In Clements & Anor v McGregor & Ors  QSC 258, Justice Martin of the Supreme Court of Queensland allowed the substitution of a defendant in the proceedings, but ordered the applicant plaintiffs to pay the costs of the application.
HOLMAN MCGREGOR FINANCIAL SERVICES PTY LTD INCORRECTLY IDENTIFIED AS SECOND DEFENDANT
The plaintiffs had commenced proceedings against the defendants claiming damages for negligence, breach of contract and breach of various provisions of the Australian Securities Investment Commission Act 2001 and the Corporations Act 2001.
Robert McGregor, the first defendant, was the applicants' former financial planner. McGregor was also an authorised representative of the third defendant, Professional Investment Services Pty Ltd, an Australian Financial Services licensee.
The original second defendant, Holman McGregor Financial Services Pty Ltd, was alleged by the applicant plaintiffs to be the employer of the first defendant in its financial services business. Unfortunately for the plaintiffs, the second defendant was not incorporated at the relevant time and so could not possibly be a defendant to the claim.
The proposed second defendant, Holman McGregor Financial Services (a firm), was a partnership consisting of six companies. The first defendant was the director and shareholder of one of those companies.
None of the defendants objected to the removal of the second defendant, but the second defendant sought its costs of the application. His Honour commented that there was no reason such an order should not be made.
Applicants seek order under rule 69 of Uniform Civil Procedure Rules 1999 regarding substituting parties
The applicants sought an order under Uniform Civil Procedure Rules 1999 (Qld) (UCPR), rule 69 which provides that the Court may order that, at any stage of a proceeding, a person who has been unnecessarily or improperly included as a party be removed and that a person whose presence before the court is necessary or desirable, just or convenient [be included as a party] to enable the courts adjudication of the issues (see rule 69(1)).
WHEN IS THE PROCEEDING AGAINST THE NEW PARTY TAKEN TO HAVE STARTED?
Rule 74(5) of the UCPR provides that, for the purposes of a limitation period, a proceeding against a new party (in this case the proposed substitute second defendant) is taken to have started when the original proceeding started unless the court orders otherwise.
To upset this default position and avoid the effective "backdating" of their joinder to a claim, a defendant is required to demonstrate prejudice arising from the plaintiff's conduct and delay.
In this case, Martin J adopted the reasoning of Jerrard JA in Limpus v Statement of Qld & Ors  QCA 563 in respect of the former provision, rule 62(2)(g), and found that the evidential onus rested on the potential defendant to demonstrate the prejudice to it.
It was submitted by the proposed second defendants that they had suffered prejudice by reason of the delay in the applicant plaintiffs seeking to join them to the proceeding.
The applicant plaintiffs had been informed and were aware that the identity of the second defendant was incorrect some 12 months prior to the bringing of the application. It had been identified in the pleadings of the second defendant that it had not been in existence at the time material to the pleading.
However, his Honour was not satisfied that sufficient prejudice had been suffered, for various reasons, including the largely similar composition (in terms of natural persons) between the current and proposed second defendant.
PLAINTIFFS ORDERED TO PAY DEFENDANTS' COSTS OF THE APPLICATION
Ultimately, his Honour allowed the removal, and the substitution of the proposed second defendant. The applicants sought an order that the costs of and incidental to the application be the parties' costs in the cause.
In rejecting this, his Honour comments (at ) that:
The joinder of the company as the second defendant was a blunder of the applicants' own making. It could easily have been avoided.
In the circumstances, the applicant plaintiffs were ordered to pay the costs of the application of all respondent defendants, including both the incoming and outgoing second defendants and to file and serve amended pleadings within seven days of the publication of the Court's reasons.
LESSONS FOR PLAINTIFFS AND DEFENDANTS IN JOINDER OF CAUSES OF ACTION AND PARTIES TO A CLAIM
As the plaintiff, ensure that you identify and join all relevant parties to an action correctly and promptly. If at some later stage it becomes apparent that a party is incorrectly identified, take steps to substitute the correct party as soon as possible. If a time limit has expired and judicial discretion is required, then be prepared to pay not only your own costs, but the costs of all other parties.
As a defendant, if a plaintiff seeks to join you to proceedings outside the limitation period, investigate whether evidence can be led of prejudice occasioned by the plaintiff's delay. If substantial prejudice can be demonstrated, it may be possible to persuade the Court not to backdate the claim.Stuart Unwin
Insurance and reinsurance
Colin Biggers & Paisley
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.