Culve Engineering Pty Ltd v Apollo General Engineering (Aust)
[2017] VSCA 182
•7 July 2017
SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2016 0141
| CULVE ENGINEERING PTY LTD (ACN 004 794 825) & ORS (According to the schedule annexed) | First Applicant |
| v | |
| APOLLO GENERAL ENGINEERING (AUST) PTY LTD (IN LIQ) (ACN 005 232 119) & ORS (According to the schedule annexed) | First Respondent |
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| JUDGES | WHELAN and FERGUSON JJA |
| WHERE HELD | MELBOURNE |
| DATE OF HEARING | 8 June 2017 |
| DATE OF JUDGMENT | 7 July 2017 |
| MEDIUM NEUTRAL CITATION | [2017] VSCA 182 |
| JUDGMENT APPEALED FROM | [2016] VSC 533 (Robson J) |
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PRACTICE AND PROCEDURE – Whether power in r 9.09 of Supreme Court (General Civil Procedure) Rules 2015 to make a substitution order is discretionary – Relevance of Civil Procedure Act 2010 to exercise of Court’s power under r 9.09 – Power in r 9.09 to make a substitution order to be exercised consistently with entitlement provided for by s 29 of Administration and Probate Act 1958 – Absent ‘disentitling circumstances’ order should be made.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicants | Mr J W S Peters QC with Ms C G Rome-Sievers | Baker Jones Lawyers |
| For the Respondents | Mr M Osborne QC with Mr B Petrie | Rigby Cooke Lawyers |
WHELAN JA
FERGUSON JA:
The third applicant, Sandra Cerrato, is the executrix of the deceased estate of her father, Rocco Cerrato. Mr Cerrato died on 14 August 2014.
In 2010, and at all material times prior to 2010, Mr Cerrato was a director of the first applicant, Culve Engineering Pty Ltd (‘Culve Engineering’), the second applicant, Tena Denham Nominees Pty Ltd (‘Tena Denham’), and the first respondent, Apollo General Engineering (Aust) Pty Ltd (in liquidation) (‘Apollo’).
Ms Cerrato was joined as a defendant to this proceeding in her capacity as executrix in substitution for her father by an order made by an associate judge on 18 September 2015. Ms Cerrato and the other applicants, Culve Engineering and Tena Denham, appealed that decision. Their appeal was dismissed by an order of a judge in the Trial Division of this Court on 6 September 2016. Ms Cerrato, Culve Engineering and Tena Denham now seek leave to appeal from the decision of the judge in the Trial Division.
Claims made in this proceeding
Prior to 21 April 2010 Apollo carried on a heavy engineering business as trustee of a trust, the sole beneficiary of which was Tena Denham. Tena Denham in turn was trustee of another trust of which Culve Engineering was a beneficiary. On 21 April 2010 Mr Cerrato, who was then the sole director of Apollo, appointed the second respondent, Matthew Jess, and the third respondent, Paul Burness, as administrators of Apollo. On 17 June 2010 the creditors of Apollo resolved to wind the company up and Mr Jess and Mr Burness (‘the liquidators’) were appointed liquidators for the purpose of the winding up.
Apollo and the liquidators issued this proceeding on 28 March 2013. A number of claims are made against Culve Engineering and Tena Denham. It is alleged that they received unfair preferences and were the beneficiaries of uncommercial transactions. A claim is made against Mr Cerrato that as a director of Apollo he contravened s 588G of the Corporations Act 2001 (Cth) by allowing Apollo to trade while insolvent. It is alleged that Mr Cerrato is liable to the liquidators pursuant to s 588M(2) of the Corporations Act for an amount equal to the loss or damage suffered by creditors as a consequence. A further claim is made against Mr Cerrato for breach of his statutory duties in causing, permitting, or failing to prevent the payments which are the subject of the claims against Culve Engineering and Tena Denham, and a claim is made against Mr Cerrato by Apollo as a co-guarantor of a Tena Denham debt and based on subrogation.
The fourth and fifth respondents are a firm of solicitors and a barrister who previously acted on behalf of Apollo and the liquidators. Claims are made against them as a consequence of a defence relied upon by Mr Cerrato. Mr Cerrato has pleaded that a settlement entered into with the former general manager of Apollo, Salvatore Guccione, had the effect of releasing him from claims made in this proceeding.
