Khan Enterprises (Australasia) Pty Ltd as Trustee for Khan Family Trust v Business Mantra Pty Ltd t/as Business Mantra - [2022] WADC 14

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION:   PERTH
CITATION:   KHAN ENTERPRISES (AUSTRALASIA) PTY LTD as Trustee for KHAN FAMILY TRUST -v- BUSINESS MANTRA PTY LTD t/as BUSINESS MANTRA [2022] WADC 14
CORAM:   WHITBY DCJ
HEARD:   14 FEBRUARY 2022
DELIVERED          :   Ex tempore
PUBLISHED           :   16 FEBRUARY 2022
FILE NO/S:   CIV 1354 of 2017
BETWEEN:   KHAN ENTERPRISES (AUSTRALASIA) PTY LTD as Trustee for KHAN FAMILY TRUST
First Plaintiff
AKHTAR HAMEED KHAN
Second Plaintiff
AND
BUSINESS MANTRA PTY LTD t/as BUSINESS MANTRA
First Defendant
ANAND KUMAR GUPTA
Second Defendant
DEEPA GUPTA
Third Defendant
LIBERTY MANAGING AGENCY LTD, ARCH UNDERWRITING AT LLOYDS LTD ON BEHALF OF SYNDICATE 2012, HARDY (UNDERWRITING AGENCIES) LTD as Managing Agents for SYNDICATE 382 AND ASTA MANAGING AGENCY LTD
Additional Party

Catchwords:

Appeal from registrar - Extension of time to appeal - Self-executing or springing orders - Case management principles - Springing orders not appropriate sanction - Appeal allowed

Legislation:

District Court Rules 2005 (WA)
Rules of the Supreme Court 1971 (WA)

Result:

Leave granted to extend time to appeal
Appeal allowed

Representation:

Counsel:

First Plaintiff	:	No appearance
Second Plaintiff	:	In person
First Defendant	:	Mr J S Slack-Smith
Second Defendant	:	Mr J S Slack-Smith
Third Defendant	:	Mr J S Slack-Smith
Additional Party	:	No appearance

Solicitors:

First Plaintiff	:	No appearance
Second Plaintiff	:	In person
First Defendant	:	Pragma Lawyers
Second Defendant	:	Pragma Lawyers
Third Defendant	:	Pragma Lawyers
Additional Party	:	Barry Nilsson Lawyers (VIC)

Case(s) referred to in decision(s):

Cheney v Moore [2020] WASC 227
Firmware Technologies Inc v Asia Platinum Group Ltd [2016] WASCA 179
Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Kezic v St John of God Health Care Inc [2015] WASCA 220
Simonsen v Legge [2010] WASCA 238

WHITBY DCJ:

[This judgment was delivered extemporaneously on 14 February 2022 and edited from the transcript].

This is an appeal from a decision of Deputy Registrar Harman on 27 October 2021 granting self‑executing orders against the plaintiffs. This appeal is made pursuant to r 15 of the District Court Rules 2005 (WA) (DCR).

