Caruso v Built It Pty Ltd (in liq) (No 2) - [2019] SASC 125

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Application)
CARUSO v BUILT IT PTY LTD (IN LIQ) (No 2)
[2019] SASC 125
Judgment of The Honourable Justice Parker
22 July 2019
MAGISTRATES - APPEAL AND REVIEW - SOUTH AUSTRALIA - APPEAL TO SUPREME COURT - PROCEDURE - TIME FOR APPEAL AND EXTENSION
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - PROCEEDINGS BY OR AGAINST THE COMPANY - LEAVE TO PROCEED - WHETHER LEAVE REQUIRED
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - PROCEEDINGS BY OR AGAINST THE COMPANY - LEAVE TO PROCEED - WHEN LEAVE GRANTED
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH JUDGE'S FINDINGS OF FACT
APPEAL AND NEW TRIAL - APPEAL - GENERAL PRINCIPLES - INTERFERENCE WITH DISCRETION OF COURT BELOW - PARTICULAR CASES - OTHER MATTERS - COSTS
This is an interlocutory application by the appellant concerning the listing of an appeal.
The appellant seeks, in effect, to proceed with his appeal against the judgment of the Magistrate. Two issues arise. First, whether the appeal is taken to have been discontinued and lapsed under r 296(2) of the Supreme Court Civil Rules 2006 (SA). Secondly, whether the appeal is subject to a stay under s 471B of the Corporations Act 2001 (Cth). In respect of the latter issue, the appellant contends that leave under s 471B is not required to proceed with the appeal, on the basis that the appellate proceeding has a “defensive” character. In the alternative, if leave under s 471B is required, the appellant contends that leave should be granted.
Held, per Parker J, granting leave under s 471B of the Corporations Act and r 288(1)(b) of the Supreme Court Civil Rules for the appellant to appeal on a limited point in respect of costs:
1. To the extent that there is any inconsistency, the specific provisions of the Supreme Court Civil Supplementary Rules 2014 (SA) dealing with appeals to a single judge must prevail over the provisions of the Supreme Court Civil Rules that refer to appeals generally (at [18]).
2. The setting down of appeals to a single judge is governed by supp r 232 and not by r 296. Rule 296(2) did not operate to deem the appeal to have been discontinued and lapsed (at [15]-[22]).
3. An appeal to the Supreme Court of South Australia is a “proceeding” within the meaning of s 471B (at [35]-[55]).
4. The present appeal does not fall within the scope of the exception to s 471B for “defensive proceedings” (at [35]-[57]).
5. Leave is required under s 471B to proceed with the appeal (at [58]).
6. For the Court to grant leave under s 471B, the proceeding must have a solid foundation in law and fact and give rise to a serious dispute. In the context of an appeal, the question is whether the appeal is reasonably arguable (at [59]-[63]).
7. Revised grounds 1 to 11 now advanced by the appellant are not reasonably arguable (at [70]-[101]).
8. An appeal court will only intervene in relation to a costs order where a clear error has been identified or the exercise of the discretion is unreasonable or unjust. For permission to appeal to be granted against a costs order there usually needs to be an important question of principle that requires resolution as opposed to the application of a settled principle to particular facts (at [113]).
9. Revised ground 12 is reasonably arguable in so far as it refers to the principle to be applied in assessing the costs of the argument about the award of costs and interest (at [102]-[119]).
Supreme Court Civil Rules 2006 (SA) rr 4, 28, 282, 288, 294, 296; Supreme Court Civil Supplementary Rules 2014 (SA) rr 232, 234; Magistrates Court (Civil) Rules 2013 (SA) rr 104, 108; Supreme Court Act 1970 (NSW) s 101; Civil Procedure Act 2005 (NSW); Uniform Civil Procedure Rules 2005 (NSW); Corporations Act 2001 (Cth) ss 444E, 471B; Corporations Act 1989 (Cth) s 82; Companies Act 1862 (UK) s 87, referred to.
Distinctive FX 9 Pty Ltd v Statewide Developments Pty Ltd [2012] NSWCA 393; Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq) [2012] NSWCA 435; Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd [2014] NSWCA 42; Cummings v Claremont Petroleum NL (1996) 185 CLR 124; DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 307 ALR 143; Caruso v Built It Pty Ltd (in liq) [2018] SASC 71; Vagrand Pty Ltd (in liq) v Fielding (1993) 41 FCR 550; Jones v Dunkel (1959) 101 CLR 298; Fox v Percy (2003) 214 CLR 118; Hutchinson v Ellis [2010] SASCFC 71; Rasch Nominees Pty Ltd v Bartholomaeus [2013] SASFC 105, applied.
Humber & Co v John Griffiths Cycle Co (1901) 85 LT 141; BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339; Bevillesta Pty Ltd v D Tannous No 2 Pty Ltd [2010] NSWCA 277; Ong v Lottwo Pty Ltd (in liq) (2013) 116 SASR 280, distinguished.
King v Yurisich (2006) 59 ACSR 598; Tolhurst Druce & Emmerson (a firm) v Maryvell Investments Pty Ltd (in liq) [2007] VSC 271; Clone Pty Ltd v Players Pty Ltd (in liq) (rec and mgr appt) (2018) 92 ALJR 399; Riv-Oland Marble Co (Vic) Pty Ltd v Settef SPA (1989) 63 ALJR 519; Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106; Dealquip Australia Pty Ltd v 33 Electra Pty Ltd (No 2) [2013] NSWSC 1382; Active Adult Management Pty Ltd v Milstern Retirement Living Pty Ltd [2017] NSWSC 1238, considered.

CARUSO v BUILT IT PTY LTD (IN LIQ) (No 2)
[2019] SASC 125

PARKER J: This is an interlocutory application by the appellant concerning the listing of an appeal. The respondent contends that the appeal has lapsed under r 296(2) of the Supreme Court Civil Rules 2006 (SA) and is also stayed by s 471B of the Corporations Act 2001 (Cth).
For the reasons that follow, I grant leave under s 471B of the Corporations Act and r 288(1)(b) of the Supreme Court Civil Rules for the appellant to appeal only on ground 12 set out in the handwritten revised notice of appeal handed up to the Court on 1 May 2019. That appeal is limited to the principle to be applied in determining the costs payable by the appellant in respect of the argument about costs and interest. I otherwise refuse leave to appeal under s 471B of the Corporations Act and to the extent that the appeal concerns orders for costs (other than to the extent already stated) I also refuse permission under r 288(1)(b). I will also make certain orders concerning the notice of appeal.
Background
On 1 October 2014, the respondent commenced proceedings against the appellant in the Magistrates Court for moneys payable for building work that it undertook between about May 2013 and March 2014. On 14 September 2017, a Magistrate awarded judgment against the appellant in the amount of $33,938.50 “plus interest and costs to be agreed or taxed”. The Magistrate did not specify at that time the basis upon which costs were to be determined. In the absence of any contrary indication, it must be understood that costs were awarded on a party/party basis.
On 5 October 2017, the appellant appealed against the order that he was liable to pay $33,938.50 to the respondent. It is this appeal which is the subject of the present interlocutory application.
On 21 November 2017, the respondent applied for the award of costs and interest on either a contractual indemnity basis in the sum of $121,528.63 or an indemnity basis. The costs claimed at that time comprised solicitor fees in the sum of $61,278.80, counsel fees totalling $30,800 and court fees of $292.
On 22 November 2017, the Federal Court of Australia made an order for the winding up of the respondent. The respondent contends that, as a result of this order, the appeal was automatically stayed by force of s 471B of the Corporations Act.
The respondent also contends that because the appeal filed on 5 October 2017 was not set down for hearing within six months, r 296(2) of the Supreme Court Civil Rules operated to deem the appeal to have been discontinued and lapsed on 5 April 2018. For the reasons explained below, I do not consider that r 296(2) applied because this appeal was to a single judge.
On 5 May 2018 the appellant filed a reply to the respondent’s application for costs, advancing the position that costs should be awarded on a party/party basis. The delay of almost six months has not been explained.
