TGIF 4 February 2022 – All not lost: Court allows amendment to correct the naming of the plaintiff

This week’s TGIF considers the decision of Wallace (Liquidator), in the matter of Avestra Asset Management Ltd (In Liq) v Dempsey [2021] FCA 1643 in which the Court granted liquidators leave to amend their pleading following a mistake in the naming of the plaintiff.

Key Takeaways

• Insolvency practitioners and their advisers must carefully consider whether claims for recovery are enjoyed by the Company or the liquidators in their capacity as liquidators.
  
  
• If a mistake has occurred in the name of a plaintiff, the Court may grant leave to amend pleadings to change the name to the Company instead of the liquidator.  
  
  
• Evidence which proves a liquidator’s knowledge and intention as to the correct plaintiff will assist to establish a mistake has occurred for the purposes of the Federal Court Rules 2011 (Cth).

What happened?

On 19 February 2016, liquidators were appointed to a company (the Company) that was the responsible entity for three managed investment schemes. Prior to being placed in liquidation, each scheme administered by the Company had a mandate to invest in certain types of securities.

During their investigations, the liquidators identified transactions which they considered were outside the investment mandate of each scheme. Those transactions appeared to give rise to significant loss. A pleading was prepared and issued in draft to two directors of the Company under cover of a letter. That correspondence outlined the liquidators’ belief that the Company had a claim against each director for breach of duty and confirmed the draft was issued to provide sufficient notice to both directors and their insurer of the impending proceedings.

The pleadings were later finalised and, one day prior to the expiration of the limitation period (at least on the understanding of the liquidators’ solicitors), the documents were filed and served. However, the filed copies incorrectly described the applicant as the liquidators, as opposed to the Company itself.

An application was subsequently filed to fix the issue. That application asked the Court for leave to amend under rule 8.21 of the Federal Court Rules 2011 (Cth) (the Rules). The directors opposed the amendment.

How did the error occur?

The evidence revealed the solicitor with carriage of the matter had her house burgled on the day the claim was to be filed. As such, support lawyers were called to assist. While exactly how the error occurred was unclear, the affidavit in support cited pressure of the impending expiration of the limitation period (as it was understood) as a possible contributing factor.

The defendants’ submissions

The primary contention of the directors was that, on their view, the evidence established no more than inattention or inadvertence. It was argued a mistake of that kind was not a ‘mistake’ for the purposes of the Rules.

In support of their position, the directors also referred to:

• the earlier draft of the pleading that similarly described the liquidators as the applicants;
  
  
• the opening paragraphs of that draft which distinguished the plaintiffs on one hand as the liquidators in that capacity and the Company on the other; and
  
  
• the reaction of the liquidators’ solicitors when first notified of the error and their confirmation to the defendants that the proceedings had been commenced by both the Company and the liquidators.

As a consequence, the directors submitted that a relevant mistake for the purposes of an order under rr 8.21(c) or (d) should not, in the absence of direct evidence of how it occurred, be inferred by the Court.

The decision

The Court rejected the directors’ arguments and granted leave to amend.

In reaching this conclusion, Justice Greenwood noted the wide interpretation which the authorities indicate should be given to the language of rr 8.21(c) or (d). His Honour also had regard to the principle that leave under the rule should extend beyond cases of mere inaccuracy or administrative error and cover situations where an applicant could demonstrate an intention to sue a party of a certain description, but was mistaken as to their name or how to describe that party.

With that in mind, his Honour was in no doubt the liquidators believed and understood the claim in the proceeding was available to the Company solely and not them in their capacity as liquidators. His Honour found that intention was clear from both the liquidators’ correspondence under which the draft pleading was provided and how the claim had been articulated within the body of the pleading as filed.

Unfortunately, his Honour noted, it appeared the solicitors made a mistake in framing the proceedings inconsistent with the Liquidators’ intention, in the sense that they believed the action was properly constituted by adopting the language in the document itself.

Comment

Rule 8.21 of the Rules provides an avenue for applicants to amend pleadings, including where a mistake has caused an error in the name of a party due to misnomer, clerical error or misdescription.

This judgment should provide comfort to insolvency practitioners and their advisers that claims will not be lost or struck out in similar circumstances. It also serves as a useful reminder of the importance in such applications of evidence that makes clear the applicant’s understanding of the claims to be made and the intended parties.