Re Apollo General Engineering (Aust) Pty Ltd (in liq)
[2016] VSC 533
•6 September 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
CORPORATIONS LIST
List E
S CI 2013 01571
IN THE MATTER OF APOLLO GENERAL ENGINEERING (AUST) PTY LTD (IN LIQUIDATION) (ACN 005 232 119)
BETWEEN
| CULVE ENGINEERING PTY LTD (ACN 004 794 825); | First Appellant/Defendant |
| TENA DENHAM NOMINEES PTY LTD (ACN 005 247 709; AND | Second Appellant/Defendant |
| SANDRA CERRATO | Third Appellant/Defendant |
| v | |
| APOLLO GENERAL ENGINEERING (AUST) PTY LTD (IN LIQUIDATION) (ACN 005 232 119); | First Respondent/Plaintiff |
| MATTHEW JAMES JESS; | Second Respondent/Plaintiff |
| PAUL ANDREW BURNESS; | Third Respondent/Plaintiff |
| THOMSONS LAWYERS; | Fourth Respondent/Plaintiff |
| STEWART MAIDEN; AND | Fifth Respondent/Plaintiff |
| SALVATORE GUCCIONE | Third Party |
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JUDGE: | ROBSON J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 March 2016 |
DATE OF JUDGMENT: | 6 September 2016 |
CASE MAY BE CITED AS: | Re Apollo General Engineering (Aust) Pty Ltd (in liq) |
MEDIUM NEUTRAL CITATION: | [2016] VSC 533 |
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PRACTICE AND PROCEDURE – Appeal against an order of an Associate Justice substituting the appellant, as the executrix of the estate of a deceased defendant, in a proceeding brought by the liquidators of a company in which the deceased defendant had been a director – The liquidators claimed damages against the deceased defendant for insolvent trading and challenging other alleged uncommercial transactions.
Application under r 9.09 of the Supreme Court (General Civil Practice) Rules 2005 – Whether the power given by the rule to substitute a defendant is a discretionary power – Whether the provisions of the Civil Procedure Act 2008 informed the exercise of the alleged discretionary power in r 9.09 – Whether Associate Justice entitled to take into account prejudice to substituted defendant in not having evidence of the deceased director – Held the power under r 9.09 is not discretionary – Held that the word “may” in the rule was permissive and required the Court to make the order if the conditions provided in s 29 were satisfied – Appeal dismissed – s 29 Administration and Probate Act1958.
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APPEARANCES: | Counsel | Solicitors |
| For the Appellants | Mr J W S Peters QC with Ms C G Rome-Sievers | Baker Jones |
| For the First to Third Respondents | Mr M Osborne QC with Mr J Kohn | B2B Lawyers |
HIS HONOUR:
Introduction
In March 2013, the first plaintiff, Apollo General Engineering (Aust) Pty Ltd (in liquidation) (Apollo) and the second and third plaintiffs, the liquidators of Apollo, Matthew James Jess and Paul Andrew Burness, instituted proceedings by way of an originating motion against Culve Engineering Pty Ltd (Culve), Tena Denham Nominees Pty Ltd (Tena Denham), and Rocco Cerrato.
On 14 August 2014, the third defendant, Rocco Cerrato died. His daughter Sandra Cerrato was named as executrix of the late Rocco Cerrato’s will. On 3 March 2015, the plaintiffs sought an order that Sandra Cerrato (in her capacity as executrix of the estate of the late Rocco Cerrato) be added in substitution for Rocco Cerrato as the third defendant in this proceeding.
On 18 September 2015, an Associate Justice ordered, pursuant to r 9.09 of the Supreme Court (General Civil Procedure) Rules 2005 (Supreme Court Rules), that Sandra Cerrato (in her capacity as executrix of the deceased estate of the late Rocco Cerrato) be added as a defendant in substitution for the late Rocco Cerrato in this proceeding.[1]
[1]Apollo Engineering (Aust) Pty Ltd (in liq) v Culve Engineering PtyLtd [2015] VSC 503.
The appellants, being the defendants in the proceeding, appeal against the order of the Associate Justice substituting Sandra Cerrato (in her capacity as executrix of the deceased estate of Rocco Cerrato) as a defendant for the late Rocco Cerrato.
In substance the issue in the appeal is whether the power of the Court under r 9.09 to substitute the executrix for the defendant was discretionary or whether the power, once enlivened, was mandatory.
For the following reasons, I find that the power in r 9.09, once engaged, was mandatory. I find that the learned Associate Judge was not obliged to take into account the discretionary factors relied on by the appellants. I would dismiss the appeal.
Before coming to the grounds of appeal I will set out the claims made against the late Rocco Cerrato by the plaintiffs and also summarise the reasons for the Associate Justice’s decision.
The proceeding
The plaintiffs allege in their statement of claim as follows. At all material times, Apollo was a trustee of a unit trust known as the Cerrato Family Head Trust (the Unit Trust). At all material times, the second defendant Tena Denham was the trustee of a discretionary trust known as the Rocco Cerrato Family Trust (the Discretionary Trust) and was at all material times in its capacity as trustee of the discretionary trust the sole unit holder in the Unit Trust.
At all material times, Rocco Cerrato (Mr Cerrato) was a director of each of Apollo, Culve and Tena Denham. By reason of these facts, each of Apollo, Culve and Tena Denham is a related entity of the others.
In the whole of the period from 30 June 2007 and 21 April 2010, Apollo was insolvent within the meaning given to that expression by s 95A of the Corporations Act 2001 (Cth) (Corporations Act).
On 21 April 2010 the director of Apollo appointed Messrs Burness and Jess as joint and several administrators of Apollo (the Liquidators).
On 17 June 2010, the creditors of Apollo resolved to wind up Apollo and that the Liquidators be appointed as joint and several liquidators of Apollo for the purposes of the winding up.
At all times during the Insolvency Period:
(a)Tena Denham (as trustee of the Discretionary Trust) was a creditor of Apollo (as trustee of the Unit Trust);
(b)the debt owed by Apollo (as trustee of the Unit Trust) to Tena Denham (as trustee of the Discretionary Trust) (the Tena Denham Debt) was unsecured.
That certain payments were made to Culve and Tena Denham, which are voidable. In particular, during the Insolvency Period, by agreement with Tena Denham and Culve, that Apollo advanced $669,181.71 to the benefit of Culve (collectively the Culve Payments), alternatively that Apollo paid moneys totalling $669,181.71 to Tina Denham (the First Tena Denham payments) and paid $576,531.12 to the benefit of Tena Denham (collectively, the Second Tena Denham Payments). Further, that certain Apollo distributions (totalling $883,205) during the insolvency period were uncommercial transactions.
During the Insolvency Period, Apollo incurred debts of $7,979,068.05. In allowing Apollo to trade while it was insolvent, Mr Cerrato contravened s 588G(2) of the Corporations Act.
On 16 July 2014, the plaintiffs were given leave to amend their statement of claim and to join Thomsons Lawyers as the fourth defendant and Stewart Maiden, a barrister, as the fifth defendant.
On 14 August 2014, Mr Cerrato died. Probate of his will was granted to Sandra Cerrato on 28 January 2015. In her affidavit of 12 March 2015, Sandra Cerrato gives evidence that the estate had total assets of $1,385,426.01 and liabilities of $19,195.23. The creditors of Apollo are owed a total of $7,771,408.33. The plaintiffs applied to add Sandra Cerrato in her capacity as executrix of the deceased estate of the late Rocco Cerrato in substitution for Rocco Cerrato.
