Idameneo (No 123) Pty Ltd v Suszko
[2015] SASCFC 77
•28 May 2015
SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
IDAMENEO (NO 123) PTY LTD v SUSZKO
[2015] SASCFC 77
Judgment of The Full Court
(The Honourable Justice Vanstone, The Honourable Justice Kelly and The Honourable Justice Blue)
28 May 2015
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PLEADINGS
PROCEDURE - JUDGMENTS AND ORDERS - AMENDING, VARYING AND SETTING ASIDE - ACTIONS TO REVIEW OR SET ASIDE JUDGMENT - IN GENERAL
APPEAL AND NEW TRIAL - APPEAL - PRACTICE AND PROCEDURE - SOUTH AUSTRALIA - WHEN APPEAL LIES - BY LEAVE OF COURT - INTERLOCUTORY ORDERS AND JUDGMENTS
Application for permission to appeal against dismissal of successive applications to amend defence and introduce counterclaim.
The applicant entered into interlocking agreements with the respondent under which he was paid $575,000 and agreed to provide medical services at the respondent’s medical centre, pay 50 per cent of his income for services and facilities provided by the respondent and not to render medical services within 10 kilometres for three years after termination of the agreement to provide medical services at the respondent’s medical centre. The interlocking agreements provided that the applicant would transfer his practice including goodwill to the respondent.
In April 2013, following termination of the agreement to provide medical services at the respondent’s medical centre, the respondent instituted an action against the applicant for breach of the restraint clause. The applicant filed a defence alleging that there was no transfer of goodwill under the agreements and the restraint clause was void. The action was listed for trial to commence on 2 March 20015.
A few weeks before trial, the applicant applied for permission to amend his defence and introduce a counterclaim to plead that he was induced to enter into the agreements by misrepresentations that his goodwill would be transferred under the agreements to the respondent and this would result in tax concessions and exemptions. A Judge dismissed the application because granting it would entail adjournment of the trial and there was no satisfactory explanation for delay by the applicant. The applicant renewed his application based on fresh evidence. The Judge dismissed the renewed application on the same grounds. In each case, the Judge ordered that the applicant pay the respondent’s costs of the application in any event.
On 2 March 2015, the respondent discontinued its action and submitted to an order that it pay the applicant’s costs of action excluding costs awarded in any event.
The applicant seeks permission to appeal against the dismissal of his interlocutory applications and the costs orders on grounds that the Judge erred in refusing the applications and alternatively that, if the Judge had known that the respondent was going to discontinue the action, the applications would not have been dismissed.
Held per Blue J (Vanstone and Kelly JJ agreeing) dismissing the application for permission:
1. The Judge was correct in his assessment that the applicant had not adequately explained the reasons for the delay and the applications were properly refused by the Judge (at [21]-[25] and [29]-[30]).
2. The subsequent discontinuance of the action by the respondent does not justify the grant of permission to appeal against the Judge’s decisions. The appropriate procedure for the applicant in the circumstances is to bring an application under rule 242 of the Supreme Court Civil Rules 2006 to set aside the Judge’s orders (at [37]-[40]).
3. Permission to appeal refused (at [43]).
Supreme Court Civil Rules 2006 (SA) r 242, referred to.
House v The King (1936) 55 CLR 499; Ragless v Ipa Holdings Pty Ltd (In Liq) Carnie (Non-Party) [2012] SASC 203, (2012) ACSR 560, discussed.
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27, (2009) 239 CLR 175; BP Chemicals ANZ Pty Ltd v Manildra Starches Pty Ltd [1997] FCA 1189; Channel Seven Adelaide Pty Ltd v Manock [2010] SASCFC 59, considered.
IDAMENEO (NO 123) PTY LTD v SUSZKO
[2015] SASCFC 77Full Court: Vanstone, Kelly and Blue JJ
VANSTONE J. I agree that permission should be refused and with the reasons of Blue J.
KELLY J. I agree with Blue J.
BLUE J. This in an application for permission to appeal against the dismissal by a Judge of this Court of successive applications to amend a defence and introduce a counterclaim shortly before trial.