On 27 April 2018, the appellant filed an interlocutory application under s 471B of the Corporations Act, seeking leave to bring an application to set aside the Magistrate’s judgment under r 104 of the Magistrates Court (Civil) Rules 2013 (SA). The application was heard by Doyle J, who dismissed the application on 1 June 2019.[1] His Honour found that the proposed application under r 104, which requires proof that judgment was obtained through fraud or an irregularity, did not have a solid foundation in fact or law. The appellant did not at that time seek leave under s 471B to continue with the appeal against the decision of the Magistrate.[2]
[1] Caruso v Built It Pty Ltd (in liq) [2018] SASC 71.
[2] Ibid at [2] (Doyle J).
The appellant has not sought to appeal the dismissal by Doyle J of his application to set aside the Magistrate’s judgment.
On 30 November 2018, the Magistrate made orders concerning costs, interest and related matters. His Honour awarded the respondent costs on a party/party basis up until the close of the second day of the trial and costs on a solicitor/client basis from the commencement of the third day of the trial onward. The Magistrate also awarded interest at the rate of 2% per month (the rate specified in the building contract) until 1 October 2014, being the date of commencement of the claim and thereafter at the standard Court rate of 10% per annum until the date of judgment. The Magistrate also ordered that the terms of a lien should be amended and that the suspension of a warrant for sale be lifted. The final sealed minutes of order were not issued by the Magistrates Court until 9 January 2019.
The interlocutory application
The present interlocutory application was filed by the appellant in this Court on 20 February 2019, seeking:
1. Directions as to the listing of this appeal for hearing.
2. Such further orders as the court thinks fit.
The respondent complains that, despite requests, it has not yet been served with a sealed copy of the appellant’s interlocutory application. Nevertheless, the respondent has indicated that it does not take issue on this point. The respondent is aware of the application and has made submissions about it. I therefore do not need to consider further the appellant’s failure to serve the interlocutory application on the respondent.
The appellant seeks, in effect, to proceed with his appeal against the judgment of the Magistrate published on 14 September 2017. Two issues arise. First, whether the appeal is taken to have been discontinued and lapsed under r 296(2). Secondly, whether the appeal is subject to a stay under s 471B of the Corporations Act.
Operation of r 296(2)
Neither party made detailed submissions about the operation of r 296 of the Supreme Court Civil Rules and the corresponding discretionary powers of the Court. However, both parties considered that r 296(2) had operated to deem the appeal to have been discontinued and lapsed. The parties nevertheless focused their submissions on s 471B of the Corporations Act.
Rule 296(2) of the Supreme Court Civil Rules relevantly provides that:
(2)Unless an appellate proceeding is set down for hearing within 6 months after the proceeding is commenced or a longer time allowed by the Court, the proceeding is taken to have been discontinued and lapses. Despite the dismissal of an appellate proceeding under this rule, the Court may, for special reasons, reinstate the appellate proceeding.
I consider that the parties were mistaken in their view that the appeal had been discontinued and lapsed under r 296(2) on 5 April 2018 because it was not set down for hearing within six months. My reasons follow.
Division 1 of Part 5 of Chapter 13 of the Supreme Court Civil Supplementary Rules 2014 (SA) deals with appeals to a single judge. An appeal from the Magistrates Court lies to a single judge. Thus, the present appeal lay to a single judge and was governed by Division 1 of Part 5 of Chapter 13 of the Supplementary Rules. To the extent that there is any inconsistency, the specific provisions of the Supplementary Rules dealing with appeals to a single judge must prevail over the provisions of the Rules that refer to appeals generally.
While supp r 234 does not apply in the present case, for completeness I note that if a single judge refers an appeal from the Magistrates Court to the Full Court then the appeal will be subject to the Rules applicable to appeals direct to the Full Court, including the setting down of the appeal. The terms of supp r 234 reinforce my conclusion that, in cases where supp r 234 does not apply, the setting down of appeals to a single judge is governed by supp r 232 and not by r 296.
Supplementary Rule 232 deals with the setting down of appeals to a single judge in the following terms:
232—Setting down appeal
(1)     An appeal that is to be heard by a single Judge will be allocated to a single Judge appeal sittings month being a month the first day of which is no sooner than 21 calendar days after the date of filing.
(2)     The first day of the sittings month is usually the first Monday of the calendar month, except for January.
(3)     The Registrar will forward a notice to the parties confirming the sittings month to which the appeal has been allocated.
(4)     During the previous month, the Registrar will publish in the Court’s case list a warning list of appeals that will be listed for hearing in the following month.
(5)     A party is not required to set the appeal down.
Supplementary Rule 232(5) expressly states that a party is not required to set down an appeal to a single judge. This specific provision prevails over the general stipulation in r 296 that an appeal that is not set down within six months will be taken to have been discontinued and lapses.
Supplementary Rule 232(1) establishes the timetable for the setting down of appeals to a single judge. The Registry attends to the setting down of such an appeal and for that reason a party is not required to take any action. The information contained on the court file does not explain why this process was not followed in relation to this appeal. Be that as it may, it is clear that r 296 did not operate to deem the appeal to have been discontinued and lapsed. Thus, the primary question is whether s 471B of the Corporations Act operated to stay the appeal.
The grounds of appeal
In his original notice of appeal filed on 5 October 2017, the appellant advanced the following nine grounds of appeal:
3.1His Honour has erred in that he has failed to consider that the respondent sought to recover a milestone payment under the Contract between the parties dated 5 July 2013 (‘Contract’), in circumstances where the evidence showed that the milestone had not been reached, and should have found that the milestone payment was not payable;
3.2His Honour has erred in that he has incorrectly found that no objective evidence of front end loading of progress payments under the Contract was presented, when there was objective evidence before the Court to that effect;
3.3His Honour has erred in that he has failed to consider, and make any finding in relation to, the applicant’s submission that an adverse inference ought to be drawn in relation to failure by the respondent to call witnesses to the meeting of 5 July 2013, when His Honour should have made such a finding;
3.4His Honour has erred in that he has failed to consider, and make any findings in relation to, the applicant’s submission that an adverse inference ought to be drawn in relation to failure by the respondent to call witnesses to the on-site meeting of 6 February 2014, when His Honour should have made such a finding;
3.5His Honour has erred in that he has considered statements made in without prejudice negotiations despite an objection having been raised to that evidence being led;
3.6His Honour has erred in that he has found that the applicant repudiated the Contract when there was no reasonable basis for that finding;
3.7His Honour has erred in that he has found that the Contract was not ambiguous as to roof type specified under the Contract, when there was no reasonable basis for that finding;
3.8His Honour has erred in that he has failed to consider whether the applicant had the right to terminate the contract at all material times due to the respondent’s breach of the requirements of the Building Work Contractors Act, and ought to have found that the applicant did have such a right; and
3.9His Honour has erred in that he has not made a finding that a provision under the Contract charging interest on outstanding invoices at a rate of 2% per month compounding was a penalty and void.
At the hearing of this interlocutory application on 1 May 2019, counsel for the appellant conceded that the grounds of appeal listed in the preceding paragraph are inadequate. In the course of his submissions, counsel produced to the Court a handwritten document described as “revised grounds of appeal”. Neither the Court nor counsel for the respondent was previously aware of the proposed revision to the grounds of appeal. To date, an amended notice of appeal incorporating the revised grounds of appeal has not been filed in this Court under r 294(1). Nevertheless, as this is an interlocutory application in which the appellant seeks permission to proceed with the appeal, I will consider the merits of the appeal by reference to the grounds of appeal stated in the handwritten document. If I were to grant leave to the appellant to proceed with the appeal, the grant of leave would be subject to a condition that the grounds of appeal referred to in the handwritten document be incorporated into a notice of appeal that complies with the Rules and is served upon the respondent.
In the handwritten revised grounds of appeal, the appellant seeks to advance the following 12 grounds:
The Court erred
1.   in finding that the agreement was for the construction of a house with a colour bond roof.
