Rubik Financial Ltd v Herskope - [2010] WASC 343

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: RUBIK FINANCIAL LTD -v- HERSKOPE [2010] WASC 343

CORAM: MASTER SANDERSON

HEARD: 23 NOVEMBER 2010

DELIVERED : 23 NOVEMBER 2010

PUBLISHED : 25 NOVEMBER 2010

FILE NO/S: CIV 2273 of 2006

BETWEEN: RUBIK FINANCIAL LTD
Plaintiff
AND
ALAN HERSKOPE
Defendant

Catchwords:

Practice and procedure - Application for stay of springing order - Turns on own facts

Legislation:

Rules of the Supreme Court 1971 (WA), O36A r 3(2)

Result:

Stay refused

Category: B

Representation:

Counsel:

Plaintiff: Mr M N Solomon
Defendant: Mr A C Willinge

Solicitors:

Plaintiff: Muries Lawyers
Defendant: Galic & Co

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

Nil

MASTER SANDERSON: These reasons deal with my refusal to extend time for the defendant to comply with a springing order. To understand the reasons why the extension was refused, it is necessary to recount in some detail the history of the matter.
The writ of summons in this action was issued on 29 November 2006. There were some difficulties in serving the defendant, but eventually this was achieved and, on 27 April 2007, a conditional appearance was entered. A statement of claim was indorsed on the writ. This statement of claim was further amended on 7 September 2007. The statement of claim was further amended on a number of occasions, the final version being dated 27 October 2009. A defence and counterclaim was filed on 30 November 2007 and was amended once - the final version is dated 7 December 2009. There have been filed a reply and defence to counterclaim and a rejoinder and reply to the defence to counterclaim. Both of these documents have, over time, been amended.
Although the statement of claim has undergone various amendments, the basis of the plaintiff's claim against the defendant has remained essentially the same. The plaintiff says it is owed an amount of $359,804, which was loaned to the defendant in June of 2000. The loan was not made by the plaintiff directly to the defendant. The plaintiff alleges it is entitled to recover from the defendant the amount of the loan because it paid out the sum due to the lender under a guarantee. It is not necessary to explore this issue in detail. It does not appear to be in dispute between the parties that the loan was taken out by the defendant and the plaintiff is the party presently entitled to recover under the loan.
The money was lent to the defendant to allow him to participate in what is generally referred to as a managed investment scheme. The particular scheme in which the defendant invested involved the growing of olives. A prospectus was issued covering the scheme, the defendant borrowed money and acquired an interest as a grower in certain olive groves. Regrettably, the enterprise failed and the anticipated returns did not materialise. The loan fell due and the defendant has not made repayment. By way of defence, the defendant says he was misled in relation to the investment.
The nature of the defence can be illustrated by reference to the present amended defence. In par 15, the defendant says two promoters of the scheme made certain representations. Paragraph 15.2 alleges that a representation was made that:
[T]he projected pre‑tax returns for the investment for each financial year ending 1 July 2003 to 1 July 2020 are strong, with an average rate of return of 30.75% per annum.
By par 16 of the amended defence, the defendant alleges that each of the representations detailed in par 15 were representations as to future matters. Reference is made to s 765 of the Corporations Law and s 51A of the Trade Practices Act 1974 (Cth). Paragraph 21.1 of the amended defence deals with the representation pleaded in par 15.2. The defendant says:
There was no reasonable basis for projecting a rate of return of 30.75% per annum on the investment over an 18 year period for a $10,247.00 subscription in a 0.2 hectare olive grove, consisting of approximately 111 immature olive trees at Dandaragan.
There is more to the defence than just the defendant joining issue with the plaintiff as to alleged misrepresentations as to the scheme. But for present purposes, it is these representations which are important.
Paragraph 5 of the amended reply deals with par 15 of the defence. Essentially, what is put against the defendant is that the prospectus, by its terms, alerted the defendant to the risks of the investment, with the effect that the pleaded representations were not, in fact, made - or at least not made in the terms alleged by the defendant. This can be illustrated in part by reference to par 5(b)(iv). It is in the following terms:
Neither the responsible entity, Olea Australia Ltd ('Olea'), NCE nor the directors of those companies guarantee the returns set out in the prospectus.
Once again, to quote only limited parts of the reply is not to detail the plaintiff's position. But essentially what the plaintiff alleges is the prospectus does not, in its terms, make the representations alleged by the defendant. There is no attempt to plead the representations the defendant alleges the plaintiff made was actually made on reasonable grounds. In other words, it would not seem it was essential to the plaintiff's case at trial that any expert evidence be led by the plaintiff.
