FEDERAL COURT OF AUSTRALIA

F.Y.D Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097

ORDERS

THE COURT ORDERS THAT:

1.    The interlocutory application filed on 27 June 2017, by which the Applicants seek leave to reopen their case, is allowed.

2.    The parties are, by Monday 25 September 2017, to provide to the Court minutes of the orders which they together or individually propose to give effect to the judgment delivered on 15 September 2017 and in relation to the resumption of the trial.

3.    The matter be listed for directions at 9 am on Wednesday 27 September 2017 in relation to the matters referred to in Order 2.

4.    There be liberty to apply.

5.    Costs be reserved.

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

REASONS FOR JUDGMENT

WHITE J

1    This is a decision on an application by the Applicants to reopen a hearing after judgment had been reserved, but before the delivery of judgment.

2    The Applicants, F.Y.D Investments Pty Ltd (FYD) and Kyren Pty Ltd (Kyren) (together “the Applicants”), are the owner and builder respectively of multi-level premises at 70 Franklin Street, Adelaide which were constructed between late 2011 and early 2013. Kyren subcontracted the supply and installation of the mechanical services plant, including the air conditioning system, to the Respondent, Promptair Pty Ltd (Promptair).

3    The Applicants claim damages from Promptair in respect of alleged shortcomings in the air handling units (AHUs) which it supplied. Their pleadings raised three causes of action: the enforcement of a debt arising pursuant to the terms of the contract between Kyren and Promptair (the Contract), breach of contract, and misleading or deceptive conduct.

4    Promptair brought a cross claim, but it is not necessary for present purposes to refer to it.

5    The trial of the action took place on five days concluding on 30 March 2017. Judgment was then reserved.

6    On 27 June 2017, the Applicants filed an interlocutory application seeking “leave to re-open their case in order to adduce further limited evidence”. In order to accommodate the convenience of counsel, this interlocutory application was heard on 11 August 2017. Promptair opposed the grant of leave to the Applicants to reopen their case.

7    Both FYD and Kyren are members of a group of companies referred to at trial as “the Kyren Group” which is controlled by Mr Theodoros Samaras. He is the sole director of each of FYD and Kyren.

8    FYD was incorporated on 24 February 2010 to own and develop the property at 70 Franklin Street and an adjoining property. Its sole shareholder is Eastern Parade Pty Ltd, another member of the Kyren Group.

9    During the opening submissions of counsel for the Applicants at the trial, the Court sought to ascertain the particular causes of action which were pursued by FYD and those pursued by Kyren and the relief which each sought in the event that it succeeded. Trial counsel for the Applicants (who was not their counsel on the application for the reopening) identified the causes of action listed earlier in these reasons and said that they were pursued only by Kyren. Trial counsel went further and acknowledged that FYD was not a necessary party to the proceedings.

10    The circumstance giving rise to the application to reopen is that, in making the concession that FYD was not a necessary party, and in the subsequent conduct of the trial, counsel overlooked the potential significance of many of the payments which Kyren seeks to recover as part of its loss having been paid by FYD.

11    Initially, the Applicants sought leave to reopen so as to lead further evidence from Mr Samaras and evidence from a Mr Polymeneas. The latter is a member of the accounting firm retained by Mr Samaras and the Kyren Group as their “external accountant”.

12    The proposed evidence from Mr Samaras and Mr Polymeneas is contained in affidavits which each have provided. In the case of Mr Samaras, the Applicants wish to lead evidence to identify the particular amounts paid by FYD “on behalf of” Kyren in relation to the rectification and replacement of AHUs supplied by Promptair. Mr Samaras deposes that these amounts total $602,678.45 but that figure appears not to include amounts paid to Mr Dally, an independent contractor to Kyren, who carried out work as a building supervisor at the Project. The Applicants seek to recover some of the payments made to Mr Dally on the basis that they were incurred as an incident of the rectification work.

13    A second category of evidence which the Applicants wished to lead from Mr Samaras is an explanation for these amounts having been paid by FYD, as follows:

14.    In relation to the payment by FYD of the two Frigrite tax invoices dated 31 August 2014 and 24 October 2014, the Lucid invoices and the Colin Dally invoices referred to in paragraph 12 above (collectively, “the Invoices”), I say as follows:

14.1.    As Kyren was the builder that contracted with Promptair and later Frigrite, I regard it as Kyren’s responsibility to pay for the cost of the replacement of the defective AHUs and not the responsibility of FYD;

14.2.    the payment by FYD of the Invoices was a matter of administrative expedience as between Kyren and FYD;

14.3.    From time to time in the past, members of the Kyren Group of Companies have paid invoices rendered to other members of the Kyren Group of Companies. This has occurred when the company that received the invoice did not have sufficient funds available to pay the relevant invoice. When this has occurred, there has later been an accounting as between the company that received the invoice and the company that paid the invoice to reflect that the company that received the invoice is liable to repay the company that paid the invoice; and

14.4.    If Kyren had had sufficient funds available to it at the time the Invoices were rendered to it, Kyren would have paid the Invoices, and not FYD. However, as I explained in re-examination during the trial, and consistent with past practice, FYD paid the Invoices because at the time FYD had sufficient funds available to pay the Invoices.