2.   Failed to give due weight to Jones v Dunkel inferences arising from the failure of the Plaintiff to call witnesses who could give evidence to the meetings on 5/7/13 + 6/2/13 [9-11]
3.   Concluding that the plaintiff was entitled to a full progress payment for the framing of the walls + roof timbers
4.   in law and on the facts in determining that the Plaintiff was entitled to a management fee for the whole of the contract price and the manner by which that fee was assessed
5.   Concluding that the defendants case was implausible because of the timing of the meetings of 5/7/13 [8]
6.   That the amendment to the contract (claimed by the defendant to have been made) would have been reflected by appropriate documentation given Mr Zollo’s unsatisfactory conduct in relation to building work and otherwise And placing the onus of correcting the contract upon the defendant [29 + 31]
7.   That a revision of costings would have been required for a change to roof tiles [14] when the work was costed for a tiled roof [28] [32]
8.   That inferences could be drawn from plans filed with the Council for another purpose to determine the terms of the contract
9.   Rejecting the evidence of Mr Mackereth on account of the fact that he has “stolen the pricing estimate documents” [26-31]
10.   Not giving due weight to the evidence of Messrs Mackereth and Centofanti
11.   inferring that the Council refusal to approve prior plans lodged by the defendant was due to the fact that they specified that the roof would be constructed using tiles [30]
12.   erred in law and on the facts in awarding the Plaintiff special costs and solicitor/client costs from the conclusion of the 2nd days hearing to the end of the matter where the defendant had been substantially successful on the indemnity costs and rate of interest arguments.
The appellant’s submissions

Given my finding as to r 296, it is unnecessary to consider the appellant’s submission as to whether his failure to comply with time limits should be excused any further.
The appellant submits that he does not require leave of the Court under s 471B to proceed with this appeal. In the alternative, if leave is required, leave should be granted for the reasons identified by Doyle J at [7] to [15] of his judgment on the earlier interlocutory application.[3]
[3] Ibid at [7]-[15] (Doyle J).
The respondent’s submissions
The respondent submits that the appeal, as an appellate proceeding under the Supreme Court Civil Rules, constitutes a new proceeding for which the appellant requires leave under s 471B of the Corporations Act. A fresh originating process and Court filing fee is also required.
In order to be granted leave to proceed under s 471B, the appellant must demonstrate that his claim has a solid foundation and gives rise to a serious dispute.[4] The notice of appeal is deficient and fail to disclose a case which has any proper merit.
[4] Ong v Lottwo Pty Ltd (in liq) (2013) 116 SASR 280 at 296-297 [59]-[61] (Nicholson J); Tolhurst Druce & Emmerson (a firm) v Maryvell Investments Pty Ltd (in liq) [2007] VSC 271 at [155]-[165] (Dodds_Streeton J).
The respondent submits that the public interest in the finality of litigation requires that the interlocutory application be dismissed.[5] It is the duty of a solicitor who undertakes to conduct an appeal to be familiar with and observe the applicable rules. The rules are designed to promote efficiency in litigation and to avoid the useless incurring of costs.[6]
[5] Clone Pty Ltd v Players Pty Ltd (in liq) (rec and mgr apptd) (2018) 92 ALJR 399.
[6] Riv-Oland Marble Co (Vic) Pty Ltd v Settef SPA (1989) 63 ALJR 519.
Consideration — leave to proceed under s 471B
While r 296 did not operate to deem the appeal to have been discontinued and lapsed, it is necessary to consider the operation of s 471B of the Corporations Act.
Section 471B provides as follows:
While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with:
(a) a proceeding in a court against the company or in relation to property of the company; or
(b) enforcement process in relation to such property;
except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.
On 22 November 2017, the Federal Court made an order for the winding up of the respondent. The respondent contends that, upon the making of the winding up order, this appeal was automatically stayed by s 471B. The appellant is therefore said to require the leave of the Court to proceed.
The appellant contends that leave under s 471B is not required to proceed with the appeal, on the basis that the appellate proceeding has a “defensive” character. In the alternative, if leave under s 471B is required, the appellant contends that leave should be granted. I will address these contentions in turn.
Consideration — is leave under s 471B required?
In King v Yurisich, Weinberg J (as his Honour then was) observed:[7]
It is a vexed question whether leave is required to proceed against a company in liquidation in the context of an appeal.
[7] (2006) 59 ACSR 598 at 599 [6] (Weinberg J).
That observation is reflected in the differing approaches adopted by courts across Australia. A key issue is the meaning of the word “proceeding” in the phrase “a proceeding in a court against the company”. A further issue is whether leave is required where an appeal is defensive in character and what is meant by the term “defensive”.[8]
[8] BPM Pty Ltd v HPM Pty Ltd (1996) 131 FLR 339 at 342 (Anderson J); Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106 at 109-110 [14]-[20] (Spigelman CJ); Dealquip Australia Pty Ltd v 33 Electra Pty Ltd (No 2) [2013] NSWSC 1382 at [20]-[21] (White J).
The earliest authority is a passage in the reasons of Lord Davey in the House of Lords in Humber & Co v John Griffiths Cycle Co.[9]His Lordship held that an appellant did not require leave under s 87 of the Companies Act 1862 (UK), a provision in very similar terms to s 471B of the Corporations Act. The facts of that case were that the plaintiff company had sued for breach of contract. It failed at first instance and appealed to the Court of Appeal. While that appeal was pending, an order was made for winding up of the plaintiff company. After succeeding on the appeal before the Court of Appeal, the plaintiff contended that the defendant required leave to pursue a further appeal to the House of Lords. Lord Davey held that:
It was the respondents who themselves proceeded with the action after the winding‑up order, by prosecuting their appeal in the Court of Appeal, and when once an action by the company itself has been proceeded with, there is no necessity for the defendants in the action to obtain leave for any defensive proceeding on their part. The liquidator was either party or privy to the proceedings in the Court of Appeal, and the respondents, having been successful in that appeal, cannot now object to the appellants defending themselves against the consequences of the judgment by the ordinary means of an appeal to this House.
[9] (1901) 85 LT 141. The judgments of the other Law Lords have not been reported. The report of Lord Davey’s reasons consists of a single page published in the Law Times which extracts the relevant passage from his Lordship’s reasons. A note to the report indicates that Lords Macnaghten, Robertson and Lindley did not consider this point.
The effect of the finding by Lord Davey was that the taking of steps by the plaintiff to defend itself against the consequences of the successful appeal by the company that the company it had pursued after the winding up order was not a “proceeding against the company” within the meaning of the statute.
In BPM Pty Ltd v HPM Pty Ltd, the Full Court of the Supreme Court of Western Australia considered whether an application for security for costs under s 1335(1) of the (now repealed) Corporations Law[10] required leave under s 471B.[11] BPM was seeking to appeal against the refusal by a Master of its application for security for costs against HPM. The latter company was in liquidation and was suing BPM.
[10] The Corporations Law was housed in s 82 of the Corporations Act 1989 (Cth).
[11] (1996) 131 FLR 339. This decision concerned s 471B of the Corporations Law, which is almost identical to its counterpart in the Corporations Act 2001. Nothing turns on this distinction.
Anderson J, with whom Kennedy and Ipp JJ agreed, applied the reasoning of the House of Lords in Humber, and held that:[12]
In my opinion, an application for security for costs is not a proceeding in a court against the company within the meaning of s 471B. We were not referred to any authority directly in point but in my view the section is concerned with proceedings initiated against the company, not with procedural applications by defendants in an action initiated by the company. If it was intended that the section should operate to cut down the defensive procedural measures that would otherwise be available to a defendant in an action brought by the company, thereby reducing the defendant’s normal rights in the litigation whilst leaving the company’s rights intact, much clearer language would have been used in the legislation.
[12] (1996) 131 FLR 339 at 342 (Anderson J), 339 (Kennedy and Ipp JJ agreeing).
In Skinner v Jeogla Pty Ltd, the New South Wales Court of Appeal considered the decisions in Humber and BPM in the context of determining whether an appeal requires leave under s 471B.[13] The respondent company had succeeded at first instance in its action against the appellant alleging that it had failed to take reasonable care in selling mortgaged property. Before the appeal was heard, the respondent was wound up. Counsel for the appellant conceded that leave under s 471B was required. The Court refused leave on the basis of this concession and did not express a concluded view as to whether leave was required.[14]
[13] (2001) 37 ACSR 106.
[14] Because the only order made by the Court dealt with costs, leave may also have been required under s 101(2) of the Supreme Court Act 1970 (NSW).