The application was made pursuant to r 9.09 of the Supreme Court Rules. Rule 9.09 provides:
(1)Where a party to a proceeding dies, but the cause of action survives, or where a party becomes bankrupt, the proceeding shall not abate by reason of the death or bankruptcy, but may be carried on in accordance with paragraph (2).
(2)Where at any stage of a proceeding the interest or liability of any party is assigned or transmitted to or devolves upon some other person, the Court may order—
(a)that the other person be added as a party to the proceeding or made a party in substitution for the original party; and
(b) that the proceeding be carried on as so constituted.
(3)Unless the Court otherwise directs, the person on whose application an order is made under paragraph (2)—
(a)shall serve the order on every party to the proceeding and on every person who ceases to be a party or becomes a party as plaintiff by virtue of the order; and
(b)in the case of a person who becomes a defendant, shall serve that person personally with the order and with the writ or other originating process sealed in accordance with Rule 5.11.
(4)A person upon whom originating process is served in accordance with paragraph (3) shall file an appearance in the proceeding within such time as the Court directs.
(5)Where an order is made without notice to a person on whom the order is served, an application by that person to set aside or vary the order shall be made within 10 days after service.
Section 29 of the Administration and Probate Act 1958 (Administration and Probate Act) relates to the effect of death on certain causes of action. Section 29 provides:
(1)Subject to the provisions of this section, on the death of any person, all causes of action subsisting against or vested in him shall survive against or (as the case may be) for the benefit of his estate:
Provided that this subsection shall not apply to causes of action for defamation or seduction or for inducing one spouse to leave or remain apart from the other.
(2)Where a cause of action survives as aforesaid for the benefit of the estate of a deceased person the damages recoverable for the benefit of the estate of that person—
(a) shall not include any exemplary damages;
(b)in the case of a breach of promise of marriage shall be limited to such damage (if any) to the estate of that person as flows from the breach of the promise to marry;
(c)where the death of that person has been caused by the act or omission which gives rise to the cause of action—
(i)shall be calculated without reference to any loss or gain to his estate consequent on his death, except that a sum in respect of funeral expenses may be included;
(ii)shall not, except as provided in subsection (2A), include any damages for his pain or suffering or for any bodily or mental harm suffered by him or for the curtailment of his expectation of life;
(iii)shall be calculated without reference to the future probable earnings of the deceased had he survived and without any allowance for the loss of his earning capacity that relates to any period after his death.
(2A) Where—
(a)a cause of action survives under subsection (1) for the benefit of the estate of a deceased person; and
(b)the death of that person is from a dust-related condition which has been caused by the act or omission which gives rise to the cause of action; and
(c)proceedings in respect of that cause of action were commenced by that person before his or her death and were pending at his or her death—
the damages recoverable for the benefit of the estate of that person shall include damages for all or any of the following—
(d) that person's pain or suffering;
(e) any bodily or mental harm suffered by that person;
(f) the curtailment of that person's expectation of life.
(3)Where a cause of action in tort survives against the estate of a deceased person pursuant to the provisions of subsection (1) of this section no proceedings in respect of the cause of action may be maintained against the estate of the deceased person except proceedings—
(a)that were commenced against the deceased before his death and were pending and not barred at the date of his death;
(b)that are commenced against his personal representative after his death—
(i)within the period within which those proceedings might have been commenced against him had he lived; or
(ii)where the proceedings are proceedings for negligence nuisance or breach of duty (whether the duty exists by virtue of a contract or of provision made by or under a statute or independently of any contract or any such provision) and the damages claimed by the plaintiff consist of or include damages in respect of personal injuries to any person, within such longer period as a court, on application made to it by the claimant and after hearing such of the persons likely to be affected by that application as it sees fit and subject to subsection (3A), decides is just and reasonable;
(c)that were not barred at the date of his death and are commenced against his personal representative within six months after his personal representative takes out representation.
(3A)In exercising the powers conferred on it by subparagraph (b)(ii) of subsection (3) the court shall have regard to all the circumstances of the case including (without derogating from the generality of the foregoing) the following:
(a)the date when the claimant first knew that the deceased had died;
(b)the date when the claimant first knew he had a cause of action against the deceased;
(c)the date when the claimant first knew that the personal representative of the deceased had taken out representation; and
(d)any prejudice which may be caused to the personal representative or any other person by extension of the said time.
(4)Where damage has been suffered by reason of any act or omission in respect of which a cause of action would have subsisted against any person if that person had not died before or at the same time as the damage is suffered there shall be deemed for the purposes of this section to have been subsisting against him before his death such cause of action in respect of that act or omission as would have subsisted if he had died after the damage was suffered.
(5)The rights conferred by this section for the benefit of the estates of deceased persons shall be in addition to and not in derogation from any rights conferred on the dependants of a deceased person by Part III of the Wrongs Act 1958, and this section shall apply in relation to causes of action under the said Part III as it applies in relation to other causes of action not expressly excepted from the operation of subsection (1) of this section.
An affidavit of Damian Walton, solicitor, dated 18 February 2015 was filed in support of the application on 19 February 2015.
Before the Associate Justice, the parties agreed that the cause of action against Mr Cerrato for trading whilst insolvent and for breach of director’s duties had survived. His Honour said the only issue before him was whether he should exercise his discretion to substitute Sandra Cerrato as the executrix of the deceased estate of the late Mr Cerrato as the third defendant pursuant to r 9.09.
Before the Associate Justice, Culve, Tena Denham and Sandra Cerrato submitted that the proper construction of r 9.09 was analogous with the Court’s discretion, arising under various State Acts, to order an extension of time to issue proceedings past the expiry of a limitation period when satisfied it ought to do so.
They further submitted that an applicant, pursuant to r 9.09 did not have a presumptive right to an order for substitution once the conditions qualifying it to apply for the order were met. They also submitted that the plaintiffs bore the legal onus of showing that the justice of the case required the exercise of the discretion in their favour. The plaintiffs relied upon Brisbane South Regional Health Authority v Taylor.[2] Counsel for the plaintiffs contended that the onus was not on the plaintiffs.
[2](1996) 186 CLR 541 (Toohey and Gummow JJ).
His Honour held that it was clear that power given to the Court under r 9.09 was discretionary, as it stated that the Court may order that another party be added to the proceeding or made a party in substitution for the original party.
His Honour said that the first defendant, second defendant and Sandra Cerrato submitted that the rule should be construed in accordance with the Civil Procedure Act 2010 (Vic) (Civil Procedure Act). They relied on ss 1, 7 and 8(1).
Section 1 of the Civil Procedure Act provides:
(1) The main purposes of this Act are—
(a)to reform and modernise the laws, practice, procedure and processes relating to civil proceedings in the Supreme Court, the County Court and the Magistrates' Court and provide for uniformity;
(b)to simplify the language relating to civil procedure;
(c)to provide for an overarching purpose in relation to the conduct of civil proceedings to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute;
(d)to amend various Acts in relation to the conduct of civil proceedings to reflect the new procedures.
