FEDERAL COURT OF AUSTRALIA

Kapp Consulting Pty Limited v Lawfinance Limited (Formerly Justkapital Limited) [2019] FCA 1760

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 31A(1) of the Federal Court of Australia Act 1976 (Cth), summary judgment for the respondent against the first applicant.

2.    The first applicant’s interlocutory application dated 2 July 2019 be dismissed.

3.    The first applicant pay the respondent’s costs of and incidental to this proceeding:

(a)    including the costs of and incidental to the respondent’s interlocutory application dated 10 July 2019;

(b)    including the costs of and incidental to the first applicant’s interlocutory application dated 2 July 2019;

(c)    excluding costs incurred by the respondent solely in respect of the second applicant.    

THE COURT NOTES:

1.    That on 17 April 2019, the proceeding insofar as it was brought by the second applicant against the respondent was dismissed, consequent upon the second applicant becoming bankrupt on 4 March 2019 and his trustee in bankruptcy being unwilling to continue the proceeding in his name.

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

REASONS FOR JUDGMENT

BROMWICH J:

Introduction

1    This is an adjudication of a pleading dispute and a summary dismissal dispute as to a contractual claim. By competing interlocutory applications, both filed in July 2019:

(1)    a remaining applicant seeks leave to file an amended originating application (AOA) and amended statement of claim (ASOC) to reframe the case to be litigated in a fundamental way (proposed amended pleadings); and

(2)    the respondent resists leave being given to the applicant to file either of the proposed amended pleadings on the basis of discretion, or otherwise allowing that to take place, due to the late change without proper explanation, and inadequate merit. The respondent instead seeks to have the proceeding summarily dismissed or for the entirety of the claims (and in the alternative, for particular claims) in the proposed amended pleadings to be struck out. If those outcomes are not achieved, the respondent seeks security for costs and for the applicant to provide particulars to specific pleadings in the proposed ASOC.

If the case is to proceed, there is no dispute that an order for security for costs is appropriate, but there is a live dispute as to quantum.

2    The applicant, Kapp Consulting Pty Ltd, was originally the first of two applicants, with the second applicant being Mr Philip Kapp, a former director of Kapp Consulting. The existing originating application and statement of claim were filed on 20 September 2018. The respondent, Lawfinance Ltd, was formerly known as JustKapital Ltd (JKL). It is convenient to refer to the respondent as JKL in these reasons as that abbreviation permeates the material to be considered.

3    Mr Kapp became bankrupt on 4 March 2019. On 12 April 2019, his trustees in bankruptcy indicated that they did not wish to continue the proceeding on his behalf. The case brought by Mr Kapp was therefore dismissed on 17 April 2019. That circumstance has inevitably contributed to the very different case that Kapp Consulting now wishes to bring.

4    Kapp Consulting seeks to have benefits said to arise out of a contract signed by Mr Kapp, and originally claimed to accrue to him and (without particularisation as to how) Kapp Consulting, now accrue to itself and Twin Investors. The proposed ASOC states that Twin Investors was at all relevant times an associated entity of Mr Kapp, the parent company of Kapp Consulting, and a shareholder in JKL.

5    JKL filed an initial interlocutory application to have this proceeding summarily dismissed or struck out, or alternatively substantially struck out, on 13 November 2018. JKL filed an amended interlocutory application on 10 July 2019, which renews the seeking of that relief, but to reflect the change in circumstances.

6    The case sought to be brought by Kapp Consulting does not include any of the presently pleaded claims of unjust enrichment, quantum meruit, or misleading or deceptive conduct, and is now proposed to be confined to seeking payment from JKL of the sum of $807,182, or $887,900 if GST is payable, arising from an agreement entered into on 31 October 2017 by way of a document entitled Term Sheet. That sum is a 35% share of the proceeds of settlement of certain litigation (success fee).

7    Kapp Consulting’s interlocutory application, which JKL opposes, seeks:

(1)    leave to file a proposed ASOC, with it being agreed that the application is to be taken to be referrable instead to the further draft ASOC served 17 July 2019 and emailed to my chambers on 19 July 2019 (having been omitted from the applicant’s submissions); and

(2)    leave to file a proposed AOA to add Twin Investors Pty Ltd in a trustee capacity as a second applicant.

As noted below, strictly speaking leave to file the proposed ASOC is not required, but leave to file the proposed AOA is because it seeks to add a party.

8    JKL’s amended interlocutory application, in the event that leave to amend is refused, or is otherwise not permitted to take place, seeks to have:

(1)    the entirety of Kapp Consulting’s existing claim summarily dismissed or struck out; or alternatively,

(2)    substantial parts of that claim struck out.

9    Whilst multiple draft amended pleadings have been sent by Kapp Consulting to JKL since the proceedings were commenced, no prior amendment has been filed. JKL has yet to file a defence, and therefore pleadings in this matter have not closed. Strictly speaking, r 16.51(1) of the Federal Court Rules 2011 (Cth) applies so as to obviate Kapp Consulting seeking leave, because that rule provides that a party may amend a pleading once at any time before the pleadings close, without the leave of the Court. This provides Kapp Consulting with the theoretical right to file its proposed ASOC. During the course of the hearing, counsel for Kapp Consulting, as well as referring to r 16.51(1), also referred to the Practice and Procedure of the Federal Court of Australia looseleaf service, authored by Dr (the Hon) K E Lindgren and the Honourable Justice Black, at [16.53.30]:

It is inappropriate to apply during an application for leave to amend for the other party to apply for summary dismissal under s 31A of the Federal Court of Australia Act 1976 where, although the amending party may appear to have no reasonable prospect of succeeding on the amended pleading, issues of law remain to be determined: Acer Computer Austaralia Pty Ltd v Carter (No 2) [2007] FCA 1943 at [89]. The proper course is to permit the pleadings to be amended and for any argument regarding summary dismissal to be separately agitated after the amendment has been made: Acer Computer Australia, above, at [90].

10    Counsel for Kapp Consulting also correctly noted that JKL filed its interlocutory application for summary dismissal before Kapp Consulting sought leave to amend its pleadings.

11    It should be noted that:

(1)    leave to join Twin Investors as a party, as set out in the proposed AOA, is dependent upon it and Kapp Consulting being allowed to prosecute the proposed ASOC, because the inclusion of Twin Investors as a party to the proceedings is based on the allegations in the proposed ASOC that someone other than Mr Kapp (that is, Kapp Consulting and Twin Investors) are entitled to the success fee; and

(2)    if the proceeding is summarily dismissed, JKL’s alternative application for the strike-out of particular paragraphs, the provision of particulars to specific pleadings, and security for costs does not need to be considered.