In addition to the defence founded upon the release of Mr Guccione, Mr Cerrato has pleaded defences under s 588H(2), (3) and (4) of the Corporations Act and also contends that at all times he acted honestly and that he ought fairly to be excused pursuant to ss 1317S and 1318 of the Corporations Act. These defences raise issues concerning Mr Cerrato’s state of mind and the reasonableness of his beliefs and conduct.
Before turning to the decisions of both the associate judge and the judge in the Trial Division, it is necessary to briefly review the history of this proceeding and of prior proceedings issued by the liquidators and Apollo.
History of the relevant proceedings
The liquidators sent letters of demand to Mr Cerrato alleging insolvent trading in May 2011. Proceedings in relation to that claim were not instituted then, and one of the letters indicated that the liquidators were then still in the process of finalising an insolvency report.
In June 2011 the liquidators commenced two proceedings in the County Court. One was against Culve Engineering for the recovery of advances. The other was against Apollo’s former bookkeeper, Daniella La Rosa, who is also a daughter of Mr Cerrato. Ms La Rosa joined Mr Guccione to that proceeding.
In January 2013 the liquidators published the foreshadowed insolvency report and in February of that year they sought to amend the statement of claim in the County Court proceeding against Culve Engineering and to join Tena Denham and Mr Cerrato as defendants. The proposed amended pleading included an insolvent trading claim against Mr Cerrato.
The proceeding in the County Court against Culve Engineering had progressed, to say the least, in an unsatisfactory manner. There had been repeated amendment applications, requiring the vacation of a number of trial dates. Because of the unsatisfactory way in which the matter had proceeded, in February 2013 a County Court judge refused Apollo’s application to amend and join additional parties and dismissed the proceeding against Culve Engineering with an order that Apollo pay Culve Engineering’s costs on an indemnity basis.[1] In the same month Apollo and the liquidators settled the County Court proceeding against Ms La Rosa and Mr Guccione. The settlement included the release of Mr Guccione which, it is contended, has also had the effect of releasing Mr Cerrato.
[1]Apollo General Engineering (Aust) Pty Ltd v Culve Engineering Pty Ltd [2013] VCC 81 [5], [8].
In March 2013 the liquidators conducted a public examination of Mr Cerrato and this proceeding was issued.
The progress of the proceeding in this Court has also been delayed by amendment applications on behalf of Apollo and the liquidators. When Apollo and the liquidators applied to amend so as to add claims against their former barrister and former solicitors (consequent upon the pleaded defence based upon the effect of the release of Mr Guccione), Culve Engineering, Tena Denham and Mr Cerrato (who was then still alive) sought to have the proceeding dismissed for want of prosecution. On 27 May 2014 these applications came before the same associate judge who later made the substitution order.
On 4 July 2014 the associate judge dismissed the application based upon want of prosecution and permitted the amendments sought.[2] The applicants for dismissal had relied upon delays by Apollo and the liquidators and had also relied upon Mr Cerrato’s age (he was then 80 years old), his failing health and what was said to be his deteriorating memory. The associate judge found that there had been delays but that they had not been inordinate or inexcusable. The associate judge was not prepared to dismiss the proceeding for want of prosecution by reason of Mr Cerrato’s age, health and memory.
[2]Apollo General Engineering (Aust) Pty Ltd v Culve Engineering Pty Ltd (Unreported, Supreme Court of Victoria, Efthim AsJ, 4 July 2013).
After Mr Cerrato’s death in August 2014 Apollo and the liquidators applied under r 9.09 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (‘the Rules’) for an order substituting Ms Cerrato, as executrix of Mr Cerrato’s estate, for Mr Cerrato. The application relied upon the provisions of both r 9.09 and upon s 29 of the Administration and Probate Act 1958. Ms Cerrato, and Culve Engineering and Tena Denham, resisted the application relying, amongst other things, on provisions of the Civil Procedure Act 2010.
Relevant statutory provisions
Section 29 of the Administration and Probate Act relevantly provides that ‘on the death of any person, all causes of action subsisting against or vested in him shall survive against or (as the case may be) for the benefit of his estate’. It is, and has always been, accepted by all parties that the relevant causes of action have survived Mr Cerrato’s death.