(2) Without limiting subsection (1), this Act provides for—
(a)overarching obligations for participants in civil proceedings to improve standards of conduct in litigation;
(b)expanding the powers of the courts in relation to costs in relation to civil proceedings;
(c)the enhancement of case management powers of the courts, including in relation to discovery;
(d)further enhancement of appropriate dispute resolution processes;
(e)reform of the law relating to summary judgment;
(f)clarifying sanctions available to courts in relation to contravention of discovery obligations;
(g)the management and control of expert evidence in civil proceedings.
Section 7 of the Civil Procedure Act provides:
(1)The overarching purpose of this Act and the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.
(2)Without limiting how the overarching purpose is achieved, it may be achieved by—
(a) the determination of the proceeding by the court;
(b) agreement between the parties;
(c) any appropriate dispute resolution process—
(i) agreed to by the parties; or
(ii) ordered by the court.
Section 8 of the Civil Procedure Act provides:
(1)A court must seek to give effect to the overarching purpose in the exercise of any of its powers, or in the interpretation of those powers, whether those powers—
(a)in the case of the Supreme Court, are part of the Court's inherent jurisdiction, implied jurisdiction or statutory jurisdiction; or
(b)in the case of a court other than the Supreme Court are part of the court's implied jurisdiction or statutory jurisdiction; or
(c)arise from or are derived from the common law or any procedural rules or practices of the court.
(2)Subsection (1) applies despite any other Act (other than the Charter of Human Rights and Responsibilities Act 2006) or law to the contrary.
His Honour observed that there were three causes of action pleaded in the statement of claim against the late Mr Cerrato, being:
(a)insolvent trading (paragraphs 23–28A);
(b)breach of director’s duty of care and diligence (paragraphs 28B, 28E); and
(c)contribution from a co‑guarantor (paragraphs 29–43).
His Honour noted that the statutory defences had been pleaded by Mr Cerrato in relation to insolvent trading, including ss 588H(2), 588H(3), 588H(4), 1317S and 1318 of the Corporations Act.
His Honour observed that the late Mr Cerrato had not pleaded to the breach of duty claim before he died.
In relation to the breach of duty claim, Culve, Tena Denham and Sandra Cerrato submitted that due to the death of Mr Cerrato, the deceased estate could not challenge proof of the alleged duty of care and diligence and could not lead evidence in support of possible defences, including adducing evidence necessary to qualify for ss 1317S and 1318 relief.
The Associate Justice said that in relation to the claim for contribution from a co‑guarantor, the late Mr Cerrato had not raised in his defence any of the statutory defences. His Honour said that the application for substitution was limited to the guarantee claims, as they were of a far lesser amount than the claim for insolvent trading and did not involve evidence as to the state of mind or events to which the late Mr Cerrato observed or was part of.
His Honour referred to a table that had been prepared on behalf of the Culve, Tena Denham and Sandra Cerrato (which was also relied on in this appeal) referring to the pleadings and evidence against the late Mr Cerrato. His Honour noted that no submissions had been made in relation to this table by counsel for the plaintiffs. His Honour then referred to the provisions of ss 588H(2), 588H(3), 588H(4) and 588H(5):
(2)It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
(3)Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:
(a) had reasonable grounds to believe, and did believe:
(i)that a competent and reliable person (the other person) was responsible for providing to the first‑mentioned person adequate information about whether the company was solvent; and
(ii) that the other person was fulfilling that responsibility; and
(b)expected, on the basis of information provided to the first‑mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.
(4)If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.
(5)It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.
His Honour said that section 588H(2) required both a subjective and objective element, as it refers to ‘reasonable grounds to expect, and did expect’. Section 588H(3) also has a subjective element to it. Section 588H(5) does not contain a subjective element.
Section 1317S of the Corporations Act provides:
(1) In this section:
eligible proceedings:
(a)means proceedings for a contravention of a civil penalty provision (including proceedings under section 588M, 588W, 961M, 1317GA, 1317H, 1317HA or 1317HB); and
(b)does not include proceedings for an offence (except so far as the proceedings relate to the question whether the court should make an order under section 588K, 1317H, 1317HA or 1317HB).
(2) If:
(a)eligible proceedings are brought against a person; and
(b)in the proceedings it appears to the court that the person has, or may have, contravened a civil penalty provision but that:
(i) the person has acted honestly; and
(ii)having regard to all the circumstances of the case (including, where applicable, those connected with the person’s appointment as an officer, or employment as an employee, of a corporation or of a Part 5.7 body), the person ought fairly to be excused for the contravention;
the court may relieve the person either wholly or partly from a liability to which the person would otherwise be subject, or that might otherwise be imposed on the person, because of the contravention.
(3)In determining under subsection (2) whether a person ought fairly to be excused for a contravention of section 588G, the matters to which regard is to be had include, but are not limited to:
(a)any action the person took with a view to appointing an administrator of the company or Part 5.7 body; and
(b) when that action was taken; and
(c) the results of that action.
(4)If a person thinks that eligible proceedings will or may be begun against them, they may apply to the Court for relief.
(5)On an application under subsection (4), the Court may grant relief under subsection (2) as if the eligible proceedings had been begun in the Court.
(6)For the purposes of subsection (2) as applying for the purposes of a case tried by a judge with a jury:
(a)a reference in that subsection to the court is a reference to the judge; and
(b)the relief that may be granted includes withdrawing the case in whole or in part from the jury and directing judgment to be entered for the defendant on such terms as to costs as the judge thinks appropriate.
(7) Nothing in this section limits, or is limited by, section 1318.
Section 1318 of the Corporations Act provides:
(1)If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2)Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
(3)Where a case to which subsection (1) applies is being tried by a judge with a jury, the judge after hearing the evidence may, if he or she is satisfied that the defendant ought pursuant to that subsection to be relieved either wholly or partly from the liability sought to be enforced against the person, withdraw the case in whole or in part from the jury and forthwith direct judgment to be entered for the defendant on such terms as to costs or otherwise as the judge thinks proper.
(4)This section applies to a person who is:
(a) an officer or employee of a corporation; or
(b)an auditor of a corporation, whether or not the person is an officer or employee of the corporation; or
(c) an expert in relation to a matter:
(i) relating to a corporation; and
(ii)in relation to which the civil proceeding has been taken or the claim will or might arise; or
(d)a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.
(5)This section does not apply to a corporation that is an Aboriginal and Torres Strait Islander corporation.
Note:Similar provision is made in relation to Aboriginal and Torres Strait Islander corporations under section 576–1 of the Corporations (Aboriginal and Torres Strait Islander) Act 2006.
In s 1317S, an eligible proceeding includes a proceeding under s 588M. His Honour referred to Australian Securities and Investments Commission v Macdonald (No 12).[3] His Honour noted that it was there held by Gzell J that the first element of s 1317S(2) or s 1318(1) is the requirement that the offending party acted honestly when breaching the statutory duty.[4] His Honour also referred to Occidental Life Insurance Company of Australia Limited v Bank of Melbourne Limited,[5] where O’Bryan J said:
It must be accepted that following the death of Christie, his executrix will be handicapped in relying upon what I shall call ‘statutory defences’. Prejudice to a defence case is inevitable in civil litigation following the death of a principal witness or of a defendant presumed to have direct personal knowledge of the events.
[3](2009) 73 ACSR 638 (‘ASIC v Macdonald’).
[4]ASIC v Macdonald [11].
[5]31 May 1991 [9] (O’Bryan J) (‘Occidental Life’).