Overview

Dr Khan, the second plaintiff, is the sole director of and a 50% shareholder in Khan Enterprises (Australasia) Pty Ltd (Khan Enterprises), the first plaintiff.
In December 2010, Khan Enterprises subleased shop 6 in the Old Shanghai food court in Fremantle. The sublease was for a period of just over six years. Dr Khan and his wife guaranteed the sublease.
Khan Enterprises operated an Indian takeaway business from shop 6 called 'Khan Dhaba'. The Indian takeaway was not profitable and Khan Enterprises was solvent only because Dr Khan injected funds into the company.
In December 2010, Dr Khan and Khan Enterprises engaged Business Mantra Pty Ltd (Business Mantra), the first defendant, to provide them with taxation, business and accounting advice. Mr Gupta, the second defendant, is the sole director of Business Mantra.
In June 2012, Dr Khan, suffering from poor health, decided to cease the Indian takeaway business. He says he reached an in‑principle agreement with the landlord of shop 6 whereby Khan Enterprises would pay $300,000 to surrender the lease from 14 December 2012. Ultimately, Dr Khan did not follow through with this in‑principle agreement.
Dr Khan says that Mr Gupta convinced him to enter into an arrangement to transfer the Indian takeaway business and the sublease to third parties. It is as a result of a number of alleged representations that Dr Khan says that Mr Gupta made in connection with this transfer that Dr Khan and Khan Enterprises claim damages against Business Mantra and Mr Gupta. This includes claims for breach of contract, negligence, breach of fiduciary duties, misleading conduct and breaches of the Australian Consumer Law (breach of statutory guarantees, misleading conduct and unconscionable conduct).
Mr Gupta and Business Mantra deny the claims and say further that Mr Gupta and his wife loaned money to Dr Khan and that they are entitled to be repaid. Dr Khan says that the loans are a sham and should be set aside. Business Mantra has also commenced third party proceedings against its insurer.
The action was commenced in the District Court in April 2017. The history of the action is littered with delays and non‑compliance by the plaintiffs with case management orders. Dr Khan and Khan Enterprises were represented until September 2021. They are currently unrepresented.
On 27 October 2021, Deputy Registrar Harman made, amongst other orders, a self‑executing order that, if the plaintiffs did not file and serve their list of witnesses by 5 November 2021, the plaintiffs' action against the defendants would be dismissed with costs and judgment would be entered against the second plaintiff in respect of the second and third defendants' counterclaim.
The plaintiffs did not file and serve their list of witnesses by 5 November 2021, or at all. As a result, the self‑executing order took effect ‑ the plaintiffs' action was dismissed and judgment on the counterclaim was entered against the second plaintiff. On 16 November 2021, upon the motion of the second and third defendants, Registrar Kubacz made orders for judgment on the counterclaim.
Mr Khan is seeking leave to appeal the orders of Deputy Registrar Harman made on 27 October 2021.

