Interior Projects v Players Ltd and Others No. Scgrg-96-1268 Judgment No. 6199 Number of Pages 8 Procedure Costs

[1997] SASC 6199

IN THE SUPREME COURT OF SOUTH AUSTRALIA

LANDER, J

Procedure - costs - departing from the general rule - test case - application to amend the defence of the second third party on the first day of the trial - similar application had been abandoned previously - second third party would be at a serious disadvantage and the court would not be dealing with the real issues between the parties if the amendment was not allowed - delay in the application to amend was the fault of the solicitors for the second third party - whether the granting of the amendment would cause prejudice to the other parties to the action which could not be compensated for in costs - application to amend allowed - solicitors for the second third party to pay on an indemnity basis the costs of each of the other parties. Supreme Court Rules 1987 R101.06, referred to. Queensland v J L Holdings Pty Ltd (1997) 71 ALJR 294, applied.

ADELAIDE, 2, 4, 6 June 1997 (hearing), 19 June 1997 (decision)

#DATE 19:6:1997

#ADD 24:6:1997

Representation:

Plaintiff Interior Projects Pty Ltd:

Counsel: Mr R D Ross-Smith

Solicitors: David Black & Co

Defendant Players Pty Ltd:

Counsel: Mr J M Wilkinson With Mr J C Clarke

Solicitors: Cowell Clarke

Third Party Astruct Pty Ltd:

Counsel: Mr J S Roder

Solicitors: N Minicozzi

Third Party Terence R Feltus:

Counsel: Mr W J Wells Qc With Mr R W Sallis

Solicitors: Andersons

Other Party Andersons:

Counsel: Mr D W Smith

Order: publication of reasons for decision.

LANDER J

1. On 6 June 1997 when I adjourned this matter sine die and made consequential orders for costs I indicated I would give reasons for those orders. I now publish those reasons for the orders I made.

2. The plaintiff in this matter served a creditors statutory demand upon the defendant in February of 1996. In a judgment delivered on 28 March 1996 I determined that the defendant, in this matter, had responded in relation to that statutory demand within the time prescribed by the Corporations Law.

3. Following upon that decision this litigation, which concerns the refurbishment of premises in Pirie Street where the defendant carries on its business as the proprietor of a entertainment centre, was commenced. The plaintiff claims that the defendant owes it in excess of $100,000 in respect of material supplied and work carried out in relation to that refurbishment. There are seven other creditors who also claim that the defendant is indebted to them in respect of the provision of materials and labour. Those seven creditors have been awaiting the outcome of this litigation, which has been treated by the plaintiff, the defendant and indeed the third parties as a test case.

4. I have had the management of the litigation since the proceedings in this matter were commenced on 18 June 1996. Not only have the parties, treated this matter as a test case in relation to the refurbishment of the premises to which I have referred, the plaintiff, defendant and the first third party have also treated the matter as one of urgency. The second third party also claims to have treated the matter as one of urgency but in some respects has acted inconsistently with that claim.

5. In December 1996 this matter was set for trial to commence on Monday 2 June 1997.

6. I have heard various interlocutory matters in relation to this matter and I have conducted management conferences for the purpose of attempting to ensure that the matter would commence on the appointed date and would be disposed of as quickly as possible and at the minimum possible cost to the parties.

7. To that end I have given directions from time to time in relation to preparation of schedules, identification of exhibits and the exchange of witness statements. In the main those directions have been complied with but there have been some exceptions. I have frequently stressed to the parties the necessity for complying with my directions and the necessity for being ready on the day appointed for the commencement of the trial. On a number of occasions the second third party has not complied with my directions.

8. On Thursday 29 May the second third party, Mr Feltus, made an application that the Scott Schedule (which had been prepared at my direction) stand as the statement of issues for the trial.

9. Mr Feltus sought an early hearing of that application prior to the commencement of the trial but as one of the parties was not available I declined to hear that matter until Monday 2 June so as to allow all of the parties time to consider the application and to be heard.

10. When the matter was called on, Mr Wells QC, who had not previously appeared in any of the interlocutory hearings, appeared with Mr Sallis for Mr Feltus and sought the order in the application. Mr Wells was first retained by the second third party on 28 May 1997 and only for the limited purpose of making that application.

11. Very early in the hearing of the application it appeared to me that what Mr Wells was in fact seeking was not the order proposed in the application but, in truth, an amendment to his client's defence.

12. I adjourned the matter for a short time and when the matter resumed Mr Wells sought leave to amend his client's defence in accordance with a proposed amendment which he served upon the other parties and tendered to the Court.