His Honour observed that on the issue of whether a defendant needed to give evidence to demonstrate honesty, Gzell J had held in ASIC v Macdonald:[6]
There is no requirement in the legislation that a person must give evidence of honesty before a finding of acting honestly can be made. It is conceivable that it may appear to a court that a person has acted honestly from an examination of the circumstances surrounding the breach of duty and from other evidence such as testimonials as to the person’s conduct before and after the breach of duty.
I would not exclude the discretions under ss 1317S(2) and 1318(1) simply on the basis that a defendant gave no evidence of honest intent.
His Honour also referred to Australian Securities and Investments Commission v Adler,[7] where Santow J held that a defendant must positively demonstrate to the Court honesty in order to persuade it to exercise its discretion favourably.
[6]ASIC v Macdonald [26]–[27].
[7](2002) 42 ACSR 80 [166]–[169] (‘ASIC v Adler’).
Before his Honour, Culve, Tena Denham and Sandra Cerrato submitted that for the application to succeed the Court would need to be satisfied that the death of the late Mr Cerrato and the loss of evidence that he would have given have not made the chances of a fair trial unlikely. His Honour said that they also submitted that the death of a material witness could be clear prejudice.[8]
[8]Apollo Engineering (Aust) Pty Ltd (in liq) v Culve Engineering PtyLtd [2015] VSC 503 [26].
His Honour referred again to Occidental Life and said that the case concerned whether the cause of action survived and that there was no opposition to the appointment of the executrix as a defendant. His Honour said that due to the context in which the comments were made, he was of the view that he was not bound to follow those comments. His Honour also noted that the comments of O’Bryan J were made prior to the enactment of the Civil Procedure Act. He held that in his view prejudice was an important factor to take into account in exercising discretion.
His Honour addressed the submission of the plaintiffs that Salvatore Guccione (general manager of Apollo), Mr Zucko (accountant), and Daniela La Rosa (a bookkeeper employed by Apollo), could give evidence in place of the late Mr Cerrato and that there would be no prejudice to Sandra Cerrato.
The Associate Justice observed that Mr Guccione had been joined as a third party to the plaintiffs’ proceeding by the late Mr Cerrato. His Honour also observed that Ms La Rosa was the daughter of the late Mr Cerrato. Mr Cerrato, in his will, declared that he did not provide for his daughter, because he blamed her for the loss of much of his personal fortune as a result of liquidation of Apollo.
His Honour found that there would likely have been a conflict in the evidence between Mr Guccione and the late Mr Cerrato if he was alive. His Honour said that while Ms La Rosa was cut out of the will of the late Mr Cerrato, she could still be called to give evidence and he would expect her to give truthful evidence.
His Honour observed that nothing had been said about Mr Zucko and it was alleged in the defence that he was an independent accountant. His Honour said that there was nothing before the Court to demonstrate that his evidence would be anything but impartial.
His Honour said it would be difficult to decide whether there would be material prejudice to Sandra Cerrato on reading the statement of claim, the defence and the statutory provisions that were relied upon. The Associate Justice said that the defences all contained an objective element, which could be deposed to by witnesses other than the late Mr Cerrato. His Honour found that there was a subjective element to some of the defences, but said that in the table provided to him the only references to Mr Cerrato’s knowledge related to the following matters.
His Honour referred to paragraph 24(f) of the defence which was one of the factors pleaded to demonstrate the absence of reasonable grounds of suspected solvency. The late Mr Cerrato pleaded that he knew that Apollo provided Apollo’s general manager, Mr Guccione, with regular upgrading of his company cars. The Associate Justice said that Mr Cerrato’s evidence would be required to establish his knowledge.
Secondly, he referred to paragraph 28A of the late Mr Cerrato’s defence, which pleaded that at the time when the alleged debts were incurred, the late Mr Cerrato had reasonable grounds to expect, and did expect, that the company was solvent at the time and remained solvent even if it incurred the debts at that time.
The reasonable grounds referred to included that each year the late Mr Cerrato would be paid the wage he expected to be paid, and that the late Mr Cerrato relied on the same particulars he had pleaded in relation to the absence of reasonable grounds to expect insolvency, which included the provision of upgrading of company cars to Mr Guccione.
Thirdly, the Associate Justice referred to paragraph 28C of the late Mr Cerrato’s defence, which pleaded that the late Mr Cerrato had reasonable grounds to believe that a competent and reliable person was responsible for providing him with adequate information about whether the company was solvent and that the person was fulfilling that responsibility. His Honour said that it was submitted that Mr Cerrato’s evidence was required to establish his knowledge of Mr Guccione’s business experience.
The Associate Justice said the above were the only references in the table prepared by the legal representatives for Culve, Tena Denham and Sandra Cerrato, relating to knowledge. His Honour said that the other allegations of prejudice referred to in the table appeared to relate to objective evidence, which ideally would require the presence of the late Mr Cerrato to give evidence, but could be given by other witnesses.
His Honour referred again to ASIC v Macdonald, where Gzell J explained that the discretions under ss 1317S(1) and 1318 could still be invoked even though the defendants were not called. His Honour said that the difficulty before him was that Mr Guccione was a third party and would be a hostile witness. The Associate Justice said that even so he could not be convinced that the chances of a fair trial were unlikely.
His Honour referred to the fact that the defendants, including Mr Cerrato when he was alive, unsuccessfully previously sought to have the proceeding dismissed for want of prosecution. His Honour said that there had been delays, but they were not inordinate or inexcusable. His Honour said that on considering prejudice to the defendants, he weighed up the prejudice to both parties and decided not to dismiss the proceeding. His Honour said that while he was of the view that there was some prejudice to the estate, he remained of the view that the prejudice was not due to any inordinate or inexcusable delay. His Honour said that the prejudice was unlikely to affect the chances of a fair trial.
His Honour concluded that as Sandra Cerrato, in her capacity as executrix of the deceased estate of the late Mr Cerrato, had been substituted as third defendant, she would be able to pursue the contribution proceedings against the third party, Mr Guccione.
Accordingly, in substance it can be seen that the Associate Justice accepted that r 9.09 gave him a discretion as to whether or not Sandra Cerrato, (in her capacity as executrix of the estate of the late Mr Cerrato) should be substituted as the third defendant in substitution for the late Mr Cerrato, and that the relevant provisions of the Civil Procedure Act applied to the exercise of his discretion of r 9.09. It is also clear that his Honour took into account whether the proposed defendant would be sufficiently prejudiced to adversely affect her chances of a fair trial.
On 18 September 2015, the Associate Justice ordered:
(1)there be a directions hearing on 16 October 2015;
(2)Sandra Cerrato as executrix of the estate of the late Rocco Cerrato be substituted as the third defendant;
(3)the question of costs was reserved.
As indicated above, the appellants, Culve, Tena Denham and Sandra Cerrato, appeal from paragraph (2) of those orders.
Notice of appeal
The grounds of appeal are as follows:
(1)His Honour exercised his discretion upon the wrong test — namely, the test for want of prosecution (see paragraph 35 of the Associate Justice’s reasons).
(2)His Honour failed to apply and give effect to the overarching purpose under ss 1, 7 and 8 of the Civil Procedure Act when considering his discretion — namely, whether the order would facilitate the ‘just, efficient, timely and cost-effective resolution’ of the proceeding and whether it was in the interests of justice for the orders to be made.
(3)His Honour applied the wrong test as to onus — namely, whether the appellants had proved the chances of a fair trial were unlikely, rather than consider whether, in the context of r 9.09 and the Civil Procedure Act, the first to third respondents had established that the orders sought by them ought to be made in the exercise of the Court’s discretion.