12    In my view, the degree of impracticality and additional cost in the circumstances of this case in allowing the pleadings to be amended and then dealing with a fresh summary dismissal application addressing the same issues a second time would be contrary to, and therefore must be treated as subordinate to, the overarching purpose of the Court’s civil practice and procedure provisions to facilitate the just resolution of disputes according to law, and as quickly, inexpensively and efficiently as possible: see s 37M of the Federal Court of Australia Act 1976 (Cth). In any event, leave has always been required to join Twin Investors as a party: r 9.05 of the Federal Court Rules. The competing applications were argued upon the basis that it was open to the Court, if thought appropriate (as I do), to resolve the conflicting positions advanced by reference to the test for summary judgment as set out in s 31A of the Federal Court of Australia Act 1976 (Cth) (also referred hereafter as summary dismissal), for which JKL bears the onus. This entailed the competing arguments being advanced as though the proposed amended pleadings were already in place, occasioning no disadvantage to Kapp Consulting who had sought leave in the first place. I do not consider that this approach precludes having regard to considerations that ordinarily apply to the grant of leave if required, in this case principally being the significant change of position reflected in the proposed amended pleadings.

13    There is no dispute that the prospects threshold to be met before a proceeding may be summarily dismissed is interlocutory, rather than final. In a practical sense at least, it makes sense to apply the reasoning of the High Court in Spencer v Commonwealth [2010] HCA 28; 241 CLR 118 to the test for summary judgment under s 31A(2) of the Federal Court of Australia Act as to whether the Court is satisfied that Kapp Consulting (and, if granted leave to be joined as a party, Twin Investors) “has no reasonable prospect of successfully prosecuting” the case now sought to be advanced. Kapp Consulting correctly submits that the power to summarily dismiss a proceeding is not to be exercised lightly given the evident consequences for the applicant, citing Spencer at [60].

14    Adopting the pragmatic approach noted above at [12], JKL asserts that the principles of futility equally apply to the present application for leave to amend as apply to an application for summary judgment or summary dismissal, citing:

(1)    Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWSC 1073 at [11], referring to the test in General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 at 129, now overtaken by Spencer largely due to the change in the statutory test in s 31A of the Federal Court of Australian Act 1976 (Cth) (and also r 26.01) that applies in this Court for summary judgment;

(2)    Australian Securities Ltd v Borina Pty Ltd [2017] NSWSC 1073 at [46], referring to Alamdo Holdings, General Steel, Agar v Hyde [2000] HCA 41; 201 CLR 552 at [57], Agar having been affirmed in Spencer at [24]; and

(3)    Guo v Capricorn Investments Pty Ltd (subject to deed of company arrangement) [2018] NSWSC 12 at [69], referring to Alamdo Holdings, Borina, General Steel, Agar and Spencer.

15    The burden of those authorities support that approach both historically and now, albeit with the lower burden for summary dismissal than existed when General Steel applied. That lower burden has authoritatively been applied since 2010 in light of the terms of s 31A, and following Spencer. In short, certainty of failure in the terms of being hopeless does not need to be demonstrated to show that an applicant has no reasonable prospect of prosecuting an action: see the plurality judgment in Spencer (Hayne, Crennan, Kiefel and Bell JJ) at [56]. The live question is whether there is no reasonable prospect of successful prosecution of the case that Kapp Consulting (and also, Twin Investors) now seek to bring, so as to stand properly in the way of that trial process ever taking place.

The Term Sheet

16    The front page of the Term Sheet dated 31 October 2017 relevantly contains the following (emphasis in original):

Term Sheet

 Term sheet in relation to the proposed transaction and settlement terms

 JKL        JustKapital Limited ACN 088 749 008

Kapp    Philip Kapp in his personal capacity and on behalf of his Associated entities* as shareholders of JKL.

 Lucerne    Lucerne Australia Pty Ltd ACN 609 346 581

* Associated entities has the meaning given [to] that term in the Corporations Act 2011 (Cth) (Corporations Act)

17    The Term Sheet was signed by Mr Kapp, and signed on behalf of JKL and Lucerne.

18    The balance of Term Sheet, after the first page reproduced above and up to the signature page, is in three columns. It is not necessary to reproduce the entirety of the Term Sheet, but it is convenient to reproduce the left hand column list of terms, the paragraph numbers in the middle column and the contents of the key paragraphs in the right hand column, including all references to “Kapp” as follows (emphasis in original and omitting footnotes):

Overview

19    The tenor of key parts of the case currently pleaded is that Mr Kapp in person is the beneficiary of the key provisions in the Term Sheet relied upon:

(1)    paragraph 7 of the present statement of claim relies upon cl 28 and cl 29 of the Term Sheet as follows:

(a)    subparagraph (1) pleads that JKL was to pay Mr Kapp “the outstanding amounts in respect of his 2017 bonus of $200,000 on settlement of an institutional offering”;

(b)    subparagraph (2) pleads that Mr Kapp “was entitled to receive the first 35% of net proceeds realised by JKL from the settlement of Wickham as a success fee”;

(c)    subparagraph (3) pleads that Mr Kapp “would work in good faith with JKL to finalise the claim settlement as quickly as possible and the entitlement of 35% would be paid when the case was resolved and settlement funds received by JKL”;

(2)    each other reference to “Kapp” in the Term Sheet relied upon is pleaded as being a reference to Mr Kapp, not as a reference to Kapp Consulting, which is referred to separately by that name;

(3)    after pleading certain events that took place after the signing of the Term Sheet, including the entry into a share acquisition deed and a settlement and release deed, the present statement of claim pleads at [18] and [19] that Mr Kapp had not been paid pursuant to the Term Sheet and the obligations under that Term Sheet.

(4)    after pleading at [22] and [23] that Kapp Consulting issued an invoice to JKL for $807,182 (plus GST), being the success fee, and subsequently demanding payment, a claim at [24] that in breach of its obligations under cl 29 of the Term Sheet and cl 6.2 of the Settlement and Release Deed, JKL refused to pay “Kapp Consulting and/or or [sic] Kapp the sum of $807,182 plus GST”. No explanation as to how the obligation to Kapp Consulting arises from cl 29 of the Term Sheet or cl 6.2 of the Settlement and Release Deed is particularised;

(5)    an obligation to pay Mr Kapp “and/or” Kapp Consulting a (now abandoned) quantum meruit claim is pleaded at [25] of the present statement of claim, not by reference to the Term Sheet alone, but also by reference to the subsequent settlement and release deed;

(6)    an obligation to pay Mr Kapp 35% of the success fee is pleaded as a (now abandoned) misleading or deceptive representation claim at [37] and [38] of the present statement of claim, arising from negotiations leading, inter alia, to Mr Kapp entering into the Term Sheet, with no reference to him doing so on behalf of anyone else, let alone Kapp Consulting.