Chronology

The sequence of relevant events are as follows.
On 7 December 2020, a 10‑day trial was listed to commence on 6 December 2021.
On 16 July 2021, orders programming the action towards trial were made by consent. These orders included that the parties:
(a)give notice in writing specifying the documents they intend to tender at trial by 31 August 2021 (Tender Documents Order); and
(b)file and serve their outline of submissions and list of witnesses by 7 October 2021 (List of Witnesses Order).
The plaintiffs did not comply with the Tender Documents Order by 31 August 2021.
On 10 September 2021, the court ordered that the plaintiffs' former solicitor be removed as solicitor of record, upon service of the order.
On 23 September 2021, the defendants' solicitors (Pragma Lawyers) wrote to the plaintiffs advising that the plaintiffs were in breach of the Tender Documents Order. The defendants' solicitors requested that the plaintiffs sign a memorandum of consent orders for the extension of the time for compliance with the Tender Documents Order to 4 October 2021.
On 28 September 2021, Dr Khan sent the signed memorandum of consent orders to the defendants' solicitors. Dr Khan also advised in writing that 'Please note I M (sic) in the process of engaging new counsel and there is a possibility that dates of trial will be moved to 2022 to provide time to new counsel to prepare for the trial'.
On 28 September 2021, the defendants' solicitors wrote to the plaintiffs and advised:
(a)the memorandum of consent orders had been filed;
(b)if the plaintiffs did not comply with those orders, then the defendants would apply for self‑executing orders; and
(c)any application to adjourn the trial would be opposed.
In breach of the extended Tender Documents Order, the plaintiffs did not give notice in writing specifying the documents they intend to tender at trial by 4 October 2021.
On 8 October 2021, the defendants applied for self‑executing orders (Original Application). The defendants relied upon the affidavit of Michael Stulic sworn on 8 October 2021 (Stulic Affidavit) in support of the Original Application.
On 27 October 2021, Deputy Registrar Harman made orders that:
8.unless by 1 November 2021, the Plaintiffs do give notice in writing to each other party specifying the documents the Plaintiffs intend to tender at trial and where the documents may be inspected:
(a)the Plaintiffs' second substituted statement of claim dated 3 February 2019 and reply and defence to counterclaim dated 31 March 2021 be struck out;
(b)the action be dismissed;
(c)the Plaintiffs pay the Defendants' costs of the action;
(d)judgment be entered in favour of the Second and Third Defendants against the Second Plaintiff in relation to the Second and Third Defendants' counterclaim as follows:
(i)for the sum of $53,380.58;
(ii)interest at the rate of 10% per annum, calculated from the respective dates of each payment in paragraph 51 of the counterclaim until judgment, at the rate of 10% per annum;
(iii)the Second and Third Defendants' costs of the counterclaim (including the costs of Magistrates Court of Western Australia general claim 21749/2014);
9.unless by 5 November 2021, the Plaintiffs do file and serve their List of Witnesses:
(a)the Plaintiffs' second substituted statement of claim dated 3 February 2019 and reply and defence to counterclaim dated 31 March 2021 be struck out;
(b)the action be dismissed;
(c)the Plaintiffs pay the Defendants' costs of the action;
(d)judgment be entered in favour of the Second and Third Defendants against the Second Plaintiff in relation to the Second and Third Defendants' counterclaim as follows:
(i)for the sum of $53,380.58;
(ii)interest at the rate of 10% per annum, calculated from the respective dates of each payment in paragraph 51 of the counterclaim until judgment, at the rate of 10% per annum;
(iii)the Second and Third Defendants' costs of the counterclaim (including the costs of Magistrates Court of Western Australia general claim 21749/2014); and
(Self‑Executing Orders).
On 29 October 2021, the second plaintiff wrote to the defendants' solicitors and requested an adjournment of the trial. On the same day, the defendants' solicitors responded that the defendants do not consent to an adjournment of the trial.
On 1 November 2021, in compliance with the Tender Documents Order (as extended by the Self‑Executing Orders), Dr Khan sent the defendants' solicitors a list of documents the plaintiffs intended to tender at trial.
On 2 November 2021, Dr Khan filed a chamber summons for the adjournment of the trial.
On 4 November 2021, Dr Khan wrote to the defendants' solicitors, noting that a 'submission' was required by tomorrow (ie 5 November 2021) and requested an extension until the hearing of his application to adjourn the trial.
On 4 November 2021, the defendants' solicitors replied to Dr Khan that the defendants did not consent to an extension of time for compliance with the List of Witnesses Order (as extended by the Self‑Executing Orders).
The plaintiffs did not file or serve a list of witnesses by 5 November 2021 or at all. The Self‑Executing Orders took effect.
On 10 November 2021, the second and third defendants filed a notice of motion for judgment on the counterclaim, together with a covering letter, draft judgment and schedule of interest and affidavit of Michael Stulic sworn on 8 November 2021.
Those documents were served on the plaintiffs on 11 November 2021.
On 16 November 2021, in the absence of Dr Khan, Registrar Kubacz entered judgment on the counterclaim pursuant to the Self Executing Orders and vacated the trial (16 November Orders).
On 25 November 2021, Dr Khan filed a notice of appeal against the 16 November Orders.
The notice of appeal was listed before me on 13 December 2021. Dr Khan appeared at the hearing in person. It was apparent that Dr Khan was essentially seeking to appeal the Self‑Executing Orders, not the 16 November Orders. Accordingly, I granted the second plaintiff leave to amend the notice of appeal to seek an extension of time to appeal the Self‑Executing Orders.
On 7 February 2022, Dr Khan filed an amended appeal seeking an extension of time to appeal the Self‑Executing Orders.

Threshold issue – can Khan Enterprises appeal?

Khan Enterprises is not represented by a solicitor. A body corporate may not carry on proceedings otherwise than by a solicitor: O 4 r 3(2) Rules of the Supreme Court1971 (WA).
Therefore, Khan Enterprises cannot appeal the Self‑Executing Orders. To the extent that it has sought to do so, any such appeal or any application to extend the time to appeal is dismissed.