13. The second third party sought to amend to include a plea in the following terms:

"The Second Third Party says further that he was entitled to give instructions and did from time to time give instructions as to the variation of the Construction Works or as to the entry into any contact (sic) with a Trade Contractor when so authorised by Mr Bill Sparr, Mr Ray Mauger and Mr Tony Frangie of Hotel Management Consultants Pty Ltd ("HMC") or the Defendant." 14. The proposed amendment raised a significant new issue. Mr Wells submitted that not only was it a significant issue but it was in fact the real issue between his client and the first third party and the defendant.

15. The defendant objected to the amendment. The first third party formally objected to the amendment but indicated that given a short adjournment the first third party could proceed with the matter. The plaintiff took a rather curious position but in essence the plaintiff objected to the amendment if it would delay the trial and indeed objected to any order that would in any way delay the trial. In due course the plaintiff withdrew its objection to the amendment.

16. Whilst the third party raised this matter for the first time by way of defence, the matter contained in the proposed amendment had been agitated on a number of previous occasions in various interlocutory hearings.

17. On 4 March 1997 the third party issued an application to join as a fourth party a Mr Bill Sparr. During the hearing of that application on 4 March and later on 26 March 1997 I raised with Mr Sallis, an employee of Mr Feltus' solicitors, who has appeared on every interlocutory application since November 1996, the absence of the plea which the second third party now seeks to raise. I pointed out to him that his client might well wish to argue in accordance with the proposed amendment. I pointed out that the absence of such a plea was fatal to his application to join Mr Sparr as a fourth party. On the second occasion on which I heard this application this interchange occurred: "HIS HONOUR: That means you won't be seeking to claim that if you did authorise any variations, you did so at the behest of Mr Sparr.

MR SALLIS: That is the position.

HIS HONOUR: But that is not pleaded.

MR SALLIS: No, we have pleaded, as your Honour saw on the last occasion, that we did not authorise any variations, full stop. However, we do not wish to pursue seeking leave to file and serve an amended defence. However, we do wish to pursue the other applications.

HIS HONOUR: I understand that, but what I am saying to you is that means there is no pleading, that you authorised any alteration, or that Mr Sparr instructed you to do so.

MR SALLIS: Your Honour made that point on the last occasion, that is quite so, and that still remains the case." 18. On more than one occasion during that argument I brought to Mr Sallis' attention the absence of that plea and pointed out to him that if that was his client's case then it had to be specifically pleaded. In the end the application to join the fourth party was abandoned and no application was made to amend the defence. Mr Sallis specifically stated that his client's case was that his client did not authorise any variations.

19. There is no doubt that the application to amend the defence was in accordance with what I put to Mr Sallis on 4 March 1997 and 26 March 1997 and which he specifically eschewed. Mr Wells frankly and, in my opinion, properly conceded that. Further Mr Wells properly conceded that Mr Sallis' statement, which I have set out above, does not represent his client's present position. Put shortly the second third party sought to amend his defence on the first day of trial to raise, for the first time, matters which I raised with Mr Sallis on 4 March 1997 and 26 March 1997 and which, at that time, he expressly denied represented his client's case.

20. The defendant claimed rightly, in my opinion, that this amendment raised significant new issues and I am satisfied that it will mean the defendant will have to recast its defence to the plaintiff's claim and its claim against the third party. I am also satisfied, as Mr Wilkinson who appeared for the defendant said, that because of the amendment it will be necessary for the defendant to join at least one and possibly more third parties.

21. Thus the second third party brought this application in circumstances where first he has been on notice for seven months as to the importance of having this matter ready for trial by 2 June 1997, secondly the Court has previously raised with his counsel the specific pleading sought in the amendment and thirdly where he wished to introduce a new defence to the defendant's claim.

22. Mr Wells, in his submissions, in support of the application identified four matters which he said would support the making of an order.

23. First he submitted that the amendment sets out the second third party's defence to the claim by the defendant and to not allow the amendment would mean that the second third party's real defence to the defendant's claim would not be agitated and would be to deny the second third party the opportunity to defend himself on that claim, and would thus deny the second third party justice.

24. Secondly it was put that to not allow the amendment and to proceed with the trial would mean that the Court would not be dealing with the real issues between the parties. It would, he submitted, mean that the decision arrived at would be reached in an artificial factual climate.

25. Consistent with that submission he pointed to the fact that this matter was being treated as a test case. If the amendment was not allowed then it would be no test case at all because in the further proceedings brought by the other creditors Mr Feltus would wish to raise the defence which, unless the amendment was allowed, would not be considered in this trial. To that end Mr Wells said that the whole purpose of the case as a test case would be lost.

26. To deny the amendment would be to seriously disadvantage the third party and would be to prevent the third party bringing forward his real defence to the proceedings. Moreover not to allow the amendment would mean that the case would no longer be able to be treated as a test case.