Background
The applicant and defendant, Dr Suszko, previously conducted a medical practice at Port Adelaide. In December 2007, he entered into two interlocking agreements with the plaintiff and respondent, Idameneo (No 123) Pty Ltd. The agreements provided that Idameneo would pay $575,000 to Dr Suszko, he would provide medical services at Idameneo’s medical centre at Royal Park for five years, Idameneo would provide to him services and facilities for which he would pay 50 per cent of his income over that period, and he would not render medical services within 10 kilometres of the Port Adelaide premises or the Royal Park medical centre for three years after termination of the relevant agreement. The first agreement provided that Dr Suszko would transfer his practice, including goodwill and his doctors bag, to Idameneo for $575,000 and would not render medical services within 10 kilometres for three years after termination of the second agreement. The second agreement provided for the balance of the matters agreed.
In February 2013, Dr Suszko terminated the second agreement.
In April 2013, Idameneo instituted the action against Dr Suszko alleging that he was rendering medical services at Henley Beach within the 10 kilometre geographical restraint area and seeking an injunction and alternatively damages for breach of contract. In May 2013, Dr Suszko filed a defence alleging inter alia that there was no transfer of goodwill under the agreements to Idameneo, Idameneo had no commercial interest capable of protection after expiry of the five-year period and the restraint clause was void as a matter of public policy.
In May 2014, the action was listed for trial to commence on 2 March 2015.
On 16 January 2015, Dr Suszko filed an interlocutory application for permission to amend his defence and introduce a counterclaim. He sought to plead that he was induced to enter into the agreements by a fraudulent or misleading misrepresentation by Idameneo that the goodwill of his practice would be transferred to Idameneo under the proposed agreements and this would result in concessionary capital gains tax and exemption from goods and services tax (the tax representations).
Dr Suszko’s application was supported by affidavits by his solicitor exhibiting a draft amended defence and counterclaim and identifying what were said to be factors that operated with respect to the timing of the application.
Idameneo’s solicitor swore responding affidavits deposing to the fact that Dr Suszko had received legal and accounting advice in 2007 in connection with the proposed transaction and deposing to several communications with Dr Suszko in 2013 referring to decisions by the New South Wales Supreme Court and Court of Appeal that, under agreements between Idameneo and other doctors in similar terms, there was no transfer of goodwill. Idameneo’s grounds of opposition were that there was no satisfactory explanation for the delay in making the application and grant of permission would necessitate adjournment of the trial.
On 13 February 2015, Dr Suszko’s application was heard and dismissed by a Judge. Dr Suszko was ordered to pay Idameneo’s costs of the application in any event. The Judge subsequently published reasons for judgment.[1]
[1] [2015] SASC 29.
On 23 February 2015, Dr Suszko filed an interlocutory application to recall the order made by the Judge on 13 February. He sought to amend his defence and introduce a counterclaim in the same terms, except to plead one additional matter. The application was supported by an affidavit by his solicitor exhibiting the report for the half-year to 31 December 2014 of Idameneo’s parent Primary Health Care Ltd (PHC). This showed that, where a healthcare practice acquired by Idameneo had formerly practised within 10 kilometres of Idameneo’s medical centre, instead of recognising the intangible asset as 100 percent goodwill, it would now be recognised as 70 percent goodwill and 30 percent as a separate intangible asset being the value of the contractual relationship with the healthcare professional.
On 27 February 2015, Dr Suszko’s application was heard and dismissed by the Judge. Dr Suszko was ordered to pay Idameneo’s costs of the application in any event. The Judge subsequently published reasons for judgment.[2]
[2] [2015] SASC 39.
On 2 March 2015, the action came on for trial before a different Judge. Idameneo sought permission to discontinue the action. This was initially opposed by Dr Suszko because it might preclude an intended application for permission to appeal to this Court against the interlocutory orders made on 13 and 27 February 2015. Upon Idameneo undertaking not to oppose such an application for permission to appeal or the appeal on the ground that it was not open after the action had been discontinued, Dr Suszko withdrew his opposition. The trial Judge granted permission to Idameneo to discontinue the action and ordered that Idameneo pay Dr Suszko’s costs of the action except costs ordered in any event. On 3 March 2015, Idameneo filed a notice of discontinuance on the action.
On 6 March 2015, Dr Suszko filed an application for permission to appeal against the orders made on 13 and 27 February 2015. Dr Suszko seeks, if permission is granted, to advance two different contentions on appeal. First, the Judge made specific errors in his reasons for dismissing each application on the materials before his Honour. Secondly, assuming that the Judge’s dismissals were rightly made on the materials before his Honour, they would not have been made if the Judge had known what Dr Suszko contends was the true position at the time, namely that Idameneo intended to discontinue its action at the commencement of trial.
