Hoy v Honan

[1997] QCA 250

IN THE COURT OF APPEAL	[1997] QCA 250
SUPREME COURT OF QUEENSLAND

Appeal No. 4058 of 1996

Brisbane

[Hoy & McCormack v Honan & Anor]

BETWEEN:

KENNETH NIGEL HOY and KIEREN JOHN McCORMACK

(Second Defendants) Appellants

AND:

ROBERT EMMETT HONAN and BARBARA JEAN HONAN

(Plaintiffs)	Respondents
Fitzgerald P Derrington J Byrne J

Judgment delivered 19 August 1997

Separate reasons for judgment of each member of the Court, each concurring as to the orders made.

APPEAL DISMISSED WITH COSTS

CATCHWORDS:	LIMITATION OF ACTIONS - Extension of time - Appeal against an order under O.90 r.9 of the Rules of the Supreme Court granting leave to proceed - Delay satisfactorily explained - Prejudice resulting from delay substantially due to appellants’ own failure to obtain and preserve evidence - Whether prejudice flowing from the delay to be considered in relation to the total passage of time or since the last step in the action.
Brisbane South Regional Health Authority v. Taylor (1996) 70 ALJR 866 Bishopsgate Insurance Australia Ltd v. Deloitte, Haskins Sells, Unreported, Vic. Court of Appeal, 9 September 1994 Cowie v. State Electricity Commission of Victoria [1964] VR 788.
Counsel:	Mr S.L. Doyle SC, with him Mr A. Henley for the appellants Mr M. White QC, with him Mr J.A. Duncan for the respondents
Solicitors:	Corrs Chambers Westgarth for the appellants Michell Sillar Nicholsons for the respondents
Hearing Date:	12 March 1997

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4058 of 1996

Brisbane

Before Fitzgerald P. Derrington J. Byrne J.

[Hoy & McCormack v. Honan & anor.]

BETWEEN:

KENNETH NIGEL HOY and KIEREN

JOHN McCORMACK

(Second Defendants) Appellants

AND:

ROBERT EMMETT HONAN and

BARBARA JEAN HONAN

(Plaintiffs) Respondents

REASONS FOR JUDGMENT - FITZGERALD P.

Judgment delivered 19 August 1997

The circumstances giving rise to this appeal are set out in the reasons for judgment of Derrington J.

The appeal is brought from the exercise of a discretion by the Chamber Judge which involved balancing

a variety of competing considerations. The appellants would have no prospect of success but for two

matters. One is the prejudice which they attribute to their lack of knowledge of the whereabouts of a

person who would be a material witness, Mr Mauriasi, and the poor recollection of another potential witness, Mr Waleilia, who has destroyed his files. The second matter is that the Chamber Judge

considered the delay which has occurred by reference to the period since the last step in the action,

whereas he should have considered the total passage of time since the cause of action arose or, at the

latest, since the respondents became aware of their loss.

While is it accordingly necessary for this Court to reconsider how the discretion should be exercised,

it is appropriate to note that the single error made by the Chamber Judge was of limited significance.

I consider it unnecessary to repeat the circumstances in detail. The delay was largely caused by the

impecuniosity of the respondents, which was in turn attributed to the losses sustained in the transaction

which has given rise to their claim. Whether or not the appellants could have entirely avoided the

prejudice of which they complain, it could have been substantially reduced by prudent conduct on their

part. They have been aware of the existence of the claim, the transaction to which it relates and

considerable detail concerning the respondents’ allegations since July 1991, but did not take obvious

steps to obtain and preserve evidence.

Having regard to these matters and the other circumstances referred to by Derrington J., I agree with

his Honour that the appeal fails.
I also agree that the appropriate order is that the appeal be dismissed with costs to be taxed.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4058 of 1996

Brisbane

Before Fitzgerald P Derrington J Byrne J

[Hoy & McCormack v Honan & Anor]

BETWEEN:

KENNETH NIGEL HOY and KIEREN JOHN McCORMACK

(Second Defendants) Appellants

AND:

ROBERT EMMETT HONAN and BARBARA JEAN HONAN

(Plaintiffs) Respondents

REASONS FOR JUDGMENT - DERRINGTON J

Judgment delivered 19 August 1997

The appellants are defendants in this action brought by the respondents. By this appeal they

seek to overturn an order under O. 90 r. 9 of the Rules of the Supreme Court granting leave to the

respondents to proceed despite that more than three years since the last step in the action had passed.

When the alleged cause of action arose, the appellants, and particularly Mr McCormack, were said to be the solicitors for the respondents. It is alleged that he was negligent in his advice to the respondents, or alternatively that he knew that some at least of his advice was wrong, which is

tantamount to fraud.