Rule 9.09 of the Rules relevantly provides:
(1)Where a party to a proceeding dies, but the cause of action survives, or where a party becomes bankrupt, the proceeding shall not abate by reason of the death or bankruptcy, but may be carried on in accordance with paragraph (2).
(2)Where at any stage of a proceeding the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may order –
a) that the other person be added as a party to the proceeding or made a party in substitution for the original party; and
b) that the proceeding be carried on as so constituted.
…
(5)Where an order is made without notice to a person on whom the order is served, an application by that person to set aside or vary the order shall be made within 10 days after service.
Rule 9.10 provides that where no order is made under r 9.09(2) the Court may, on application, order that unless an order for substitution is made within a specified time the proceeding be dismissed.
Section 1 of the Civil Procedure Act sets out the main purposes of the Act. Amongst those purposes are the reform and modernisation of practice and procedure. Section 7 provides that the overarching purpose of the Act and of the Rules is ‘to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute’. Section 8 requires the Court to give effect to the overarching purpose in the exercise of its powers and in the interpretation of those powers. Section 9 empowers the Court to further the overarching purpose with regard to a series of specified objects, which include the efficient conduct of the business of the Court and the minimisation of delay, and provides that the Court may have regard to a list of specified matters which include (in summary) the manner in which the parties have conducted the litigation.
Decision of the associate judge on substitution
After a contested hearing, the associate judge determined that Ms Cerrato should be added as a defendant in substitution for her deceased father. He published reasons for that determination.[3]
[3]Apollo General Engineering (Aust) Pty Ltd (In Liquidation) v Culve Engineering Pty Ltd [2015] VSC 503 (‘Associate Judge’s Reasons’).
The associate judge accepted a submission put on behalf of Ms Cerrato[4] that the determination of whether to make a substitution order under r 9.09 was discretionary,[5] and the associate judge also accepted, implicitly if not explicitly, that if a fair trial were unlikely given Mr Cerrato’s death,[6] or if Apollo and the liquidators had been guilty of inordinate or inexcusable delay,[7] then that could be a proper basis upon which to refuse an order for substitution.
[4]The submissions were advanced on behalf of Ms Cerrato and also on behalf of Culve Engineering and Tena Denham. For ease of reference, and as all the factors relied upon concern Ms Cerrato, we will refer to the submissions made as being made on her behalf.
[5]Ibid [8].
[6]Ibid [34].
[7]Ibid [35].
In relation to delay, the associate judge referred to his earlier determination of the application for dismissal for want of prosecution and repeated his conclusion that the delays had not been inordinate or inexcusable.[8]
[8]Ibid.
In relation to the likelihood of a fair trial, the associate judge analysed the pleadings and identified the relevant subjective and objective matters which Ms Cerrato would seek to establish on behalf of Mr Cerrato’s estate.[9] As to the objective matters, the associate judge observed that relevant evidence could be given by others.[10] As to the subjective matters, the associate judge referred to observations of Gzell J in Australian Securities and Investments Commission v MacDonald (No 12)[11] to the effect that a finding of honesty could be made based upon an analysis of surrounding circumstances notwithstanding that the person whose honesty was in issue had not given evidence.[12] The associate judge concluded that he ‘cannot be convinced that the chances of a fair trial are unlikely’.[13]
[9]Ibid [17]–[33].
[10]Ibid [32].
[11](2009) 259 ALR 116, 123 [26]–[27].
[12]Associate Judge’s Reasons [24].
[13]Ibid [34].
Decision of the judge in the Trial Division
An appeal from the associate judge’s decision was brought before a judge in the Trial Division.[14]
[14]Re Apollo General Engineering (Aust) Pty Ltd (in liq) [2016] VSC 533 (‘Judge’s Reasons’).
Ms Cerrato contended that the associate judge had been correct in treating the power as discretionary but had erred in the exercise of that discretion. As to the exercise of the discretion, Ms Cerrato particularly relied upon the Civil Procedure Act. Ms Cerrato contended that the associate judge had incorrectly exercised his discretion by reference to the test applicable on an application for want of prosecution.