Decisions said to be wrongly made on the materials
The first application
In his reasons for judgment, the Judge referred to the approach to applications to amend that, if granted, would result in an adjournment of trial articulated by the High Court in Aon Risk Services Australia Ltd v Australian National University[3] and the relevant factors to be considered identified by Bleby J (with whom White J agreed) in Channel Seven Adelaide Pty Ltd v Manock.[4]
[3] [2009] HCA 27, (2009) 239 CLR 175.
[4] [2010] SASCFC 59 at [46].
The Judge noted that Dr Suszko did not contest the submission that the grant of permission to amend would necessitate an adjournment of the trial. The Judge said that he was satisfied in any event that, if the amendment were permitted, the trial would have to be adjourned.
The Judge found that, if the trial were adjourned, it would cause prejudice to Idameneo, not only in time and cost, but also because the restraint period would expire in February 2016 and it would be unlikely that Idameneo would obtain judgment and injunctive relief before that time.
The Judge found that Dr Suszko’s solicitor’s affidavit did not explain the delay in making the application. The Judge said:
The affidavit is opaque and unsatisfactory. It lacks the necessary specificity to be expected in explaining the reason for the delay in bringing the application to amend. In particular, it fails to identify precise times when it has said that the defendant either personally or by his solicitors learned of matters alleged to be relevant to the need to amend the defence and establish a right to a set-off and counterclaim. Further, the affidavit refers to advice obtained from a solicitor and a chartered accountant without identifying either of them, when the advice was obtained or exhibiting such advice.[5]
[5] [2015] SASC 29 at [12].
The Judge concluded that, given the lack of an adequate explanation for the delay and the prejudice Idameneo would suffer if the amendments were permitted, the discretion should be exercised to refuse the application.
Dr Suszko is seeking to challenge on appeal the exercise of a discretion by the Judge. It follows that Dr Suszko must first establish that the exercise of the discretion miscarried in accordance with the principles articulated by the High Court in House v The King.[6]
[6] (1936) 55 CLR 499 at 504-505 per Dixon Evatt and McTiernan JJ.
In his proposed notice of appeal and summary of argument, Dr Suszko identifies two grounds why the Judge’s exercise of the discretion is vitiated. The first ground is that the Judge failed to bring to account and therefore properly weigh the fact that the allegation of fraud was not merely inter partes. Dr Suszko does not articulate why the allegation of fraud was not merely inter partes. The allegation, if introduced into the action, raised issues between Dr Suszko and Idameneo as part of ordinary inter partes litigation. There is no merit in the first ground.
The second ground is that the Judge erred in finding that the fraud allegation was “of limited relevance to the central issue in the trial, namely the enforceability of the restraint clause.” Dr Suszko contends that this statement evidences that the Judge overlooked the fact that, by the proposed amended defence and counterclaim, Dr Suszko was seeking an order setting aside the agreement for fraud and the restraint clause would fall with the agreement if that relief were granted. Dr Suszko’s contention misconceives the Judge’s observation. The Judge’s observation was quite accurate: the central issue in the trial on the existing pleadings was the enforceability of the restraint clause and it is difficult to see that the fraud allegation would have any relevance to that issue and if so such relevance would be limited. Rather, the fraud allegation would raise a separate and independent issue. There is no merit in the second ground.
Importantly, Dr Suszko in his summary of argument does not address the Judge’s findings and reasoning summarised at [16] to [19] above. Given the prejudice to Idameneo caused by an adjournment of the trial and the lack of any satisfactory explanation by Dr Suszko for the delay in making the application, it was inevitable that the application for permission to amend would be refused.
The Judge was right to dismiss Dr Suszko’s application.
The second application
On the hearing of the second application, Dr Suszko contended that PHC’s half-year report was relevant in two ways. First, it demonstrated that there was no transfer of goodwill from Dr Suszko to Idameneo thereby proving the falsity of the tax representations. Secondly, it demonstrated that Idameneo misled the Judge on 13 February in contending that it would not be ready for trial on 2 March if the amendments were permitted.