Spigelman CJ, with whom Powell JA and Ipp AJA agreed, noted in obiter that Humber and BPM may stand for a general proposition that the lodgement of an appeal does not require leave, but declined to express a final view on this issue.[15] Powell JA went on to remark that:[16]
Although, in the absence of any, let alone any detailed, argument on the matter, it is unnecessary to express a concluded view on the question whether, in a case such as this, the provisions of s 471B of the Corporations Law require leave to be given before an appeal might proceed, the legislative and curial history of provisions such as s 471B incline me to the view that, in a case such as this, no leave is required. Further, this being a case involving uniform national legislation, it is highly desirable that there be conformity of decision throughout Australia (Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485; 112 ALR 627), it following that, unless convinced — as I am not — that the decision of the Full Court of the Supreme Court of Western Australia in BPM Pty Ltd v HPM Pty Ltd is plainly wrong, the object of uniformity would indicate that this court should conform to the interpretation of s 471B by the Full Court of the Supreme Court of Western Australia.
[15] (2001) 37 ACSR at 109-110 [14]-[20] (Spigelman CJ), 115 [55] (Powell JA agreeing), 116 [61] (Ipp AJA agreeing).
[16] Ibid at 115 [54] (Powell JA).
Ipp AJA also expressed no concluded view as to whether leave under s 471B was required. However, his Honour noted that it was readily arguable that the concession that leave was required for this particular appeal was properly made, on the basis that BPM was distinguishable. His Honour highlighted two possible grounds of distinction:[17]
First, it is readily arguable that the appellant's appeal is a “proceeding” within the meaning of s 471B(a), whereas the application for security for costs considered in BPM Pty Ltd v HPM Pty Ltd was not. Second, the application for security for costs in BPM Pty Ltd v HPM Pty Ltd was regarded as a “defensive proceeding” and it is open to argument that the present appeal cannot be so categorised.
[17] Ibid at 116 [59] (Ipp AJA).
Counsel for the appellant referred to the decision of the New South Wales Court of Appeal in Bevillesta Pty Ltd v D Tannous No 2 Pty Ltd in support of his submission that leave under s 471B was not required.[18] In that case the appellant was seeking permission to appeal against the grant of leave to the respondent to file a further amended statement of claim and the dismissal of its applications that it be granted security for costs and that certain costs be payable forthwith. McColl JA, with whom Allsop P and Handley AJA agreed, held that the matters in respect of which leave to appeal was sought “appeared to fall within the BPM description of ‘defensive procedural measures’.”[19] Thus, permission was not required. Counsel for the respondent did not wish to be heard on that question as it did not oppose the grant of leave if required.
[18] [2010] NSWCA 277 at [6]-[12] (McColl JA).
[19] Ibid at [12] (McColl JA).
I do not consider that Bevillesta assists the appellant. The respondent company was the plaintiff in the proceedings and had been placed into liquidation after the making of the orders that were the subject of the appeal. For the reasons stated at [56] and [57] below, I consider that the Court of Appeal correctly characterised the appeal as being in respect of matters which are “defensive procedural measures” and thus outside the requirement to obtain leave under s 471B. The present case is distinguishable, as this appeal does not concern procedural measures but challenges a substantive judgment that was awarded before the respondent became insolvent.
Counsel for the appellant has also referred to the decision of the New South Wales Supreme Court in Active Adult Management Pty Ltd v Milstern Retirement Living Pty Ltd.[20]In that case the plaintiff was seeking leave to join an additional defendant as a party to the proceedings and for leave (if necessary) to commence a cross claim. Ward CJ in Eq held that “the cross claim, though clearly responsive to the claim brought by [the company in liquidation] (and in that sense reflexive or defensive in nature), is not a procedural application brought in proceedings initiated by the company in liquidation. It seeks to prosecute causes of action in its own right.”[21] On that basis, Ward CJ in Eq his Honour held that s 471B required the plaintiff to obtain leave to make the cross claim.[22]
[20] [2017] NSWSC 1238.
[21] Ibid at [42] (Ward CJ in Eq).
[22] Section 471B would only have been relevant to the application to join another defendant if the proposed new defendant was a company in liquidation.
There are several authorities that support the view that leave under s 471B is required for an appeal.[23] In Distinctive FX 9 Pty Ltd v Statewide Developments Pty Ltd, Beazley JA (as she then was) of the New South Wales Court of Appeal was sitting alone to determine an application for security for costs of an appeal. The respondent had secured orders at first instance to remove caveats over its real property. Her Honour questioned whether the appeal was competent, given that the respondent was in liquidation. Beazley JA departed from the obiter in Skinner, and held that when regard is had to the Civil Procedure Act 2005 (NSW) and Uniform Civil Procedure Rules 2005 (NSW), the bringing of an appeal is the commencement of a proceeding for which leave is required pursuant to s 471B.[24]
[23] Distinctive FX 9 Pty Ltd v Statewide Developments Pty Ltd [2012] NSWCA 393 at [11]-[13] (Beazley JA); Cassegrain v Gerard Cassegrain & Co Pty Ltd(in liq) [2012] NSWCA 435 at [31] (Ward JA); Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd [2014] NSWCA 42 at [3] (Gleeson JA); DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 307 ALR 143 at 154-155 [54] (Leeming JA).
[24] [2012] NSWCA 393 at [11]-[13] (Beazley JA).
In both Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq)[25] and Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd,[26] the parties before the New South Wales Court of Appeal acknowledged that the decision of Beazley JA in Distinctive FX 9 was authority that the bringing of an appeal is the commencement of a proceeding for which leave is required. In Cassegrain the need for leave arose under s 471B whereas in CCM Holdings the leave requirement was imposed by s 444E of the Corporations Act. In each case the Court of Appeal, comprised of a single judge, acted in accordance with the acknowledgment by the parties that leave was required.
[25] [2012] NSWCA 435 at [31] (Ward JA).
[26] [2014] NSWCA 42 at [3] (Gleeson JA).
The respondent has referred to the decision of the Full Court in Ong v Lottwo Pty Ltd (in liq) as authority that permission is required for an appeal.[27] The appeal in that case challenged the grant of permission to join additional plaintiffs to the proceedings against a company that was in liquidation. The appellant did not contend that leave was not required under s 471B. Quite clearly, the joinder would constitute the institution of proceedings against the company by an additional plaintiff. Joinder was neither procedural nor defensive. Because the present facts are materially different, the decision of the Full Court in Ong does not assist the respondent’s case.
[27] (2013) 116 SASR 280.
Whether an appeal is a proceeding was considered by Brennan CJ, Gaudron and McHugh JJ in Cummings v Claremont Petroleum NL where their Honours stated:[28]
The term “action” is defined to mean any civil proceeding (s 60(5)). The institution of an appeal by a defendant against a judgment in favour of a plaintiff is the commencing of a proceeding. That follows from the decision of the Full Court of the Supreme Court of New South Wales in Want v Moss.
(Citation omitted)
[28] (1996) 185 CLR 124 at 130 (Brennan CJ, Gaudron and McHugh JJ).
While the context was different, the conclusion of the High Court in Cummings that the institution of an appeal by a defendant against a judgment in favour of a plaintiff is the commencing of a proceeding is consistent with the analysis of Beazley JA in Distinctive FX 9.
The New South Wales Court of Appeal referred to the operation of s 471B in DSG Holdings Australia Pty Ltd v Helenic Pty Ltd.[29] Leeming JA, with Meagher JA and Bergin CJ in Eq agreeing, held:[30]
Section 471B relevantly provides that a person cannot begin or proceed with a proceeding in a court against a company being wound up in insolvency. That section did not apply before 3 February 2014, but it did apply thereafter. After 3 February 2014, leave was required to proceed with the appeal previously instituted as of right: Distinctive FX 9 Pty Ltd v Statewide Developments Pty Ltd. That approach has been followed in this court thereafter: see Cassegrain v Gerard Cassegrain & Co Pty Ltd (in liq); Chief Commissioner of State Revenue v CCM Holdings Trust Pty Ltd. DSG and Bicheno did not suggest that leave was not required, and so there is no occasion to consider whether and the extent to which that section might not apply.