20    The notion that Mr Kapp signed the Term Sheet other than in his personal capacity, and on behalf of associated entities as shareholders of JKL, is entirely foreign to the existing statement of claim, and to a subsequent draft statement of claim in evidence, the latter of which excluded all claims by Kapp Consulting. As submitted by the respondent’s senior counsel, arguably the inclusion of the reference to Mr Kapp’s associated entities was for the limited purpose of ensuring that those entities as shareholders of JKL would not stand in the way of JKL performing its contractual obligations. However, that argument does not need to be resolved on these applications if that were possible, because the issue requiring determination is whether cl 29 is reasonably capable of referring to anyone other than Mr Kapp in person. In any event, there is no suggestion in the present or proposed pleadings that Kapp Consulting was one of those shareholders and therefore capable of falling within the wider definition of “Kapp”, although Twin Investors, at least as proposed to be pleaded, would seem to fall generally within the term “Kapp” in the Term Sheet in so far as it is pleaded as a shareholder in JKL.

21    As noted above, Mr Kapp’s trustee in bankruptcy decided not to maintain the litigation of the claims brought in Mr Kapp’s name, and those claims have been dismissed, although the effect of that dismissal is not reflected in any filed amended statement of claim. Kapp Consulting now asserts and seeks to plead that it and Twin Investors, but not Mr Kapp, are the contractual beneficiaries of the success fee, relying upon cl 29 of the Term Sheet. The only explanation for this change, contained in an affidavit for the solicitor for Kapp Consulting read on the application, is a change in solicitors. The applicant’s solicitor deposes to being unable to comment on a prior draft amended statement of claim that was served and that proposed to exclude all claims by Kapp Consulting, due to not having the prior solicitor’s file. The applicant’s solicitor in her affidavit therefore declined to comment on those draft pleadings on their face or provide any overt reason for the second change in stance now sought to be relied upon. Curiously, that affidavit makes no reference to Mr Kapp’s bankruptcy, nor gives any indication of who is giving instructions on behalf of Kapp Consulting, though the respondent’s written submissions refer to both Kapp Consulting and Twin Investors being controlled by Mr Kapp’s wife.

22    JKL contends that there is no arguable case that Kapp Consulting or Twin Investors was a direct or indirect party to the Term Sheet or was otherwise entitled to any payment under that agreement. Success on the second argument would suffice for JKL’s purposes. JKL argues that the claim cannot therefore succeed in its proposed form and thus should not be permitted to be taken to trial. The key issues for determination are therefore whether Kapp Consulting (or Twin Investors) has any reasonable prospect of success in bringing that claim; and if so, whether in the exercise of discretion it should be allowed to do so in light of the delay and the unexplained change in position, the latter of which I regard as a very significant issue for the purposes of the overarching principle, set out above at [12]. Self-evidently, such a change in position following the bankruptcy of Mr Kapp requires close scrutiny by this Court.

23    The central issue on the question of whether Kapp Consulting (or Twin Investors) has any reasonable prospect of success is whether it is reasonably arguable:

(1)    that the reference to “Kapp” at cl 29, reproduced above, is, per the cover page of the Term Sheet, a reference to more than “Philip Kapp in his personal capacity” and includes also “and on behalf his Associated entities [as defined in the Corporations Act] as shareholders of JKL”;

(2)    if so, that the reference to “Kapp” at cl 29 of the Term Sheet includes Kapp Consulting and/or Twin Investors; and

(3)    if so, that Kapp Consulting and/or Twin Investors is therefore a party to the Term Sheet and entitled to the payment of the success fee referred to in cl 29.

24    A finding that this chain of reasoning is reasonably arguable, so that such a case has any reasonable prospect of being successfully prosecuted, does not mean that such an outcome would be found to be more likely than not at a final determination, and so is not an impediment to a contrary ultimate finding at trial, which would be fatal to the success of a case brought upon that basis.

The arguments for Kapp Consulting

25    It is convenient first to address Mr Kapp’s arguments as to whether proposed ASOC has any reasonable prospect of success, noting that it remains JKL’s onus to demonstrate that it does not. The outcome of those arguments will determine whether leave to file the proposed AOA to add Twin Investors Pty Ltd as a second applicant properly arises.

26    Kapp Consulting submits that the proposed ASOC advances the following claims:

(1)    that Kapp Consulting is entitled to the benefit of the success fee in the Term Sheet as principal of Mr Kapp, whether disclosed or undisclosed, so as to be entitled to sue on the Term Sheet; and

(2)    Twin Investors, as a party to the Term Sheet, was contractually entitled to the benefit of the success fee.

27    Kapp Consulting asserts that its claims, as pleaded in [4A] to [4C] of the proposed ASOC, involves not only issues of construction of the Term Sheet but also wider factual issues of the agency of Mr Kapp and whether that agency was disclosed and/or well-known and understood at the time of entry into the Term Sheet. In substance, if not in terms, Kapp Consulting is asserting that cl 41 of the Term Sheet, which states that it “supersedes any previous correspondence, negotiation or discussion between us on its subject matter” is of no effect, for that clause is otherwise an unanswerable barrier to material external and prior to the express words of the executed Term Sheet being taken into account in discerning its meaning.

28    Kapp Consulting submits that it would not be appropriate for this Court to determine the construction issue on a final basis because evidence will be required, including as to the circumstances surrounding the entry into the Term Sheet. However, that submission begs the question as to whether it is reasonably arguable that any such evidence would be able to be used to achieve the objective of changing the meaning of the Term Sheet on its face.

29    Kapp Consulting also relies upon JKL having indicated that it considers such evidence to be relevant at trial by the nomination of a number of potential witnesses as to the factual circumstances in which the Term Sheet was executed, the alleged arrangements between Mr Kapp, Kapp Consulting and JKL, and as to the commercial background and negotiation of the relevant agreements. Kapp Consulting submits that JKL choosing not to lead any evidence from those witnesses as to why the proceedings have no reasonable prospects of success, and should be summarily dismissed, is another reason why the relief sought by JKL ought not be granted. However, that argument involves circular reasoning, because JKL will only need to lead evidence going to surrounding circumstances, if, contrary to its primary position, such evidence to be led by Kapp Consulting is able to be used in the first place.