Returning to the progress of the action, on 23 December 2009, the case was entered for trial. A listing conference was held before Le Miere J on 26 May 2010. His Honour made orders in terms of a minute of proposed orders dated 26 May 2010. Prior to the listing conference, the parties had conferred. By order 3 of the orders made by his Honour, the defendant was required, by 31 August 2010, to provide the plaintiff with a statement of any expert evidence upon which he intended to rely. It is important to note this was not the first time expert evidence to be relied upon by the defendant had been mentioned. In an affidavit sworn 21 June 2010 by Grant Ian Chitty, the plaintiff's solicitor, there appears as 'Attachment 1' a copy of a letter from the plaintiff's solicitors to the defendant's solicitors dated 9 June 2010. The penultimate paragraph of that letter is in the following terms:
We refer to our letter dated 26 May 2010 and confirm that we agreed to extend the time for the defendant to provide to the plaintiff the statement of any expert evidence until 31 August 2010 on the basis that you will advise us by no later than 23 June 2010 of the nature of the expert evidence which the defendant proposes to provide.
In fact, the issue of expert evidence was first raised at a status conference before Registrar Rimmer on 26 May 2008. At that stage, it was too early to make any orders and the possibility of expert evidence was simply noted. No orders for the exchange of expert evidence appear to have been made at any of the numerous case management conferences which took place. Nonetheless, it is apparent that, prior to May 2010, the defendant had given consideration to expert evidence and advised the plaintiff, and by implication the court, the expert evidence would be available by 31 August 2010.
The defendant did not provide its expert evidence by 31 August 2010 and has not, as yet, produced any expert evidence. On 14 October 2010, the plaintiff took out a chamber summons. Relevantly, this summons sought orders with respect to the defendant's proposed expert evidence. After hearing argument on 26 October 2010 , I made the following order:
Unless within 14 days the defendant provides the statement of expert evidence as ordered, the amended defence and counterclaim be struck out and judgment be hereby entered for the plaintiff against the defendant in the sum of $382,932.80 plus interest thereon at the rate of 10.45% per annum from 1 December 2006, plus damages to be assessed and that the defendant pay the plaintiff's costs of the action to be taxed if not agreed.
The plaintiff's application was supported by an affidavit of John Michael Healy, sworn 14 October 2010. By this time, Mr Healy was acting as the plaintiff's solicitor. Mr Healy details events which led to the orders in relation to expert evidence being made by Le Miere J. He confirms as at the date of swearing the affidavit he had not received any expert evidence from the defendant's solicitors. Appearing as 'Attachment 2' to Mr Healy's affidavit is a copy of a letter written by him to the defendant's solicitors on 20 September 2010. He advises the defendant's solicitors unless expert evidence is provided within seven days of the letter, an application will be made to the court for a springing order. The defendant's solicitors replied on 22 September 2010. This letter appears as 'Attachment 3' to Mr Healy's affidavit. The letter says the defendant's solicitors 'We will write to you again later this week advising exactly when the order will be complied with'. It would appear no correspondence ensued. As a result, on 8 October 2010, the plaintiff's solicitors again wrote to the defendant's solicitors. That letter is 'Attachment 4' to Mr Healy's affidavit. It contains more than a hint of exasperation. It sets a deadline of 11 October 2010 for the provision of the expert evidence, failing which an application would be made to the court. In response, the defendant's solicitors wrote to the plaintiff's solicitors on 11 October 2010 (Annexure 6 to Mr Healy's affidavit) in the following terms:
We refer to previous correspondence and inquire whether your clients [sic] expert evidence is any closer to finalisation. Our clients are anxious to resolve this matter. Please advise by the close of business this week whether that looks a likely possibility failing which we will make some recommendations to our clients in terms of issuing proceedings.
As the plaintiff's solicitors noted in subsequent correspondence, that letter is astonishing. It was the defendant who was in default of the expert evidence order. The defendant's solicitor's letter suggests despite the fact they were in default by a period of some six weeks, they did not appreciate their obligations. But the matter goes deeper than that. There is no attempt in the correspondence from the defendant's solicitors to explain why the expert evidence had not been provided. If it was the case the expert had not been able to meet a deadline, or had found during the preparation of his report further information was required, then this could have been explained to the plaintiff's solicitors. A reading of this file makes it clear the plaintiff's solicitors were not, at any stage, unreasonable or aggressive. In my view, the defendant's solicitors had a professional responsibility - over and above the requirements of mere courtesy - to explain to the plaintiff's solicitors why they were not in a position to provide the expert evidence by the due date and when that evidence would be provided.