(Citations omitted)
[29] (2014) 307 ALR 143
[30] Ibid at 154-155 [54] (Leeming JA).
Leeming JA then went on to note the debate as to whether a defensive proceeding may be an exception to the leave requirement and, if so, in what circumstances. Because the Court of Appeal did not find it necessary to decide whether an exception applied, its endorsement of the view adopted by Beazley JA in Distinctive FX 9 is obiter. Nevertheless, the Court of Appeal did provide strong support for her Honour’s interpretation.
While I am not bound by Distinctive FX 9, the reasoning of Beazley JA must be accorded considerable respect, particularly given the obiter endorsement by the Court of Appeal in DSG Holdings. In any event, for the reasons that follow, I consider that her Honour’s analysis must be applied in this appeal.
The nature of an appeal under the Supreme Court Civil Rules is not materially different from the New South Wales provisions considered by Beazley JA in Distinctive FX 9. An appeal is a “primary action” within the meaning of r 28(2), in that it is commenced by the filing of a notice of appeal under r 282 (for which a fee is paid). Once commenced an appeal is separate from other actions in this Court. A notice of appeal is a “primary originating process” within the meaning of r 4. That is because a notice of appeal is the originating process for the commencement of a primary action. Accordingly, I consider that an appeal to this Court is a “proceeding” within the meaning of s 471B. However, it is also necessary to consider whether an appeal is subject to the exception for defensive actions.
I consider that the decision of the Western Australia Full Court in BPM is distinguishable on the first of the two grounds identified by Ipp AJA in Skinner. That ground being that an application for security for costs is not a proceeding in its own right but rather a procedural step in other proceedings. While there is an ongoing uncertainty as to precisely what Lord Davey meant by the reference to defensive proceedings in Humber, I consider that an application for security for costs, where the insolvent company is the plaintiff, must meet that description.[31]
[31] See generally Stewart Maiden ‘Is leave of court required to appeal against a decision in favour of a company in voluntary administration or liquidation’ (2012) 20 Insolvency Law Journal 96. Unfortunately, this comprehensive analysis of the authorities was published before the decision of Beazley JA in Distinctive FX 9.

I also note that Lord Davey in Humber indicated that a party was entitled to defend themselves where proceedings had been pursued by a company after the making of an order for its winding up.[32] That is not the situation in the present case. Judgment was awarded in favour of the respondent on 14 September 2017. The appellant appealed on 5 October 2017, but the order for the winding up of the respondent was not made until 22 November 2017. Thus, the appeal is not defensive of proceedings pursued by the respondent after its winding up. Hence, whatever the precise extent of the exception for defensive proceedings referred to by Lord Davey, this case does not fall within that exception.
[32] See also Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106 at 109 [16], where Spigelman CJ referred to Humber as authority that where proceedings have been pursued by a company after it has been ordered to be wound up, other parties may take “defensive proceedings” without leave.
Given my conclusion that the lodgement of an appeal is a proceeding, and that the exception for defensive proceedings does not apply, I consider that leave is required under s 471B to proceed with the appeal. That is the case notwithstanding that the appeal was instituted as of right prior to the order for the winding up of the respondent.[33]
[33] DSG Holdings Australia Pty Ltd v Helenic Pty Ltd (2014) 307 ALR 143 at 154 [54] (Leeming JA).
Consideration — should leave under s 471B be granted?
Ward JA held as follows in Cassegrain concerning the test for the grant of leave under s 471B:[34]
The test for the grant of leave under s 471B requires the applicant to satisfy the court that there is a serious question to be tried (see Vagrand Pty Ltd (in liq) v Fielding per Wilcox, Burchett and Beazley JJ, their Honours referring to the requirement that the Court be “affirmatively satisfied that the claim has a solid foundation and gives rise to a serious dispute”; and Castlemaine Tooheys Ltd v South Australia per Mason ACJ ). This test was applied by Einstein J in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd.
The relevant factors to be taken into consideration include the amount and seriousness of the claims; the degree and complexity of the legal and factual issues involved; the stage to which the proceedings, if commenced, have progressed; the risk that the same issues would be relitigated if the claims were to be the subject of a proof of debt; whether the claim has arguable merit; whether proceedings are already in motion at the time of liquidation; whether the proceedings will result in prejudice to creditors; whether the claim is in the nature of a test case for the interest of a large class of potential claimants; whether the grant of leave will unleash an “avalanche of litigation”; whether the cost of the hearing will be disproportionate to the company’s resources; delay and whether pre‑trial procedures such as discovery and interrogatories are likely to be required or beneficial (Austin and Black's Annotations to the Corporations Act at [5.471B]).
(Citations omitted)
[34] [2012] NSWCA 435 at [32]-[33] (Ward JA).
Whether leave should be granted under s 471B to proceed with the appeal is a distinct, albeit similar question, to that considered previously by Doyle J. The question decided by his Honour was whether the appellant should be granted leave under s 471B to bring an application against the respondent to set aside the Magistrate’s judgment.[35]
[35] Caruso v Built It Pty Ltd (in liq) [2018] SASC 71.
Doyle J noted that some authorities had held that leave was not required under s 471B for a defensive application within proceedings brought by the company in liquidation. However, it was not necessary for his Honour to decide that point, as the appellant did not then contend that he did not require leave to proceed with the application to set aside the judgment of the Magistrates Court. Clearly, the appellant has now revised his view. Doyle J noted that if a proceeding was defensive, that may suggest that leave should be more readily granted.
The following matters identified by Doyle J remain relevant to the present application, notwithstanding the distinction in the subject matter of the application considered by his Honour:[36]
In the present case there are some matters that weigh in favour of a grant of leave.
The first of these is that the litigation between the parties has already been on foot for a number of years prior to Built It being placed into liquidation. The proceedings were well progressed, and indeed the trial had been heard and judgment delivered.
The second of these is that the application sought to be pursued by Mr Caruso has an essentially defensive character to it in that he is pursuing the application by way of answer to Built It’s continued intention to enforce its judgment against him. I say “essentially” defensive character because while the contemplated application is by way of answer to Built It’s claim, it is to be made by way of an application that is an attack upon a perfected judgment in Built It’s favour rather than a defence or answer pursued in the ordinary course of proceedings. Some authorities have gone as far as to hold that defensive applications within proceedings brought by the company in liquidation do not require leave under s 471B. Counsel for Mr Caruso did not go that far here; however, analogous considerations apply and suggest that leave may be more readily granted where the proceeding or application sought to be pursued has a defensive character.
Thirdly, the proposed application is not a matter that would be susceptible of being pursued by Mr Caruso through the proof of debt procedure, or indeed any other avenue, if leave to proceed were refused.
Essentially, Mr Caruso’s position is that if the company in liquidation wishes to pursue its entitlement against him, which it apparently does, then it is only fair and appropriate that he be entitled to raise and pursue any answer properly open to him.
There is some merit and force in these matters. On the other hand, it remains relevant that the application that Mr Caruso wishes to pursue will require significant time, work and expense by the liquidator, and hence result in a significant diversion of the time, attention and funds otherwise available to the liquidation and the creditors more generally. … I expect the application will involve at least a few days of court time, and all of the preparatory time and work that would ordinarily be associated with a hearing of this nature and length.
It is on account of this anticipated time, work and expense that even in a case, such as the present, where there are some sound reasons for contemplating a grant of leave, the Court will nevertheless require satisfaction that the proposed proceeding or application has a solid foundation and gives rise to a serious dispute. This does not require a determination of the merits, but it requires some consideration of the merits. That consideration may be relatively rudimentary given the nature and timing of the application for leave to proceed under s 471B, and the information likely to be available to the Court on such an application. But unless the Court is satisfied that the proposed proceeding or application has a solid foundation in fact and law it would not be consistent with the rationale for s 471B to grant leave. It would not be consistent with that rationale to grant leave in respect of a proceeding or application that has hopeless, very limited or simply entirely unknown prospects of success.
(Footnotes omitted)
[36] Ibid at [8]-[14] (Doyle J).
