Bettio v Mahfoud - [2020] SADC 26

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Interlocutory Application)
BETTIO & ANOR v MAHFOUD & ANOR
[2020] SADC 26
Decision of His Honour Judge O'Sullivan
20 March 2020
PROCEDURE - CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS - JUDGMENTS AND ORDERS - AMENDING, VARYING AND SETTING ASIDE JUDGMENTS AND ORDERS - ACTIONS TO REVIEW OR SET ASIDE JUDGMENT OR ORDER
The second defendant, Bizfine Pty Ltd, sought an order that orders made ex parte by a Master of this Court renewing a summons and extending time for the plaintiffs to serve the proceedings be set aside.
Bizfine based its application on 4 grounds:
1. The order was obtained in circumstances that contravened the Harman undertaking;
2. The order was obtained in circumstances of material non-disclosure;
3. The plaintiffs failed to comply with a condition of the orders; and
4. “Other factors”.
Held:
1. The plaintiffs did not breach the Harman undertaking.
2. There was no material non-disclosure.
3. To the extent the plaintiffs failed to comply with a condition of the orders, that failure was, in the circumstances, an irregularity, and does not comprise a basis to set aside the Master’s orders.
4. The “other factors” did not provide a basis to set aside the Master’s orders.
5. The second defendant has not satisfied the Court that it should exercise its discretion to set aside the Master’s order.
6. The application is dismissed.
7. Parties to be heard on question of costs.
District Court Civil Rules 2006 (SA); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), referred to.
Hearne v Street (2008) 235 CLR 125; Harman v Secretary of State for the Home Department [1983] 1 AC 280; Forty Two International Pty Ltd v Barnes [2010] FCA 397 at [72] ; K & S Corp Ltd v Number 1 Betting Shop [2005] SASC 228; Riddick v Thames Board Mills Ltd [1977] QB 881; Gibbs v Williams (1979) 24 SASR 243; Thomas A Edison Ltd v Bullock (1912) 15 CLR 679; Savcor Pty Ltd v Cathodic Protection International APS (2005) 12 VR 639, considered.

BETTIO & ANOR v MAHFOUD & ANOR
[2020] SADC 26
Introduction

By application filed on 19 December 2019, the second defendant (“Bizfine”) seeks an order that order 1 of the ex parte orders made by a Master of this Court on 21 June 2018 be set aside.
The Master’s orders made that day are:
1Order renewing summons for a period of twelve months from 22/6/18 to 22/6/19 and the plaintiffs have a corresponding extension of time pursuant to Rule 39(2) within which to serve the defendant.
2Costs reserved.
3Plaintiffs to notify the defendants or, if applicable, the defendants’ insurer of these orders not later than the time at which the proceedings are served upon the defendants or, if applicable, the defendants’ insurer.
Bizfine bases its application on 4 grounds:
1The order was obtained in circumstances that contravened the Harman undertaking;
2The order was obtained in circumstances of material non-disclosure;
3The plaintiffs failed to comply with a condition of the orders; and
4Other factors including procedural irregularities and non-compliance by the plaintiffs with the Court’s orders are relevant to the Court’s exercise of its power to set aside or strike out service of the proceeding and to dismiss or otherwise strike out the proceedings against Bizfine.
Materials relied upon
Bizfine reads:
i.The affidavit of Eddie Bastiani affirmed on 19 December 2019; and
ii.The affidavit of Colin Thomas affirmed on 16 January 2020.
The proceedings involve a construction dispute over a residential dwelling. The plaintiffs in this action (“plaintiffs” or “Mr and Mrs Bettio”) are the defendants in action 16-736 (“principal action”) in which the plaintiffs in that action, Mr Gianni and Ms Bell, allege that Mr and Mrs Bettio are in breach of their contract to perform building works.