15.    At no time until after the trial of this action concluded on 31 March 2017 did I turn my mind to the internal accounting as between Kyren and FYD to address the fact that FYD had paid invoices rendered to Kyren. I spoke with my accountant Mr Angelo Polymeneas about this issue for the first time in late April 2017 and discovered that no accounting entries had been made to reflect that FYD had paid invoices rendered to Kyren. When I explained to Mr Polymeneas what is set out in this paragraph, Mr Polymeneas made accounting entries to reflect that FYD paid invoices rendered to Kyren.

14    The evidence which the Applicants wish to lead from Mr Polymeneas is (relevantly):

3.    In relation to the costs paid associated with the replacement of the air-handling units to the building at 70 Franklin Street in the 2014/2015 financial year, I was not aware at the time that payments were being made by FYD in respect of invoices issued to Kyren for what might be described as warranty work.

4.    In particular, I was not aware that the payments made by FYD to Frigrite Mechanical Systems Pty Ltd, Lucid Consulting Engineers (SA) Pty Ltd and Colin Dally in late 2014 and early 2015 were payments made in respect of invoices issued to Kyren.

5.    When the matter was raised with me by Mr Samaras in April 2017, I took steps to ensure the proper accounting treatment of the payments made as between FYD and Kyren by raising a loan account as between FYD and Kyren for the payments made by FYD to Frigrite Mechanical Systems Pty Ltd, Lucid Consulting Engineers (SA) Pty Ltd and Colin Dally on behalf of Kyren.

6.    This has been done from time to time in the past when Kyren group companies have made payment of invoices issued to other Kyren group members. By Kyren group members I am referring to companies controlled and ultimately owned by Mr Samaras. Kyren and FYD are two members of the Kyren group.

15    In addition to this evidence, counsel for the Applicants said that they sought the leave to reopen in order to make submissions that the effect of that evidence (taken in conjunction with the other evidence adduced in the trial) was to entitle Kyren, in the event that it succeeded in the litigation, to recover the amounts invoiced to it but paid by FYD. The Applicants also wish to submit, in the alternative, that FYD should be able to recover the payments it made by reason of it having suffered a loss as a result of the misleading or deceptive conduct of Promptair alleged in the proceedings.

16    Later, however, counsel for the Applicants said that the Applicants would, if the reopening was allowed, seek leave to amend the Statement of Claim and acknowledged that this may lead to a consequential amendment by Promptair to its Defence, and possibly to an amended Reply. The terms of the contemplated amendment to the Statement of Claim were not formulated. Counsel also foreshadowed that, in addition to the proposed evidence of Mr Samaras and Mr Polymeneas, the Applicants may wish to lead some “book entry evidence”. The precise content of this evidence was not outlined. Counsel for the Applicants accepted in addition that some further discovery of documents may be required, as Promptair had contended.

17    As the submissions developed, it became apparent that the Applicants wish to reopen so as to plead and to adduce evidence with a view to establishing:

(a)    that Kyren had incurred a liability to FYD in respect of the payments FYD had paid, such that it could be said that Kyren had suffered the loss;

(b)    alternatively, that the payments had been made by FYD on Kyren’s behalf and constituted a form of third party subvention of the kind discussed by Burchett J (with whom O’Loughlin J agreed) in Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd (1991) 33 FCR 1 at 23-26;

(c)    alternatively again, that FYD has its own claim for damages in respect of the misleading or deceptive conduct alleged at the trial: see by way of example Bartley v Myers [2002] SASC 24; (2002) 83 SASR 183. Counsel acknowledged that for FYD to mount this claim, it will have to be permitted to retract the concession made by the Applicants’ trial counsel to which reference was made earlier. Counsel applied orally for the grant of such leave.

18    The evidence with the Applicants wished to lead from Mr Samaras and Mr Polymeneas seems directed to the first of these alternatives and, on its face, may be inconsistent with the second and third alternatives. However, it is not uncommon for litigants to advance inconsistent claims in the alternative and, had the Applicants done so at the trial, I doubt that it would have been remarked upon. Accordingly, I do not accept the submission of counsel for Promptair that the inconsistency counts against the application to reopen being allowed.

