Gerah Imports Pty Ltd v the Duke Group Ltd (in Liquidation) No. SCGRG 89/1087 Judgment No. 4422 Number of Pages 7 Practice (1994) 12 Acsr 672

[1994] SASC 4422

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA KING CJ(1), MILLHOUSE(2) AND OLSSON(3) JJ

CWDS
Practice - Stay of proceedings - appeal against stay of order of a Master pending application for leave to appeal to High Court against judgment of Full Court upon which Master's order was consequential - test to be applied - relevant factors considered. Jennings Constructions Limited v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 at p.685, applied. Kelly v Murphy and Anor (1993) 11 ACLC 1230 and Gerah Imports v The Duke Group Ltd (In Liquidation) (unreported judgment 4359, delivered 23 December 1993), considered.

HRNG ADELAIDE, 16-17 February 1994 #DATE 17:2:1994

Counsel for appellant Duke:        Mr T A Gray QC with
   Mr S J Lipman

Solicitors for appellant Duke:     Fisher Jeffries

Counsel for respondent Gerah:     Mr J R Mansfield QC
   with Mr J Deruvo

Solicitors for respondent Gerah: Phillips Fox

ORDER
Appeal allowed.

JUDGE1 KING CJ This is an appeal by the appellant Duke Group Limited (In Liquidation) against the order made by Debelle J in this court on 14 January 1994 whereby he stayed certain orders of a Master, Judge Bowen Pain. As I understand that the view which I take of this appeal is not in accordance with the view which is taken by my colleagues I intend to state my reasons as briefly as I can.

2. The appellant company is being wound up pursuant to an order of the Supreme Court. In the course of the winding up the liquidator instituted proceedings against a firm of accountants, Nelson Wheeler, or the partners in that firm, claiming damages for negligence alleged to have occurred in the preparation of a report upon the basis of which a takeover bid had been made and in consequence of which Duke Group Limited suffered loss. He also instituted an action against some 49 defendants who are alleged to have been partners in a national partnership, of which Nelson Wheeler formed part. The liquidator was desirous of obtaining further information concerning the constitution and composition of the alleged national partnership, and also to obtain information concerning any professional indemnity insurance cover which might exist with respect to defendants in the action, including the production of relevant documents. On 22 September 1993 the liquidator made application in the liquidation proceedings for the examination of the respondents to the present appeal and the production of certain documents. It is unnecessary to trace the history of the proceedings with respect to that application, but the end result was an order on 1 November 1993 ordering the oral examination of the respondents and also the production of documents.

3. The respondents appealed to the Full Court but that appeal was dismissed on 23 December 1993. On the following day the Master made an order fixing the date for the production of the documents as 28 January 1994 and the date for the oral examination as 21 February 1994. The respondents thereupon applied to Debelle J for an order staying the operation of the Master's order pending the outcome of an application for leave to appeal against the judgment of the Full Court to the High Court of Australia. That application has been made. In fact, two notices of application have been lodged, one of which claims an extension of time, and presumably that is intended to supersede the earlier application.

4. There appears to be a problem in relation to the identity of the respondent to the appeals, and we were informed by counsel for the respondents before us that the intention is to substitute the name of the liquidator for that of the Duke Group Limited (In Liquidation), and to seek the leave of the High Court to proceed against the liquidator.

5. Debelle J made an order staying the operation of the Master's order pending the determination by the High Court of the application for special leave to appeal.

6. The appellants have appealed to this court against the order of Debelle J. There is a question as to whether an appeal lies as a right to this court against the order of Debelle J or whether leave is necessary. If leave is necessary I would grant leave and I proceed to consider the appeal on its merits. The outstanding factor in this case to my mind is that to allow this appeal and revoke the stay would have the effect of rendering the proposed appeal to the High Court of Australia nugatory. That circumstance without doubt, gave rise to a discretion in Debelle J to grant a stay of proceedings if he considered that course to be appropriate. The appeal, therefore, in the present case is an appeal against the exercise of the discretion by the judge appealed from on a matter which undoubtedly relates to practice and procedure.

7. This court will interfere with an exercise of discretion only where it is shown that the judge exercising the discretion has acted upon a wrong principle or has made a clear error of fact or has had regard to extraneous or irrelevant circumstances or failed to take into account relevant circumstances. The reluctance of an appellate court to interfere with the exercise of a discretion is the greater where the exercise relates to a matter of practice and procedure. In the present case the judge was required to weigh up the factors which are relevant to the exercise of the discretion as to whether to stay a judgment of this court pending an appeal to the High Court.

8. An important factor is the prospect of success of the application for leave to appeal to the High Court and any subsequent appeal. The test in relation to that matter has been framed in slightly different language by various judges of the High Court and our attention has been directed to the relevant authorities. At times it has been expressed as a requirement that there be a substantial prospect of success, or a not insubstantial prospect of success, or reasonable prospect of success, or reasonable likelihood of success. I think all those expressions come to very much the same thing. His Honor cited an authority which lays down the test, namely the judgment of Brennan J in Jennings Constructions Limited v Burgundy Royale Investments Pty Ltd (1986) 161 CLR 681 in particular at p.685. It is clear therefore to me that His Honor was aware of the test which he had to apply.