The action relates to the respondents’ loss of a substantial amount of money by investment in

a joint venture for logging timber in the Solomon Islands. A shelf company was used to represent their

interests, and another was used as the joint venture vehicle. Mr McCormack acted as a director of

both companies.

It is alleged that the venture failed for lack of a logging licence, allegedly contrary to

representations that had been made to the parties, and the claim against Mr McCormack is that he

advised the respondents that all was secure in that regard. In substance, apart from denying that he

owed professional duties to the respondents, his defence is that any relevant information that he passed

on to the respondents had been received by him in good faith from a Mr Mauriasi, a supervisor who

had been engaged by the respondents to obtain the relevant licence, and from Mr Waleilia, a solicitor

in the Solomon Islands who had been engaged to provide services to the joint venture, and that he was

justified in acting on it.

These events occurred in 1987 and 1988, but it was not until late in 1988 that the problems

surfaced. As a result the respondents' company was wound up in June of 1989 and Mr McCormack

was orally examined by its liquidator in December 1990 and January 1991 on, among other things, the

facts behind the failure of the venture.

The writ in this action was then issued promptly in April 1991 and a statement of claim was

delivered in the following July. Consequently, the nature of the allegations and of the claim were known

in some detail by the appellants reasonably soon after the events related to the alleged cause of action arose, and much earlier than is often the case in matters of this nature. This is a factor that is favourable

to an application for leave to proceed.

It may be contrasted with an important feature that is influential in an application to extend the

limitation period for the commencement of an action. In such a situation the defendant may not be

aware of the prospect of an intended action or of the nature of allegations and claims relating to it.

While the principles as to prejudice applying in both cases may be the same, the result is different

because of the difference in the circumstances in which they operate. This distinction was referred to

by Mackenzie J in Collingwood v Calvert & Ane (Unreported Qld C/A 6.12.1996 - App No 3028

of 1996).

After some interlocutory matters concerning particulars, the statement of claim was struck out

in March 1992 and the respondents delivered a second one in the following month. In that same month

the appellants requested further and better particulars, but these were not delivered, and late in June the

respondents' solicitors wrote to the appellants' solicitors forecasting substantial amendments to the

statement of claim.

Nothing further happened until July 1993 when the respondents delivered a notice of intention

to proceed, but they did not do so because they were impecunious and could not fund the action at the

time. However as the result of recent arrangements with their creditors they commenced their

application for leave to proceed on 25 October 1995, that is, about seven years after the loss came to

light and three and a half years after the last step in the action. In anticipation of leave, they delivered

an amended statement of claim on 23 February 1996. The grant of leave was made in April 1996.

One explanation for the delay was the respondents' change of solicitors on reasonable grounds

during the relevant period, but that has not been shown to have contributed to it for it would have

occurred in any case as the result of the respondents' impecuniosity.

A further explanation offered applies to the last month of the three year period following their

last step in the action, when the respondents’ solicitor became seriously ill and could not attend to the

matter; but it is not alleged that in the absence of illness he would have acted differently, nor is it

suggested that their financial position would have allowed them to take any further step at that time.

This is academic as the learned Chambers Judge accepted the truth of the explanation for the

delay based on impecuniosity and the appellants do not take issue with that part of his judgment. There

was certainly no intentional or contumelious delay.

It is further alleged and not disputed that the respondents' impecuniosity was the result of the

losses suffered in the transaction, allegedly as the result of the appellants' default. This reason too seems

to have been accepted below, and although the evidence is sparse, again it has not been challenged that

their impecuniosity flowed from their losses in the venture.

After noting that a grant of leave to proceed with the action would of itself cause some prejudice

to the appellants by reopening their potential liability, the learned Chambers Judge also acknowledged

that "a delay of eight or nine years will almost certainly adversely affect the recollection of witnesses

unaided by contemporaneous records of events about which they give evidence, particularly if they have

had no reason to recollect or reflect upon those events during that time". Significantly this correctly

refers back to the total delay from the time of the relevant events.

He also found that the facts of this case disestablish much of that prejudice. One reason was that an extensive oral examination of Mr McCormack by the liquidator took place comparatively soon after the failure of the joint venture, that is, not long after the alleged provision by Mr McCormack of

his professional services; and it was transcribed. As His Honour observed, the examination was in

great detail and concerned the matters that would be canvassed in the trial of this action. He found that

this would enable Mr McCormack to deal precisely with the allegations contained in the current

statement of claim. With the advantage of prompting from this transcript and his files there is therefore

little reason to believe that his evidence would be substantially prejudiced by the passage of time.

