Arrangement Claim

49    The plaintiffs submit that there is merit in the New Arrangement Claim and rely on Mrs Keynes’ affidavit to support their submission.

50    Mrs Keynes’ affidavit contains evidence to the following effect. She is the second plaintiff and operates a farming business in partnership with her husband who is the first plaintiff. One of her principal responsibilities with her husband is to manage the marketing of the grain crop from year to year. Between November or December 2005 to October 2006 Mrs Keynes attended three or four workshops conducted by Primary Industries and Resources South Australia through its FarmBus Unit to assist farmers to adjust to what was then a new marketing environment. The workshops themselves were conducted by people employed by the first respondent, Rural Directions Pty Ltd. At one of these workshops Mrs Keynes became familiar with the expression ‘washing out a contract’. Her understanding at the time was that the seller had an unrestricted right to ‘wash out his or her obligations at any time by paying the difference between the current market price and the contract price’. In about March 2006 Mrs Keynes was informed by an employee of the first defendant that they could wash out of a basis contract at any time and she ‘assumed’ that there would be no difference between a basis contract and a forward contract in that respect. The partnership in fact ‘washed out’ a number of contracts in August 2006 and in January 2007.

51    Mrs Keynes states that she learnt for the first time on 4 June 2007 (that is, after the ABB Grain first forward contract with the third defendant but before the ABB Grain second forward contract with the third defendant and the Glencore Grain forward contract) from a discussion with her husband that the seller could only washout if he or she suffered a production failure.

52    Mrs Keynes states by the end of August 2007 it had become clear to the plaintiffs that they would suffer a production failure. They authorised the first defendant to washout the contract with the fourth defendant which it did ‘with no difficulty on 30 August 2007’. Mrs Keynes states:

Whether or not the industry practice of permitting washouts in relation to forward contracts only arises in the case of production failure is still not clear to me.

53    Mrs Keynes then makes a general observation to the effect that ‘in all [her] dealings with grain companies it has always appeared to be a matter of indifference to them whether one settles forward sales in grain or in cash’.

54    There are a number of difficulties with Mrs Keynes’ evidence. There is the uncertainty she expresses about her understanding of industry practice. There is the difficulty that in relation to a number of matters she relies on what she was told by others (not by the third or fourth defendant) and the absence of express evidence linking her understanding of industry practice with the third and fourth defendants. I will receive the affidavit despite the objections of the third and fourth defendants. However, I do not think it is clear that Mrs Keynes’ evidence establishes an understanding of the type advanced. Any understanding outside the contract which modifies in any way the terms of the contract must be clearly established and Mrs Keynes’ uncertainty about the precise nature of the understanding suggests that there might not have been a clear understanding.

55    Even if there was an understanding of the type alleged in paragraphs 50A and 50B that is relevant to only one aspect of the Full Court’s reasoning. It would not overcome the aspect of the circumstances identified by the Full Court in the following passage (at 295 [41]):

Further, even if one assumes that the seller may insist upon washout, that entitlement only arises in the event of production failure. It would not permit the seller to discharge its obligations in cash in any other circumstances.

56    The principal of finality of litigation is important particularly where an appeal has been taken and has been unsuccessful. The deficiencies in the explanation proffered and the weaknesses in the New Arrangement Claim lead me to conclude that the judgments should not be set aside.

The Basis Contract PDS Claim and the Misleading Washout Claim

57    These proposed claims relate only to the third defendant.

58    The Basis Contract PDS Claim was first raised after I had given judgment in favour of the third defendant. It was raised as a possibility on 16 June 2009 and it appears in the Proposed Third Amended Statement of Claim lodged in the Court on 13 August 2009.

59    As I have said, the third defendant does not suggest that the judgments with respect to the ABB Grain forward contracts preclude the plaintiffs from making the claim. However, it opposes the introduction of the claim on the ground that there is no explanation as to why it was not brought forward before the application for summary judgment and it submits that had they been brought forward at that stage that might have affected its approach to the application for summary judgment. I accept both of those propositions and in the absence of an explanation on this application which outweighs the prejudice or possible prejudice to the third defendant I do not think the amendments to introduce the Basis Contract PDS Claim should be allowed.

60    The first time the Misleading Washout Claim appears in a proposed pleading is in the proposed amendments which were referred to in the affidavit of the plaintiffs’ solicitor sworn on 13 December 2010. In view of my earlier decisions I think the third defendant is correct in its contention that the proper place for the Misleading Washout Claim is in the plaintiffs’ defence to the third defendant’s cross-claim.

Conclusions

61    For the reasons set out above, I would not set aside the judgments and I would not give the plaintiffs leave to file and serve a Statement of Claim in terms of the document identified in paragraph 2 of the Amended Notice of Motion. I would not give the plaintiffs leave to file and serve the document entitled Proposed Further Second Amended Statement of Claim. The Amended Notice of Motion must be dismissed.

62    The third defendant raised various complaints about the adequacy of the pleadings in the Proposed Further Second Amended Statement of Claim. Some of these complaints fall by the wayside because they relate to pleas which, as a result of my rulings, will not go forward.

63    The plaintiffs will have to bring in a further statement of claim. As far as the third defendant is concerned it will make allegations in relation to the ABB Grain basis contract. The allegations in relation to the ABB Grain basis contract in the Proposed Further Second Amended Statement of Claim which are deficient are the following:

1.    The reference in paragraph 28.1 to paragraphs 16.1 to 16.4 inclusive is not wholly appropriate as paragraph 16.2 refers to the second defendant.

2.    The pleas in paragraphs 28.2.1, 28.2.2 and 28.2.3 should be separated (see [105] of my reasons).

3.    I will reserve to the third defendant the right to argue that the plaintiffs must provide particulars of the knowledge alleged in paragraph 28.2 (but see O 12 r 3).

4.    Paragraph 30A refers to paragraphs 12, 13, 21 and 21A and yet a number of those paragraphs refer in part to a period after the ABB Grain basis contract was entered into. The present structure of the pleadings is that only information known before the contract was entered into should have been conveyed so that only that information should be pleaded.

5.    There is a general difficulty with the pleas in paragraphs 30A, 30B and 30C. It is not clear what information the plaintiffs contend should have been conveyed to them and in particular whether it is the matters in paragraphs 12, 13, 21 and 21A (30A) or that information plus the opinion in paragraph 30B.1 and the ‘measure’ of risk in paragraph 30B.2 or the opinion in paragraph 30C or all of those matters. The information or opinions or both which should have been ascertained by the third defendant and the information or opinions or both which should have been conveyed by the third defendant to the plaintiffs should be clearly identified.

Associate:

Dated:    1 April 2011