(4)His Honour failed to take into account the following material considerations:
(a)the case involved Mr Cerrato’s conduct in the years prior to 2010 regarding alleged insolvent trading, breach of duty, complex commercial factual matters including state of mind requiring oral evidence;
(b)the late Mr Cerrato was 76 years old when the respondent liquidators were appointed in April 2010;
(c)the liquidators waited three years to conduct a public director’s examination and only issued proceedings for insolvent trading in 2013;
(d)they waited a further year before seeking to add a claim for breach of duty of care and negligence;
(e)the first to third respondents have not yet given discovery in the proceeding;
(f)Mr Cerrato died on 14 August 2014 and cannot give evidence;
(g)the respondent liquidators have issued several different proceedings, some of which were settled against multiple parties, and reframed their cause of actions against different parties multiple times (see chronology to 4 July 2014 Judgment Apollo Engineering (Aust) Pty Ltd & Ors v Culve Engineering & Ors).[9]
[9](Unreported, Supreme Court of Victoria, Efthim AsJ, 4 July 2014).
The appellants contend that the decision involved an exercise of discretion by his Honour. The appellants submit the appeal is brought in accordance with well‑established principles and refer to Lovell v Lovell.[10] The appellants submit that the grounds of appeal are that his Honour acted upon a wrong principle, allowed extraneous or irrelevant matters to guide or affect him (grounds 1, 2 and 3) and failed to take into account material considerations (grounds 2 and 4).
[10](1950) 81 CLR 513, 519 (Latham J), quoting from the judgment of Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499, 504–5.
The appellants contend that under r 9.09 the plaintiffs bear the onus of proof to satisfy the Court that it should exercise its discretion to permit substitution. The appellants contend that the rule is discretionary not compulsory or presumptive. Further, the appellants contend that the rule should be construed in accordance with the Civil Procedure Act.
The appellants submit that the discretion under r 9.09 is ‘informed by’ ss 7 and 8 of the Civil Procedure Act. The appellants submit that the Court ‘must’ take account of and evaluate whether to grant or deny the application would facilitate the ‘just, efficient, timely and cost effective resolution’ of the dispute in exercising the r 9.09 power. The appellants submit that these relevant matters must be taken into account and a failure to take them into account means that the Court has made an error of law. The appellants submit that in accordance with the principles set down in House v The King,[11] where Dixon, Evatt and McTiernan JJ said:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so.
[11](1936) 55 CLR 499, 504–5 (Dixon Evatt and McTiernan JJ).
The appellants submit that a relevant matter that the learned Associate Judge failed to take into account was the prejudice the substituted defendant would suffer in not being able to rely on the evidence of the deceased when his state of mind was a relevant issue in the claim against him. As mentioned above, the appellants presented a table which identified the many issues where the deceased’s evidence may have assisted him to meet the claim made against him.
The appellants submit that the alleged obligation on the Court to take account of and evaluate whether to grant or deny the application would facilitate the ‘just, efficient, timely and cost effective resolution’ of the dispute in exercising the r 9.09 power, meant that the Court should have considered the prejudice or difficulties faced by substituting Sandra Cerrato as defendant for her father particularly in the deceased not being available to give evidence of his state of mind.
The respondents (first to third) submitted that the word ‘may’ in r 9.09 does not confer on the Court discretion in the House v King sense but rather empowers the Court to make the relevant order where it is otherwise satisfied that the power has been engaged.
In other words r 9.09 does not confer a discretion on the Court whether or not to add Sandra Cerrato as executrix of the late Mr Cerrato’s estate in substitution as the third defendant. The word ‘may’ is used in a permissive sense, that is, the Court has the power to make the order, assuming that it is asked to do so.
I accept these submissions of the respondents.
In ACN 005 057 349 Pty Ltd v Commissioner of State Revenue,[12] the Court of Appeal affirmed that in certain circumstances a statute that provides a government official ‘may’ do something does not enliven discretionary considerations as to whether the power should be exercised or not but rather connotes the conferring of a power that once enlivened must be exercised.
[12][2015] VSCA 332 (‘ACN v Commissioner’).
In ACN v Commissioner, the Court held that a provision in the Land Tax Act 1958 that the Commissioner may amend an assessment if he formed the view that the assessment was issued in error, did not confer a discretion on the Commissioner to exercise the power if it was enlivened but rather imposed a duty on the Commissioner. The Court held that the use of the word ‘may’ in the context should be construed as the conferral of a power to do what the Commissioner otherwise could not and that once the power was enlivened the Commissioner was required to exercise the power.
The Court of Appeal said:[13]
It is clear that the word ‘may’ when used in the conferral of a discretionary power does not preclude the breadth of that power being significantly confined to an extent that, in some circumstances, the power must be exercised. The purpose for which it is to be exercised, or the condition under which it is granted, may reveal that in some circumstances there is an obligation to exercise the power. As the plurality of the High Court said in Attorney-General (NT) v Emmerson,[14] in considering s 44(1)(a) of the CriminalPropertyForfeitureAct (NT):[15]
There were differences of views in the courts below as to the width of the discretion covered by the use of the word ‘may’ in s 44 of the Forfeiture Act, governing the making of a restraining order. The condition upon which the discretion is granted under s 44(1)(a) arguably makes it clear that the discretion is of the type which must be exercised upon proof of the particular case to which the power to make a restraining order is directed. In the Court of Appeal, the appellants never contended otherwise. … For the purposes of the first respondent’s argument it may be assumed, without deciding, that the discretion given to the Supreme Court under s 44 is limited.[16]
[13]ACN v Commissioner, [126] (Hansen and Tate JJA and Robson AJA).
[14](2014) 307 ALR 174 (‘AG v Emmerson’).
[15]Section 44(1) relevantly provided: ‘The Supreme Court may, on application by the DPP, make a restraining order in relation to the property of a person named in the application if: (a) the person has been charged, or it is intended that within 21 days after the application the person will be charged, with an offence that, if the person is convicted of the offence, could lead to the person being declared to be a drug trafficker under section 36A of the Misuse of Drugs Act’.
[16]AG v Emmerson, 192 [68] (footnotes omitted) (emphasis in original) (French CJ, Hayne, Crennan, Kiefel, Bell and Keane JJ).
In AG v Emmerson, the High Court relied on Finance Facilities Pty Ltd v Federal Commissioner of Taxation.[17] There the High Court of Australia considered a provision in the Income Tax Assessment Act 1936, which provided that the Commissioner ‘may’ allow a rebate to a taxpayer if the Commissioner was satisfied of certain circumstances. The Commissioner had been satisfied of the relevant circumstances but nevertheless relying on a purported discretion granted by the word ‘may’ refused to allow the rebate. The taxpayer appealed and the High Court upheld the appeal finding the Commissioner was required to allow the rebate.
[17](1971) 127 CLR 106 (‘Finance Facilities v FCT’).
Windeyer J, in a celebrated passage, explained why the use of ‘may’ in the circumstances did not give the Commissioner the discretion he purported to exercise. Windeyer J said:[18]
[18]Finance Facilities v FCT, 134–5 (Windeyer J) (citations omitted).