Further, despite that it was struck out, the first statement of claim would have informed the

appellants early and in sufficient detail of the alleged cause of action, and this should have enabled them

to make prompt enquiry and to undertake any desirable protection of the evidence. The second

statement of claim would have consolidated this understanding as it did not depart from it in substance.

His Honour found that:

“The second defendant could have been under no misapprehension as to the factual issues to be canvassed upon the trial when served with the statements of claim with which he has been served. Moreover, with his background and training it would have been an obvious first step for him to then procure statements, evidence etc. to meet the allegations in the statements of claim about which he had been so exhaustively examined in the Magistrates Court.”

The appellants argue that they were justified in delaying the pursuit and protection of evidence

because of a letter of the respondents' solicitors in June, 1992, advising that they would be making

substantial amendments to the second statement of claim. However, this letter was not received until

three months after the delivery of that pleading, by which time they should have taken appropriate action

concerning the evidence. As it turns out, the further amendments referred to, as revealed in the latest

edition of the statement of claim, do not extend the scope of the earlier allegations and claims. In these

circumstances the appellants' excuse for withholding enquiry and protecting evidence is unconvincing.
This is relevant to the appellants' major claim, namely, that they suffer irreparable prejudice

because evidence from Mr Waleilia and Mr Mauriasi supporting their defence has become unavailable

due to the delay. Mr Waleilia cannot find his relevant files, which would have contained substantial

details but were probably destroyed after seven years in accordance with his usual practice, and he has

difficulty in recollecting events without recourse to them. Mr Mauriasi's present whereabouts are

unknown, but the investigation of this has been inadequate to support any finding of loss of this witness,

and the claim in this respect should be disregarded.

In respect of Mr Waleilia's destruction of his files and the erosion of his memory by time, the

respondents argue that it is not shown that the material that has been lost would have availed the

appellants. That is not to the point. The appellants are now deprived of the opportunity of finding

evidence that might support a defence, and that loss of a real opportunity is itself a matter of prejudice.

A more serious feature is the appellants' own failure to record Mr Waleilia's and Mr Mauriasi's

evidence within a reasonable time and to arrange for the preservation of the former's files. On Mr

Waleilia’s timetable for their destruction, the files should still have been available in 1995, well after the

delivery of the second statement of claim. As His Honour found, the allegations and claims should have

put the appellants on early enquiry at once. If it had been carried out, it should have led to the recording

and preservation of the evidence. This would have largely neutralised the effect of the further delay

which is the subject of their present complaint: cf. Slade v Adco Ltd The Times, 7 December 1995,

referred to in Shtun v Zalejska [1996] 1 WLR 1270, 1284.

In Bishopsgate Insurance Australia Ltd v Deloitte Haskins & Sells (Unreported, Vic. Court of

Appeal, 9 September 1994) it was said on the issue of amelioration of prejudice:

“Thus occasionally it might be said that a defendant has been aware in detail of the allegations to such an extent that he would be able to recall each of the relevant events and take steps to record his recollections and to instruct solicitors to obtain statements from each of the other relevant witnesses at a time when they could likewise recall the events with ease.”

The prejudice claimed is therefore substantially due to the appellants’ own delay in the sense

in which it is significant in applications of this nature: cf. Lewandowski v Lovell (1994) 11 WAR 124;

Holmes v Civil & Civic Pty Ltd (Unreported, Court of Appeal 14 September 1992, No. 15 of 1992).

The effect of prejudice flowing from delay in the case where the defendant has no knowledge

or expectation of the basis of an action and consequently cannot preserve evidence is plainly different

from its effect where the defendant knows of this but takes no steps to preserve it. The rationale of the

rule requiring leave to proceed after a long delay is to prevent abuse of process. The Court must be

satisfied that the continuation of the proceedings would not involve injustice or unfairness to one of the

parties by reason of delay or other matter: Walton v. Gardiner (1993) 177 CLR 378; Brisbane South

Regional Health Authority v. Taylor (supra) at 871. If there is no injustice or unfairness to the appellants

because any prejudice resulting from delay has come substantially from their own default, then there

cannot be said to be injustice or unfairness to them.

They concede that the learned Chambers Judge correctly imposed on the respondents the

burden of showing that there was good reason for excepting this case from the general prohibition on

proceeding after three years after the last step in the action applied by O.90 r.9. He also correctly

imposed on the plaintiffs the onus of proof that prejudice such as to produce injustice to the appellants

would not be suffered by them: Tate v McLeod [1969] Qd R 217 at 224; Bruce Pie & Sons Pty Ltd

v Mainwaring [1987] 1 Qd R 304, 309; Dempsey v Dorber [1990] 1 Qd R 418 at 420.