On the morning of the hearing of the plaintiff's application for a springing order, the defendant filed an affidavit of the defendant's solicitor, sworn 25 October 2010. The affidavit was sworn by Mr Tihomir Galic. The affidavit runs to three paragraphs and says nothing of substance in relation to why the expert evidence had not been provided. What it does do is produce, by Annexure TG2, what is said to be:
[A] true copy of my letter to Plaintiff's solicitors dated 25 October 2010 enclosing notice of substance of the Defendant's intended expert evidence ...
This document is of some significance and I will quote it in full:
At the trial of the proceeding the Defendant intends to adduce expert evidence that the project was unviable from the outset by reference to the matters set out in paragraph 21 of the Defendant's Amended Defence and Counterclaim, each paragraph of which details the falsity of the prospectus allegations contained in paragraph 15 and in particular that:
1.The project was not a quality investment opportunity;
2.The projected pre tax returns for the investment for each financial year ending June 2003 to 1 July 2020 were not strong with an average rate of return of 30.75% per annum;
3.An investment of $10,247 for the lease over a 20 year period of a 0.2 hectare olive grove did not generate net proceeds of $56,709.00;
4.Through a shareholding of OLE, investors did not benefit from any increase in the value of the land;
5.The average production yields for the olive trees were not predicted to be as set out in the table contained in the pleading referred to;
6.Ole [sic] did not have sufficient experience in the olive and agricultural industries to manage and operate the project over a 20 year period in a way which would result in the predicted return on investment.
To be fair to counsel who appeared at the hearing on 26 October (and who is not counsel presently engaged by the defendant), it was not submitted this document was sufficient to comply with the court's orders. Nonetheless, counsel submitted a springing order was inappropriate and ought not be made. To understand the basis of this submission, it is necessary to refer to O 36A r 3(2) of the Rules of the Supreme Court1971 (WA). It is in the following terms:
3. Other expert evidence
...
(2)Except with the leave of the Court or where all parties agree, no expert evidence may be adduced at the trial or hearing of a cause or matter unless the party seeking to adduce the evidence has applied to the Court to determine whether a direction should be given under this Rule and has complied with any direction given on the application.
Counsel submitted the rule was restrictive, but related only to evidence. Failure to comply with the rule had no immediate consequences for the conduct of the case. Rather, at trial, if the defendant attempted to lead expert evidence, he would not be permitted to do so unless the plaintiff agreed. Counsel submitted this would have consequences for the defendant at trial, but the fact the defendant had, by an action, denied himself the right to present his case in a particular way was a matter for him and did not justify the making of a springing order the consequence of which might well be the entry of judgment for the plaintiff.
Although it was not part of the submissions made by counsel, it is also the case there is a plea in the defence of s 51A of the Trade Practices Act. This transfers an onus to the plaintiff to establish any representation which was made was made on reasonable grounds. That being so, the defendant's case was not doomed to failure without expert evidence being called. Counsel submitted it was not in the interests of justice to make an order, the consequence of which might be judgment in the plaintiff's favour.
In my view, there was ample justification for the making of a springing order. Essentially, I reached that conclusion for two reasons. First, orders of the court cannot be simply ignored. Whether that is expressed to be manifestation of case management or whether it is a requirement more broadly of the system of justice is not to the point. All the indications were, in this case, the court's orders had been ignored. The defendant, by his inaction, had compromised his right to take advantage of the court system.