Extension of time to appeal

Rule 15(2) of the DCR provides that the appeal must be commenced within 10 days of the decision of the registrar or such longer period as a judge may allow.
The following factors are relevant in deciding whether to extend the time to appeal:
(a)the object of the rule permitting an extension of time to appeal is that rules which fix the time to appeal must not become an instrument of injustice;
(b)the discretion to extend time to appeal allows the court to do justice between the parties;
(c)however, the rules of the court should be obeyed and there must be some material before the court upon which it can exercise its discretion to extend time;
(d)the court should consider the length of the delay, the reasons for the delay, the prospects of success upon appeal and the prejudice to the respondent; and
(e)there is not an exhaustive list of factors that the court can consider as other factors such as whether the delay was intentional or merely as a result of a mistake may be relevant: Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458, 459; Simonsen v Legge [2010] WASCA 238.
Dr Khan relies upon his affidavit sworn on 7 February 2022. Dr Khan deposes that his delay in appealing the Self‑Executing Orders was as a result of:
(a)his lack of understanding about legal requirements, implications and procedures, including how to appeal and the time frame for appealing;
(b)he was in poor health;
(c)he had attempted to resolve the issue by requesting an extension of time to comply with the court orders;
(d)he applied to vacate the trial on 2 November 2021 which was listed to be heard on 16 November 2021; and
(e)the delay was not deliberate and was beyond his will and control.
The defendants submit that the delay in appealing has not been adequately explained and that the prejudice to the defendants is such that leave to appeal out of time should not be granted. The delay in appealing resulted in the trial being vacated, which the defendants submit constitutes a significant prejudice to the defendants.
The defendants rely upon the affidavit of Anand Kumar Gupta sworn on 9 February 2022 in opposition to Dr Khan's application for leave to appeal the Self‑Executing Orders. Mr Gupta sets out the long history of the dispute between the parties, spanning over seven years. He deposes to the significant stress and anxiety he and his wife have experienced as a result of the prolongation of the proceedings, together with the burden of legal costs and the time taken out of his accounting practice to deal with the proceedings.
I find that the interests of justice require that Dr Khan be granted an extension of time to appeal the Self‑Executing Orders for the following reasons:
(a)the delay in appealing the Self‑Executing Orders must be viewed in the context of the date upon which the Self‑Executing Orders took effect (5 November 2021) and the date formal judgment was entered on the counterclaim (16 November 2021);
(b)on 25 November 2021, Dr Khan filed an appeal purporting to appeal the 16 November Orders - this was within the 10‑day time limit for an appeal against the 16 November Orders;
(c)Dr Khan was unrepresented, it is entirely understandable why he appealed the 16 November Orders rather than the Self‑Executing Orders;
(d)the delay in appealing the Self‑Executing Orders was not substantial in this context;
(e)Dr Khan had significant prospects of succeeding on an appeal against the Self‑Executing Orders in light of the decision in Firmware Technologies Inc v Asia Platinum Group Ltd [2016] WASCA 179 (Firmware); and
(f)the prejudice suffered by the defendants does not outweigh the injustice attendant upon the parties in the event that the time to appeal is not extended.
I therefore, grant Dr Khan an extension of time to appeal the Self‑Executing Orders to 7 February 2022.

Legal principles applicable to the appeal

Rule 15(6) of the DCR provides that an appeal from a registrar 'is to be by way of a new hearing of the matter that was before the registrar'.
A new hearing means that the judge hearing the appeal must treat the application as if it was before the court for the first time: Kezic v St John of God Health Care Inc [2015] WASCA 220 [42].
The party who has appealed, is not required to show that the registrar made an error in the decision the subject of the appeal: Cheney v Moore [2020] WASC 227 [9].
The court may rely upon additional evidence on the hearing of an appeal by way of a new hearing, subject to the court having a discretion to exclude such evidence: Hazart Pty Ltd v Rademaker (1993) 11 WAR 26, 28.
In essence, I am required to determine the Original Application afresh, having regard to all the evidence that was before the deputy registrar, together with any additional evidence relied upon by the parties on the appeal.