19    Counsel for the Applicants on the application to reopen attributed the omission of Kyren and FYD to advance claims in the forms just identified to oversight by the Applicants’ legal representatives at the trial. He characterised the cause of that mistake in emphatic terms. The submission was supported by an affidavit from the Applicants’ trial counsel and from its solicitor. The affidavits indicate that it was not until the trial had concluded that the Applicants’ legal representatives appreciated that there may be a deficiency in the evidence concerning Kyren’s ability to recover the payments made by FYD. No challenge was made to the contents of the affidavits and none of the deponents was required to attend for cross-examination.

20    It is surprising that the Applicants were not alert at trial to the importance of these issues because much of the cross-examination of trial counsel for Promptair (who was not its counsel on the application for reopening) concerned the identification of the entity within the Kyren Group which had made the payments forming part of the loss claimed by Kyren. Apart from its relevance to the issue of whether Kyren could recover the payment as part of its loss, it was not apparent that the questioning had any other relevance.

21    However, the course of the evidence and submissions at the trial supports the Applicants’ explanation for the matters sought to be agitated on the reopening having been overlooked in the trial. The Applicants’ Third Amended Statement of Claim (the 3ASC) contained in paras 39 and 40 claims that both Kyren and FYD had suffered loss and damage by reason of the misleading or deceptive conduct alleged against Promptair. Other paragraphs quantified the loss at $1,074,394.50 plus GST and, by paras 69 and 70 and the Prayer for Relief, this amount was claimed by Kyren and FYD in the alternative.

22    I referred earlier to the concession made by the Applicants’ trial counsel that FYD was an unnecessary party in the proceedings. Given the pleadings in the 3ASC, this seemed to reflect a decision by the Applicants not to pursue the allegation that FYD had suffered loss which it could recover. However, it is apparent that the Applicants did not give attention to the means by which Kyren could recover the whole of the claimed loss.

23    In his evidence in chief, Mr Samaras barely touched on the issues concerning the entity which had made the payments claimed in the litigation. In the first affidavit containing his evidence in chief, he deposed only that there was no written contract between FYD and Kyren, and that payments had been made to contractors “either directly by FYD or by Kyren with FYD reimbursing Kyren”. This statement seemed to imply an arrangement between Kyren and FYD by which FYD had undertaken the primary liability for payment of the costs associated with the construction of the building. Following the cross-examination in which Mr Samaras was questioned about, and acknowledged, the payments made by FYD, trial counsel for the Applicants asked only this question in the re-examination:

Q:    … Can you explain why different companies paid those [identified] progress claims?

A:    I don’t – I don’t recall a time – at the time that’s – its usual – we do that at times to make sure we meet all our commitments with our – with our work in progress. And Kyren at that time had enough money to pay.

24    Counsel did not pursue the topic further in re-examination and asked for Mr Samaras to be released. As can be seen, the answer given by Mr Samaras was, at best, incomplete and did not provide any explanation for the payments having been made by FYD.

25    At the conclusion of the evidence in the trial, trial counsel for Promptair made his closing submissions first. He submitted that the evidence presented by the Applicants showed that it was FYD, and not Kyren, which had borne the costs (or at least most of the costs) claimed by Kyren as part of its damages. He then submitted that Kyren could recover damages only for its own loss, being the costs it had incurred or which it had a present liability to pay. In particular, trial counsel submitted that Kyren could recover the amounts paid by FYD and MSAP (the evidence indicated that the latter was a business previously owned by Kyren) only if it could prove that it had a present legally enforceable obligation to repay FYD or MSAP those costs, and that the evidence did not support such a conclusion.

26    In his closing submissions, trial counsel for the Applicants made the following points by way of response:

(a)    it was not uncommon in corporate groups for one member to make payments in respect of liabilities incurred by another, and that when this occurred it was usually reflected in an adjustment of the members’ respective loan accounts;

(b)    Kyren had effectively used FYD as its corporate financier;

(c)    the fact that Kyren had incurred the costs was sufficient for it to be able to recover the costs;

(d)    the Court was not asked to lift the corporate veil between FYD and Kyren.

27    The submissions in (a) and (b) appeared to have the difficulty that the Applicants had not led evidence of the underlying matters necessary to support them and, further, that the pleadings and evidence appeared at the least to be just as consistent with there having been an arrangement between Kyren and FYD that FYD as the building owner would be responsible for meeting the liabilities incurred by Kyren. I raised these matters with trial counsel for the Applicants.