In his reasons for judgment, the Judge declined to recall his previous orders because the new evidence, being PHC’s half-year report, did not affect the reasons why the Judge had dismissed the application on 13 February 2015. The Judge said:
[A]s is apparent from the reasons for dismissing the application to amend, the basis upon which I refused the application is the lateness of the application in the context of the trial date, the lack of any satisfactory explanation for the delay in bringing the application, the significant costs involved, and most importantly, the fact that allowing the amendment would necessitate the adjournment of the trial with the attendant delay and inconvenience to the parties and other litigants waiting for the trial of their actions. None of the material sought to be relied on by way of fresh evidence alters my reasons for refusing the application… The application to amend was not dismissed on the basis that the case sought to be pleaded was not arguable but for the reasons set out above.[7]
[7] [2015] SASC 39 at [7].
The Judge considered that in any event PHC’s half-year report at its highest might corroborate Dr Suszko’s existing plea that there was no transfer of goodwill and it did not demonstrate that Idameneo would not need an adjournment if the amendments were permitted.
In his proposed notice of appeal and summary of argument, Dr Suszko contends that the Judge failed to have regard to the significance of PHC’s half-year report to prove that there was no transfer of goodwill or to its demonstrating that Idameneo did not need an adjournment if the amendments were permitted. There is no merit in this contention. The Judge did have regard to the potential relevance of PHC’s half-year report to prove that there was no transfer of goodwill but held, correctly, that this did not affect the Judge’s reasons for having dismissed the first application. The Judge concluded that PHC’s half-year report did not demonstrate that Idameneo would not need an adjournment if the amendments were permitted and Dr Suszko has not established that the Judge erred in reaching that conclusion. On the contrary, PHC’s half-year report did not demonstrate that Idameneo would not need an adjournment if the amendments were permitted.
Importantly, Dr Suszko in his summary of argument does not address the Judge’s findings and reasoning for refusing the first application summarised at [16] to [19] above and summarised by the Judge in the passage quoted at [27] above. Given the continuing lack of any satisfactory explanation by Dr Suszko for the delay in making the application, it was inevitable that the application to recall the order refusing permission to amend would be refused.
Decisions would have been different on new materials
In the alternative, Dr Suszko contends that, assuming that the Judge’s dismissals were rightly made on the materials before his Honour, they would not have been made if the Judge had known what Dr Suszko contends was the true position at the time, namely that Idameneo intended to discontinue its action at the commencement of trial.
Dr Suszko contends that it should be inferred from the fact that Idameneo discontinued its action on 2 March 2015 that it intended to do so when his applications were heard on 13 and 27 February 2015. Dr Suszko contends that, if that inference is drawn, the Judge would not have dismissed the applications if his Honour had known the true position, namely that the trial was not going to proceed in any event on 2 March 2015.
Dr Suszko contends that it was not open to him to apply to the Judge, or to a single Judge, under rule 242 of the Supreme Court Civil Rules 2006 (SA) (the Rules) to vary or set aside the orders made on 13 and 27 February 2015. This is because, Dr Suszko contends, the jurisdiction to revoke or vary an interlocutory order should not be exercised when the real basis of the application is that the original order was wrongly made, in which case the only recourse available to a litigant is by means of appeal against the original order.[8] Dr Suszko contends that, in any event, it is not now open to him to apply to vary or set aside the orders made on 13 and 27 February 2015 because the action was discontinued on 3 March 2015 and the Judge is now functus officio.
[8] Dr Suszko cites as authority for this proposition Ragless v IPA Holdings Pty Ltd (In Liq) and Carnie (Non-Party) [2012] SASC 203, (2012) 91 ACSR 560 at [12]-[13] per White J.
Leaving aside for the time being the fact that the action has now been discontinued, Dr Suszko’s contention about the existence of jurisdiction under rule 242 of the Rules is misconceived. Rule 242 relevantly provides:
242—Power to correct, vary or set aside judgment
(1)The Court may correct an error in a judgment at any time.
(2)If satisfied that the justice of a case so requires, the Court may—
(a)vary a judgment; or
(b)set aside a judgment and reopen an action.
Example—
The Court might set aside a judgment and reopen an action if satisfied that the judgment is vitiated by a mistake.
The term “judgment” is defined by rule 4 of the Rules to include an order or direction.
In BP Chemicals ANZ Pty Ltd v Manildra Starches Pty Ltd,[9] Finkelstein J said (in the context of an interlocutory order by way of interlocutory injunction but in terms which have a wider application):
First I need to determine the circumstances in which it will be proper for a court, other than a court of appeal, to revoke or vary an interlocutory injunction. There is no doubt that a court has power to revoke or vary any interlocutory order that it has made...