30    Kapp Consulting further submits that, in any event, the particulars provided in [4B] of the proposed ASOC, and the documents in its tender bundle admitted on the application as Exhibit 1A, indicate the factual issues involved and that the proposed claims are reasonably arguable and therefore the prospects of success are real and not fanciful. In particular, Kapp Consulting submits that its claims to have been a disclosed or even an undisclosed principal entitled to sue on the Term Sheet have reasonable prospects, are not fanciful and are not bound to fail. The references to “not fanciful” and “are not bound to fail” may tend more of a General Steel test, and thereby suggest a higher threshold for JKL’s argument for summary dismissal to prevail, rather than an absence of reasonable prospects of success, and, if so, must be read down accordingly.

31    Kapp Consulting therefore submits that it should be able to proceed on the proposed pleadings, and its claims therefore not be summarily dismissed or struck out. In support of that conclusion, Kapp Consulting sets out at [15] of its written submissions certain documents in its tender bundle that it submits indicate the following (emphasis in original, but omitting tender bundle references):

(a)    in late June 2016, Kapp Consulting and JKL entered into a Consultancy Agreement by which Kapp Consulting provided the services of [Mr] Kapp for the benefit of JKL as described in Annexure A to that agreement;

(b)    JKL made substantial payments to Kapp Consulting for the provision by it of [Mr] Kapp’s services… shortly before the Agreement was executed;

[The term sheet was executed on 31 October 2017, such that the remaining events concern post-contractual events.]

(c)    less than 2 days after the Agreement was executed, on 2 November 2017 Corrs indicated to [Mr] Kapp that it was drafting, amongst other things, a Wickham Consultancy Agreement “to reflect the Settlement Term Sheet” (ie the Agreement)…;

(d)    the very next day, on 3 November 2017 Corrs sent [Mr] Kapp drafts of the Acquisition Deed and the Wickham Consultancy Agreement, again said… “to reflect the Settlement Term Sheet” (ie the Agreement).

Significantly, the draft Wickham Consultancy Agreement attached was in similar terms to the June 2016 Consultancy Agreement. That is, it was between JKL and Kapp Consulting by which JKL was to engage Kapp Consulting to provide the consultancy services of [Mr] Kapp… in return for which, by clause 15, JKL would pay to Kapp Consulting a Consultancy Fee of 35% of the net proceeds of the settlement of [the] Wickham Proceedings. Those elements of the Wickham Consultancy Agreement, at least, were in substantially the same if not identical terms to clause 29 of the Agreement;

(e)    on 22 and 29 November 2017, Corrs circulated further drafts of the Wickham Consultancy Agreement [by which stage it had become a “completion deliverable” in the Acquisition Deed]… Clause 2 of the draft Settlement Deed required the Acquisition Deed to be signed before the signing of [the] Settlement Deed;

(f)    on 1 December 2017, [Mr] Kapp signed the Acquisition Deed and the Wickham Consultancy Agreement;

(g)    on 7 December 2017, Corrs on behalf of JKL, sent [Mr] Kapp a copy of the proposed ASX announcement stating that “Entities associated with Mr Kapp have been retained under the terms of a consultancy arrangement to finalise certain claims outside the Litigation Portfolio”;

(h)    on 8 December 2017, [Mr] Kapp authorised Catherine Teo to apply his electronic signature to the Acquisition Deed [due to changes in version and page numbers from the earlier executed signature pages]

(i)    on 8 December 2017, Corrs confirmed to [Mr] Kapp by email… that JKL would announce to the ASX… that it had finalised the sale of the litigation portfolio. The Appendix to the ASX Announcement stated that [“Entities associated with Mr Kapp have been retained under the terms of a consultancy arrangement to finalise certain arrangements outside the Litigation Portfolio. Mr Kapp and his associated entities must work in good faith with JustKapital to finalise these arrangements as quickly as possible. If achieved, the consultancy arrangement entities… [are] to receive a consultancy fee.”];

(j)    on 12 December 2017, Kapp Consulting sent JKL an invoice in the amount of $440,000 (inc GST);

(k)    on 13 December 2017, JKL paid Kapp Consulting the sum of $440,000 in performance of the Agreement and the Settlement and Release Deed, albeit into a bank account in the name of Twin Investors;

(l)    on 2 January 2018, JKL announced to the ASX that “it was pleased to announce the confidential settlement of a case it has funded” and that “As part of the arrangements, the Company appointed entities associated with Mr Kapp to negotiate a settlement of this case for 35% of the net proceeds…”. The reference was to the Wickham Proceedings; and

(m)    on 1 March 2018, PPB Advisory provided an Independent Expert’s Report which referred to a Consultancy Fee due to Kapp Consulting in respect of the Wickham Proceedings. The statements relating to Kapp Consulting and the Wickham Fee made by PPB Advisory were based on instructions provided by JKL and JKL warranted that the statements in the report were accurate.

32    Kapp Consulting argues that the “upshot” of the facts listed above “must” be that it is reasonably arguable that it was within the knowledge and contemplation of the parties, including JKL, that Mr Kapp was acting as agent of Kapp Consulting when signing the Term Sheet. It submits that there can be no doubt that the existence of Kapp Consulting was known to JKL and was included in draft documents of the time, including drafts which were required to give effect to the Term Sheet and that those drafts provided for payment of the success fee to Kapp Consulting. Kapp Consulting submits that the strong inference is that JKL instructed solicitors before the Term Sheet was executed to draft what was known as the Wickham Consultancy Agreement with Kapp Consulting, including the same terms as cl 29 of the term sheet requiring the 35% success fee to be paid to it.

33    Kapp Consulting submits, correctly as far as it goes, that the general position in relation to a disclosed principal is that where the agent has made a contract with a third party and acts within the scope of the agent’s actual or apparent authority, the principal can sue or be sued on the contract. In that context, Kapp Consulting submits that it is “manifestly arguable” that it was such a principal in this case, even if it be the case that this was not expressly disclosed, including for the purpose of entry into the Term Sheet. Kapp Consulting submits that it is sufficiently arguable that Mr Kapp, as a director of Kapp Consulting, was acting within the scope of his actual authority as a director in signing the Term Sheet on its behalf (the other director at the time being his wife). Kapp Consulting submits that questions concerning agency and the proper construction of the use of the word “Kapp” fall to be considered in those circumstances, even if factually incomplete, and that the entire or precise factual circumstances cannot properly be understood, nor resolved on JKL’s strike out or summary dismissal application, such that this must be left to a final hearing.

