Shepherd v Watt

Case [2022] FCAFC 78

FEDERAL COURT OF AUSTRALIA

Shepherd v Watt [2022] FCAFC 78

Appeal from: Watt v Shepherd [2021] FCA 561
File number(s): NSD 530 of 2021
Judgment of: GREENWOOD, BURLEY AND HALLEY JJ
Date of judgment: 13 May 2022
Catchwords: PRACTICE AND PROCEDURE – application for leave to appeal and appeal from orders made dismissing an application for leave to file an amended cross-claim and to extend the time to file evidence – whether sufficient doubt to warrant reconsideration of the discretion to make the orders – whether primary judge’s exercise of his discretion fell within the scope of House v The King (1936) 55 CLR 499 – whether the primary judge failed to give weight or sufficient weight to relevant considerations, being the timely, efficient and cost-effective resolution of proceedings and potential prejudice to the parties – whether the exercise of discretion was unreasonable or plainly unjust – whether the primary judge erred in his application of r 5.23 of the Federal Court Rules 2011 (Cth) in the absence of any application by the respondents – whether procedural fairness was afforded to the applicants – leave to appeal granted – appeal allowed
Legislation:

Competition and Consumer Act 2010 (Cth), Schedule 2, Australian Consumer Law ss 18, 21, 22

Corporations Act 2001 (Cth) ss 180, 181, 183

Federal Court Act of Australia 1976 (Cth) ss 24, 37M, 37N, 37P

Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth)

Federal Court Rules 2011 (Cth) rr 1.40, 5.23

Civil Procedure Act 2005 (NSW) s 58

Uniform Civil Procedure Rules 2005 (NSW)
Cases cited:

Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27

Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137; [1987] FCA 504

Australian Coal and Shale Employees’ Federation and Another v The Commonwealth and Others (1953) 94 CLR 621; [1953] HCA 25

Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (ACN 003 274 655) (2016) 340 ALR 25; [2016] FCAFC 181

Bomanite Pty Limited v Slatex Corp Aust Pty Limited (1991) 32 FCR 379; [1991] FCA 536

Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25

Décor Corporation Pty Ltd and Another v Dart Industries Inc (1991) 33 FCR 397; [1991] FCA 84

Ex parte Bucknell (1936) 56 CLR 221; [1936] HCA 67

Expense Reduction Analysts Group Pty Ltd and Others v Armstrong Strategic Managementand Marketing Pty Limited and Others (2013) 250 CLR 303; [2013] HCA 46

House v The King (1936) 55 CLR 499; [1936] HCA 40

James v Australia and New Zealand Banking Group Limited [2022] FCAFC 18

Lenijamar Pty Ltd and Others v AGC (Advances) Limited (1990) 27 FCR 388; [1990] FCA 745

Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; [2008] HCA 4

Mallet v Mallet (1984) 156 CLR 605; [1984] HCA 21

Park Trent Properties Group Pty Ltd…

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AGLC
Shepherd v Watt [2022] FCAFC 78
Case
[2022] FCAFC 78
Decision Date

CaseChat Overview and Summary

The case of Shepherd v Watt involved an application for leave to appeal and an appeal from orders made by the primary judge dismissing an application for leave to file an amended cross-claim and to extend the time to file evidence. The applicants, Shepherd parties, sought to amend their cross-claim and extend the time to serve their outlines of evidence, citing reasons such as illness of key witnesses, insurance issues, and engagement of new counsel. The primary judge dismissed the application, finding that the Shepherd parties were not prosecuting the proceeding in an appropriately diligent manner and that the reasons provided for the delay were inadequate. The legal issues before the court were whether the primary judge's exercise of his discretion was within the scope of House v The King, whether the primary judge failed to give weight or sufficient weight to relevant considerations, and whether the exercise of discretion was unreasonable or plainly unjust.