I will proceed on the basis referred to by Doyle J in that passage, i.e. does the appeal have a solid foundation in law and fact and give rise to a serious dispute. That approach was originally adopted by the Full Federal Court in Vagrand Pty Ltd (in liq) v Fielding.[37]In the context of an appeal, I consider the question to be whether the appeal is reasonably arguable.[38]
[37] (1993) 41 FCR 550 at 556 (Wilcox, Burchett and Beazley JJ).
[38] Skinner v Jeogla Pty Ltd (2001) 37 ACSR 106 at 111-112 [31] (Spigelman CJ).
There is no information before the Court about the progress of the winding up of the respondent. Thus, the Court does not know whether there will be any prejudice to the winding up process if permission is granted. If that were the case, I would have expected the respondent to inform the Court of that fact. My consideration must therefore focus on the question of whether the appeal is reasonably arguable.
Before considering whether the appeal is reasonably arguable, it is necessary to consider the factual background to the respondent’s claim in the Magistrates Court for monies due under the building contract, and in the alternative, compensation on a quantum meruit basis, and also the reasons of the Magistrate.
The respondent builder was engaged by the appellant for demolition work and the construction of a new residence at Edwardstown. Two original copies of the contract were produced at a meeting at the respondent’s office on 27 June 2013. The appellant took away both copies of the contract for consideration. At a subsequent meeting at the respondent’s office on 5 July 2013, the parties executed the two copies of the contract and one copy was retained by each party. Subsequently, on 6 February 2014, when the construction work under the contract was well underway, the parties fell into dispute as to whether the contract was for a Colourbond roof or a tiled roof, and the respondent abandoned the work.
While the respondent’s copy of the contract clearly specified a Colourbond roof would be installed, the appellant’s copy had the word “Colourbond” crossed out and the word “tiles” handwritten in its place. The appellant contended that he made this amendment after he took the contracts away on 27 June 2013 and before the meeting on 5 July 2013. He contended that he drew the respondent’s attention to this change at the meeting.
Several matters which were agitated in the initiating notice of appeal are omitted from the “revised grounds of appeal” now advanced by the appellant. Those matters relate to:
·Findings made by the Magistrate in respect of front end loading (original ground 3.2);
·The Magistrate considering statements made in without prejudice negotiations (original ground 3.5);
·The Magistrate finding that the appellant had repudiated the contract (original ground 3.6);
·The Magistrate failing to consider whether the appellant had a right to terminate the contract (original ground 3.8); and
·The Magistrate failing to find that a clause of the contract in respect of interest charges was a penalty and void (original ground 3.9).
I consider that, in conceding that his original grounds of appeal are inadequate and omitting these matters from his “revised grounds of appeal”, the appellant has in effect abandoned these grounds of appeal. It is therefore unnecessary for me to address these matters in considering the merits of the appeal.
The grounds the appellant now seeks to advance can be summarised as follows:
·The Magistrate erred in finding that the contract was for the construction of a house with a Colourbond roof (revised ground 1; original ground 3.7);
·The Magistrate erred in failing to draw any adverse inferences from the respondent’s failure to call witnesses to meetings between the appellant and respondent (revised ground 2; original grounds 3.3 and 3.4);
·The Magistrate erred in finding that the respondent was entitled to payments under the contract (revised grounds 3 and 4; original ground 3.1);
·The Magistrate erred in finding that the appellant’s case was implausible (revised ground 5);
·The Magistrate erred in making findings of fact against the appellant in respect of an amendment to the contract alleged by the appellant to have been made (revised ground 6);
·The Magistrate erred in finding that a revision of costings would have been required to reconfigure the contract to reflect a tiled roof (revised ground 7);
·The Magistrate erred in drawing inferences from plans filed with the Council (revised grounds 8 and 11);
·The Magistrate erred in the treatment of the evidence of Mr Mackereth and Mr Centofanti (revised grounds 9 and 10); and
·The Magistrate erred in respect of the award of costs (revised ground 12).
For the following reasons, I consider that these grounds provide insufficient foundation on their merits to support the grant of leave under s 471B.
Key findings at trial — revised grounds 1 and 6
The principal issue to be resolved at trial was whether or not the contract was for a Colourbond roof or a tiled roof. Ultimately, the Magistrate found that the contract was for a Colourbond roof. The appellant now seeks to contest that finding (revised ground 1), and various underlying findings of fact (revised ground 6).
In effect, revised grounds 2, 8, 9, 10 and 11 comprise three contentions upon which the appellant purports to challenge the key findings made by the Magistrate. For the reasons that follow, I consider that none of the contentions advanced by the appellant in support of his challenge to the Magistrate’s findings are reasonably arguable. It follows that revised grounds 1 and 6 are also not reasonably arguable.
Adverse inference from failure to call witness — revised ground 2
The first basis on which the appellant seeks to challenge findings is a contention that the Magistrate erred in failing to draw an adverse inference from the respondent’s failure to call Mr Zahid as a witness to give evidence of the meetings at which the contract was produced and executed (revised ground 2). The appellant contends that, under the rule in Jones v Dunkel, the Magistrate should have inferred from the respondent’s failure to call Mr Zahid that his evidence would have been adverse to the appellant’s case.[39]
[39] (1959) 101 CLR 298.
The rule in Jones v Dunkel can be summarised as follows:[40]
First, unexplained failure by a party to give evidence, to call witnesses, to tender documents or other evidence or to produce particular material to an expert witness may (not must) in appropriate circumstances lead to an inference that the uncalled evidence or missing material would not have assisted that party’s case. The rule can operate against parties not bearing the burden of proof and parties which do bear it as well. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered … .
(Footnotes omitted)
[40] J D Heydon, Cross on Evidence (LexisNexis Butterworths, 11^th ed, 2017) at 38 [1215].
Mr Zahid was an accountant engaged by the respondent, and attended the meetings at which the contract was produced and executed. Given that the events of these meetings (and by extension what type of roof was agreed to) was a key issue at trial, Mr Zahid’s evidence might have been of some value. His relationship with the respondent indicates that it was the appropriate party to have called him as a witness. The respondent has not proffered any explanation for the failure to call Mr Zahid at trial, although the lack of an explanation is likely to have been because the Jones v Dunkel argument was first raised in the revised grounds of appeal produced at the hearing.[41] Although it is not necessary for me to determine conclusively whether the Magistrate should have drawn a Jones v Dunkel inference against the respondent (nor is it appropriate given that the respondent has not had an opportunity to make detailed submissions on this point), I consider that it is reasonably arguable on the face of the evidence and submissions presently before the Court.
[41] The appellant’s original grounds of appeal did not raise a Jones v Dunkel contention.
However, I consider that even if the Magistrate had inferred that Mr Zahid’s evidence would not have assisted the respondent, his Honour’s findings would nevertheless still have been open. His Honour addressed the relevant meeting as follows:
I am satisfied that the parties reviewed the contract and schedule in detail at the 5 July meeting. In such circumstances, Mr Zollo and his accountant, Mr Zahid could not have failed to identify such an obvious alteration to the original contract. In any event, according to the defendant, he brought this to their attention and yet they neither initialled the defendant’s copy, where the alteration was made, nor amended their own copy of the contract to reflect the change to the roofing material from Colourbond to tiles.
The defendant stated in evidence that at that meeting the plaintiff acknowledged that a tiled roof would be installed and assured the defendant that it was not going to be a problem. This is difficult to accept, since the plaintiff’s contract was not altered, nor did the defendant follow up with any communication after 5 July 2013 confirming that the parties had agreed to a tiled roof. The plaintiff denied there had been any conversation about a tiled roof or that there was any verbal assurances given to the defendant at the 5 July meeting.
I am not satisfied that there was any such conversation.
His Honour’s reasoning as to the events of the relevant meeting remains sound, even in the face of an inference that Mr Zahid’s evidence would not have assisted the respondent.
Moreover, I consider it inherently improbable that after going to the trouble of amending his copy of the contract in respect of an issue that was apparently important to him, the appellant would not have ensured that a corresponding change was made to the respondent’s copy before the two copies of the contract were executed. The implausibility of him leaving the meeting without ensuring that both copies of the contract had been amended before they were executed is further reinforced by his substantial experience in the building industry and the fact that he had made repeated attempts to secure council approval for the installation of a tiled roof.