28    Trial counsel also submitted that Promptair had not raised in its filed defence any issue concerning the entity which had made the payments so as to put the Applicants on notice about that issue. However, Promptair’s defence had not admitted the pleas made by the Applicants concerning the payment arrangements between FYD and Kyren.

29    During the course of the closing submissions of trial counsel for the Applicants, I raised with him the prospect that, given the evidence that FYD had made a number of the payments, it may have its own cause of action in respect of the misleading or deceptive conduct which the Applicants alleged against Promptair. I reminded him that he had not sought to withdraw his concession that FYD was an unnecessary party. However, the trial concluded and judgment was reserved without counsel seeking to withdraw the concession or having made (other than as outlined above) a submission that Kyren had, on FYD making the payments, incurred a liability to FYD, or that the payment should be regarded as a form of third party subvention.

30    The principles upon which the Court acts on applications of the present kind are settled. The overriding principle is the interests of the administration of justice having regard to all the circumstances of the case: Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 at [24], [26]; Brown v Petranker (1991) 22 NSWLR 717 at 728; Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 at 478; Harrington-Smith (on behalf of the Wongatha People) v Western Australia (No 8) [2004] FCA 338, (2004) 207 ALR 483 at [121]; Walsh v Greater Metropolitan Cemeteries Trust (No 2) [2014] FCA 456, (2014) 243 IR 468 at [48].

31    In Bradshaw, Kenny J identified at [24] four overlapping classes of cases in which a court may grant leave to reopen: fresh evidence; inadvertent error; mistaken apprehension of the facts; and mistaken apprehension of the law. Although it is not necessary to categorise the present case into any of those classes, the second and fourth seem to be the most apt.

32    The matters bearing on the interests of justice in a case like the present are various. They include:

    the public interest (and the interest of the particular parties) in litigation being conducted efficiently and expeditiously;

    the public interest in the finality of litigation, with the consequent expectation that litigants will present all their evidence and submissions at the one hearing;

    the significance of the proposed new evidence and submissions in the context of the trial;

    the explanation for the evidence not having been led at the trial;

    the likely prejudice to the opposing party if the application is allowed;

    the potential detriment to the applying party if the application is refused, and;

    any delay by an applicant in seeking leave to reopen.

33    Regard should be had generally to the overarching purpose stated in ss 37M and and 37N of the Federal Court of Australia Act 1976 (Cth). It is a relevant consideration that evidence was not led, or submissions were not made, at trial because of a tactical decision from which the applying party wishes to resile. It is also relevant that a mistake leading to the matter not having been agitated at trial is attributable to the litigant’s legal representatives and not to the litigant personally. However, the circumstance that the evidence was not led, or the submissions were not made, by reason of the negligence of the party or its legal representatives, is not necessarily fatal to an application for reopening being allowed. In LED Builders Pty Ltd v Eagle Homes Pty Ltd [1999] FCA 1141 at [34] Lindgren J said:

Clearly, the fact that a failure to make submissions on a point is, as here, solely attributable to the neglect or default of the party seeking leave will militate against the granting of the application for leave. But it will not necessarily defeat the application in all cases.

34    In the present case, it is significant that the application to reopen has been made before judgment has been delivered. This is not a case of a party ascertaining the Court’s determination of the claim as presented and then seeking to present a claim on a revised basis.

35    Promptair contended that it would suffer prejudice if the application to reopen is allowed. It relied in this respect upon an affidavit from its trial counsel. In that affidavit, trial counsel referred to the concession in the Applicants’ opening submissions that FYD was an unnecessary party and then deposed:

[9]    As a consequence of [counsel’s] statement, I re-assessed the cross-examination I had prepared of the first witness called by the applicant[s], Mr Kotzias. My intention in the cross-examination was to demonstrate, where the evidence permitted, that the payments were made by FYD, not Kyren. I also re-assessed my cross-examination of Mr Samaras to carefully exclude that payments made by FYD were made on the basis of a legal obligation that existed between FYD and Kyren. I cross-examined Mr Shubin and Mr Dally on the same basis. I assessed that the cross-examinations were successful in that regard.

36    My understanding of this paragraph is that it is an explanation by counsel of the strategy he had adopted in his cross examination concerning the payments made by FYD. I do not understand counsel to have deposed that he had abandoned some other strategy, or had not cross examined on other matters, by reason of the concession of trial counsel for the Applicants. Had counsel wished to indicate that Promptair’s conduct of the litigation would have been different but for the concession or the state of the Applicants’ evidence, I think it likely that he would have said so expressly.