The court found that the primary judge's decision was influenced by an error of law and failed to consider relevant factors in the exercise of discretion. The court emphasised the principle from House v The King that there is a strong presumption in favour of the correctness of the decision appealed from, and that it should be affirmed unless it is clearly wrong. The court found that the primary judge's decision did not take into account relevant considerations such as the timely, efficient, and cost-effective resolution of proceedings and potential prejudice to the parties. Additionally, the court found that the primary judge erred in his application of rule 5.23 of the Federal Court Rules 2011 (Cth) in the absence of any application by the respondents. The court also found that procedural fairness was not afforded to the applicants.

Accordingly, the court granted leave to appeal and allowed the appeal. The orders and declarations made by the primary judge on 20 May 2021, 23 July 2021, and 13 December 2021 were set aside. The matter was referred to the National Operations Registrar for reallocation to a judge in the Commercial and Corporations National Practice Area. The respondents were ordered to pay the applicants' costs of and incidental to the application for leave to appeal and the appeal.

Orders

Orders of the court

1. The applicants have leave to appeal from the judgment given on 20 May 2021 and the orders 1 to 4 made by his Honour on 20 May 2021.

2. The draft notice of appeal (other than grounds 2, 3, 5 and 6) filed on 7 June 2021 stand as the appellants’ notice of appeal.

3. The appeal be allowed.

4. The following orders and declarations made by the primary judge be set aside:

(a) orders 1 to 4 made on 20 May 2021;

(b) the declarations and orders made on 23 July 2021; and

(c) the declaration and orders made on 13 December 2021.

5. The matter be referred to the National Operations Registrar for reallocation to a judge in the Commercial and Corporations National Practice Area.

6. The respondents pay the appellants’ costs of and incidental to the application for leave to appeal and the appeal.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

For the reasons that follow we are satisfied that leave to appeal should be granted, but only in respect of the grounds addressed at the exercise of his Honour’s discretion, and the appeal should be allowed. BACKGROUND FACTS The following background facts as found by the primary judge are relevant to a resolution of the application for leave to appeal and the appeal. They are not in dispute. On 13 June 2019, the Watt parties commenced the proceedings before the primary judge by filing an originating application and statement of claim. On 5 September 2019, the Shepherd parties filed their defence. On 26 September 2019, the Shepherd parties filed a notice of cross-claim and cross-claim. On 21 February 2020, following an unsuccessful mediation, the primary judge made orders for the service of outlines of evidence, together with any documents on which they intended to rely by:(a)17 April 2020 for the Watt parties;(b)29 May 2020 for the Shepherd parties; and(c)19 June 2020 for any reply evidence. The parties were not able to comply with the orders made on 21 February 2020, principally because of the impact of the COVID-19 pandemic. On 25 June 2020, the primary judge made orders, by consent, extending the times for the service of outlines of evidence, together with any documents on which they intended to rely, to:(a)10 July 2020 for the Watt parties; (b)21 August 2020 for the Shepherd parties; and (c)18 September 2020 for any reply evidence. Again, the parties were not able to comply with that timetable. On 24 September 2020, the primary judge made orders, by consent, extending the times for the service of outlines of evidence, together with any documents on which they intended to rely, to:(a) 2 October 2020 for the Watt parties; (b)11 December 2020 for the Shepherd parties;(c)29 January 2021 for any reply evidence;and listed the proceedings for case management on 5 February 2021. On 12 October 2020, the Watt parties served outlines of evidence from eight witnesses, in aggregate 60 pages, together with approximately 1400 pages of documents. On 3 February 2021, the Watt parties notified the primary judge’s associate that the parties had agreed consent orders that provided for the Shepherd parties to have until 2 April 2021 to serve their evidence and for the parties to have until 4 June 2021 to serve their reply evidence. In response to this communication, the primary judge requested an explanation of the reason for the length of the extension for the Shepherd parties to serve their evidence. On 4 February 2021, Logie-Smith Lanyon, the firm of solicitors who had been acting for the Shepherd parties since February 2020, responded in writing to the primary judge’s request stating that the delays in preparing the witness outlines were due to a “number of reasons” including that:1.Two key witnesses have been ill;2.There were issues with insurance cover that needed to be resolved (and now have been resolved); and 3.We have engaged new counsel Callan O’Neill to act in the matter.