For these reasons, I do not consider that revised ground 2 is reasonably arguable.
Inferences drawn from plans filed with the Council — revised grounds 8 and 11
The second contention advanced by the appellant against the findings of the Magistrate is that his Honour erred in drawing inferences from plans filed with the Council (revised grounds 8 and 11). The appellant submits that the Magistrate erred in the following passage of the judgment:
I therefore reject the proposition posed at para.27 of the defendant’s submissions that the court should find that ‘the preponderance of evidence supports a finding that the contract included the supply and installation of a tiled roof.’ The defendant has a great deal of hands-on experience with this project, having presented numerous plans to the council that had been rejected or superseded. He would have been aware that three previous attempts to obtain approval for a tiled roof were unsuccessful. He would have been aware that the plan dated 15 January 2012 had been approved and it was he who provided a copy of that plan to the plaintiff.
There is no error apparent in his Honour’s approach in respect of the plans filed with the Council. The fact that the Council had approved the construction of the residence with a Colourbond roof plainly supports the inference that the parties entered into the contract on the basis that a Colourbond roof would be erected. It also supports his Honour’s finding that the appellant had not informed Mr Zollo at the meeting on 5 July that he had changed the contract so as to refer to a tiled roof. The Magistrate was clearly correct in his finding that if the contract was varied to require installation of a tiled roof as asserted by the appellant, it would have been necessary for him to have obtained approval from the council to that effect. The appellant, and not the respondent builder, had accepted responsibility for obtaining the necessary approvals from the council.

I therefore consider that revised grounds 8 and 11 are not reasonably arguable.
Treatment of witness evidence — revised grounds 9 and 10
The third basis upon which the appellant seeks to challenge the Magistrate’s findings is a contention that his Honour erred in respect of his treatment of the evidence of two witnesses, Mr Mackereth and Mr Centofanti, called by the appellant (revised grounds 9 and 10). The Magistrate rejected the evidence of Mr Mackereth on the following basis:
Mr Mackereth, called by the defendant, who used to be in the employ of Homestead Homes, testified that he thought Mr Zollo was dishonest and attacked his character with vigour. Unfortunately for Mr Mackereth, much of his evidence was speculative and, in any event, he acknowledged that he himself had stolen the pricing estimate document while he was employed by Homestead. His own credibility was therefore undermined.
The Magistrate noted that a significant part of the appellant’s case was an attack upon the credit of Mr Zollo. The latter admitted that he had been the subject of adverse findings by regulatory authorities. However, the Magistrate found that the past misdeeds of Mr Zollo did not detract from the clear facts of the case. The Magistrate found against the appellant after seeing and hearing the witnesses give evidence. His Honour’s findings are not “glaringly improbable or contrary to compelling inferences” in the sense referred to in Fox v Percy.[42] To the contrary, the findings were almost inevitable given the inherent implausibility of the appellant’s evidence about the meeting on 5 July 2013 and the execution of the contract.
[42] (2003) 214 CLR 118.
It is clear from the passage above that the evidence of Mr Mackereth was directed at the credit of Mr Zollo and not substantive matters. The Magistrate considered that the evidence was speculative and Mr Mackereth’s own credit was damaged by his admitted theft of the pricing estimate document. In that light, and having regard to the observations made in the preceding paragraph, I do not consider that the appellant has a reasonable prospect of success in so far as his appeal relies upon an attack upon the Magistrate’s conclusions concerning the evidence of Mr Mackereth.
The Magistrate addressed Mr Centofanti’s evidence as follows:
Mr Centofanti, building expert, called by the defendant, testified that a building must be built in accordance with the plans and the building consent as approved by council. He also agreed that in regard to the work required as to the existing house was all but complete and those things that remained outstanding were of a very minor nature. He also gave evidence that a Colourbond roof was inevitably less expensive than a tiled roof to build.
The Magistrate plainly took Mr Centofanti’s evidence into account. I cannot see any possible basis upon which it is reasonably arguable that the Magistrate erred in relation to the evidence of Mr Centofanti.
I consider that revised grounds 9 and 10 are not reasonably arguable.
Finding that the appellant’s case was implausible — revised ground 5
The appellant further challenges the Magistrate’s finding that the appellant’s assertion that he had amended the contract prior to the meeting on 5 July 2013 was “implausible”. The appellant submits that the Magistrate did not explain why he found this assertion to be implausible.
The appellant’s submission is plainly incorrect. The Magistrate clearly explained at length his reasons for rejecting the appellant’s assertions that he had amended the contract prior to the meeting and that the respondent had agreed to the amendment. This finding was immediately followed by the remarks set out at [76] above. His Honour plainly considered the timing to be implausible because, if the contract had been amended prior to the meeting, Mr Zollo would have noticed the change, and if he agreed to it, initialled the change on the appellant’s copy of the contract and amended his company’s copy of the contract. As I have already indicated, I consider the argument advanced by the appellant to be inherently implausible.
I consider that revised ground 5 is not reasonably arguable.
Finding as to revision of costings — revised ground 7
The appellant further contests a finding by the Magistrate that “[n]o doubt a revision of costings would have been required in order to reconfigure the contract to reflect a tiled roof.” The appellant submits, with reference to the evidence of Mr Mackereth, that the work under the contract was already costed on the basis of a tiled roof, as opposed to a Colourbond roof.
I do not accept that submission. Mr Mackereth’s evidence was that, in his time working for the respondent, pricing estimates automatically defaulted to a concrete (i.e. tiled) roof. However, the pricing estimates were not referred to at all in the contract. There was no clear evidence that the work under the contract was costed on the basis of a tiled roof. In any event, even if the work had been priced on the basis of a tiled roof, this would not detract from the fact that the terms of the contract clearly and unambiguously specify that a Colourbond roof will be erected and that the evidence of Mr Centofanti that a tiled roof was more expensive had been accepted. In any event, the reference by the Magistrate to the revision of costings was little more than an aside. Even if the appellant were to demonstrate successfully on appeal that the Magistrate erred in relation to the need for revised costings, I cannot see how this would affect the central conclusion reached by the Magistrate that the parties had not agreed to a tiled roof at the meeting on 5 July 2013 and that the appellant never believed that to be the case.
I therefore consider that revised ground 7 is not reasonably arguable.
Entitlement to payments under the contract — revised grounds 3 and 4
The appellant did not enlarge upon revised grounds 3 in his written or oral submissions. I infer that the contention in revised ground 3 that the Magistrate erred in finding that the plaintiff was entitled to a full progress payment for the framing of the walls and roof timbers is intended to refer to his Honour’s finding that the respondent was entitled to a total payment of $22,126 in respect of the unpaid tax invoices.
Having concluded that the contract was for construction of a residence with a Colourbond roof, and that the respondent had performed work as agreed under that contract up until the time the appellant repudiated the contract, it follows that the Magistrate was plainly correct in concluding that the respondent was entitled to payment for the work done. I cannot see any reasonably arguable basis upon which the contrary contention is advanced in revised ground 3.
The appellant contends in revised ground 4 that the Magistrate erred in law and in fact in determining that the respondent was entitled to a management fee for the whole of the contract price and also erred in the manner by which that fee was assessed. The Magistrate does not make any reference to a management fee in his reasons.
The appellant complained in his written submissions about the assessment of the profit component by the Magistrate. I therefore understand that the appellant is complaining about the award of damages in the sum of $11,812.50 by way of loss of profit on the portion of the work outstanding at the time of repudiation. His Honour made clear that the quantum was based upon the profit calculation expressed in the respondent’s statement of claim.
If the contract had not been repudiated and the work completed in accordance with the contract, the respondent would have been entitled to payments substantially greater than the amount paid, or found to be payable by the Magistrate, for the work done up until the time of repudiation. A large part of that additional payment would have been expended by the respondent upon the cost of labour and materials and probably the engagement of subcontractors. However, the difference between the amounts payable by the appellant under the contract and the costs incurred by the respondent as builder would have represented its profit. Upon repudiation, it was entitled to compensation for that loss of profit.