The first defendant in this action (Mr Mahfoud) is a sub-contractor to the plaintiffs. Bizfine is a supplier of materials used by Mr Mahfoud on the house the subject of the dispute. The claim against Mr Mahfoud is for damages and contribution or indemnity in relation to the work he performed. The claim against Bizfine is for damages and contribution or indemnity by reason of an alleged breach of duty of care and breach of contract in providing advice in connection with the work performed by Mr Mahfoud.
On 29 November 2019, at a directions hearing in both the principal action and these proceedings, the Court made the following orders in relation to both proceedings:
1The trial in action numbers 17-1810, Bettio & Anor v Mahfoud & Anor, be heard and determined at the same time as the trial in action 16-736 on 6 July 2020.
2The evidence in the trial of action 16-736 stand as evidence in action 17-1810, and the evidence in action 17-1810 stand as evidence in action 16-736.
3The plaintiff and defendant in action 16-736 be released from the Harman undertaking in relation to all documents, and the plaintiff and defendants in action 17-1810 be released from the Harman undertaking in relation to all documents, such release to be effective forthwith.
The Harman undertaking
In Hearne v Street[1] the High Court held that an implied undertaking existed in relation to documents obtained in legal proceedings. That undertaking is that the documents are not to be used for a purpose unrelated to those proceedings.
[1] (2008) 235 CLR 125.
The majority expressed the principle as:[2]
Where one party to litigation is compelled, either by reason of a rule of court, or by reason of a specific order of the court, or otherwise to disclose documents or information, the party obtaining the disclosure cannot, without the leave of the court, use it for any purpose other than that for which it was given unless it is received into evidence.
[2] Ibid at [96] (per Hayne, Heydon and Crennan JJ).
The principle applies to preclude the use of a document in any proceeding other than that in which the document was produced, and for any purpose other than that for which it was given:[3]
The obligation restricts not only the disclosure of the documents or information, but also more general instances of use of the documents or information outside the purposes of the proceeding in and for which the documents or information were disclosed.
[3] Forty Two International Pty Ltd v Barnes [2010] FCA 397 at [72] (per Yates J).
The implied undertaking, also referred to as the Harman undertaking originates from the decision of the House of Lords in Harman v Secretary of State for the Home Department.[4]
[4] [1983] 1 AC 280.
The rationale underpinning the rule is fundamentally one of privacy. In practice, the rule strikes a balance between two competing interests:[5]
…on the one hand, the protection of a litigant’s private right to keep [their] documents to [themselves] not withstanding [their] duty to disclose them to the other side in the litigation, and on the other, the protection of the right, which the law recognises, subject to certain exceptions, as the right of everyone, to speak freely, and to impart information and ideas, upon matters of public knowledge.
[5] Harman v Secretary of State for the Home Department [1983] 1 AC 280, pp 312-3.
Contravention of the implied undertaking is enforced by the court and may be dealt with as an abuse of process,[6] however if the breach is found to be trivial, the breach may be excused.[7]
[6] Ibid, p 300 (per Lord Diplock); Hearne v Street (2008) 235 CLR 125 at 159 (per Hayne, Heydon & Crennan JJ).
[7] K & S Corp Ltd & Anor v Number 1 Betting Shop Ltd & Ors [2005] SASC 228, p 26 [80]-[81] (per Debelle J).
First Ground – The order was obtained in circumstances that contravened the Harman undertaking
Bizfine submits that there has been an abuse of process flowing from a contravention by Mr and Mrs Bettio of the Harman undertaking.
It submits that the undertaking has the effect of precluding the use of documents by another party within an existing action in order to mount a new action.[8]
[8] As opposed to commencing a counterclaim or third-party action within the existing proceedings: Riddick v Thames Board Mills Ltd [1977] QB 881.
In action 16-736, Mr Gianni and Ms Bell obtained an expert’s report prepared by Mr Chris Smith of TMK Consulting Engineers dated 6 March 2018. Mr and Mrs Bettio were served with that report in circumstances where Bizfine submits the implied undertaking applied.