34    Kapp Consulting accepts that terms of the Term Sheet which are inconsistent with the existence of an undisclosed principal may prevent Kapp Consulting as an asserted principal from suing, including the fact that the definition of “Kapp” as being “in his personal capacity” is arguably inconsistent with him being an undisclosed agent of Kapp Consulting. However, Kapp Consulting submits that given the factual circumstances involved, such a finding should not be made at this interlocutory stage because those circumstances make it difficult to say, without full evidence, whether that drafting made Mr Kapp the sole intended contracting party. That argument seems to suggest that the evidence proposed to be relied upon would be used to ascertain the subjective intention of the parties, or at least of Mr Kapp and Kapp Consulting. Kapp Consulting submits that it cannot be said that the terms of the Term Sheet have a “plain meaning” when considered in those circumstances, so that it could definitely be said that evidence of surrounding circumstances would be inadmissible, even if that was the current test.

35    On the question of the admissibility of surrounding circumstances, Kapp Consulting notes Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352, and compares that with Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; 218 CLR 451 at [22] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 at [40], the latter to the effect that interpretation “requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction”. Kapp Consulting also draws attention to Electricity Generation Corporation v Woodside Energy [2014] HCA 7; 251 CLR 640 at [35] and Cherry v Steele-Park [2017] NSWCA 295; 96 NSWLR 548 at [57]-[59] and [128]-[132].

36    Finally, on this topic, Kapp Consulting submits that because JKL instructed the law firm Corrs to draft the Wickham consultancy agreement to which the very same 35% success fee was payable to Kapp Consulting, most likely before the Term Sheet date of 31 October 2017, and those instructions were given conformably with the obligation in cll 38 to 41 of the Term Sheet to provide more definitive documents to give effect to that agreement, or at least to reflect it as JKL argues, this reinforces the conclusion that surrounding circumstances are unavoidably relevant to the construction task required to be carried out. Kapp Consulting relies upon other statements to like effect made by JKL to the ASX and to PPB Advisory.

37    In respect of Twin Investors, Kapp Consulting submits that there is no dispute that Twin Investors was an associated entity of Kapp as at 31 October 2017; and that it is reasonably arguable that the success fee arising from cl 29 of the Term Sheet was owed to Twin Investors. This is because the obligation to pay the success fee can be performed not only by payment to Mr Kapp, but also to other parties within the meaning of the term “Kapp” in the agreement. Kapp Consulting contrasts cl 29 to clauses that it submits speak directly to Mr Kapp personally, such as clauses 3 and 23, which required Mr Kapp to resign from his positions with JKL. It also points to clauses that refer to “Kapp’” holding convertible bonds, which were in fact owned in the name of Twin Investors. Kapp Consulting again notes in respect of Twin Investors that it would not be appropriate for this Court to determine the construction issue on a final basis, because evidence will be required, including as to the circumstances surrounding the entry into the Term Sheet and the subsequent conduct of the parties.

38    It is necessary to consider in more detail the cases upon which Kapp Consulting relies, including some of those referred to either again or for the first time in its written reply submissions.

39    As noted above, Kapp Consulting asserts that this Court is precluded from considering admissibility of evidence in the determination of this application. That is only true in the limited sense of making a trial-like determination to that effect. The real issue is the limited use that may be made of such evidence: Cherry v Steele-Park at [66]. Consideration of that issue is not precluded on this application, and it is not in any event the argument that JKL advances. I do not understand JKL to be contending that a case in which there is a live possibility of evidence being able to be used to arrive at a different objective understanding as to what had been agreed, perhaps even as between whom, would not be allowed to proceed to trial (apart from the delay and change of position alternative arguments). Rather, JKL’s case is that the terms in the Term Sheet are sufficiently clear to preclude the evidence pointed to by Kapp Consulting being taken into account and the authorities, properly understood, do not provide any sufficient basis to conclude that this would take place at trial.

40    Kapp Consulting’s reliance on Toll at [40], Woodside at [35] and also, in reply, International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; 234 CLR 151 (IATA v Ansett) at [8] must be approached with caution due to key differences between those cases and this proceeding.

41    In Toll, a party who had signed a contract but had not read what turned out to be a critical term was not allowed to escape the bargain entered into. The point in issue was not the creation of legal relations, but the nature of the legal relations that had been created: Toll at [38]. Yet, Kapp Consulting seeks to use the passage in Toll at [40] to effect the creation of legal relations in the sense of who they were created between. This dispute is not presently concerned with the nature of the legal relations, here the payment of a sum of money consequent upon an event having occurred, but rather with the creation of legal relations so as to determine to whom the benefit agreed upon should flow. Kapp Consulting has to demonstrate that, on the face of the Term Sheet, it was at least arguably a party to it, and that the door was therefore open to rely upon evidence in aid of such a conclusion.

42    In Woodside, again there was no dispute as to who were the parties to the contract in dispute. Rather, the disagreement centred on what was the scope of a reasonable endeavours clause to achieve a contractual objective, following an explosion that deprived the seller of gas the ability to provide supplies as contracted. Thus, the issue again was as to the meaning to be given to the clause in question in the sense of the nature of the legal relations that had been created, based not on subjective intention, but on objective meaning to be derived from the text in its surrounding circumstances and the commercial purpose or objects in play. The position was stated by Gageler J, in dissent on the result, but with clarity as to the principle (at [53]):

Commercial parties contracting at arm’s length are free to agree on terms each considers to be to its own commercial advantage. The terms of their agreement, however, are construed by a court to mean what reasonable commercial parties in their position can be taken together to have meant.

43    Once again, the reasoning sought to be relied upon by Kapp Consulting (from the majority in Woodside at [35]) is therefore directed not to the creation of legal relations, but to the nature of the legal relations that had been created. Viewed in that way, Woodside does not assist Kapp Consulting in relying on external evidence to determine whether legal relations have been created between it and JKL, contrary to the clear words in the Term Sheet precluding that conclusion.

44    In IATA v Ansett, the dispute concerned the meaning of a set of multilateral agreements operating between airlines to address credits and debits accruing between them, creating rights between each and a clearing house, rather than between individual airlines. The effect was to result in those airlines with a net credit at the end of the month receiving a payment from the clearing house, and those with a net debit being required to make a payment to the clearing house. An airline, Ansett, went into voluntary administration, with the administrators denying the efficacy of the agreements to make the clearing house a creditor, an argument that ultimately failed in the High Court. The evidence of circumstances and objects went to the meaning of the contracts in question as to whether the administrators were liable to make good certain net debit amounts. Once again, the reasoning sought to be relied upon (from the majority at [8]) is therefore directed not to the creation of legal relations, but the nature of the legal relations that had been created. Kapp Consulting’s reliance on that case is therefore again misplaced.