The judge set out in detail a history of the proceeding, the relevant provisions of the legislation and the Rules, the associate judge’s reasons, and the submissions made before him.
In relation to the issue of whether the power provided for in r 9.09 was discretionary, the judge relied upon a decision of this Court in ACN 005 057 349 Pty Ltd v Commissioner of State Revenue.[15] Since the judge’s decision the High Court has overturned this Court’s judgment in that case. The judge also reviewed and relied upon other relevant authorities.
[15][2015] VSCA 332.
The judge reached the following conclusion:
In my view, r 9.09 must be read in the light of s 29 of the Administration & Probate Act. Rule 9.09 is there to assist and implement s 29. To give the rule a construction sought by the appellants would be to impede and obstruct the plain meaning and effect of s 29.
…
The statutory provision provides that the cause of action against the defendant survives his death. The provision can only be given effect to if r 9.09 is treated as mandatory. To permit the power to exercise as a discretion would deny the words of the statute.[16]
[16]Judge’s Reasons [91], [93].
When addressing the effect of the Civil Procedure Act, the judge said:
It may be the case that the Civil Procedure Act does have an incidental role to play in an application under s 29. There may be circumstances of delay or the way the matter was dealt with which enlivens the application of the Civil Procedure Act. But, I do not consider that the Civil Procedure Act can be used to deny a plaintiff their statutory right to proceed against the estate of a deceased defendant on the grounds that such proceeding would be unjust by reason of the deceased not being able to give evidence. It appears to me that it is inherent in s 29 that the legislature has contemplated proceedings against the estate of a deceased even though the deceased will now no longer be giving evidence and meeting the claim. [17]
[17]Ibid [98] and see also [104].
The judge accepted that Ms Cerrato would confront difficulties in meeting the claims against the estate, but he concluded in the following terms:
Accepting that the executrix will suffer the prejudice referred to by the appellants, I do not consider that the learned associate judge fell into appellable error in making the decision that he did.
As mentioned above, the legislature has enabled litigation to continue against the estate of a deceased defendant. The fact that such litigation presents difficulties for the defence supplies no ground for the court refusing to add the executrix as a party as required by s 29 of the Administration & Probate Act.[18]
[18]Ibid [114]–[115].
The judge said that it did appear that the associate judge had had regard to an irrelevant test, being that applicable on an application to strike out for want of prosecution, but that that had not caused him to fall into error.[19]
[19]Ibid [102].
Review of relevant authorities
Before turning to the submissions made before us, it is useful to review the relevant authorities beginning with the judgment of the High Court which overturned a judgment of this Court upon which the judge below relied.
Commissioner of State Revenue v ACN 005 057 349 Pty Ltd (‘CSR v ACN’)[20] concerned erroneous assessments of land tax. Section 19 of the Land Tax Act 1958 (Vic) provided that the Commissioner of State Revenue ‘may from time to time amend an assessment by making such alterations or additions to it as he thinks necessary to ensure its completeness and accuracy’. Section 90AA of the Land Tax Act dealt with refunds of tax and, amongst other things, imposed a three year time limit after payment of the tax for the lodgement of an application for a refund. The tax purportedly payable under the erroneous assessments had been paid. No application for a refund had been made within the required three year period.
[20](2017) 341 ALR 46.
Relevantly for present purposes, this Court had found that once the Commissioner knew that the assessments were erroneous he was under a duty to exercise the power given to him by s 19 of the Land Tax Act to amend the assessments and to then give effect to the amended assessments by way of a refund. This Court held that that was so notwithstanding the use of the word ‘may’ in s 19 and notwithstanding the provisions of s 90AA.
In the High Court Bell and Gordon JJ, with whom on the relevant matters Kiefel and Keane JJ, and Gageler J, agreed, held that the interpretation of the power of the Commissioner provided for in s 19 which had been adopted by this Court was inconsistent with the proper analysis of the legislative scheme and of s 90AA in particular.