37    I acknowledge, as counsel for Promptair on the reopening application submitted, that it can be difficult for counsel to say in retrospect how they may have cross examined differently had the circumstances at trial been different. That being so, it is appropriate to exercise caution before concluding that the opposing party may not have adopted a different course at trial.

38    In assessing the potential prejudice of a reopening to Promptair, I also consider it appropriate to take into account the confined nature of the present issue: it concerns only the identity of the entity making the payment and whether that entity or Kyren may, in the event that one or more of the Applicants’ causes of action and the issues of causation are established, recover that loss from Promptair.  One may accept that there may have been further cross-examination if trial counsel for the Applicants had maintained that FYD had its own cause of action. However, leaving the issue of costs to one side, I am not satisfied that it has been shown that Promptair altered its position in the cross-examination to its detriment by reason of the concession made in the Applicants’ opening submission. In fact, given that the concession was made only in the opening, it is reasonable to infer that Promptair and its trial counsel must have prepared for the litigation on the basis that one or other of FYD or Kyren would be seeking to recover the payments made by FYD.

39    I accept that the time spent by trial counsel for Promptair in cross-examining on this topic, and the preparation associated with it, may mean that there has been some wastage of costs. Further, Promptair will incur additional costs if the reopening is allowed which will exceed those which would have been incurred had the matter been dealt with at trial. However, these matters can be addressed substantially, if not wholly, by an appropriate order for costs.

40    Counsel for Promptair also submitted that the inconsistent alternatives which the Applicants wished to advance if the reopening is allowed militates against leave to reopen being granted. For the reasons given earlier, I do not regard this as a significant consideration.

41    It cannot be said that the Applicants have acted with expedition in bringing the application to reopen. Judgment was reserved on 30 March 2017 and the application to reopen was not filed until 27 June 2017. This was so even though trial counsel for the Applicants had recognised, at the conclusion of his submissions on 30 March 2017, that a mistake had been made. I accept, however, that it would have been necessary for the Applicants to take advice concerning the position and to instruct new counsel and that this may have accounted for some of the three month period before the application to reopen was filed.

42    Counsel for Promptair reminded the Court that, on 3 February 2017, Promptair had been refused leave to amend its filed defence so as to raise an additional basis for denial of the Applicants’ claim. That leave was refused having regard to case management principles and the prejudice which the amendment would have caused including, relevantly, the necessity for the Applicants to have the opportunity to obtain further expert evidence and the consequent deferral of the commencement of the trial. I also took into account the significant time which had elapsed before Promptair made its amendment application. Promptair’s submission was not developed but, as I understand it, was to the effect that the Applicants, having opposed the grant of leave to amend so as to avoid derailment of the trial, should not now be granted an indulgence which would result in protraction of the trial.

43    I appreciate the force of this submission and its implicit appeal to even handedness. However, I do not consider that the two circumstances are comparable. The present application concerns the quantum of the claim which Promptair had been preparing to meet all along. A reopening in the present circumstances will defer the completion of the trial and of course the delivery of judgment but will not have the same practical consequences as did the amendment sought by Promptair on 3 February 2017.

44    I take into account that the total sum paid by FYD is substantial, namely, $602,678.45 in addition possibly to other payments. This is almost 60% of the Applicants’ total claim. The potential prejudice to the Applicants if the reopening is not allowed (and the Applicants succeed in the litigation) may accordingly be significant. On the other hand, if the reopening is not allowed, there would be a benefit in these circumstances to Promptair arising from the oversight of the Applicants’ counsel, which would appear to be in the nature of a windfall benefit.

45    I am conscious that the Court ought not readily grant an application to reopen following the reservation of judgment. The interests of the proper administration of justice are important, and should not be undermined by the too ready grant of applications of this kind. There is little to be said for the Applicants now being in the position which they wish to address. However, the discrete nature of the new material and its importance to the Applicants in the event that they succeed in the litigation point persuasively in favour of the application being allowed. Exercising the caution which is appropriate, I am satisfied that the application should be allowed, and the Applicants permitted to reopen their case and to withdraw the concession made by their trial counsel in the opening submissions.

46    Accordingly, the interlocutory application filed on 27 June 2017 is allowed. The parties are directed to confer and, within seven days, to provide minutes of the orders which they together or individually propose to give effect to this decision and in relation to the resumption of the trial. I will conduct a directions hearing at 9 am on 27 September 2017 in relation to those matters. I will also hear from the parties as to costs and any other consequential matters.

Associate:

Dated:    15 September 2017

SCHEDULE OF PARTIES