Legal principles applicable to self-executing orders

In Firmware, the Court of Appeal provided guidance to case managers and the legal profession regarding the practice properly adopted in relation to self‑executing or 'springing orders' made in case management prior to trial. It is useful to repeat the relevant passages of the joint judgment of the court at [41] - [48]:
41… It is appropriate to commence [these] observations with an endorsement of the views expressed by Owen and Heenan JJ in Skahill v Kestral Holdings Pty Ltd (in liq):
Devising and applying appropriate sanctions for non‑compliance is one of the major problems which case managers face. An innocent party is entitled to expect that the Court will act to support the integrity of its processes where another party is in default. On the other hand, case management is a means to an end and not an end in itself. All processes and sanctions must be carried out and imposed in a way that will facilitate the achievement of justice.
42The entry of judgment prior to trial without regard to the merits of a case is, generally speaking, the antithesis of justice. It follows that, at least generally speaking, a springing order which would have that consequence can only be justified where necessary to enable the court to fairly determine the substantive matter in dispute and as a last resort.
43There is another more pragmatic reason why springing orders should only be made as a last resort when necessary. As this case demonstrates, and as long experience shows, springing orders can and often do result in a lengthy and expensive diversion from the preparation of the substantive issues in the case for resolution by trial or mediation. We have no doubt that the Master made a springing order in this case for the purpose of enabling the case to be resolved in a timely fashion. However, the order has had precisely the opposite effect.
44Although there was no appeal from the springing order made by the Master, and with the greatest of respect to a Master who diligently manages a large number of cases in his daily lists, a springing order should not have been made in this case for a number of reasons. First, although the case had been on foot for a longer period than was desirable, the delay in the provision of Firmware's witness statement had not been inordinate. Witness statements were first ordered to be provided by Firmware by 15 April 2015, and then ordered to be provided by 15 May 2015. The uncontradicted evidence provided to the Master established a cogent and reasonable explanation for Firmware's failure to comply with the requirement to provide its statements by 15 May 2015. In the light of that evidence, it was not appropriate for a springing order to be made on 4 June 2015, less than three weeks after the second time stipulated for compliance had expired. Because a springing order can result in injustice, it should ordinarily only be made when a party has, by their conduct, shown a contumelious disregard for compliance with the orders of the court. Given the evidence which explained Firmware's failure to comply in this case, Firmware's conduct could not be characterised in that manner.
45Second, because of the potential for injustice, a springing order should only be made when there is no other less severe, sufficient and appropriate sanction available to enable the court to determine the matter in a manner which is procedurally fair to all parties and which gives them sufficient opportunity to present their cases. There was no justification for a springing order giving judgment to Asia Platinum, as plaintiff, if Firmware, as defendant, did not file witness statements. Firmware was under no obligation to go into evidence, and the court could determine the merits of Asia Platinum's claim on the basis of evidence which Asia Platinum adduced. Rules of procedural fairness require that Firmware be given a sufficient opportunity to adduce evidence in its defence, but do not give Firmware an absolute right to adduce evidence when it has failed to take advantage of that opportunity in conformity with procedural directions which the court has made. In the present case, order 19 of the orders made by the Master on 6 May 2015 expressly provided that if a witness statement was not served by Firmware in accordance with the orders made on 6 May 2015, evidence could not be adduced at trial without leave of the court. That sanction was, in itself, sufficient and appropriate in the event of non-compliance with the orders made on 6 May 2015.

46Third, a springing order should not be made if its execution would prevent a party from advancing an argument unrelated to the procedural step the subject of the springing order. So, in the present case, Firmware's contention that the interest claimed by Asia Platinum was unenforceable as a penalty was capable of being advanced without any oral evidence whatever. However, non-compliance with the springing order would have had the consequence that Firmware would have been prevented from advancing that argument because it had failed to provide notice of any oral evidence which it was to adduce in relation to other issues.
47Fourth, springing orders should only be made if the criterion for compliance is clear and unequivocal and the question of whether or not the order has been complied with can be resolved simply and clearly. Springing orders should not be utilised in cases like this, where issues of compliance can be thought to turn upon a qualitative assessment of the character, efficacy or completeness of the mandated procedural step.
48Fifth, before making a springing order a case manager should bear in mind that the order is, in effect, self-executing and that, once made, in the absence of an application for an extension of time for compliance, the only question is whether there has, in fact, been compliance. So, even if there is a change of circumstances between the time at which the order is made and the time at which compliance is required, or the time at which the question of whether or not there has been compliance is assessed, in the absence of an application for an extension of time, those changed circumstances cannot be taken into account. Because case management is a means to an end, being the achievement of justice, this is another reason why springing orders should ordinarily only be made as a last resort when necessary to enable the court to fairly determine the substantive matter in dispute.