In the course of their judgment Bell and Gordon JJ dealt with two prior decisions of the High Court upon which the taxpayer had relied in seeking to support the construction adopted by this Court. After setting out what they found to be the correct construction of the relevant legislation, Bell and Gordon JJ turned to the two authorities which had been relied upon. They said:
Further, contrary to the submissions of the taxpayer, the construction adopted by the Court of Appeal is not supported by authority. Contrary to the conclusion reached by the Court of Appeal,[21] Finance Facilities Pty Ltd v Federal Commissioner of Taxation[22] does not support the conclusion that the power to amend in s 19 was a statutory duty that the Commissioner was compelled to exercise. Powers granted by facultative language may impose a duty to exercise those powers[23] where, as a matter of statutory construction, the legislation imposes a duty on the holder of the power to exercise the power when prescribed pre-conditions are met.[24] As seen earlier, having regard to the discretionary text of s 19 and its role and position in the broader statutory context of the LTA, s 19 was not one of those powers.
The taxpayer also contended that the decision of this Court in Royal Insurance[25] was authority for the propositions that once an overpayment had been found, the discretion in s 19 had to be exercised by making a refund, and that the amounts refunded therefore were never land tax paid under the LTA. That decision does not assist the taxpayer.
Royal Insurance considered an express statutory power to refund overpayments of stamp duty expressed in facultative terms and using the word ‘may’ in circumstances where stamp duty had been paid by the taxpayer in ignorance of certain retrospective amendments to the taxing Act that exempted the taxpayer from stamp duty. Mason CJ held that the power to refund, in circumstances where the Commissioner found there to be an overpayment, should be exercised in a manner consistent with the taxpayer’s common law rights and that the facultative nature of the power should not be treated as giving rise to a discretion that would defeat a common law claim.[26] That is not these appeals. As Mason CJ recognised, notwithstanding knowledge of the overpayment, the discretionary power may be treated as a source of authority for the Commissioner to retain the overpaid amounts where there are ‘circumstances disentitling the payer from recovery’.[27] Those circumstances included where the taxpayer did not have a common law right to recover, or where the right was time-barred (as here).[28] In those circumstances, the discretion to refund should not be construed as giving rise to a duty because the exercise of discretion to refuse a refund would be justified.[29] Brennan J, with whom Toohey and McHugh JJ agreed, also found that the power was discretionary and emphasised that the Commissioner was ‘under no duty to make a refund unless there be an antecedent liability to do so’.[30]
In these appeals, as will be explained below, the Commissioner was under no such antecedent liability to amend the assessments or to make a refund because s 90AA applied to bar the taxpayer's attempts to establish such a liability.[31]
[21]ACN 005 057 349 Pty Ltd v Commissioner of State Revenue (2015) 102 ATR 281, 326–7 [128]–[130], 330 [139].
[22](1971) 127 CLR 106 (‘Finance Facilities’).
[23]Julius v Lord Bishop of Oxford (1880) 5 App Cas 214, 222–3; R v Mahony; Ex parte Johnson(1931) 46 CLR 131; Leach v The Queen(2007) 230 CLR 1, 17–18 [38].
[24]See, eg, Finance Facilities (1971) 127 CLR 106, 134-5; cf Interpretation of Legislation Act 1984 (Vic) s 45.
[25]Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd (1994) 182 CLR 51 (‘Royal Insurance’).
[26]Ibid 64–5.
[27]Ibid 64.
[28]Ibid 65.
[29]Ibid.
[30]Ibid 87; see also 86, 89.
[31]CSR v ACN (2017) 341 ALR 46, 60–2 [61]–[64].
Bell and Gordon JJ’s analysis, and the authorities they cite, reveal that the use of facultative language, such as the word ‘may’, can, depending upon the proper construction of the relevant provisions, operate in a number of different ways.
First, and most obviously, such provisions may operate so as to provide for a discretion which is fettered only by the requirement that it must be exercised properly for the purpose for which it is bestowed taking into account only matters properly relevant for that purpose.[32]
[32]Finance Facilities (1971) 127 CLR 106, 134.
At the other end of the spectrum, notwithstanding the use of facultative language, a provision may operate so as to impose a duty to exercise the relevant power when prescribed preconditions are met. The authorities cited by Bell and Gordon JJ in that context were Finance Facilities;[33] Julius v Lord Bishop of Oxford;[34] R v Mahony; Ex parte Johnston;[35] and Leach v The Queen.[36]
[33](1971) 127 CLR 106.
