FEDERAL COURT OF AUSTRALIA

Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 2) [2013] FCA 409

THE COURT ORDERS THAT:

1.    The orders of 28 March 2013 granting leave to amend the Statement of Claim herein be varied so as to provide that the amendment takes effect from the date of commencement of the proceeding.

2.    The Plaintiff be granted leave to amend the Statement of Claim in the form handed up in Court on 2 May 2013, such amendment to take effect from the date of commencement of the proceeding.

3.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1        The applicant in the proceeding, the Australian Securities and Investments Commission (“ASIC”) brings two interlocutory applications, seeking:

(a)    variation of an order made on 28 March 2013 granting leave to file a Further Amended Statement of Claim, so as to provide that the amendment operates from the commencement of the proceeding; and

(b)    leave to file a Second Further Amended Statement of Claim in the form handed up in court on 2 May 2013, to take effect from the commencement of the proceeding.

2        The substantive proceeding is an application for civil penalties, pecuniary penalties and disqualification orders against the first defendant, Australian Property Custodian Holdings Ltd (receivers and managers appointed) (in liquidation) (controllers appointed) (“APCHL”), and the second to sixth defendants who are the former directors of that company. APCHL is taking no active part in the proceeding and for the purposes of this judgment I will describe the second to sixth defendants as “the defendants”.

The application to vary the interlocutory orders of 28 March 2013

3        As could be expected in a large and complex proceeding like this the originating process and the pleadings have required several amendments. This application relates to an amendment made on 28 March 2013, when the Court made an order in the following terms:

The Plaintiff is granted leave to file and serve a Further Amended Statement of Claim substantially in the form annexed to the Second Affidavit of Julie Read affirmed 22 March 2013 by 4 pm on 2 April 2013, without prejudice to the right of any defendant to take any limitations point arising in respect of the amendment.

4        I reminded the parties in court on 1 May 2013 of the circumstances in which this order was made. It occurred at the end of a lengthy directions hearing when after hearing argument as to the form of the amendment I indicated that I proposed to grant leave to file a Further Amended Statement of Claim. After some other issues were dealt with, counsel for the fifth defendant sought that the relevant order provide that the amendment apply only from the date made. That contention had not been raised in written submissions or in argument regarding the proposed amendments, and ASIC’s counsel had no notice of it. The circumstances did not allow for the application to be dealt with at the time and the question was deferred. I ordered that leave be granted “without prejudice to the right of any defendant to take any limitations point arising in respect of the amendment”.

5        Each of the defendants has raised a limitations defence, and the sixth defendant has expressly raised the argument that the amendment applies only from the date it was made rather than from the commencement of the proceeding. It is unsatisfactory to allow the trial to commence without resolving this issue. Prior to the commencement of the trial I invited the parties to make submissions as to whether the order of 28 March 2013 should be varied so as to expressly provide the date upon which the amendment commenced.

6        ASIC filed the proceeding on 21 August 2012 and limitations issues loom large in it. Section 1317K of the Corporations Act 2001 (Cth) provides that proceedings for a declaration of a contravention of a civil penalty provision and for a pecuniary penalty order (as in the present case) may be started no later than six years after an alleged contravention. Given the commencement date of the proceeding, a resolution passed at a meeting of the board of directors of APCHL on 19 July 2006, which otherwise would have been relied upon by ASIC as founding some of the alleged contraventions, was out of time. That resolution is now relied on as background or context only.

7        Another board meeting occurred on 22 August 2006, and ASIC relies on a resolution passed at that meeting to found some allegations of contravention. As the proceeding commenced on 21 August 2012 these alleged contraventions occurred five years and 364 days before commencement date. The contest in the present application arises because, if the amendments operate from the date of the order, s 1317K might operate so that the amendments are statute barred.