45    Kapp Consulting seeks to take this line of authority further, by relying upon the following authorities in which, at first blush, the principles discussed above may be seen to have travelled further.

46    In GR Securities Pty Ltd v Baulkham Hills Private Hospital Pty Ltd (1986) 40 NSWLR 631 at 636-7, McHugh JA, writing for the New South Wales Court of Appeal, said “even if parol evidence is only admissible to clarify meaning when a term in a document is ambiguous, that rule has no application when the issue is whether the person sued or suing is a party to the contract”. However, Kapp Consulting’s reliance on that quote overlooks the fact that this observation arose in the context of his Honour’s earlier reasoning, at 634-5, that, because “the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances… [i]f the terms of the document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction”. That is, the express terms of the contract cannot be affected by surrounding circumstances if there is no proper room to doubt that the words used should be taken to mean what they say, here by particular reference to cl 29 and cl 41 of the Term Sheet.

47    There is a more fundamental problem with Kapp Consulting’s list of events reproduced at [31] above. As the addition I have inserted in square bracket after subparagraph (b) makes clear, virtually all of the conduct relied upon is post-contractual. Yet evidence of post-contractual events may not be used to establish the parties to a wholly written contract, except in unusual circumstances not in play here, such as a mistake in the name of such a party: see BH Australia Constructions Pty Ltd v Kapeller [2019] NSWSC 1086 (Leeming JA) at [90] to [103]; see also [58] as to the distinction between the admissibility of such evidence and its use.

48    In Jasmin Solar Pty Ltd v Trina Solar Australia Pty Ltd [2015] FCA 1453; 331 ALR 108, Edelman J, as a member of this Court, granted leave to serve an originating application and statement of claim overseas. The applicant disputed that it was a party to a supply contract which contained an arbitration clause, that contract being entered into between a related overseas intermediary used by the applicant and the overseas supplier. This gave rise to an agency issue in relation to that contract. In that context, his Honour held, for the limited purpose of the overseas service application, that the applicant was not a party to the overseas contract, because it was not named as a party, but rather as a guarantor, thus relying on the face of the contract. That conclusion was also reached because the contract expressly provided that no right was intended to be conferred on anyone who was not a party, and because the reason that the applicant was not named as a party, derived from surrounding circumstances, was to avoid GST liabilities, such that the applicant could not be a party: see [8]. The more detailed reasons explaining those conclusions was at [107] to [141]. Kapp Consulting relies upon what was said at [133] to the effect that a survey of authority conducted in the preceding paragraphs indicated that:

… the question of whether a written agreement contradicts the alleged terms of an agency is one which often requires a very close examination of the written terms of the contract as well as the terms of the agency. Different cases have reached different results on similar facts. Context is very important. It is far from clear in this case that the terms of the Supply Agreement are consistent with an agency agreement.

49    The last set of authorities considered by Edelman J in Jasmin Solar prior to the above quote were all to the effect that a person cannot claim to be a principal to a contract if that would be inconsistent with the terms of that contract. His Honour considered Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 at 864; Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33 at 40, endorsed by Campbell J in White v Baycorp Advantage Business Information Services Ltd [2006] NSWSC 441; 200 FLR 125 at [80]; and also Carberry v Gardiner (1936) 36 SR (NSW) 559 at 574 and Integrated Asset Management Pty Ltd v Trans Communications Pty Ltd [2015] NSWSC 984 at [132]. His Honour’s reasoning in the quote reproduced above and relied upon by Kapp Consulting, and that further authority, works against Kapp Consulting and not in its favour, because to find that Kapp Consulting was a principal would be inconsistent with the terms of the Term Sheet on its face.

50    Nor does Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; 89 NSWLR 633, also relied upon by Kapp Consulting, assist. Leeming JA, writing for the Court of Appeal, by holding at [74] that very often nothing in the context will come close to displacing the ordinary grammatical meaning of the legal text, was stating that clarity of the contractual text will greatly limit the scope to go further. That provides vital context for the passage that Kapp Consulting relies upon from [77]: “to say that a legal text is “clear” reflects the outcome of that process of interpretation. It means that there is nothing in the context which detracts from the ordinary literal meaning. It cannot mean that context can be put to one side …” However, that highlights the hurdle that Kapp Consulting needed to surmount by pointing to something in the surrounding evidence that could properly be sought to be relied upon at trial that would have any reasonable prospect of being able to be successfully used to supplant the text, noting the general prohibition on the use of post-contractual evidence for this purpose identified in Kapeller at [90] to [103], cited above at [47]. In this case, there is nothing in the context evidence that Kapp Consulting has identified that it would seek to rely upon that is of a nature, or alternatively of sufficiently unambiguous force, which would have a reasonable prospect of disturbing the meaning of the Term Sheet on its face as to who the contracting parties were, even if the hurdle against use could be overcome.

51    It is also important to note first that none of Toll, Woodside or IATA v Ansett overrule or, properly understood, even relevantly qualify, as opposed to develop and better understand and apply what was said by Mason J in Codelfa . Leeming JA in Cherry v Steele-Park at [68] quoted Mason J in Codelfa at 352 as follows (reading “admissible” in the sense of being able to be used):

The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.

52    There has been a fertile debate as to just what is meant by ambiguity in this context, leading to a preference to avoid that term, not least because it is a conclusion: see Leeming JA in Cherry v Steele-Park at [71] and [76] to [78] and following. However, that does not detract from the primacy of the text in a written agreement, being the language chosen by the parties to record and reflect the bargain they have reached. There is therefore ordinarily “limited scope for any evidence of surrounding circumstances to detract from the contractual text”: Leeming JA in Cherry v Steele-Park at [73], to be read with his Honour’s more recent observations in Kapeller.

53    It will not suffice for Kapp Consulting simply to assert that surrounding evidence is capable, as a matter of reasoning and analysis, to change the clear meaning of the Term Sheet, assuming or asserting, rather than demonstrating, that it has a sufficiently good prospect of being permitted to be used in that way. Patent clarity in the language of a contract may leave little work to be done by pre-contractual evidence of text and context, especially if nothing is identified to cast doubt on the objective meaning of the words on their own. The more blunt and clear the words, the less room there is to seek to give them a contrary meaning by resort to surrounding circumstances, and the greater the hurdle to be surmounted by a party seeking to change its case to achieve such a result.