[34](1880) 5 App Cas 214.
[35](1931) 46 CLR 131.
[36](2007) 230 CLR 1.
In Julius v Lord Bishop of Oxford the House of Lords considered a provision in a statute which provided that ‘it shall be lawful’ for a bishop to issue a commission to inquire into a matter should a clergyman be charged with an offence or should a report of a relevant kind have been made. Earl Cairns considered the discretionary character of the bishop’s power to be plain, unambiguous, and not equivocal given the use of the words ‘it shall be lawful’.[37] But he added the following proviso, which was cited with approval by Bell and Gordon JJ in CSR v ACN:
But there may be something in the nature of the thing empowered to be done, something in the object for which it is to be done, something in the conditions under which it is to be done, something in the title of the person or persons for whose benefit the power is to be exercised, which may couple the power with a duty, and make it the duty of the person in whom the power is reposed, to exercise that power when called upon to do so.[38]
[37]Julius v Lord Bishop of Oxford (1880) 5 App Cas 214, 222.
[38]Ibid 222–3, cited in CSR v ACN (2017) 341 ALR 46, 61 n 73.
R v Mahony; Ex parte Johnston concerned a provision of a licensing statute to the effect that a licence ‘may be renewed upon application’ during a specified period. The case was decided by the majority of the High Court not on the nature of the discretionary power but rather on who it was who had the power to renew.[39]
[39](1931) 46 CLR 131, 136 (Rich and Dixon JJ), 149 (McTiernan J).
The High Court decision in Leach v The Queen is truly an example of a situation where, notwithstanding the use of the facultative word ‘may’, on a proper construction of the statute, there was a duty to exercise the power once a prescribed precondition was met. In that case the relevant provision was a New South Wales statute which provided that the Supreme Court ‘may refuse to fix a non-parole period if satisfied the level of culpability in the commission of the offence is so extreme the community interest in retribution, punishment, protection and deterrence can only be met if the offender is imprisoned for the term of his or her natural life without the possibility of release on parole’. The High Court held that once the court was satisfied as to the requisite level of culpability there was then no discretion as to whether to make the specified order. Rather, upon being satisfied of the prescribed matter the power had to be exercised.[40]
[40](2007) 230 CLR 1, 17 [38].
The High Court in Leach v The Queen relied upon its earlier decision in Finance Facilities, particularly the judgment of Windeyer J with whom Barwick CJ had agreed.
Finance Facilities concerned a provision of the Income Tax Assessment Act 1936 (Cth) which provided that the Commissioner ‘may allow’ a particular rebate ‘if the Commissioner is satisfied’ of one of three specified alternative circumstances. One of the circumstances had been fulfilled. Windeyer J found that the taxpayer’s right to a rebate was, given the facts ‘objectively determinable’, properly called ‘an entitlement’.[41]
[41](1971) 127 CLR 106, 133–4.
Windeyer J referred to the position which normally applies where Parliament uses the word ‘may’, observing that ordinarily that authorises a person to do something which otherwise could not lawfully be done and that if the scope of the permission is not circumscribed then the discretion is able to be exercised inhibited only by the requirement that it be exercised bona fide having regard to the policy and purpose of the conferring provision.[42] He went on:
However, that general proposition is irrelevant in this case. Here the scope of the permission or power given is circumscribed. Conditions precedent for its exercise are specified as alternatives. The question then is, must the permitted power be exercised if one of those conditions be fulfilled?
This does not depend on the abstract meaning of the word ‘may’ but of whether the particular context of words and circumstance make it not only an empowering word but indicate circumstances in which the power is to be exercised — so that in those events the ‘may’ becomes a ‘must’.[43]
[42]Ibid 134.
[43]Ibid.
Between these two possibilities (wide discretion and ‘may’ becomes ‘must’) there is a third alternative. Notwithstanding the use of facultative language, a legislative provision properly construed may provide for a power which is to be exercised in a manner consistent with, or so as to give effect to, a person’s entitlement. The existence of that entitlement means that the discretion conferred is not merely confined by the requirement to act bona fide and for a proper purpose, but should be exercised so as to give effect to the entitlement unless ‘disentitling’ circumstances exist.