8        Mr Williams, senior counsel for the sixth defendant, took the running for the defendants, and argues that the amendments should operate only from the date of the order. In particular he points out that the Federal Court Rules 2011(Cth) are silent as to when an amendment made by leave under r 16.53 takes effect. He notes that r 16.54 provides that an amendment made without necessity for leave under r 16.51 takes effect on the date of amendment, arguing that it would be surprising if a party which must obtain leave to amend is in a better position than a party which is able to amend as of right. He also relies on the fact that Division 8.3 which relates to amendment of an originating process specifically allows an amendment to include a claim which is statute barred (see r 8.21(2)), but this has no parallel in relation to an amendment of a pleading under Division 16.5.

9        Senior counsel concedes that the former rules of this Court provided that, except in specified circumstances, an amendment takes effect on the date when the document was first filed: see former O 13 r 3A. However, in part based on the absence of a similar provision in the current rules, he contends that there is no default position that an amended pleading operates by “relation back” to the commencement of the proceeding. In support of this contention he points to the observations of von Doussa J in Brook v The Flinders University of South Australia (1998) 47 SASR 119 at 125 where his Honour said:

…the “relation back” theory lacks inherent virtue, and where the justice of the case requires there is no reason why the power…to grant the amendment on terms should not be used to order that the amendment operate from a date other than the commencement of the proceedings. A date should be fixed that does justice as nearly as possible between the parties by preserving to the plaintiff the right to pursue the claim and to the defendant to raise the limitation period as a defence.

10        The defendants do not contend that ASIC has sought to plead a new cause of action. They contend that the amendments made on 28 March 2013 alleged a new fact seeking to make good a cause of action already pleaded. The pleading of the “new fact” is seen in paragraph 26A of the Further Amended Statement of Claim which provides:

Each of [the directors] voted in favour of, alternatively assented to at the meeting, the resolution on 22 August 2006 to lodge the Amended Constitution.

11        There can be no doubt that this new paragraph has some significance in the amended pleading. However, the allegation that the directors passed the relevant resolution in the board meeting of 22 August 2006 was clearly made in the existing pleading, and it cannot be said that this allegation came as any surprise to the defendants. For example:

(a)    Paragraph 14 of the existing pleading provided:

At a meeting of the board of directors of APCHL on 22 August 2006 [the directors] resolved to lodge with ASIC a consolidated constitution for the Prime Trust incorporating amendments made by ‘Deed of Variation (No 7)’.

(b)    The particulars to paragraph 27 of the existing pleading provided that it could be inferred from the fact that each of the directors voted in favour of the resolution at the 22 August 2006 board meeting, amongst other things, that their purpose was to provide benefits to APCHL and that the effect would be to disadvantage the members of the Prime Trust.

(c)    Paragraph 28 of the existing pleading provided that by reason of the matters set out in paragraphs 19 to 27 and by reason of:

(i)    his voting in favour of the resolution to lodge the Amended Constitution; and

(ii)    his participation in the activities that culminated in that resolution;

each the directors breached important duties under the Corporations Act.

12        Faced with this difficulty, the defendants then based their attack on the argument that the “new fact” pleaded was the allegation that the directors had “assented” to the resolution at the 22 August 2006 meeting, pleaded in the alternative to the existing allegation that the directors had “voted in favour” of the resolution. That is, the new pleading introduced an alternative allegation that the directors had “assented” to the relevant resolution in the board meeting of 22 August 2006, whereas the existing pleading only referred to the directors having voted in favour of the resolution.

13        Contrary to the defendants’ contentions, it is clear enough that a board member may give approval to a resolution otherwise than by a formal vote: see Morley & Ors v Australian Securities and Investments Commission [2010] NSWCA 331 at [885] as endorsed in Australian Securities and Investments Commission v Hellicar (2012) 86 ALJR 522 at [307] per Heydon J. The requirement with respect to the expression of a board member’s will was described by Barrett JA in Gillfillan & Ors v Australian Securities & Investments Commission [2012] NSWCA 370 at [11] as follows:

The culmination of the process must be such that it possible to see (and to record) that each member, by a process of voting, actively supports the proposition before the meeting or actively opposes that proposition; or that the member refrains from both support and opposition. And it is the responsibility of an individual member to take steps to ensure that his or her will is expressed in one of those ways.

