Hakea Holdings Pty Ltd v McGrath

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FEDERAL COURT OF AUSTRALIA

Hakea Holdings Pty Ltd v McGrath [2021] FCA 660  

File number: NSD 278 of 2019
Judgment of: YATES J
Date of judgment: 18 June 2021
Catchwords: PRACTICE AND PROCEDURE – application to re-open – application to rely on additional affidavits to prove the making of a claim in respect of a contract of insurance
Legislation:

Bankruptcy Act 1966 (Cth) s 58(3)

Corporations Act 2001 (Cth) s 180(1)
Cases cited:

Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75; 251 FCR 404

F.Y.D Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097

Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22

Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471

Wade v J Daniels and Associates Pty Ltd [2020] FCA 1708
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Number of paragraphs: 49
Date of hearing: 4 June 2021
Counsel for the Plaintiff: Mr C Withers SC
Mr A D’Arville
Solicitor for the Plaintiff: Holding Redlich
Counsel for the Second Defendant: Mr S Lawrance
Ms E Steer
Solicitor for the Second Defendant: Colin Biggers & Paisley

ORDERS

NSD 278 of 2019
BETWEEN:

HAKEA HOLDINGS PTY LTD (ACN 116 147 436)

Plaintiff
AND:

STEVEN JAMES MCGRATH

First Defendant

NEON UNDERWRITING LIMITED FOR AND ON BEHALF OF THE UNDERWRITING MEMBERS OF LLOYDS SYNDICATE

Second Defendant

ORDER MADE BY:

YATES J

DATE OF ORDER:

18 JUNE 2021

THE COURT ORDERS THAT:

1.The parties bring in agreed orders, or failing agreement their respective draft orders, giving effect to these reasons, by 4.00 pm on 25 July 2021.

Note:   Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.


REASONS FOR JUDGMENT

YATES J:

INTRODUCTION

  1. The plaintiff seeks leave to re-open its case to rely on the affidavits of Helena Golovanoff affirmed 21 April, 9 May, and 1 June 2021, and the affidavit of Ian Garth Campbell affirmed 7 May 2021. 

  2. Ms Golovanoff is the plaintiff’s solicitor on the record and a partner in the law firm presently acting for the plaintiff, Holding Redlich.  Formerly, the plaintiff was represented by Kennedys, in which Ms Golovanoff was a partner before moving to Holding Redlich on 3 April 2017.  Mr Campbell was a solicitor employed at Kennedys, and then at Holding Redlich, who, for a time, had the carriage of this proceeding for the plaintiff.

  3. The proceeding was commenced in the Supreme Court of New South Wales on 24 April 2017. The plaintiff alleges, amongst other things, that the first defendant, Steven James McGrath, who, at relevant times, was one of its directors, breached his duty to the plaintiff to exercise his powers and discharge his duties as a director with care and diligence: s 180(1) of the Corporations Act 2001 (Cth).

  4. On 15 September 2017, Mr McGrath filed a Commercial List Response.  However, on 24 April 2018, he presented a debtor’s petition against himself.  The administration of his…

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Details
Case
[2021] FCA 660
Decision Date

CaseChat Overview and Summary

The Federal Court of Australia considered an application by Hakea Holdings Pty Ltd to re-open its case against McGrath, the second defendant, to rely on additional affidavits and documents to prove the making of a claim in respect of a contract of insurance. The plaintiff argued that the claim was made by delivery of a letter of demand on 20 January 2017, and that this was significant because it held a contract of insurance which responded to its claim against McGrath. The plaintiff's solicitors, Kennedys, had used information provided by the liquidators of Denham Constructions Pty Limited to send the letter of demand to an email address used by McGrath. The plaintiff's case was that it made a claim on McGrath within the policy period, even though it now contended that the contract of insurance did not require it to take that step. The second defendant opposed the application to re-open, contending that the plaintiff must establish that it made a claim on McGrath by no later than 4.00 pm on 23 January 2017.

The legal issue before the court was whether the plaintiff was entitled to re-open its case to rely on additional affidavits and documents to prove that it made a claim on McGrath within the policy period. The court noted that there is no hard and fast rule, and no fixed categories of case, where leave to re-open can be granted. However, the central question in all applications to re-open is whether the interests of justice are better served by allowing or rejecting the application. The court found that the plaintiff's application to re-open was based on inadvertent error and a mistaken apprehension of the facts. However, the court found that the plaintiff had abandoned its pleaded case and advanced an entirely new case with regard to the making of claims on McGrath within the policy period. The plaintiff's predicament was attributed to its inadequate trial preparation and failure to properly undertake its discovery obligations.

The court found that the plaintiff was not entitled to re-open its case to rely on additional affidavits and documents to prove that it made a claim on McGrath within the policy period. The court held that the plaintiff's application to re-open was an attempt to introduce new evidence at the last minute, and that the interests of justice were better served by rejecting the application. The court noted that the plaintiff's solicitors had lost sight of important information, and that the plaintiff had failed to comply with discovery obligations. The court found that the plaintiff's application to re-open was an abuse of the court process, and that the application should be dismissed. The court ordered that the parties bring in agreed orders, or failing agreement their respective draft orders, giving effect to these reasons, by 4.00 pm on 25 July 2021.