In some contexts the word “allow“ in the phrase “may allow” might enhance a discretion said to be embodied by the word “may”. But not, I think, in this context. The Act is filled with provisions about allowable deductions which are mandatory. The contrast in language in s. 79B (1A) between what is allowable and what a taxpayer is “entitled to” is significant. The question, which comes back to the words “may allow”, is not to be solved by concentrating on the word “may” apart from its context. Still less is the question answered by saying that “may” here means “shall”. While Parliament uses the English language the word “may” in a statute means may. Used of a person having an official position, it is a word of permission, an authority to do something which otherwise he could not lawfully do. If the scope of the permission be not circumscribed by context or circumstances it enables the doing, or abstaining from doing, at discretion, of the thing so authorized. But the discretion must be exercised bona fide, having regard to the policy and purpose of the statute conferring the authority and the duties of the officer to whom it was given: it may not be exercised for the promotion of some end foreign to that policy and purpose or those duties. However, that general proposition is irrelevant in this case. Here the scope of the permission or power given is circumscribed. Conditions precedent for its exercise are specified as alternatives. The question then is, must the permitted power be exercised if one of those conditions be fulfilled?
This does not depend on the abstract meaning of the word “may” but of whether the particular context of words and circumstance make it not only an empowering word but indicate circumstances in which the power is to be exercised - so that in those events the “may” becomes a “must”. Illustrative cases go back to 1663: R. v. Barlow. Today it is enough to cite Julius v. Bishop of Oxford; and add in this Court Ward v. Williams. But I select one other reference out of a multitude: Macdougall v. Paterson. There Jervis C.J. said in the course of the argument “The word 'may' is merely used to confer the authority: and the authority must be exercised, if the circumstances are such as to call for its exercise”. And, giving judgment, he said:
“We are of opinion that the word 'may' is not used to give a discretion, but to confer a power upon the court and judges; and that the exercise of such power depends, not upon the discretion of the court or judge, but upon the proof of the particular case out of which such power arises.”
I consider that to be directly applicable to the present case. If the Commissioner, having considered the matter, is satisfied of facts out of which the power to allow a rebate arises, he cannot nevertheless refuse to allow it.
Barwick CJ agreed with Windeyer J and added:[19]
I agree for the reasons he gives that as the Commissioner was satisfied of the circumstances described in par (a) s 46(3) he came under a duty to exercise the power that the subsection gives to allow a further rebate to the taxpayer.
[19]Finance Facilities v FCT, 128 (Barwick CJ).
Owen J added:[20]
The words “may allow” are permissive; they empower the Commissioner to do that which he could not otherwise do.
[20]Finance Facilities v FCT, 138 (Owen J).
In Ward v Williams,[21] the High Court (Dixon CJ, Webb, Fullagar, Kitto and Taylor JJ) addressed the finding by the Full Court of the Supreme Court of New South Wales that when a nuisance had been proved under a particular provision the magistrate must make an order (where the provision said ‘may’). In considering the interpretation of that provision, the Court said as follows:[22]
In considering the correctness of this interpretation it is necessary to bear steadily in mind that it is the real intention of the legislature that must be ascertained and that in ascertaining it you begin with the prima facie presumption that permissive or facultative expressions operate according to their ordinary natural meaning. “The authorities clearly indicate that it lies on those who assert that the word ’may’ has a compulsory meaning to show, as a matter of construction of the Act, taken as a whole, that the word was intended to have such a meaning“-per Cussen J. Re Gleeson. “The meaning of such words is the same, whether there is or is not a duty or obligation to use the power which they confer. They are potential, and never (in themselves) significant of any obligation. The question whether a Judge, or a public officer, to whom a power is given by such words, is bound to use it upon any particular occasion, or in any particular manner, must be solved aliunde, and, in general, it is to be solved from the context, from the particular provisions, or from the general scope and objects, of the enactment conferring the power“-per Lord Selborne: Julius v. Bishop of Oxford. One situation in which the conclusion is justified that a duty to exercise the power or authority falls upon the officer on whom it is conferred is described by Lord Cairns in his speech in the same case. His Lordship spoke of certain cases and said of them “[they] appear to decide nothing more than this: that where a power is deposited with a public officer for the purpose of being used for the benefit of persons who are specifically pointed out, and with regard to whom a definition is supplied by the Legislature of the conditions upon which they are entitled to call for its exercise, that power ought to be exercised, and the Court will require it to be exercised ... ”
[21](1955) 92 CLR 496.
[22]Ward v Williams, 503-504 (Dixon CJ, Webb, Fullagar, Kitto and Taylor JJ) (citations omitted).
Similar observations have been made elsewhere[23] and this position has been endorsed in subsequent cases. For example in Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd,[24] Dawson J[25] noted with approval the statements made by Windeyer J in Finance Facilities and Jervis CJ in MacDougall v Paterson.[26]
[23]See generally the discussion in ACN v The Commissioner and in particular Hayne, Crennan and Kiefel JJ in International Finance Trust Co Ltd v New South Wales Crime Commission (2009) 240 CLR 319 at [121] (Hayne, Crennan and Kiefel JJ), Hayne, Crennan and Kiefel JJ were in dissent in the result on the constitutionality validity of s 10.
[24](1994) 182 CLR 51.
[25]Commissioner of State Revenue (Vic) v Royal Insurance Australia Ltd, 97 (Dawson J).
[26](1851) 11 CB 755.
In support of this construction, the respondents point to the provision in s 29 of the Administration and Probate Act. Subsection 1 provides as follows:
Subject to the provisions of this section, on the death of any person, all causes of action subsisting against or vested in him shall survive against or (as the case may be) for the benefit of his estate) …
The respondents submit that the section itself sets out the statutory exceptions to the application of the general rule. The respondents argue as follows. To grant a discretion to be exercised as suggested by the appellants would undercut the statutory rights granted by the Administration and Probate Act. The function exercised by the Court under r 9.09 is to satisfy itself that the statutory conditions have been met. If the Court is so satisfied then its power to make the order substituting the party is engaged and the Court is duty bound to make the order. For the Court to refuse to make the order once satisfied the statutory requirements have been fulfilled on the basis that the proceedings against the substituted executor would be prejudiced through the death of the defendant would be to undermine the statutory rights granted by s 29.
The respondents contend that, although the Civil Procedure Act applies to all litigation, the Civil Procedure Act does not convert the mandatory duty imposed on the Court under r 9.09 by reason of the Administration and Probate Act, to a discretionary power that would allow the Court in exercising that power to take into account any prejudice to the substituted defendant through the death of the original defendant.
The rights granted by s 29 of the Administration and Probate Act are longstanding and can trace their origin back to the Statute of Westminster 1285, 13 EDW 1, C. 23. The respondents submit that the passing of the Civil Procedure Act was not intended to alter the substantive rights granted and recognised by s 29 of the Administration and Probate Act. I agree.
The respondents submit that the imposition of the requirement that the judicial officer consider issues of prejudice and the like is inconsistent with the statutory rights.
The respondents submit that if, for example, Mr Cerrato had died prior to the commencement of the proceedings, there would be no bar to the proceedings being commenced in the same form as they are now after his death so long as they were commenced within the limitation period. In fact, the respondents go so far as to say that the limitation period at this stage has not expired on some of the claims. The respondents submit that there is no reason why the position should be different if the proceedings are instituted after the death of the defendant as opposed to proceedings being instituted prior to his death.
The respondents also refer to the exceptions set out in s 29, which deal with limitation issues, but no restrictions on proceedings brought under the Corporations Act.