Secondly, and compounding the defendant's failure to comply with orders, was the cavalier disregard the defendant or his solicitors had shown for those orders. The defendant had undertaken to provide to the plaintiff's solicitors by mid‑June some details about the nature of the expert evidence. There was no order to that effect, but an undertaking such as that should be honoured. If it is not honoured, there should be some explanation as to why it is not honoured. Again, leaving to one side professional courtesy, honouring such undertakings allows the system to work effectively. A failure to honour such undertakings undermines the co‑operation between solicitors which is essential if cases are to be handled expeditiously. Moreover, at no stage had there been any attempt to explain why the expert evidence had not been provided. No attempt was made in the correspondence to offer an explanation; nothing was put on affidavit in response to the plaintiff's chamber summons. Rather, what was filed was a late affidavit which was of no assistance whatever. Finally, there was the document purporting to comply with the expert evidence order. It is not worth dignifying that document with even a superficial analysis of its failings. It should never have been sent to the plaintiff's solicitors and it should certainly not have been put before the court.
On 8 November 2010, the defendant applied for a stay of the orders made on 26 October 2010. This application was supported by an affidavit of Mr Galic, sworn 8 November 2010. Mr Galic says his client had appealed the decision which led to the springing order and he annexes a copy of the notice of appeal. There is nothing in Mr Galic's affidavit explaining which expert or experts had been instructed, when they were instructed and when evidence might be available. What the affidavit does is state the document to which I have already referred, which purported to be the substance of expert evidence was sufficient to satisfy the court order. Paragraph 6 of the affidavit is in the following terms:
At the time when the orders for directions were made before His Honour Justice Le Miere on 26 May 2010 pursuant to which order number 3 required that 'by 31 August 2010 the Defendant provide to the Plaintiff the statement of any expert evidence on which he intends to rely upon'. It has always been my understanding, and it was certainly the clients [sic] understanding (he informs me) that a statement of the expert evidence contemplated only the substance of the expert evidence being provided and not the actual expert evidence itself. The substance of the expert evidence was provided to the otherside [sic] on 25 October 2010 ...
When the matter came on for hearing, it was agreed between counsel for the parties that a stay would be granted until 24 November 2010. The matter was relisted for 23 November 2010. At the resumed hearing, counsel tendered a further affidavit of Mr Galic, sworn 22 November 2010. Counsel applied to have the stay of the springing order extended until the end of January. In support of that application, Mr Galic said (at par 2):
I confirm that I have made inquiries and continue to make inquiries of potential expert witnesses including accounting and financial experts who have experience in operating tax effective schemes and who will be able to give evidence in relation to the allegations contained in paragraphs 15 and 21 of the Defendant's Amended Defence and Counterclaim, in particular the reasonableness of the representations made in the prospectus in terms of projected rates of return on investment.
It is apparent, then, that as at 26 May 2010, when Le Miere J made the order for the provision of expert evidence, the defendant had not engaged an expert. Indeed, an expert still has not been engaged. The affidavit does not identify any individuals to whom Mr Galic has spoken and gives no evidence of what time frame might be necessary to obtain the evidence. In other words, on the issue of expert evidence, the matter is no further forward than it was on 28 May last.
Furthermore, and of concern is the fact Mr Galic still persists with the notion that the purported substance of expert evidence is a document served in compliance with his Honour's orders. As I have indicated, there is nothing in the various affidavits sworn by Mr Galic to identify who any expert might be and when a report might be produced. But based upon the notice that was served on the plaintiff's solicitors, I had assumed some form of evidence had been obtained, but was not yet in a form which could be sent to the plaintiff's solicitors. In fact, the notice that was given to the plaintiff's solicitors was entirely misleading.

At no stage in this matter has either of the two counsel who have represented the defendant at the various hearings submitted the case should proceed on the basis the defendant will not seek to rely on any expert evidence. The submissions that have been put seem to accept the defendant's defence requires expert evidence to succeed. I say 'seem to suggest' because the issue has not been squarely addressed. Counsel for the plaintiff submitted, when arguing for the springing order, the defendant's case was dependent on expert evidence. That proposition has never been challenged by counsel for the defendant. It is worthy of note the application for the extension of the stay of the operation of the springing orders (if that is the correct way to characterise the application that was made) was so the defendant could obtain expert evidence.
In my view, the circumstances of this case did not justify an extension of any stay through until the end of January. By consent, I did grant a stay until 1 December 2010 to allow the defendant to take the matter before the Court of Appeal. I ordered that the defendant should be responsible for the plaintiff's costs of the hearing on 9 and 23 November 2010, fixed in an amount of $1,500.