9. Mr Gray QC, who appeared for the appellant before us, has argued that His Honor applied the wrong test. He has based his argument upon a passage in the reasons for the decision in which His Honor said:
    "There are, I think, substantial issues involved in the
    appeal which might attract the attention of the High Court to
    grant leave. It involves a question of law as to the extent
    of which a party should be required in circumstances such as
    these to produce documents relating to a policy of
    insurance."

10. Mr Gray argued that His Honor has applied an incorrect test because that language does not advert to the question of the prospect of success. I think that that argument is based upon a misapprehension of what His Honor was doing in that passage. I do not think that His Honor there purported to formulate the applicable test. He had referred to the correct test by identifying the passage in the judgment of Brennan J in the case to which I have referred. In the passage cited from His Honor's reasons he was there giving his reason for coming to the conclusion that the test had been satisfied, that is to say that there was a substantial prospect of success. His reason being that there were issues involved in the case which in his view might attract the attention of the High Court. That was a way, perhaps a somewhat colloquial way, of expressing the view that there was a substantial prospect of special leave being granted. It is true that His Honor does not go on to deal with the question of the prospects of success of the appeal itself if special leave is granted, but I do not think that is of importance. It would be a bold judge who would say that notwithstanding that the High Court had granted special leave there was no substantial prospect of success of the appeal. In my view the judge in the passage referred to is doing no more than to express, somewhat colloquially, and it is to be remembered in extempore reasons, his reason for coming to the conclusion that there was a reasonable and substantial prospect of the application for leave to appeal succeeding.

11. It is not necessary for this court to consider whether he was correct in that view. As I have said, this is an appeal on a matter of practice and procedure, and this court is extremely reluctant to interfere with the judgment or discretion of a judge exercising a discretion in such a matter. There were factors in the present case which were capable of supporting the judge's view and which render it a reasonable, if not the only possible, view of the prospects of success. I do not propose to enumerate them. They have been referred to by Mr Mansfield QC in argument.

12. I am influenced, however, by the fact that following the judgment of the Full Court in the present case the Court of Appeal in New South Wales delivered a judgment in a case of Kelly v Murphy and Anor (1993) 11 ACLC 1230. It seems to me that it is arguable, and reasonably arguable, that in that case the Court of Appeal has taken a somewhat different approach to certain of the issues which arose in the present case than was taken by the judgments in the Full Court. I express no final opinion about that. I say no more than in my view that is a reasonably arguable interpretation of the judgments of the Court of Appeal of New South Wales and their relationship to the judgments of the Full Court of this court.

13. There are, of course, important factors militating against the prospects of success on an application for leave to appeal to the High Court, not least of which is the factor that the issues do not affect substantive rights of parties but merely the ability of the liquidator to obtain information. And there are, of course, matters affecting the balance of convenience, particularly the factor that the liquidator and therefore the creditors, if their claim is soundly based in the action against the accountants, are being kept out of the money during the delay. But all these matters were canvassed before the learned judge and there is no reason to suppose that he did not take them all into account.

14. One factor must be commented upon. The learned judge proceeded upon the basis that the application for special leave to appeal would be heard on 11 March. That expectation has been falsified in the event. It appears, however, that it is practicable for the application to be heard in Hobart in the week commencing 22 March. The delay occasioned by a stay of proceedings is therefore likely to be short. It would, of course, have the unfortunate consequence that the date set for the examination on 21 February could not be taken advantage of, but nevertheless it should result, if special leave to appeal is refused, in but a short delay.

15. In the end it seems to me that this appeal should be decided upon the well-established principles relating to a review of an exercise of discretion in a matter of practice and procedure. I am not persuaded that the judge has applied the wrong test or any wrong principle. He correctly identified the passage relating to the prospects of success, and there is no reason to think that he did not take into account all the relevant circumstances. As I have said, an outstanding, if not predominant, feature of the present appeal is that if the stay of operation of the order is overturned the application to the High Court will be rendered nugatory; the examination will have taken place and the documents will have to be produced prior to a hearing by the High Court. I think taking all those factors into account that it is not proper to say that the discretion of the judge in the granting of a stay has miscarried and I would dismiss the appeal.

JUDGE2 MILLHOUSE J The only argument put by Mr Mansfield QC making me hesitate to allow this appeal related to the decision last December of the New South Wales Court of Appeal in Kelly v Murphy.

2. Mr Mansfield argued that the test propounded in Kelly v Murphy is narrower than that which we have adopted. Having read again the Reasons of my brother Olsson J - and he spoke for us all - it seems that he expressed the ratio of our decision in this way (at p.11 of his Reasons):-
    " ....the chose in action comprising a potential liability of
    the relevant defendants to Kia Ora and the ancillary aspect
    of facilitating the available means of getting in that
    property by first obtaining a declaration of liability
    against an insurer of the defendants are clearly matters
    falling within the phrase 'examinable affairs' of Kia Ora.
    So also those aspects are relevant to the liquidator's
    administration in the winding up, because they bear upon the
    assessment which he needs to make as to what steps are, in
    commercial terms, proper and desirable to take in discharging
    his duties. .... The commercial reality of pursuing long
    and expensive legal proceedings for a very large sum of money
    against individuals of finite resources is clearly a matter
    as to which he needs to make a judgment, based upon the
    likelihood, or otherwise, of potential ultimate recovery from
    a relevant insurer".