The arguments for JKL

54    For completeness, I will refer to JKL arguments, which provide further support for the conclusion I am already minded to reach, both as a matter of law and as a matter of discretion.

55    JKL’s response relies first upon the history of the proceedings. By a letter dated 7 November 2018, the solicitors then acting for Mr Kapp and Kapp Consulting stated, in response to a request for particulars, that the “Associated Entities” referred to in [4] of the existing statement of claim, in turn drawn from the meaning given to “Kapp” in the Term Sheet, were “not alleged to be parties to the Agreement”. Evidently, this was contrary, in a fundamental and indispensable way, to what is now sought to be pleaded. Further, that letter identified the “Associated Entities” as Twin Investors Pty Ltd and Twin Superannuation Pty Ltd, not Kapp Consulting.

56    JKL points out that following procedural orders made on 6 December 2018 directed to the hearing of its 12 November 2018 interlocutory application to strike out the present pleadings, and also ordering the serving of any amended statement of claim, on 18 December 2018 the solicitors then acting for Mr Kapp and Kapp Consulting served a proposed amended originating application and proposed amended statement of claim, copies of which are in evidence on these competing interlocutory applications. Those proposed amended pleadings reveal that it was then proposed to abandon altogether the case brought by Kapp Consulting, and assert that Mr Kapp alone was entitled to the disputed success fee of a 35% share of the settlement funds of $807,182 (incl GST), as currently pleaded at [7] of the existing statement of claim, summarised at [19(1)] above.

57    On 30 April 2019, a very different proposed amended statement of claim was sent to JKL, this time instead maintaining the claim by Kapp Consulting and abandoning the pleaded claims by Mr Kapp, which had already been dismissed. On 10 May 2019, a corresponding proposed amended originating application was served, again pressing the claim only by Kapp Consulting. On 16 May 2019, JKL’s solicitors indicated that it would not consent to the then proposed amended pleading being filed. The response from Kapp Consulting’s then solicitors six days later, on 22 May 2019, was to advise by letter that Kapp Consulting did not propose to continue with the claim, proposing that the proceeding be discontinued with each party paying its own costs upon the basis that most of the costs had been incurred in relation to Mr Kapp.

58    By a letter dated 6 June 2019, JKL’s solicitors conveyed agreement to the discontinuance proposed by Kapp Consulting’s then solicitors, but maintained a claim for costs. By a further letter dated 12 June 2019, JKL’s solicitors noted that Kapp Consulting had indicated an intention to press its claims after all. That led to the present application by Kapp Consulting to file a proposed ASOC and proposed AOA, first in the form of a draft provided under cover of letter dated 24 June 2019, and then in the form now before the Court, served on 17 July 2019.

59    JKL correctly characterises the change of position to reach the current situation as being neither explained nor justified in any manner that should be acceptable to this Court, readily supporting the inference that the steps taken to abandon the claim by Kapp Consulting, whilst legally represented, arguably involved recognition that it had no arguable or viable claim. However as this an interlocutory dispute, I consider it better and fairer not to treat this conduct as constituting any admission to that effect and will therefore put this to one side.

60    JKL submits that the proposed ASOC fails to disclose any claim that should be permitted to go to trial by reason of lacking sufficient merit. JKL characterises what is proposed as, in substance, a naked attempt to circumvent Mr Kapp’s bankruptcy. JKL characterises Kapp Consulting’s claims that it was a disclosed or undisclosed principal of Mr Kapp in relation to the Term Sheet as hopeless, noting that both the existing statement of claim and the proposed ASOC plead the agreement constituted by the Term Sheet as being entirely in writing. JKL relies upon the absence of particulars of the alleged “actual authority” said to be reposed in Mr Kapp by Kapp Consulting to act as its agent, other than his role as a director of JKL, especially given that attempts to obtain such particulars were unsuccessful up to, and including, the hearing of these applications. It remains the situation that there is not the slightest suggestion as to how Mr Kapp was given actual authority, prior to signing the Term Sheet, to do so not just in his own capacity, or even in a joint capacity, but solely as agent for Kapp Consulting. JKL accurately characterises the terms of [4B] of the proposed ASOC, although lengthy, as failing in fact to provide any particulars at all of:

(1)    the actual authority alleged to have been invested in Mr Kapp by Kapp Consulting; or

(2)    how it is alleged that Mr Kapp’s asserted authority and agency to enter into the Term Sheet on behalf of Kapp Consulting was disclosed to the other parties to the Term Sheet (including, but not only, JKL) prior to entry into the Term Sheet.

61    As JKL correctly points out, without proper particulars, these critical paragraphs are embarrassing and vexatious, and liable to be struck out in any event, failing to rise to a triable issue; a fatal failing found by Brereton J in Street v Luna Park Sydney Pty Ltd [2006] NSWSC 533. As his Honour pointed out in that case at [10]:

… Ostensible or apparent authority depends upon the agent being held out by the principal as having the principal’s authority to act on its behalf. Particulars of such an agency would require identification of some holding out by the alleged principal of the agent as its authorised agent, and there appears to be nothing alleged in the pleading or in the particulars which, if proven, would establish that. …

62    JKL relies upon the statement of principle by Jordan CJ, writing for the Supreme Court of New South Wales in Banco in Bligh at 40, that “if the written terms are such as to hold out the actual parties as the real and only principals, evidence is not admissible to show that there are other persons who are also liable as principals”. This proceeding is correctly characterised by JKL as being such a case. It avails Kapp Consulting nothing to point to the evidence that might be called and considered if the case as sought to be pleaded gives no proper avenue for such evidence to be taken into account in the first place. That is because the language in the Term Sheet makes it explicit that Mr Kapp entered into the Term Sheet in his personal capacity, and on behalf of his associated entities that were shareholders of JKL at the time, which did not include Kapp Consulting; and also because most of what Kapp Consulting asserts it can rely upon at trial is post-contractual and not able to be used for that purpose. Thus, the express words of the Term Sheet are contrary to the claim that Kapp Consulting seeks to plead by way of the proposed ASOC, namely that, contrary to those express terms, Mr Kapp entered into the Term Sheet as agent for Kapp Consulting and not in his personal capacity and on behalf of his associated entities who were shareholders at the time. This is an insurmountable hurdle to Kapp Consulting succeeding, and cannot be overcome readily by any device of pleading, but in any event certainly not by the proposed ASOC.