However where a respondent to an application such as this alleges prejudice by reason of the

effluxion of time, the position is as follows:

"It is for the respondent to place in evidence sufficient facts to lead the Court to the view that prejudice would be occasioned and it is then for the applicant to show that these facts do not amount to material prejudice."

Cowie v. State Electricity Commission of Victoria [1964] VR 788 at 793, approved in Campbell v.

United Pacific Transport Pty Ltd [1966] Qd R 465 per Gibbs J at 474; Brisbane South Regional

Health Authority v. Taylor (1996) 70 ALJR 866 per Toohey and Gummow JJ at 868. The prejudice

caused by delay was explained in the last mentioned case by McHugh J at p 871 but it is not necessary

to elaborate on it here.

None of this is challenged by the appellants, but they complain that the learned Chambers Judge

erroneously limited the time to be taken into account when considering the prejudice flowing from delay.

He referred only to the delay after the last step in the action rather than that produced by the total

passage of time since the events relevant to the action. In Brisbane South Regional Health Authority

v Taylor (supra) in an application for the extension of the time to commence an action after the period

of limitation had expired, it was held that the whole of the period was relevant to the question of

prejudice relating to witnesses' memories.

The reasons for judgment appealed from seem to indicate that the period applied was limited

to the period of delay, though as it has been noted above, in referring to the effect of the passage of time

on the memory of witnesses, it referred to the correct length of years.

Even if a wrong approach was taken on this point, this does not affect the substance of the

decision below, for the error did not touch any relevant consideration. The specific prejudice alleged

to flow from the loss of Mr Waleilia's files occurred only in the period of the delay and consequently

the error has no practical effect in this respect. Mr McCormack’s evidence is protected against any

memory defect, and the only feature of prejudice shown to be associated with the entire delay is Mr Waleilia's, and perhaps Mr Mauriasi’s, forgetfulness, which could have been largely ameliorated by the

appellants. Again, the error had no material application. In the result there is no injustice in permitting

the case to proceed despite this prejudice.

While it is true that the public interest requires that disputes be settled as quickly as possible,

where as here the matter was pursued promptly at first and the plaintiffs’ later delay is excusable, this

proposition has much more limited relevance: Bishopsgate Insurance Australia Ltd v Deloitte Haskins

& Sells (supra).

Because the learned Chambers Judge acted on a wrong principle in failing to have regard to the

entire period of delay, this Court should exercise afresh the discretion invested by the rule even though

the misapplication of the rule had no substantive effect. Because the delay is satisfactorily explained and

because any prejudice to the appellants can be attributed in a substantial part to their own inaction, the

justice of the case does not support their claims. The respondents have shown that they should be

exempted from the Rule’s prima facie prohibition against their continuation of their action.

The appeal therefore should be dismissed with costs.

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 4058 of 1996

Brisbane

Before Fitzgerald P Derrington J Byrne J

[Hoy & McCormack v Honan & Anor]

BETWEEN:

KENNETH NIGEL HOY AND KIEREN JOHN McCORMACK

(Second Defendants) Appellants

AND:

ROBERT EMMETT HONAN AND BARBARA JEAN HONAN

(Plaintiffs) Respondents

REASONS FOR JUDGMENT - BYRNE J

Judgment delivered 19 August 1997

The facts germane to this appeal are set out by Derrington J, whose reasons I have had the

advantage of reading. His Honour's discussion demonstrates that the prejudice the appellants have

sustained through the delay is in large measure attributable to their omission, or that of their lawyers, to

take appropriate steps in a timely way to preserve records and to obtain information.

The explanation offered in argument for the appellants' inactivity relates to a letter written in

June 1992 notifying them that the respondents proposed to amend their pleadings. This, it is said,

justified a decision to wait until the new case became apparent. Three things may be said about this

submission. First, no one deposed to a causal connection between the foreshadowed amendments and

the inactivity. Secondly, an inference that there was a relationship between the two is scarcely irresistible given the absence of relevant activity in the three months between the delivery of the second

statement of claim and the letter. Thirdly, the letter did not suggest that the proposed "substantial"

amendments might raise a case so radically departing from that then pleaded as would have led an

ordinarily prudent solicitor to decide not to take the relatively inexpensive steps needed to preserve the

files of Mr Waleila and, if it matters, to obtain information from Mr Mauriasi in the meantime. In short,

the inactivity by the appellants which is the main cause of the risk to a fair trial posed by the delay and

its consequences cannot be justified by a concern on their part to minimize costs or by a belief that the

respondents might not press on with the litigation.

There was a satisfactory explanation for the delay. In all the circumstances, in my opinion, the

respondents demonstrate that there is good reason for excepting these proceedings from the general

prohibition imposed by O. 90 r.9. I therefore agree in the orders Derrington J proposes for the

disposition of the appeal.