14        It is not plain to me that a pleading that alleges that a board member “assented” to a resolution is much different from one which alleges that a board member “voted” for a resolution. While it is unnecessary for me to decide this question in the present context, I am not persuaded that there is a bright line between a formal vote and the expression of a board member’s will by other means. That is, it is hard to see the allegation that the directors “assented” to the resolution as a new fact, or at least a new fact of any significance. Although I do not need to decide this question, if there is no real difference between voting for and assenting to a resolution, then there is no “new fact”. The substance of the pleading - that the directors passed a resolution at the board meeting of 22 August 2006 that constitutes contraventions of the Corporations Act remained the same.

15        The defendants’ contentions also have other shortcomings. There can be no question that the Court has power to set the date from which the amendment should take effect. Order 13 r 3A of the former rules explicitly provided that, unless the Court otherwise orders, in circumstances where a new claim is otherwise statute barred, the amendment may take effect from the commencement of the pleading. In the current rules the approximate equivalent provision - in relation to amendment of an originating process – is found in Rule 8.21(2). However, there is no equivalent in Division 16.5 in relation to amendment of a pleading.

16        The rule that an amendment to a pleading should operate from the date of amendment, rather than from the commencement of the proceeding was set out in Weldon v Neal (1887) 19 QBD 394 at 395. It is uncontroversial that some of the effects of the rule in Weldon v Neal were harsh and subject to criticism. As a result the rule was abolished by statute in the Federal Court, New South Wales, Northern Territory, Queensland and Victoria. Section 59(2B) of the Federal Court Act 1976 (Cth) (“FCA”) was expressly introduced to abrogate the rule: Explanatory Memorandum to the Law and Justice Legislation Amendment Bill (Cth) 1994 [114] to [115].

17        Section 59(2B) of the FCA provides that the rules of Court may make provision for:

(a)    an amendment of a document in a proceeding; or

(b)    leave to amend a document in a proceeding:

even if the effect would be to allow a person to seek a remedy in respect of a legal or equitable claim that would have been barred because of the expiry of a period of limitation if the remedy had originally been sought at the time of the amendment. Rule 8.21(2) is a rule made pursuant to the power in s 59(2B). In my view, under r 16.53 a pleading, which operates to support an originating process may be amended on the same basis.

18        Nothing in the Explanatory Statement to the Rules indicates any intent to alter the existing practice that amendment of a pleading may operate from the commencement of the proceeding, even if it is otherwise statute barred. It says that Part 16 “adopts, simplifies and streamlines the process and procedures which operated under the former Rules and does not substantially alter existing practice.”: Explanatory Statement, Federal Court Rules 2011, 13-14. I do not consider that the new rules made any change of significance in relation to this question. Should the new rules be seen to operate to alter this practice I would rely upon my broad discretionary powers in rr 1.32, 1.33 and 1.35 to take the same approach as I set out below.

19        I note also that the amendments to the pleadings under consideration are of lesser significance in the proceeding than, for example, an application to add a new cause of action after the limitation period has expired. Yet r 8.21(2) makes it clear that an amendment to add a new cause of action which is otherwise statute barred, is allowable, and the amendment may run from an earlier date.

20        The directors argue that in all the circumstances of the case there should be no presumption in favour of “relation back” and that ASIC should provide some compelling reason why the amendment should not run from the date of the order. ASIC argues that there is a presumption in favour of “relation back” and that the effect of the order of 28 March 2013 is that the amendment runs from the commencement of the proceeding. It argues that the defendants should provide a compelling reason if the amendment is not to operate from the commencement of the proceeding. I am not attracted by either submission. In my view no question of high principle is involved in this issue. The question as to the commencement of the amendment requires consideration against all the circumstances of the case.

21        As Ormiston JA said in Agtrack (NT) Pty Ltd v Hatfield (2003) 7 VR 63, 88 to 89:

In the end none of this discussion contained in the authorities in England and Australia provides much enlightenment as to the reason lying behind the so-called “relation back” principle. If one excludes new parties and separate factual claims as quite inappropriate subject matters for a mere amendment, then there is no reason why an amendment not affecting the substance of a claim should not be treated as affecting and varying an originating document or pleading from the outset.