27. In support of his application Mr Wells referred to Queensland v J L Holdings Pty Ltd (1997) 71 ALJR 294 and in particular the judgment of the majority at 297 where they said in discussing an amendment to a defence:

"Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties. In taking an opposite view, the primary Judge was, in our view, in error in the exercise of her discretion." 28. Mr Wells submitted that in the circumstances of this case the other parties could be compensated by an award of costs and in those circumstances the second third party ought to be allowed his amendment.

29. It was necessary, of course, for Mr Wells to address the reasons for the delay in this application. He submitted that I should find that the second third party was himself without fault. It was put that the failure to address this issue since March 1996 was the fault of the solicitors for the second third party and in particular a solicitor who is no longer with that firm.

30. It was submitted that it was only very recently in the getting up of the case that those advising the second third party became aware of the failure by the previous solicitor, who had management of the matter, to communicate the matters which I had raised to the second third party. As a consequence the second third party had never been advised that his real defence was not before the Court. In short, it was put to me that the whole fault for the failure to seek an earlier amendment was that of the solicitors.

31. Mr Wilkinson objected to my relying upon assertions from the bar table without evidence and I therefore directed affidavits to be filed in support of the application.

32. The second third party tendered four affidavits in support of his application. He swore an affidavit himself in relation to the instructions he gave his solicitors and in particular Mr Hackett, who was the partner handling this matter. His affidavit discloses that he acted with reasonable promptness to any request made of him. Moreover the affidavit discloses that in a number of respects he was not advised of events within the proceedings. The affidavit does not disclose any fault on the part of Mr Feltus himself.

33. Mr Garry Palasis, who is a partner in the firm of Andersons, solicitors for Mr Feltus, has sworn two affidavits in support of this application. In the first he discloses that Mr Hackett, a solicitor, had the responsibility for this matter between the time that Andersons were first instructed in March 1996 and 11 April 1997 when Mr Hackett left the firm. Mr Hackett gave notice of his resignation from the firm on 21 March 1997 and left on 11 April 1997. It was Mr Hackett's responsibility on the date of his departure to ensure that all matters necessary for the getting up of this matter ready for trial and all interlocutory processes were handled appropriately. On Mr Hackett's departure Mr Dion McCaffrie became the partner responsible for the conduct of the file and he remained the partner responsible between 11 April 1997 and the date upon which this matter was listed for trial 2 June 1997. Thereafter Mr Palasis assumed responsibility.

34. After Mr Hackett left the firm an associate solicitor, who was only admitted to practise on 5 September 1994, was instructed to sit in Mr Hackett's office and "to sort through his files" and was given the responsibility for the handling of this file.

35. Mr McCaffrie has not filed an affidavit as to what steps he took, if any, in relation to this matter and Mr Wells conceded that I could infer from the absence of any evidence from Mr McCaffrie that he did nothing in relation to this matter between 11 April 1997 and 2 June 1997.

36. It is clear from Mr Palasis' affidavit, the absence of evidence from Mr McCaffrie, and the evidence of Mr Feltus that the young practitioner was given no assistance in relation to this matter. She was asked to undertake a matter in circumstances where she was unsupported. It was most unfair to her for her employers to put her in the position that they did. It was also most unfair, of course, to the client to delegate to a practitioner, of limited experience, the many tasks that were imposed upon this young practitioner. Nothing I say in these reasons should be understood as any form of criticism of the young practitioner who took instructions in this matter subsequent to 11 April 1997.

37. A further affidavit was filed by Mr Robert Sallis. Mr Sallis described himself as in-house counsel who acts only on the instructions of another member of the firm or of a solicitor outside the firm. Mr Sallis would claim to act in a manner similar to independent counsel. Of course he is not. He is an employee of the solicitors and has the same responsibilities as any other employee of those solicitors to a client of the firm.

38. Mr Sallis has acted as counsel ever since December 1996 and has appeared before me on every interlocutory application since that time.

39. He exhibited to his affidavit copies of a number of reports which he provided to Mr Hackett prior to 11 April 1997 and to the young practitioner after that time. Those reports contained no advice in relation to this matter but are simply reports of what was said in Court by the practitioners for the various parties and by myself and what was said sometimes out of Court by those practitioners.

40. In particular the memoranda to Mr Hackett and to the young practitioner contained no advices in relation to the evidence necessary to support the second third party's case or the advisability of amending the pleadings or any advice on evidence.

41. Mr Wells submitted to me that in the circumstances where there has been a failure on the part of Mr Hackett prior to 11 April 1997 and thereafter on the part of the firm to properly identify the defence of the second third party I should allow the amendment because to do otherwise would be to visit an injustice on the second third party.