Counsel for Bizfine submitted that use of that document in these proceedings goes further than to fairly prosecute the claims and rights as between the parties to the principal action in that it has been used to prosecute an application for renewal of the summons and an extension of the time for service of the proceedings. As such, Bizfine submits it has been used for the private advantage of Mr and Mrs Bettio, and so for a purpose collateral to that for which it was produced.
Consideration
This action by its nature, is a third-party claim against Mr Mahfoud and Bizfine. It is not submitted by Bizfine that Mr and Mrs Bettio used Mr Smith’s report to mount a case they that would not have otherwise been able to formulate or consider.
I consider that the two proceedings are so interrelated, that the use by Mr and Mrs Bettio in these proceedings of Mr Smith’s expert witness report did not contravene the implied undertaking. Accordingly, I decline to revoke the Master’s orders made on 21 June 2018 on the basis of this complaint.
Second Ground - Material non-disclosure
The second ground advanced by Bizfine is that the orders were obtained in circumstances of material non-disclosure.
It is trite that an applicant for an ex parte order has an obligation to the court of the utmost good faith, requiring the applicant to make full and fair disclosure of all material facts. As such, orders obtained in circumstances that do not meet the requisite obligation of good faith, must almost invariably be set aside.[9]
[9] Thomas A Edison Ltd v Bullock (1912) 15 CLR 679, 682 (per Issacs J).
Bizfine submits that in advancing the application, Mr and Mrs Bettio did not advise or otherwise disclose to the Court the following matters:[10]
[10] Second Defendant’s Summary of Argument, pp 10-12.
35.1.That the plaintiffs had not sought or obtained a release from the implied undertaking notwithstanding its use and reliance on the report in support of the application, being a report to which the implied undertaking applied.
35.2. What if any attempt the plaintiffs had made at service.
35.3.Why the plaintiffs had not attempted to serve the proceedings (where it is apparent that they made no effort to serve [Bizfine] and could have at any time at the registered office).
35.4.That the plaintiffs had not notified [Bizfine] that the proceedings had been issued prior to seeking the extension order.
35.5.That more than two years earlier the plaintiffs’ solicitors had advised [Bizfine] by letter of 27 May 2016 that proceedings by the home owners, or by the third-party claim or by new proceedings should be expected in the context of foreshadowed settlement discussions but then made no further contact at all with [Bizfine] (notwithstanding that the prima facie 6-year limitation period had passed). The plaintiffs made no further contact at all until the proceedings were served being over 3 years after the letter of 2016).
35.6.That contrary to what was suggested in the pleadings the key pleaded contractual obligations on which the claim relied was not recorded in writing, and that the only written email particularised at paragraph 28 was quite incapable, without more, of supporting the contractual obligations alleged.
35.7.That in those circumstances the actual claim concerned and relied on oral conversation occurring in late 2011 or early 2012 some 6 and a half years prior to the order being sought, and there would be issues as to the inevitable prejudice this would create to the fair resolution of the claim.
35.8.Failed to disclose any facts relevant to any relevant limitation periods, in circumstances where such limitation periods had or were likely to have already expired to the extent the claim relied on a breach of contract, a claim in tort or under the ACL to which the prima facie 6-year limitation period applied.
35.9.That the plaintiffs could have, but had not, commenced the action by way of third-party proceedings in the related proceedings in circumstances where:
35.9.1The plaintiffs had not done so as a result of being unable to reach accommodation regarding representation of the plaintiffs in DCCIV-16-736 that would have permitted the proceeding to run as a third-party claim (being a reason exclusively concerned with the private interests between the plaintiffs and the holder of a right to subrogation to the rights and claims in this proceeding);
35.9.2 Had [Bizfine] been aware of these proceedings it may have wished to seek orders for the two proceedings to be heard and determined together (as was ultimately ordered).