63    JKL further points out that Kapp Consulting now seeks to allege, for the first time in the draft proposed ASOC of 17 July 2019, that it is an “express term” of the Term Sheet that the payment under cl 29 would be made to Kapp Consulting, in contrast to the 24 June 2019 draft ASOC alleging that the express term was that Twin Investors, not Kapp Consulting, was to be paid the relevant sum. JKL submits that cl 29 of the Term Sheet expressly provides that any payment of 35% of the net settlement proceeds of the Wickham proceedings is to be made to Mr Kapp, which can only be construed as a reference to Mr Kapp personally. It is not to the point that this right reposed in Mr Kapp might have been sought to be redirected to Kapp Consulting in subsequent agreements. The Term Sheet provided a degree of flexibility in that regard, but this does not change its meaning as to who was a party to it. That interpretation is supported by the terms of cl 5 reproduced above, but repeated now for convenience and ease of reference: “Kapp will receive certain agreed benefits. If these benefits exceed his annual base salary as required by the Corporations Act, JKL must promptly convene a meeting of shareholders to ratify the payment or so much of it as exceeds the base salary”. It is noteworthy that “Kapp” receiving “certain agreed benefits” and the reference to “his annual base salary” are impossible to reconcile as including any reference to Kapp Consulting, as opposed to the defined term reference to being in his personal capacity.

64    JKL submits that Kapp Consulting’s allegation of agency and allegation of an express term are therefore not only directly at odds with the express terms of the Term Sheet, but also directly at odds with the conduct of the litigation and, in particular, the decision to press the claim on behalf of Mr Kapp until after Mr Kapp was declared bankrupt. In those circumstances, JKL submits that there is no reasonable prospect of either Kapp Consulting or Twin Investors prosecuting the proposed claims successfully.

65    For completeness, JKL notes, in relation to Kapp Consulting’s reliance on the documents tendered in this application in an attempt to demonstrate that the pleaded allegations can be sustained, that even if those documents could in theory establish the allegations as sought to be pleaded, which is denied, they would not and could not displace the conclusions to be drawn from the face of the Term Sheet as the pleaded agreement in writing. That is argued to be so because statements that were made either before or after execution of the Term Sheet cannot displace its terms, citing Equuscorp v Glengallan Investments Pty Limited (2004) 218 CLR 471 and Hoyts v Spencer (1919) 27 CLR 133, especially having regard, as already noted, to cl 41 providing that the Term Sheet “supersedes any previous correspondence, negotiation or discussion between us on its subject matter”.

66    The definition of “Kapp” in the Term Sheet is capable of referring to Mr Kapp alone, an associated entity of his who is a shareholder of JKL; or both, depending upon the context in which the word “Kapp” appears. Fanciful constructions can be excluded from the assessment required for this application, and I have concluded that a construction of cl 29 so as to be a reference to anyone other than Mr Kapp in person is fanciful. That necessarily means that not only is Kapp Consulting excluded as being a fanciful construction, because it does not fall within even the widest construction of “Kapp”, but also that Twin Investors as an associated entity said to be a shareholder in JKL, is excluded for the same reason, as to it being a reference to Mr Kapp alone.

67    Further, and as an alternative reason for refusing to allow Kapp Consulting’s proposed case to proceed to trial, JKL relies upon the way in which the proceedings have been conducted by both Mr Kapp and Kapp Consulting, the delay that has been thereby occasioned (which would not on its own be likely to be decisive), as both a supporting and independent basis for allowing the applicant to proceed on the proposed pleadings, including the joining of Twin Investors. In that regard, JKL relies upon:

(1)    the majority statement in AON Risk Services Australia Ltd v Australian National University [2009] HCA 27; 239 CLR 175 at [103]:

Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached … to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the Court’s attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case.

(2)    the statement by French CJ in AON at [30] that the Court should consider “the potential for loss of public confidence in the legal system which arises where a court is seen to accede to applications made without adequate explanation or justification”, albeit within the context of interlocutory applications requiring adjournments.

68    JKL asserts that the need for an explanation for the delay in this case is all the more important given that the claim now sought to be advanced by Kapp Consulting is one which it previously eschewed and proposed to abandon. JKL submits that Kapp Consulting has advanced nothing which would properly lead to the conclusion that there was any proper basis for the complete change of position that has taken place, with the only identifiable thing of note that has changed being Mr Kapp’s bankruptcy leading to the claim being unable to be advanced in his name. JKL submits that without any explanation being even attempted, the proper and appropriate conclusion to reach is that the reformulated case sought to be advanced is no more than a transparent endeavour to outflank Mr Kapp’s bankruptcy.

69    Support for JKL’s reasoning is aptly drawn from the decision of Davies J in Perpetual Trustee Co Ltd v Stojcevski [2013] NSWSC 1612. In that case, the defendant at first pleaded a denial in his defence that he had signed certain documents, maintained that denial in an amended defence, and later sought leave to rely upon a changed defence, pleading instead a non-admission and a defence under the National Credit Code. This change, which is undoubtedly less substantial and less fundamental than the shift in position sought in this proceeding by Kapp Consulting, was not permitted. In reaching that conclusion, his Honour said in his customary pithy way (at [31]) that AON made it “perfectly clear that in the absence of adequate explanation for delays and change of approach to litigation, it is unlikely that such applications will be successful”. JKL urges the same approach in this proceeding as an additional reason for refusing to permit Kapp Consulting to file the proposed ASOC or to prosecute its now proposed case at a trial.

CONCLUSION

70    Taking all of the foregoing into account, I am firmly of the view that JKL has satisfied its onus of demonstrating that Kapp Consulting has no reasonable prospect of successfully prosecuting the proposed ASOC. In those circumstances, and without more, the application for leave to file the proposed pleadings must be refused. In those circumstances, there is consequently no need to determine the quantum of security for costs that would otherwise be required.

71    Even if I had reached a different conclusion about the prospects of Kapp Consulting successfully prosecuting the proposed ASOC, I would not have exercised the discretion to grant Kapp Consulting leave to file the proposed ASOC or join Twin Investors, or otherwise allowed that to take place, in light of the overarching objective set out above at [12], given the unexplained change of position, and thus the complete failure to provide any adequate explanation or justification for that change of position. This leaves intact the obvious explanation urged by JKL: this was a transparent attempt to avoid the effect of the bankruptcy of Mr Kapp, the sole beneficiary of any rights capable of being bestowed by cl 29 of the Term Sheet.

72    After taking into account the dismissal of the proceeding brought by Mr Kapp, the remaining case on this existing pleading cannot survive. The proceeding must therefore be dismissed. Kapp Consulting must pay JKL’s costs of, and incidental to, this application and of the proceeding more generally, except to the extent that costs incurred can properly be attributed to Mr Kapp alone.

Associate:

Dated:    29 October 2019