The appellant’s written submissions assert that the invoices rendered by the respondent included a profit component. While I accept the correctness of that proposition, the Magistrate made clear that the loss of profit calculation related only to the outstanding portion of the work. In other words, the Magistrate found that the respondent was entitled to the full sum claimed on outstanding invoices but only a profit component on the work that was abandoned due to the repudiation of the contract. It is clear from the Magistrate’s reasons that his Honour did not double count by adding a profit component to the outstanding invoices.
For the preceding reasons, I consider that revised ground 4 is based upon a misunderstanding of the approach adopted by the Magistrate. For that reason, I do not consider that revised ground 4 is reasonably arguable.
Award of costs — revised ground 12
In revised ground 12, the appellant challenges for the first time the Magistrate’s decision made on 30 November 2018 to award costs on a solicitor/client basis. Those orders were made more than one year after judgment was published on 14 September 2017. The initial costs order made on 14 September 2017 applied the usual principle that costs follow the event. The appellant promptly appealed against the dismissal of his action. If he succeeded in that appeal, the initial costs order would have been set aside.
Ordinarily costs orders would be made when judgment was published or soon thereafter. For that reason an appeal against the substantive judgment and any appeal against costs would ordinarily be pursued at the same time in the one notice of appeal. The delay has prevented that approach being adopted.
I reject the respondent’s contention that the appellant cannot validly contest in the present appeal the Magistrate’s decision made on 30 November 2018 to award costs on a solicitor/client basis. The costs orders, and also the orders concerning payment of interest, made on 30 November 2018 merely complete the original proceedings in the Magistrates Court. For that reason I consider that the appellant is entitled to amend his original notice of appeal so as to cover the questions of costs and interest. Because the appeal has not been set down for hearing, r 294 does not operate to require the appellant to obtain permission to amend the grounds of appeal. There is no time limit restricting when an amendment to the grounds of appeal may be made. However, r 288(1)(b) of the Supreme Court Civil Rules requires permission to the extent that the appeal is against a costs order.
I will therefore consider whether leave should be granted under s 471B of the Corporations Act to appeal against the costs and interest orders and also under r 288 of the Supreme Court Civil Rules in relation to the costs orders.
Revised ground 12 contends that the Magistrate erred in law and fact in awarding the respondent costs on a solicitor/client basis from the end of day 2 of the trial although the defendant had been substantially successful on the indemnity costs and rate of interest arguments.
The Magistrate noted that the power of a court to award costs is absolute and unfettered but must be exercised judicially. Ordinarily, costs are awarded on a party/party basis, but that principle may be departed from where there is some special or unusual feature. His Honour noted that it may be appropriate to consider awarding costs on a solicitor/client or indemnity basis where an action has been commenced, or continued, in circumstances where the applicant, properly advised, should have known that he had no chance of success.
Against the background of those principles, the Magistrate considered the conduct of the appellant in the course of the litigation. In particular, his Honour referred to the mounting of the defence that the contract had been amended to refer to a tiled roof, the decision to refer to a multitude of documents and to advance ambiguous submissions which did not clarify any of the issues in dispute and the failure to prove numerous causes of action pleaded as part of the counterclaim.
In this light, the Magistrate determined that it was appropriate to depart from the ordinary costs rule. However, his Honour declined to award costs on a solicitor/client basis for the entirety of the claim. His Honour explained that decision by stating that he was mindful of the significant discrepancy between the judgment sum and the amount of costs claimed and also took into account that the respondent did not participate in the conciliation conference and some other unspecified matters referred to by the appellant. His Honour also rejected the respondent’s claim for indemnity costs pursuant to the contract.
The Magistrate stated that, as the trial progressed, it should have been clear to the appellant and his legal advisers that the likelihood of success was exponentially reducing. His Honour stated that the approach he was adopting expressed “the court’s disapproval of the defendant’s bloody minded approach to an unreasonable case.”
As previously noted, the Magistrate ordered that the respondent was entitled to all costs up until the end of the second day of the trial on a party/party basis and thereafter on a solicitor/client basis. The Magistrate awarded interest at the contractual rate of 2% per month until 1 October 2014, being the date on which the claim commenced, and thereafter at the standard Court rate of 10% per annum until the date of judgment.
The appellant asserts in his written submissions that it was successful on the costs and interest argument. That assertion goes beyond revised ground 12 which only asserts substantial success. It is the case that the costs claimed by the respondent have substantially reduced, primarily because it failed in its claim for contractual indemnity costs and only partly succeeded in its claim for interest at the contractual rate. However, the appellant failed in its claim that costs for the entirety of the proceedings should be on a party/party basis. Thus, both parties had mixed success.
An appeal court will only intervene in relation to a costs order where a clear error has been identified or the exercise of the discretion is unreasonable or unjust.[43] For permission to appeal to be granted against a costs order there usually needs to be an important question of principle that requires resolution as opposed to the application of a settled principle to particular facts.[44]
[43] Hutchinson v Ellis [2010] SASCFC 71.
[44] Rasch Nominees Pty Ltd v Bartholomaeus [2013] SASCFC 105.
I do not consider it to be reasonably arguable that there is a clear error in the Magistrate’s decision with respect to costs, nor do I consider it reasonably arguable that the exercise of his Honour’s discretion was unreasonable or unjust. His Honour correctly stated the relevant principles and carefully applied those principles to the facts. Given the findings of fact made by the Magistrate and the concerns he expressed about the approach taken by the appellant to the proceedings, it might well be thought that his Honour was merciful in only deciding to award costs on a solicitor/client basis from the end of the second day of the trial.
I also do not consider it reasonably arguable that the Magistrate erred in respect of the award of interest. His Honour provided a cogent and logical explanation for his decisions in respect of interest and I cannot detect any arguable error. The fact that the appellant may be dissatisfied is not, of itself, a basis to grant permission to appeal.
The judgment of the Magistrate in relation to the costs and interest question does not deal specifically with the award of costs in respect of that argument. His Honour simply ordered when he delivered his ruling on 30 November 2018 that costs would be payable on a solicitor/client basis after the conclusion of day two of the trial (which was over a year prior). In the absence of any contrary order, that order also covered the subsequent costs and interest argument which occurred more than one year later. It is not clear whether that was what the Magistrate intended.
The appellant contended in his oral submissions that he should not be required to pay the costs incurred by the respondent in relation to the costs and interest argument on a solicitor/client basis. According to the appellant’s counsel, the costs claimed by the respondent for that argument exceed $40,000. The respondent did not dispute that figure. This seems an extraordinary amount to claim in respect of a costs and interest argument before a Magistrate, even when computed on a solicitor/client basis. However, the quantum of costs, as distinct from the principle applied to determine costs, cannot be the subject of the present appeal. If the quantum of costs cannot be agreed between the parties, the issue must be resolved by taxation under r 108 of the Magistrates Court (Civil) Rules.
Because the Magistrate has not specifically addressed the principle to be applied in determining the costs of the argument about costs, and also as it is not readily apparent to me why those costs should be computed on a solicitor/client basis, I consider it reasonably arguable that the Magistrate erred. Although there is nothing to indicate that the Magistrate actually exercised his discretion in relation to the costs of the costs argument, I consider it reasonably arguable that the exercise of his Honour’s discretion was unreasonable or unjust.
Accordingly, I consider that revised ground 12 is reasonably arguable in so far as it refers to the principle to be applied in assessing the costs of the argument about the award of costs and interest. I will therefore grant permission to appeal in respect of that matter only.
Conclusion
For the foregoing reasons, I grant leave under s 471B of the Corporations Act and permission under r 288(1)(b) of the Supreme Court Civil Rules for the appellant to appeal only on ground 12 in the handwritten revised notice of appeal handed up to the Court on 1 May 2019. That appeal is limited to the principle to be applied in determining the costs payable by the appellant in respect of the argument about costs and interest. I otherwise refuse leave to proceed with the appeal under s 471B of the Corporations Act and to the extent that the appeal concerns orders for costs (other than to the extent already stated) I also refuse permission under r 288(1)(b). If the appellant intends to proceed with the appeal on ground 12, within seven days he must file a notice of appeal that is consistent with my ruling and that complies in all relevant respects with the Supreme Court Civil Rules. That notice must also be served upon on the solicitor for the respondent within seven days.
I will hear the parties as to the costs of the interlocutory application.