Bizfine submits that these factors were material to the application but were not disclosed such that that the order must fall.
In Savcor Pty Ltd v Cathodic Protection International APS[11] Gillard J discussed the principles that apply in considering an application to set aside ex parte orders for extending the time for service. In so doing, his Honour observed[12] that there exists an obligation to disclose all material facts and whether or not the order is to be set aside, is a matter of discretion.
Consideration
[11] (2005) 12 VR 639.
[12] Ibid, p 648 [26] (per Gillard J).
The ex parte application was advanced by electronic application, supported by the First Affidavit of Mr and Mrs Bettio’s solicitor, Mr Grant Mitchell filed 20 June 2018.[13]
[13] Affidavit of Eddie Bastiani, dated 19 December 2019 at [20] and “EB-4” pp 7-17.
As to each of the matters said to not have been disclosed by reference to the paragraph numbers in Bizfine’s Written Submissions:
Issue 35.1. – No release from the Harman undertaking
I have dealt with the Harman undertaking above and have found that the undertaking was not breached. Accordingly, there has been no material non-disclosure on this basis.
Issue 35.2. – Attempts at service
It is evident from Mr Michell’s Affidavit that the electronic application seeking orders that the summons be renewed and that time within which to serve the proceedings be extended, was sought in order to enable consideration of Mr Smith’s expert report and to make further inquiries before serving the summons. This matter was disclosed to the Master and was a fact before him for his consideration when making his decision on the application. I do not consider there has been a material non-disclosure in relation to this issue.
Issue 35.3. – Prior attempts at service
I make the same finding as in 35.2 above.
Exhibit GM-1 to Mr Mitchell’s second affidavit sworn 15 January 2020 is a document created by the General Manager of Bizfine, under the name Acryloc Building Products titled “Issue Resolution Report”. Mr and Mrs Bettio allege Acryloc Building Products is a business name under which Bizfine trades, a matter about which there does not seem to be any dispute.
Exhibited to Mr Mitchell’s second affidavit, is an email dated 22 August 2016 from the plaintiffs’ project manager to the General Manager of Bizfine and at Exhibit GM-3 a letter from the plaintiffs’ then solicitors, Fenwick Elliot Grace, dated 27 May 2016[14] to Bizfine, which put it on notice of potential proceedings.
[14] Exhibit GM-2 at p 12.
The effect of the correspondence is that it is made clear to Bizfine that the plaintiffs consider the defective render about which Mr Gianni and Ms Bell complain is a result of advice and directions given by Bizfine to Mr Mahfoud.
Bizfine characterises the email as an invitation to attend settlement discussions. That is so, but the correspondence also gives notice that the plaintiffs hold Bizfine responsible for problems with the rendering, that they will pursue that issue in legal proceedings and that a claim has been filed by Mr Gianni and Ms Bell against Mr and Mrs Bettio in separate proceedings. Bizfine did not respond to the letter.
In my view, the correspondence puts Bizfine on notice of the possibility of a claim against it, whether that be as a third-party claim or otherwise.
Bizfine complains that Mr and Mrs Bettio failed to put this evidence before the Master and that the evidence was a material issue to the application. Mr and Mrs Bettio submit that if the letters were material to the application, they could have only operated to support the application.
It is clear to me that Bizfine was on notice of the claim in October 2012 which is the date recorded as the first log in the Issue Resolution Report which is Exhibit GM-1 to Mr Mitchell’s Second Affidavit.
It is also clear to me that the correspondence could only have operated to support Mr and Mrs Bettio’s application.
Mr Mitchell’s affidavit was before the Master. I do not consider there has been a material non-disclosure in relation to this issue.
Issues 35.4. and 35.5. – Notification of Proceedings to Bizfine and correspondence with Bizfine
An explanation was given to the Master as to why the proceedings were commenced against Bizfine, and that Mr and Mrs Bettio were still making a decision about whether to serve Bizfine in light of Mr Smith’s report dated 6 March 2018. I do not consider there has been a material non-disclosure in relation to this issue.