The List of Witnesses Order was made on 16 July 2021. It required Dr Khan to file and serve a List of Witnesses by 7 October 2021. The Self‑Executing Orders was made on 27 October 2021. The Self‑Executing Orders were clearly made in the context of a looming trial and in circumstances where Dr Khan had a history of non‑compliance with case management orders. However, I do not consider that the delay in providing a list of witnesses was inordinate.
Dr Khan appeared at the hearing of the Original Application and advised that he was having trouble obtaining a solicitor and that he intended to make an application to vacate the trial. The trial was listed for 10 days and was to commence in six weeks. The Original Application, so far as it related to the Tender Documents Orders, sought an appropriate sanction for non‑compliance. It was appropriate to compel Dr Khan to identify the documents he intended to tender at trial so as to give the defendants opportunity to consider those documents and to prepare for trial.
However, the Self‑Executing Orders, to the extent they related to the List of Witnesses Order, was not an appropriate and proportionate sanction for non‑compliance. A less severe option was available to the court, either to provide a further period of time to comply, or to order compliance by a certain date failing which Dr Khan would only be permitted to call a witness at trial with the leave of the trial judge.
The position of Dr Khan in relation to the Self‑Executing Orders on the counterclaim is even more compelling. As a defendant on the counterclaim, Dr Khan is under no obligation to go into evidence. The court can determine the merits of the defendants' counterclaim on the basis of evidence which the defendants sought to adduce at trial. Rules of procedural fairness require that Dr Khan be given a sufficient opportunity to adduce evidence in his defence on the counterclaim, but do not give him an absolute right to adduce evidence given he has failed to comply with the List of Witnesses Order. An appropriate and less severe sanction to deal with that non‑compliance was to order that Dr Khan not be permitted to adduce evidence on the counterclaim at trial without the leave of the court.
In summary, I decline to make a self‑executing order in relation to the List of Witnesses Order as sought by the Original Application. Dr Khan's appeal is upheld in relation to List of Witnesses Order insofar as that order relates to the second plaintiff. The result is that Dr Khan's action against the defendants is still on foot and there is no judgment entered against Dr Khan on the counterclaim.
It is unfortunate that events have superseded the hearing of the appeal and the opportunity for the trial of this action to be heard in December 2021 has been lost. This is an example of where springing orders, while intended to be used as a tool to case manage this action efficiently to trial, have had the effect of prolonging the action and being a diversion from the preparation of the substantive issues in the case for resolution by trial.
This action will now be returned to case management with a view to expediting the listing of the trial.

Final orders

The time for the second plaintiff to file a notice of appeal against the decision of Deputy Registrar Harman made on 27 October 2021 be extended to 7 February 2022.
Order 9 of the Orders of Deputy Harman dated 27 October 2021 be vacated and the following order be made in its place:
9.unless by 5 November 2021, the first plaintiff do file and serve its List of Witnesses:
(a)the first plaintiffs' second substituted statement of claim dated 3 February 2019 be struck out;
(b)the first plaintiff's action be dismissed; and
(c)the first plaintiff pay the defendants' costs of the action.
The Orders of Registrar Kubacz dated 16 November 2021 be vacated.
The costs of the defendants' amended application so far as they relate to the second plaintiff and the costs of the appeal be the defendants' costs in the cause.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
CB
Associate to her Honour Judge Whitby
16 FEBRUARY 2022