The significance in this context of the existence of a relevant entitlement was referred to by Windeyer J in Finance Facilities. The High Court made its potential significance clear in Royal Insurance. Mason CJ, in a passage cited with approval by Bell and Gordon JJ in CSR v ACN, said:
The Court should be extremely reluctant to adopt any construction of [the relevant provision] which would enable the Commissioner by an exercise of discretionary power to defeat a taxpayer’s entitlement to recover an overpayment of duty.[44]
[44]Royal Insurance (1994) 182 CLR 51, 64, cited in CSR v ACN (2017) 341 ALR 46, 61.
Significantly, Mason CJ accepted in Royal Insurance, as Bell and Gordon JJ pointed out and endorsed in CSR v ACN, that circumstances might ‘disentitle’ a person to the benefit of the exercise of the power. Mason CJ referred[45] to the possibility that a claim might be ‘time barred’ or that a person might become disentitled as a result of another party having changed its position in the manner contemplated by David Securities Pty Ltd v Commonwealth Bank of Australia.[46]
[45]Royal Insurance (1994) 182 CLR 51, 65.
[46](1992) 175 CLR 353, 384–6.
Submissions made on the application for leave to appeal
The applicants submitted that the trial judge had found that the exercise of the power under r 9.09 was mandatory and had found that the Civil Procedure Act did not apply. It was submitted that the trial judge had been in error in both of these respects. It was submitted that the power is discretionary and that the Civil Procedure Act always applies to any exercise of the Court’s powers, as the provisions of that Act itself make clear. The applicants relied upon the history of both this proceeding and the related proceedings in the County Court. The applicants emphasised the nature of the defences upon which Mr Cerrato’s estate would rely. The difficulties presented by the inability to call Mr Cerrato to give evidence, combined with delay in instituting and prosecuting the relevant proceedings, were said to constitute grounds for exercising the discretion to refuse an order for substitution. It was submitted these were ‘disentitling circumstances’ even if the discretion provided for in r 9.09 was a narrow one.
The respondents did not contend that there were no circumstances where, after a death, a substitution order might be refused. They emphasised that the rule was ‘procedural’ and submitted that this was made clear by r 9.10, and by r 9.09(5) which envisaged a substitution order being made ex parte. The respondents submitted that the analysis of Mason CJ in Royal Insurance was operative here. There was an ‘entitlement’ to continue the action provided for by s 29 of the Administration and Probate Act. That entitlement must, absent relevant disentitling circumstances, be given effect to when an application is made under r 9.09. Senior counsel for the respondent submitted that a circumstance where an order might not be made could be where there had been inordinate delay in making the application. It was submitted that the power to order substitution was mandatory in the sense that there was no discretion the exercise of which would undermine the entitlement provided for by s 29 of the Administration and Probate Act. It was submitted that, in substance, the trial judge had adopted this approach.
The respondents contended that one reason why the approach they contended for had to be accepted was that, if they had been refused the substitution order by the associate judge, at that time (but now now) they could still have issued a fresh proceeding without risk of being met by a limitation defence.
Written submissions were filed after the hearing concerning CSR v ACN.
The applicants submitted that the High Court in CSR v ACN, and in particular the judgment of Bell and Gordon JJ, did not support a conclusion that the relevant power in r 9.09 was mandatory. It was submitted that the Court’s reference to ‘disentitling’ circumstances was a reference to ‘the overall facts upon which the discretion should be exercised’. It was submitted that in analysing the legislative context here regard must be had to the Civil Procedure Act as well as to s 29 of the Administration and Probate Act. It was submitted that to the extent that there is tension between the two, s 8(2) of the Civil Procedure Act requires that furtherance of the overarching purpose provided for in the Civil Procedure Act must prevail.
The respondents submitted that there was nothing in CSR v ACN which detracts from the proposition that in the circumstances of the application here, such discretion as existed was required to be exercised by the making of a substitution order. Alternatively, it was submitted that there was an entitlement to a substitution order which could only be displaced by relevant ‘disentitling circumstances’. No such circumstances existed here. It was submitted that such circumstances might exist if, for example, a plaintiff unreasonably delayed making an application for substitution and causes of action were statute barred so that a fresh proceeding could not be issued. It was submitted that CSR v ACN supports the respondent’s contention that r 9.09 does not provide for a general discretion ‘to be exercised at large’.