Issues 35.6. & 35.7. – Contractual obligation claim
The material non-disclosure alleged is that the plaintiffs did not inform the Master that the pleaded contractual obligation upon which their claim relies was not recorded in writing and therefore the claim relies on an oral conversation occurring in late 2011 or early 2012. Bizfine submits that this is relevant to the Master’s decision as it would raise an issue as to the inevitable prejudice that would be created to the fair resolution of the claim.
The plaintiffs plead that the contract is in writing and implied. Insofar as it is written, they identify the email in question at paragraph 28 of the Statement of Claim. The Master had the pleadings before him when considering the application.
Since the pleadings were before the Master, then in the circumstances I do not consider there has been a material non-disclosure.
Issue 35.8. – Limitation periods
Bizfine submits that the plaintiffs did not tell the Master that the contractual time limits had already passed. The reason given by the plaintiffs in relation to that omission is that it is not the case with respect to the action in negligence, breaches of the ACL and the entitlement in indemnity or contribution under the Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001. The plaintiffs also submit that it is by no means clear that any claim in contract would have been out of time as at 21 June 2018.
It is evident on the pleadings that the contractual claim was within time however had the summons not been renewed and the time for service not been extended it may be that the cause of action in contract would have been out of time. The Master had the pleadings before him.
I do not consider there has been a material non-disclosure in relation to the contractual claim.
Issue 35.9. – Third-party proceedings
Bizfine submits that the plaintiffs could have commenced this action by way of third-party proceedings to the original action, and that this should have been disclosed to the Master during the ex parte application.

I do not consider that issue to be a material non-disclosure. In any event, as I have observed the Master had the statement of claim before him which referred to the proceedings in the other action and which made clear the nature of the claim.
I do not consider there has been a material non-disclosure in relation to this issue.
Third Ground - Non-compliance with the orders
The third ground relied upon by Bizfine is that there has been defective service because the plaintiffs failed to comply with a condition of the order renewing the summons and extending time for service by failing to give notice of the orders to the defendants.
The relevant condition of the order was that the plaintiffs were to notify the defendants of the orders no later than the time at which the proceedings are served upon the defendants (or if applicable their insurer).[15] The orders were provided to Bizfine nearly 4 months after service of the proceedings on 10 October 2019, and only after they were expressly requested by Bizfine’s solicitors. Bizfine submits that order 3 was a conditional grant of the renewal and extension of time for service order (order 1) and thus, the plaintiffs’ failure to comply with the order renders the service defective and liable to be set aside.
[15] Order 3 of Master Blumberg orders, dated 21 June 2018.
I consider the plaintiffs non-compliance with the Master’s order to be an irregularity. I do not consider the service has been effected improperly such that the order should be set aside.
Fourth Ground - Other factors
The fourth ground relied upon by Bizfine is classified as ‘other factors’, described in its Written Submissions as:
42.1.The plaintiff’s claim, as advanced, lacks necessary and proper facts and particulars. The plaintiff will necessarily need to amend its claim in any event in order to properly articulate the actual basis of any claim.
42.2.The second defendant has now suffered genuine prejudice due to the delay in service, and the failure to give notice of the proceedings.
42.3.The plaintiff could have, but did not, proceed under DCCR 123 to take up the Court’s process for an effective stay of proceedings. Compliance with DCCR 123 would have avoided the prejudice to the Second Defendant.
42.4.The plaintiff did not comply with DCCR 33. Compliance with DCCR 33 would likely have avoided the prejudice to the Second Defendant.
42.5.The extent and nature of the plaintiffs’ other default… including the failure to comply with the implied undertaking, or the failure to disclose the various material matters, or the failure to comply with the Court’s order as to the condition for extended service are in no way trivial such that in all circumstances the Court should excuse the breach. Each default goes to the core of the process or power being deployed or relied upon by the plaintiff.