The substance of r 9.09 has been considered in Managing Director New South Wales Technical and Further Education Commission v Fines,[27] where the Court of Appeal of the Supreme Court of New South Wales considered the history of rules analogous to r 9.09, when deciding whether a right of appeal under a statute survived the death of the appellant.
[27](1993) 32 NSWLR 385.
Mahoney JA stated:[28]
[28]Managing Director New South Wales Technical and Further Education Commission v Fines, [389]-[390] (Mahoney JA).
In the context of proceedings in the ordinary courts, the position is, I think, relatively clear. Considered in principle, the problem is one of parties. The proceeding has been (I shall deal with the position of a plaintiff party) brought by one party. That party has died. The right which was to be enforced in the proceeding has passed, by grant or otherwise, to another person, as the deceased’s legal personal representative. The issue is whether a proceeding commenced by one party can be continued by another.
At law, it appears that the strict attitude which the courts adopted in respect of parties was maintained in this regard: the proceeding abated and a new proceeding had to be commenced by the legal personal representative. In Chitty’s Archibold’s Practice, 11th ed (1862) at 1556, footnote (c), in referring to the Common Law Procedure Act 1852 (UK), it was said:
Before this Act, if a sole plaintiff or defendant died before verdict or judgment by default, the action abated, and the plaintiff or his executor was obliged to commence a new action against the defendant or his executor, provided the cause of action survived to or against the executor….
In Chancery, abatement was seen somewhat differently. On death, the proceeding was “completely suspended”: Daniell’s Chancery Practice, 2nd ed (1845) vol 2 at 1427. If the successor sued, not merely in the right of the deceased as it had passed to him but in another right, an additional proceeding by way of supplemental bill was necessary. However, if the successor sued merely in the right of the deceased, a bill of reviver in the existing proceeding was sufficient.
For some two hundred years, the courts have adopted procedural arrangements of varying kinds in order to deal with the incidents of the death of a party. The problem, and the necessity to deal with it, have been seen as matters to be dealt with by the courts in the ordinary course of a proceeding. Now, in the Supreme Court Rules 1970, Pt 87 r 10; and in the District Court Rules 1973, Pt 7 r 10; abatement has been abolished and the court has taken power, by its rules, to deal with such matters as, on the death of a party, require to be dealt with. The position has arrived at which, I think, the substitution of a legal personal representative for a deceased party is part of the ordinary and necessary functioning of the courts and, even in the absence of provision in that regard by a statute or by rules, I think a court can, ad hoc, recognise such a succession.
In Bogeta Pty Ltd v Wales,[29] Hutley JA said:
The death of the applicant caused the proceedings to abate, in the sense that the proceedings could not continue until reconstituted by the addition of proper parties … Abatement of some proceedings can be permanent in the sense that no proper party to permit the continuation of the proceedings can be found.
[29][1979] 1 NSWLR 139, 144–5 (Hutley JA).
In this case, the executrix is the proper party to allow the proceeding to continue.
Similarly, in Industrie Chimiche Italia Centrale and Another v Alexander Tsaviliris & Sons Maritime Co and Others (‘The Choko Star’),[30] Mance J considering a relevantly identical rule to r 9.09[31] rejected the relevance of limitation analogies, holding that the rule ‘is apt to cover any change necessary as a result of any such assignment, transmission or devolution at any stage in proceedings.’[32]
[30][1996] 1 All ER 114.
[31]The Choko Star, 122–3 (Order 15, rule 7 of the Supreme Court Rules (UK)).
[32]The Choko Star, 125 (Mance J).
Specifically his Honour stated:
Order 15, r 7 deals with a situation where the proceedings as originally constituted were in perfect order and subsequent changes require to be catered for: it is self-evident that limitation must be irrelevant … I repeat that, in my view, the situation with which order 15 r 7 is concerned is outside the basic concerns of the limitation statutes. It appears to me dangerous to extrapolate a principle from authorities which deal with difference factual situation under previous limitation statutes and to apply it to the presence case.[33]
[33]The Choko Star, 126 (Mance J).
The respondents also point to the fact that under the rules an application can be made ex parte for the substitution for the deceased person. This again tends to suggest that the section is there to assist and implement s 29 rather than to detract from it.
I was informed by both parties that no direct authorities could be located on whether the Civil Procedure Act imposes discretionary obligations on the Court when considering an application under r 9.09.
I accept the submissions of the respondents. In my view, r 9.09 must be read in the light of s 29 of the Administration and Probate Act. Rule 9.09 is there to assist and implement s 29. To give the rule a construction sought by the appellants would be to impede and obstruct the plain meaning and effect of s 29.
Section 29 clearly contemplates that proceedings will be continued against the estate in circumstances where the defendant has died. One only needs to think of a case such as an oral contract, where clearly the estate would be prejudiced by the death of one of the contracting parties who was being sued on the contract through his inability to give evidence and deny, if he could, the making of the oral agreement. Clearly, Parliament has, in its wisdom, accepted that proceedings can continue even though vital witnesses will not be present.
The statutory provision provides that the cause of action against a defendant survives his death. The provision can only be given effect to if r 9.09 is treated as mandatory. To permit the power to exercise as a discretion would deny the words of the statute.
In Connolly and Others v Macartney and Others,[34] Griffith CJ, Barton, O’Connor and Isaacs JJ considered an appeal from the Supreme Court of Victoria. The executor was a party to an action. A judgment adverse to the beneficiaries was given. The executor against the wishes of the beneficiaries refused to appeal. The beneficiaries sought leave to be added as parties to the appeal. The beneficiaries appealed to the High Court against the refusal of the Supreme Court of Victoria to permit them to be added as parties to the appeal.
[34](1908) 7 CLR 48.
Griffith CJ delivering the judgment said:[35]
Rule 8 of Order XVI of the Rules of the Supreme Court 1906 provides that:—"Trustees, executors, and administrators may sue and be sued on behalf of or as representing the property or estate of which they are trustees or representatives without joining any of the persons beneficially interested in the trust or estate, and shall be considered as representing such persons; but the Court or a Judge may, at any stage of the proceedings, order any of such persons to be made parties either in addition to or in lieu of the previously existing parties." That rule does not affect the substantive rights of parties interested, but is merely a rule for convenience of procedure. The present appellants were the beneficiaries under a will, the executor of the will having been made party to a pending suit to represent their interest.
A judgment adverse to the appellants having been given by the Supreme Court, they desired to appeal to this Court. The executor, who nominally represented them, refused to appeal. Then they applied to the Supreme Court to be made parties to the action in order to give them a locus standi to come to this Court. Hood J. dismissed the application with costs.
It appears to us that they were entitled to the order ex debito justitiæ. They are the parties interested, and they are entitled to have recourse to this Court, and, if any technical difficulty was in the way of their assertion of that right, it was the duty of the Supreme Court to remove it. The only possible difficulty was that the judgment of the Court had been pronounced. I doubt whether that is sufficient in the abstract, even when the order is a final order, a fortiori when the proceeding is merely incidental to administration. But in the present case neither of those things comes in the way, for the order had not been drawn up, and until an order is drawn up the Court can correct it. So that the Supreme Court had jurisdiction at the date of the application to make the appellants parties to the action, and we think they were entitled ex debito justitiæ to be made parties.
The appeal will therefore be allowed and the order of the Supreme Court will be discharged. By consent the costs of all parties will be paid out of the general corpus of the estate, including the costs of the application to Hood J.