42. I received no evidence from Mr Hackett nor from the young practitioner nor from Mr McCaffrie. At one stage I thought the absence of that evidence might be a matter that I ought to have regard to in a consideration of the application but in the end I reached the conclusion that there was sufficient evidence to support the broad proposition put by Mr Wells; that the fault for the failure to bring this application in a timely fashion and for the failure by Mr Feltus to observe the number of directions which I have given from time to time can be laid at the feet of his solicitors, Messrs Andersons. There is therefore no point in any further enquiry to determine whom precisely within the firm has been guilty of those defaults, it being enough to find that the firm's default generally brought about the application.

43. The failure of the solicitors to observe their professional responsibilities meant a number of days lost in the consideration of this application and, when the application was granted, the inevitable adjournment of the proceedings. It has meant that all of the efforts made by the plaintiff, the defendant, the first third party and indeed by the Court to endeavour to ensure that this matter proceeds on a timely basis has been to nought.

44. Mr Wells raised one further matter. He submitted that if I was to disallow the amendment then a conflict of interest would arise between his client and his solicitors and it may be that the solicitors for the second third party would have to cease to act. In those circumstances he said it would be inevitable that the matter would have to be adjourned so that the second third party could obtain other legal representation.

45. There was some risk of that. However whilst the solicitors remain on record and whilst one of them remained at the bar table, as Mr Well's junior, that submission had an element of an in terrorem submission. The very submission indicated why those solicitors ought to have considered their position in relation to this matter.

46. It can be noted that Messrs Andersons continued to act as solicitors for Mr Feltus during the application and intended to act for Mr Feltus if the application to amend was granted. Mr Wilkinson objected to their acting but that is not a matter which I can resolve. That is a matter for the second third party and the solicitors

47. I reached the conclusion, on the authority of Queensland v J L Holdings, that the second third party ought to be allowed the amendment unless the granting of the amendment would cause prejudice to any of the other parties to the action which could not be compensated for in costs.

48. I directed any party which sought to claim any prejudice which could not be compensated for in costs to file affidavits in support of that matter.

49. As I have already said in the end the plaintiff and the first third party did not object to the amendment. The defendant maintained its objection to the amendment claiming that the amendment should not be allowed because I should not have been satisfied with the explanation given by the solicitors for the second third party and secondly that the amendment in any event ought to be refused because it suffered from a want of particularity.

50. As to the first matter, I have already indicated that I am satisfied that the failure to have this matter ready to proceed is the fault of the solicitors for the second third party. As to the second matter, I adjourned the application so that the second third party could give appropriate particulars of the amended plea.

51. Mr Wilkinson, who appeared for the defendant, conceded that his client was not able to point to any prejudice which could not be cured in costs. He was able to demonstrate that the allowing of the amendment would necessitate the adjournment of the trial because his client would seek to join further third parties. However he conceded, properly in my view, that those were matters which could be compensated in costs.

52. In the circumstances of this case, where the fault is wholly that of the solicitors, I was obliged to allow Mr Feltus his application to amend. I did so most reluctantly. It is a matter of some concern that the solicitors who have acted for Mr Feltus for the whole of this time so failed in their obligations to him and in their obligations as officers of the Court to the Court that they allowed the matter to reach the situation that it did. They have collectively (with the exception of the young practitioner) failed to carry out their proper professional obligations. In doing so they have no doubt caused a good deal of inconvenience, anguish and stress not only, I suspect, to their client but also to the other parties to this litigation. They have also caused significant disruption to the Court.

53. As a result of the neglect of the solicitors for the second third party, the defendant sought an adjournment which I granted.

54. Each of the parties applied, in the event that I would allow this amendment, for costs against the second third party on an indemnity basis. Rule 101.06 provides that, where costs are incurred improperly or arise because of undue delay, the Court may make an order directing a solicitor personally to indemnify any other party against costs payable by the party.

55. There was no doubt that any order for costs that I ought to make in relation to this application ought to be visited upon the solicitors.

56. Mr Smith, who appeared for Messrs Andersons, indicated that the solicitors acknowledged that it should pay to the other parties, the costs thrown away in relation to this adjournment on an indemnity basis. He also indicated that the second third party would not be required to pay any costs associated with this adjournment. Mr Smith argued, however, that the costs associated with the amendment of the defence should not be included in the costs ordered to be paid by Andersons.

57. I could see no reason why each of the other parties ought not to obtain their costs on an indemnity basis and I therefore ordered that Messrs Andersons pay the costs of the plaintiff, defendant and first third party on an indemnity basis for all costs thrown away as a result of the amendment and the adjournment which costs included the preparation for the trial of this action for 2 June 1997, the costs of the amendment and the costs of the adjournment itself.