42.6.Any new proceedings would to the extent they rely on a simple contract, a tort, or a claims (sic) under the ACL to which a 6-year limitation period applies would now appear to be statute barred.[16]
[16] Second Defendant’s Written Submissions [42].
Bizfine submits that any exercise of the Court’s discretion, including DCR 39 is to be exercised so as to give effect to the objects set out in DCR 3 and in particular:
(a)To avoid all unnecessary delay in the resolution of civil disputes; and
(b)To promote efficiency in dispute resolution so far as that object is consistent with the paramount claims of justice.
DCR 39 provides:
39—Time for Service
(1)Subject to subrules (2) and (3), originating process for a primary or third party action must be served on the defendant—
(a)     if it is to be served within the State—within 6 months after it is filed in the Court; or
(b)     if it is to be served outside the State—within 6 months after it is filed in the Court or a longer period fixed by the Court.
(2)The Court may, from time to time, extend the period for serving originating process for a primary or third party action for a period of up to 12 months.
(3)The Court's discretion to extend the time for serving originating process may be exercised—
(a)     even though the time allowed for service by or under this rule has expired; and
(b)     even though the time for commencing an action against the defendant has expired.
Discretion of the Court
In Gibbs v Williams the Full Court of the Supreme Court of South Australia set out the factors which are material to an application to renew a summons. Sangster J observed:[17]
Taking the authorities as a whole it seems to me that the question be asked on an application for renewal of a write of summons are:
1.   Why was service of the writ not effected within the period of twelve months from its issue?
2.   (As to each defendant) did that defendant contribute to any of the reasons for withholding service?
3.   What would be the effect on each defendant of the renewal of the writ in relation to the defendant’s preparation to meet the plaintiff’s claim, or in other words what notice did each defendant have of the plaintiff’s claim and (conversely) following such notice was such defendant lured into a false belief that the plaintiff had abandoned his claim?
4.   What would be the effect on the plaintiff of not renewing the writ (a question to which the usual answer is ‘his claim would fail, for fresh proceedings would face a defence of ‘statute barred’)?
5.   Where lies the balance of justice between the parties?
[17] (1979) 24 SASR 243, 247.
Mr and Mrs Bettio submit that the discretion to set aside the order renewing the summons and extending the time for service should not be exercised. They submit that if Bizfine is successful in this application and the order is set aside, the plaintiffs are entitled to return to the Court and make an application for an extension of time to serve the summons to be renewed nunc pro tunc to the day it was served. If that application were to be unsuccessful, the plaintiffs indicate that they would issue fresh proceedings.
Bizfine raises the issue of prejudice due to the involvement of an employee of Bizfine named “Enzo” who has now left its employment. I do not consider the fact of the departure from Bizfine’s business of the employee who is alleged to have advised the subcontractor as to how to apply the product is, by itself, of incurable prejudice. There is no reason why Bizfine cannot communicate with its former employee.
I have considered each of the matters referred to as “other factors” by Bizfine. The summons has been renewed and an extension of time for service of these proceedings granted to allow Mr and Mrs Bettio to consider expert evidence provided by Mr Gianni and Ms Bell in the principal action. The proceedings have now been served. I do not consider the “other factors” raised by Bizfine are such as to warrant the setting aside of the Master’s order renewing the summons and extending the time for service.
I take into consideration the various factors identified by Sangster J in Gibbs v Williams. In my view taking into account the interest of efficiency and management of the Court’s business, the extent of any prejudice said to be suffered by Bizfine and the overall balance of justice between the parties, I decline to exercise my discretion to set aside the order.
Conclusion
In all the circumstances, Bizfine has not satisfied the Court that it should exercise its discretion to set aside the Master’s Order renewing the summons and extending time for service of the proceedings in this matter.
I dismiss the application.
I will hear the parties on the question of costs.