Orders

Orders of the court

1. The parties bring in agreed orders, or failing agreement their respective draft orders, giving effect to these reasons, by 4.00 pm on 25 July 2021.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

The second defendant opposes the application to re-open.BACKGROUND The plaintiff seeks to rely on the four affidavits, including the documents annexed to them, to prove that it made a claim on Mr McGrath in respect of his alleged breach of duty. The claim is said to have been made by delivery of a letter of demand, dated 20 January 2017, to a particular email address on that day (the 20 January 2017 claim). The significance of proving delivery to Mr McGrath of the letter of demand, on this date, is that the plaintiff held a contract of insurance which was entered into by the second defendant for and on behalf of the members of Lloyd’s Syndicate 2468. The plaintiff contends that the contract of insurance responds to its claim against Mr McGrath. It wishes to prove that it made a claim on Mr McGrath within the policy period, even though it now contends that the contract of insurance did not require it to take that step. For its part, the second defendant contends that the plaintiff must establish that it made a claim on Mr McGrath, which came to Mr McGrath’s attention, by no later than 4.00 pm on 23 January 2017—the expiration of the policy period. Whether the plaintiff made a claim on Mr McGrath within the policy period is a significant matter in dispute in the proceeding. The evidence before me shows that, in January 2017, the plaintiff’s solicitors (then, Kennedys) attempted to serve a number of letters of demand on Mr McGrath at different addresses by various means. Mr Campbell was the solicitor responsible for doing this. He used information provided to him in confidence by the liquidators of Denham Constructions Pty Limited—of which Mr McGrath was the sole director, secretary, and shareholder—in about January 2017. The information was provided in a spreadsheet or table. It included the email address to which the letter of demand dated 20 January 2017 was sent. Mr Campbell copied the spreadsheet or table to his computer, but not to the file maintained in respect of the matter. Mr Campbell’s evidence is that he deleted the spreadsheet or table from his computer in about February or March 2017. I note for later reference that, on 2 June 2017, following service of a subpoena on the liquidators (in the context of preparing an application for substituted service on Mr McGrath), Mr Campbell received by email (apparently by way of informal production), from the solicitors for the liquidators, copies of email correspondence between Mr McGrath and the liquidators. This correspondence reveals use by Mr McGrath of the email address to which the letter of demand dated 20 January 2017 was sent. Mr Campbell forwarded the email (including the attached email correspondence between Mr McGrath and the liquidators) to the plaintiff, with a copy to Ms Golovanoff. The copy sent to Ms Golovanoff was placed on Holding Redlich’s file. Ms Golovanoff’s evidence, which I accept, is that she has no recollection of receiving or reading Mr Campbell’s email or its attachments at the time, and that she only became aware of these documents following investigations conducted after the proceeding was adjourned part-heard on 22 April 2021.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

These cases make clear that there is no hard and fast rule, and no fixed categories of case, where leave to re-open can be granted, although in Bradshaw Kenny J noted that, generally speaking, there are four recognised, but non-exhaustive, classes of case in which leave may be granted: fresh evidence; inadvertent error; mistaken apprehension of the facts; and mistaken apprehension of the law. However, common to all applications to re-open is the central question of whether the interests of justice are better served by allowing or rejecting the application. CONSIDERATION The plaintiff advances its application for leave to re-open on the basis of inadvertent error and a mistaken apprehension of the facts. It submits that, at the time it opened its case, it was not aware that its evidence would fall short of establishing the three ways in which it contended that a claim had been made on Mr McGrath within the policy period. Indeed, the tenor of its submissions is that, through circumstances not of its making, it was caught unawares by the evidence that the second defendant adduced, and the closing submissions it made, on this issue. This way of framing the application to re-open does not capture the true complexion of the matter. The undeniable fact is that on 15 April 2021, two business days before the commencement of the hearing on 19 April 2021—and, it seems, without earlier warning or explanation—the plaintiff abandoned its pleaded case, on which the second defendant had placed reliance, and advanced an entirely new case with regard to the making of claims on Mr McGrath within the policy period. The plaintiff cannot attribute its present predicament to anything but the forensic decisions it made, its inadequate trial preparation, and its failure to properly undertake its discovery obligations. First, Mr Campbell did not keep a record of the information he was given by the liquidators, which he used to send the letter of demand to Mr McGrath on 20 January 2017. This particular information was simply lost to the plaintiff’s solicitors’ file. Secondly, the plaintiff’s solicitors lost sight of the information they were given by the liquidators’ solicitors on 2 June 2017, which they did place on file. As I have noted, this information included email correspondence from Mr McGrath using the email addresses to which the letter of demand was sent on 20 January 2017. Thirdly, on 27 May 2019, the plaintiff was ordered to give discovery by reference to categories that included the covering email or emails for Kennedys’ letter of demand to Mr McGrath dated 18 January 2017 and any responses thereto, including any automatically generated email responses or delivery receipts or messages about the inability to deliver the email or emails. The categories also included the covering email or emails for Kennedys’ letter of demand to Mr McGrath dated 20 January 2017 and any responses thereto, including any automatically generated email responses or delivery receipts or messages about the inability to deliver the email or emails. The adjectival relevance of these categories is plain. Discovery in these categories was sought to test whether the plaintiff had effectively made the 18 January 2017 claim and/or the 20 January 2017 claim.