Notwithstanding the fact that a court retains the power of revocation or variation, it has often been said that the power should be "exercised only sparingly". The cases establish that an applicant must show some good reason for the court to intervene. Good reason will be shown where there has been some significant change of circumstances or where a party has become aware of facts which he or she could not reasonably have known at the time of the hearing. Another instance is when there has been a change in the applicable law. It might also be appropriate for the court to intervene if it appears that an injunction has an effect that is significantly different from that which was perceived to be its effect when the order was made. A court might also intervene when an injunction causes real and unwarranted harm either to a party or to a stranger to the suit. No doubt other circumstances will arise when the power should be exercised. But the jurisdiction to revoke or vary an order should not be exercised when the real basis for the application is that the original order was wrongly made. Such an argument should be addressed to a court of appeal.[10]
[9] [1997] FCA 1189.
[10] (Citations omitted)
In Ragless v IPA Holdings Pty Ltd (In Liq) and Carnie (Non-Party),[11] White J applied the approach articulated by Finkelstein J to an application to set aside an interlocutory order granting leave to proceed pursuant to section 237 of the Corporations Act 2001 (Cth).
[11] (2012) 91 ACSR 560.
Dr Suszko’s contention that the Judge would have decided his interlocutory applications differently if his Honour had been aware that Idameneo would discontinue the action rather than proceeding to trial falls fairly and squarely within the circumstances identified by Finkelstein J in the passage extracted above, namely “where there has been some significant change of circumstances or where a party has become aware of facts which he or she could not reasonably have known at the time of the hearing”. In those circumstances, the appropriate procedure is for a party to apply under rule 242 of the Rules to set aside or vary the judgment and not to appeal precisely because, in the premises, the judgment was rightly made on the materials before the judge but the judgment would not have been made if the judge had known what is now known by reason of the new evidence. This is the appropriate procedure rather than an appeal because, amongst other reasons, it is likely to raise issues of fact more appropriately determined at first instance than on appeal.
Dr Suszko’s second contention is that, now that the action has been discontinued, the Judge is functus officio and has no jurisdiction to revoke or vary the interlocutory orders made on 13 or 27 February 2015. At first glance, if this proposition were correct, it might be thought that the problem is one of Dr Suszko’s own making because he did not apply under rule 242 when the action came before the trial Judge on 2 March 2015 and Idameneo sought permission to discontinue. However, it may well be that Dr Suszko was taken by surprise by Idameneo’s decision to discontinue and, as appears above, Dr Suszko made it plain to the trial Judge that he wished to challenge the interlocutory orders in question (albeit by way of appeal rather than application to set aside) and in any event Idameneo undertook not to rely upon the fact that the action had been discontinued as a bar to that challenge.
The doctrine of functus officio is not an impediment to an application to set aside or vary a judgment under rule 242 of the Rules. The very purpose of rule 242 is to empower the Court to set aside or vary a judgment where justice so requires notwithstanding, and overriding, the doctrine of functus officio. There is no reason in principle why, where the interests of justice so require, an interlocutory order cannot be set aside or varied merely because an action has been finalised by judgment or discontinuance. Even if there were, the Court would have power under rule 242 to set aside the final judgment or discontinuance to the extent necessary to ensure that justice is done.
Accordingly, an appeal is not the appropriate vehicle for Dr Suszko’s application to set aside the interlocutory orders made by the Judge on 13 and 27 February 2015. The appropriate procedure is for Dr Suszko to apply to the Judge under rule 242 of the Rules to set aside those orders.
In the circumstances, it is unnecessary and inappropriate to consider Dr Suszko’s prospects of success on such an application. I merely observe that it would appear to raise a factual issue whether Idameneo had decided on 13 and 27 February 2015 respectively not to proceed to trial but rather to discontinue the action; an issue whether if so Idameneo had an obligation to disclose that intention to the Judge; and an issue whether as a matter of discretion the Judge’s orders should be set aside and if so on what terms.
Conclusion
There is insufficient merit in the proposed appeal to justify the grant of permission. On the contrary, the Judge’s decisions were plainly correct on the materials before the Judge. Any application to set aside the decisions based on subsequent events ought to be made by application under rule 242 of the Rules and not by way of appeal.
I would refuse permission to appeal.
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