3. Mr Mansfield sought to distinguish our view from that of the New South Wales Court of Appeal because of what Sheller J A, speaking for that court, said about the cross appeal in Kelly v Murphy (1993) 11 ACLC 1, 230. The cross appeal was against the deletion of the identity of insurers, amount of the insurance and "any other details within the policy which might identify the amount of the insurance held by FHP." in an Order for the production of documents relating to professional indemnity insurance. He said this (at p.1237):-
    " The respondents argued that this information, which might
    enable the respondents to consider whether or not proceedings
    against Mr Short ..... should be pursued or abandoned,
    should not be deleted."

4. In his judgment Bryson J said (and he then quotes from the judgment of the judge of first instance and this is part of it):-
    " ....it is also likely that the documents will reveal if
    examined fully information about the quantum of insurance and
    structure of indemnity which could have no part in any useful
    examination of Mr Short on relevant matters. For that
    reason I am prepared to adopt restrictions put forward on
    behalf of the Managing Partner against revealing the identity
    of the insurer, the amount of the insurance provided for, and
    any details which might identify the amount of insurance
    held."

5. And His Honour went on:
    " I do not think His Honour's conclusion involves any error
    in the exercise of his admitted discretion."

6. Admittedly there is a difference between the order upheld in Kelly v Murphy and the order of Master Bowen Pain which we upheld but that difference springs from the difference in the purpose for which the respective orders were sought. Mr Gray referred us to the extract from an affidavit set out in Sheller JA's Reasons:-
    " The Trustees propose to examine Mr Short in relation to the
    relationship between himself ... and Freehills and the
    extent to which Mr Short's activities as a Director of BPTC
    Limited were carried out as part of the business of
    solicitors conducted by Freehills."

7. The appellant's purpose in the present proceedings is contained in the Reasons of Olsson J I have already set out. Because the circumstances were different, Bryson J, in the exercise of his discretion, made an order in different terms to that which Master Bowen Pain made - but that did not, I suggest, go to the principle underlying each order. There is no difference of approach on the question between the New South Wales Court of Appeal in Kelly v Murphy and our approach in this action. That is not only because of what I have already set out but also on a comparison of the whole of the Reasons of Sheller JA with those of Olsson J.

8. Of course, if I thought there were a difference of approach then that would be a good argument for the High Court having an opportunity to decide which, if either, be the correct one and therefore a good reason for the stay so that there would be some point in the respondent seeking leave to appeal from our decision.

9. As there is no difference the point fails. For two reasons I think the appeal should succeed.

10. The first is the lesser. When Debelle J gave his decision in the middle of the last month he had been told the application for leave would be made on 11 March. As the date for the examinations before Master Bowen Pain is 21 February that meant a delay of only a few weeks. We were told yesterday by Mr Gray that the date of 11 March is not available and it might be months before the High Court heard the application - more and more delay. From what Mr Mansfield told us it now appears the extra delay will be comparatively short - until 22 March - not nearly as long as Mr Gray feared.

11. Yet even this delay is an argument in favour of the appellant.

12. The more substantial point is that I think, with due respect, Debelle J has propounded an inappropriate test in determining whether to grant the stay of proceedings. Perhaps he was merely speaking a little loosely because he was giving his decision extempore. He said:-
    " There are, I think, substantial issues involved in the
    appeal which might attract the attention of the High Court to
    grant leave'.

13. The correct test, as I understand it, is that there are substantial prospects of the application for leave succeeding. In my view there are not substantial prospects of success. As it is a decision which the parties want and it is wanted quickly I will not detain the court by giving the reasons further for my view.

14. I suggest that leave to appeal be granted, the appeal allowed and the order made by Debelle J staying the orders of Master Bowen Pain on Christmas Eve be set aside.

JUDGE3 OLSSON J I agree substantially with what has fallen from Millhouse J, and there is little more that I would wish to say. In my view the extempore reasons expressed by Debelle J indicate that he clearly fell into error by applying the incorrect test. Moreover, and like my brother Millhouse J, I am unable to read the judgment of the New South Wales Court of Appeal in Kelly v Murphy and Another as being in conflict with that of this court in the present case. There is, I consider, a clear distinction between the issues addressed in those two cases, as has been identified by Millhouse J. It seems to me that the prospect of the present respondents obtaining special leave to appeal in all of the circumstances is slim, particularly as what is involved is in technical terms, an interlocutory process relating to what is an issue of practice and procedure. I also consider that the stay ought not to have been granted, and I concur in the order disposing of the appeal as proposed by Millhouse J.