Analysis
In our opinion the correct analysis is as follows.
By virtue of the provisions of s 29 of the Administration and Probate Act the respondents were entitled to continue the proceeding they had issued against Mr Cerrato’s estate. This was an entitlement of the kind referred to by Mason CJ in Royal Insurance, adopted by Bell and Gordon JJ in CSR v ACN.
Rule 9.09 provides for the means whereby that entitlement could be given effect to, and whereby the proceeding could be regularised after Mr Cerrato’s death.
The power in r 9.09 to make a substitution order is a power which has to be exercised consistently with the entitlement provided for by s 29 of the Administration and Probate Act. Absent ‘disentitling circumstances’, a substitution order should be made. Again, this conclusion reflects the analysis of Mason CJ in Royal Insurance, adopted by Bell and Gordon JJ in CSR v ACN.
Disentitling circumstances cannot be constituted by matters which are a consequence of the death, such as the inability to call evidence from the deceased. This is because s 29 of the Administration and Probate Act has already addressed that issue and has provided that the action survives.
Disentitling circumstances might be constituted by matters arising under the Civil Procedure Act. An order might be refused if there were some inexcusable delay causing prejudice in the making of the application itself; or where a continuation of the proceeding would contravene or be inconsistent with the Civil Procedure Act, or would be an abuse of process, for reasons unrelated to the consequences of the death.
There are no disentitling circumstances of that kind here. There has been no delay in making the application. Such delays as there have been in the proceeding to date do not warrant what would amount to summary dismissal of the claim; the applicants have applied for summary dismissal for want of prosecution and have failed. The reliance placed upon the evidentiary difficulties caused by the death is misplaced.
We turn then to consider whether the judge below departed from this approach.
Although the judge used the term ‘mandatory’ at several points in his reasons, in our view his reasons, read as a whole, reveal that he has approached the issue in the way we have described. He expressly held in the passage we quoted earlier that the Civil Procedure Act could have a role to play, and in our view he recognised in that passage that circumstances might exist where an order would not be made under r 9.09 notwithstanding s 29 of the Administration and Probate Act. What the judge was concerned to emphasise, and did emphasise, was that the order could not be refused in the exercise of discretion relying upon the consequences of the death because to do so would ‘deny the words of the statute’. The judge found that the Civil Procedure Act could not be relied upon so as to deny a plaintiff’s ‘statutory right to proceed’ on the ground that substitution would be ‘unjust by reason of the deceased not being able to give evidence’. The use of the word ‘mandatory’ may not have been apt, but, in our view, the judge approached the relevant issues correctly.
In our opinion the applicants have failed to show that the judge below made a relevant error.
If the judge’s reasons were to be read as concluding that the power in r 9.09 is to be construed as mandatory in all circumstances, that is that ‘may’ always means ‘must’, then, in our view, that would constitute an error. The respondents did not seek to advance such a construction before us.
If the judge below had made an error by treating the power as mandatory in all circumstances, we would have dismissed the appeal in any event because there was an entitlement to proceed and the matters relied upon do not constitute disentitling circumstances.
We would grant leave to appeal as the trial judge’s use of the term ‘mandatory’ meant that the applicants’ proposed grounds were arguable but we would dismiss the appeal.
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SCHEDULE OF PARTIES
| S APCI 2016 0141 | |
| BETWEEN: | |
| CULVE ENGINEERING PTY LTD (ACN 004 794 825) | First Applicant |
| TENA DENHAM NOMINEES PTY LTD (ACN 005 247 709) | Second Applicant |
| SANDRA CERRATO (IN HER CAPACITY AS EXECUTRIX OF THE DECEASED ESTATE OF ROCCO CERRATO) | Third Applicant |
| - and - | |
| APOLLO GENERAL ENGINEERING (AUST) PTY LTD (IN LIQ) (ACN 005 232 119) | First Respondent |
| MATTHEW JAMES JESS | Second Respondent |
| PAUL ANDREW BURNESS | Third Respondent |
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