[35]Connolly and Others v Macartney and Others (1908) 7 CLR 48, 50-51 (Griffith CJ).
There the High Court recognised that the relevant rule was procedural only and its application should not stand in the way of the beneficiaries rights under the will to maintain proceedings.
Similarly, in my opinion, r 9.09 is procedural and its application is to give effect to the statutory rights granted by s 29.
It may be the case that Civil Procedure Act does have an incidental role to play in an application under s 29. There may be circumstances of delay or the way the matter was dealt with which enlivens the application of Civil Procedure Act. But, I do not consider that the Civil Procedure Act can be used to deny a plaintiff their statutory right to proceed against the estate of a deceased defendant on the grounds that such proceeding would be unjust by reason of the deceased not being available to give evidence. It appears to me that it is inherent in s 29 that the legislature has contemplated proceedings against the estate of a deceased even though the deceased will now no longer be giving evidence and meet the claim.
It may be the case that where the Court is considering an application for substitution under r 9.09, the Court may make other orders that would facilitate the just, efficient, timely and cost‑effective resolution of the real issues in dispute. But, as I have indicated, any such order should not undermine the statutory right of substitution.
I turn now to the specific grounds of appeal.
Ground 1
‘His Honour exercised discretion on the wrong test, namely the test for want of prosecution.’
It appears his Honour did assume that he had a discretion and have regard to a test that may be applicable in an application to strike out a proceeding for want of prosecution. I accept that test was an irrelevant test. It did not, nevertheless, cause his Honour to fall into error. His decision on the application to join the executor as a defendant was correct. The joining of the executor complied with s 29 of the Administration and Probate Act.
Ground 2
‘His Honour failed to apply and give effect to the overarching purpose under ss 1, 7 and 8 of the Civil Procedure Act when considering his discretion: namely whether the order would facilitate the “just, efficient, timely and cost effective resolution” of the proceeding and whether it was in the interests of justice for the orders to be made.’
I have already explained that ss 1, 7 and 8 of the Civil Procedure Act did not require or entitle the Associate Judge to have regard to any prejudice the executrix might experience in defending the claim by the death of her father where his power to substitute Sandro Cerrato was engaged.
The appellants submitted that in considering whether the order had facilitated the just resolution of the proceeding, the onus was on the plaintiffs to establish that the justice of the case required the exercise of discretion in the plaintiffs’ favour. As indicated above, I rejected that submission.
I reject this ground.
Ground 3
‘His Honour applied the wrong test as to onus: namely, whether the appellants had proved the chances of a fair trial were unlikely, rather than consider whether, in the context of order 9.09(2) and the Civil Procedure Act, the first to third respondents had established that the orders sought by them ought to me made in the exercise of the Court’s discretion.’
This ground does not raise any new arguments.
Ground 4
‘His Honour failed to take into account the following material considerations.
(a)the case involved Mr Cerrato’s conduct in the years prior to 2010 regarding the alleged insolvent trading, breach of duty, complex commercial factual matters including the state of minds requiring oral evidence;
(b)the late Mr Cerrato was 76 years old when the respondent liquidators were appointed in April 2010;
(c)The liquidators waited three years to conduct a public director’s examination and only issued proceedings for insolvent trading in 2013;
(d)They waited a further year before seeking to add a claim for breach of duty of care and negligence;
(e)The first to third respondents have not yet given discovery in the proceeding (nor are pleadings closed);
(f)Mr Cerrato died 14 August 2014 and cannot give evidence; and
(g)The respondent liquidators have issued several different proceedings, some of which were settled against multiple parties, and reframed their causes of actions against different parties multiple times (see Chronology to 4 July 2014 Judgment; Apollo Engineering (Aust) Pty Ltd & Ors v Culve Engineering & Ors (Unreported, Supreme Court of Victoria, Efthim As)).’
The appellants referred to a table prepared by the appellants and attached to their submissions. The table sets out the relevant pleadings and particulars, and identifies the evidence that is lost with the death of Mr Cerrato.[36]
[36]And was broadly summarised in the submissions of Sandra Cerrato in Apollo Engineering (Aust) Pty Ltd (in liq) v Culve Engineering Pty Ltd and Ors, S CI 2013 01571, 8 April 2015. Note, too, the key evidence identified as needed to defend the new claim introduced against Mr Cerrato shortly prior to his death identified at footnote 9 of the appellants’ written submissions in the court below.
The appellants submit that the table demonstrates that the executrix of the deceased’s estate cannot properly defend herself against these claims. The appellants submit that the difficulty of proving these defences, without her father’s evidence, is obvious. The appellants submit that in addition, without the Court having the opportunity to assess Mr Cerrato’s credibility and honesty, which is crucial to satisfying the Court as to many of his defences (and fundamental to his ability to qualify for s 1317S/1318 relief), the executrix has little chance of being able to defend herself and have a fair trial.
The appellants submit that by way of example, as to the insolvent trading claim, for the executrix to succeed, she must prove:
(a)that her father did expect that the company was solvent (see the defence s 588H(2));[37]
(b)that her father believed a qualified person was providing him with adequate information as to solvency, and that he expected the company was solvent. To make out the defence in s 588H(3) — ie reliance upon a competent and reliable person — she requires evidence of her father’s knowledge of each of Mr Guccione, Ms La Rosa and Mr Zuka’s business experience and competence, of his trust in them, of the frequency and content of his conversations with them, of his expectation that the company’s financial affairs and auditing were their responsibility and the basis for his expectation;
(c)her father’s concern with caring for his dying wife and the amount of time spent caring for her, his grief and difficulty in devoting attention to financial matters, the frequency of his attendance at the business premises, his delegation of financial affairs and reliance on people he delegated responsibility to and trusted, and many of the matters referred to in the preceding point for the defence in s 588H(4) and proving the matters particularized;
(d)the division of roles between her father and Mr Guccione and that the latter was a shadow or de facto director of the company, and would need her father’s evidence establishing his background, the history and development of his role in the company, his own lack of control of the business and Mr Guccione’s controlling role in the company, as relevant to the release defence; and
(e)that at all times her father had acted honestly and that, in all the circumstances, he ought fairly be excused; see the Court’s discretion to excuse liability, under ss 1317S and 1318.
[37]The submissions of Sandra Cerrato in Apollo Engineering (Aust) Pty Ltd (in liq) v Culve Engineering Pty Ltd and Ors, S CI 2013 01571, 8 April 2015 particularise the bases for the expectation.
The appellants submit that for there to be a fair chance of the Court not only accepting the evidence lead in defences of the claims brought against Mr Cerrato, but also preferring it to inconsistent or even conflicting evidence of other witnesses, the Court will need the opportunity to observe Mr Cerrato’s giving of evidence and form its own view as to his credibility and honesty.
I have set out the appellants’ submissions at length. Accepting that the executrix will suffer the prejudice referred to by the appellants, I do not consider that the learned Associate Judge fell into appealable error in making the decision that he did.
As mentioned above, the legislature has enabled litigation to continue against the estate of a deceased defendant. The fact that such litigation presents difficulties for the defence supplies no ground for the Court refusing to add the executrix as a party as required by s 29 of the Administration and Probate Act.
They are all matters that the Court might, if relevant, take into account when hearing the proceeding.
I reject this ground of appeal.
Conclusion
Accordingly the appeal should be dismissed.
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