…

With the exception only of amendments made before close of pleadings, which are permitted without leave but are subject to disallowance, amendments are effected by leave given pursuant to court order. Because the plaintiff is ordinarily seeking to amend an existing document which already has a date of filing and service, it is not customary for such orders to state the date from which the amendment is to have effect, for it is to be assumed that the plaintiff wishes it to take effect so as to vary that existing document. There is, however, no reason why the court should not explicitly state by order the date the amendment takes effect and has done so from time to time. It is therefore not difficult to see why an amendment adding a party has never been treated as dating back, for the very good reason that there has been in existence no document, writ or statement of claim, between the plaintiff and the added defendant, unless and until the order adding the defendant is made. There is no high principle of common law in issue, whatever order is sought to be made, and there is simply the recognition of that which the party seeks and is permitted to achieve. It has led to difficulties only where what is sought to be achieved is not merely amendment but joinder of a new and additional cause of action, something which in strictness involves more than the amendment of an existing claim, but which is treated as an amendment of a document such as a statement of claim, because that addition of a further claim to the original claim is permitted by the rules and practice as to joinder. As recognised by Lord Brandon, however, there is no reason, except convenience, why a claim for an additional cause of action should not be treated as having come into effect at the time of amendment.

(Emphasis added and citations omitted.)

22        Senior counsel also argues that there is some prejudice to the defendants because the effluxion of time could affect the recollection of the defendants and witnesses. I very much doubt this, given the fact that Supreme Court proceedings in relation to these events have been on foot since May 2011, and that the 22 August 2006 board meeting has always been part of ASIC’s case. The effluxion of time counsel refers to can only be a reference to the six months from 21 August 2012 when the proceedings were issued to 28 March 2013 when the amendments were ordered. That is, any “relation back” is only for six months.

23        Other than the loss of a possible limitations argument, the defendants did not make out any prejudice to their interests if the amendments operate from commencement of the proceeding. The absence of such prejudice is a significant factor in my decision: Harris and Others v Western Australia Exim Corporation (1994) 56 FCR 1 at 10 per Hill J; Brown Plastics Pty Ltd v Bayer Australia Ltd [2010] FCA 19 at [5] per Besanko J.

24        The defendants did not attempt to argue that they were previously unaware that ASIC’s case revolved in part around their passing a resolution at the board meeting of 22 August 2006. On the better view the amendments made on 28 March 2013 do not add anything substantially new. The facts pointed to and relied upon by ASIC are the same or essentially the same. The amended pleading merely operates to clarify and further particularise matters already pleaded.

25        I can see no injustice to the defendants in allowing the amendments to operate from the commencement of the pleading, and doing real justice to the parties requires that outcome.

The application to file a Second Further Amended Statement of Claim

26        Save for the question already dealt with, concerning the commencement date of the amendments ordered on 28 March 2013, the application for leave to file the proposed Second Further Amended Statement of Claim is unopposed. While raising concerns regarding some of the particulars, the defendants did not oppose leave. Senior Counsel for ASIC indicated that those concerns would be addressed, and the defendants accepted that this could be done without the need for a further pleading.

27        The Second Further Amended Statement of Claim operates to clarify the existing pleading. If the concerns of the defendants as to the broader operation of the present pleading have foundation, it in fact operates to confine the scope of the claim. As it operates in this way, and in order to enable the Court to deal with the real issues in dispute, I will grant leave for the amendment. This amendment too, will operate from the commencement of the proceeding.

28        I will order that:

1.    The orders of 28 March 2013 granting leave to amend the statement of claim herein be varied so as to provide that the amendment takes effect on 21 August 2012 – the commencement of the proceeding.

2.    The plaintiff be granted leave to amend the statement of claim in the form handed up in Court today, such amendment to take effect from 21 August 2012.

3.    Costs reserved.

Associate:

Dated:    3 May 2013