Evidence

Evidence Before The Court

In the period following 20 May 2021, the primary judge made the following further orders:(a)on 8 June 2021, vacating the case management hearing on 18 June 2021;(b)on 25 June 2021, granting leave to the parties to file and serve further submissions and evidence in relation to quantum, adjourning the hearing on quantum to 8 July 2021 and requiring the applicants to pay the respondents’ costs thrown away by reason of the adjournment;(c)on 9 July 2021, setting aside the orders pronounced orally on 8 July 2021 following delivery of the Court’s ex tempore reasons;(d)on 23 July 2021, declaring void the whole of the various contracts between the fourth respondent (Summit Pharmacy Group Pty Ltd) and various of the Watt parties; requiring that the third respondent (RX Holdings Pty Ltd) assign ownership of the website “bushchemist.com.au” to the first applicant (Espie Ian Watt) and place it in the position of registered owner of the business name “Bush Chemist”; ordering judgment against each of the Shepherd parties for damages to be assessed; granting leave to the parties to file and serve further submissions and evidence in relation to damages and appropriate relief; and reserving costs, and delivered reasons for making those orders and declarations (Watt v Shepherd (No 2) [2021] FCA 826); (e)on 7 September 2021, extending the time for the respondents to file and serve further submissions and evidence in relation to damages and appropriate relief, listing the matter for final hearing on 8 October 2021 and reserving costs; (f)on 8 October 2021, ordering that the parties file and serve draft relief orders with accompanying explanations of calculations, and any responses to the draft orders, listing the matter for hearing on 11 November 2021 and ordering that the applicants pay the respondents’ costs of 8 October 2021; (g)on 2 November 2021, noting that the respondents and Mr Whelan had made undertakings to the Court in relation to the confidentiality of the applicants’ MYOB files and information contained therein; (h)on 12 November 2021, extending the time for the respondents to file and serve any response to documents filed by the applicants pursuant to the orders made on 8 October 2021; requiring the applicants to file and serve submissions identifying damages sought and any response to those documents; ordering the respondents file and serve written submissions in reply; and listing the matter for hearing on 13 December 2021, and reserving costs; and(i)on 13 December 2021, the matter proceeded to a final hearing on damages and final relief and a declaration was made that any assignment to the third or fourth respondent of debts due to the second applicant was void ab initio. Orders were made for the respondents to make various payments to the applicants. Ex tempore reasons were delivered (Watt v Shepherd (No 3) [2021] FCA 1670). EVIDENCE RELIED UPON BEFORE THE PRIMARY JUDGE In his 14 May 2021 affidavit, Mr Nurse provided the following explanations for the failure of the Shepherd parties to comply with the 4 February 2021 orders and the steps that the Shepherd parties had taken to advance the preparation of their evidence.

Decision

Reasons for decision

In his affidavit sworn on 19 May 2021, Mr Nurse briefly outlined the nature of the new claims sought to be advanced in the amended cross-claim, confirmed that Logie-Smith Lanyon had only become aware of them in the course of the 20 April 2021 witness interviews and summarised the loss and damage that the Shepherd parties claimed they had suffered as a result of the new claims.THE JUDGMENT OF THE PRIMARY JUDGE The primary judge found that it was not in the interests of justice to grant the Shepherd parties an extension of time to serve their outlines of evidence, nor to grant them leave to file the amended cross-claim. His Honour considered that it was clear that the Shepherd parties were not prosecuting the proceeding in an appropriately diligent manner and there must come a point where a party’s default, unexplained as he considered it was in this case by any proper or adequate evidence, will attract the consequences contemplated by ss 37P(5) and (6) of the Federal Court of Australia Act 1976 (Cth) (FCA Act): J [60]. The primary judge’s conclusions were based on the following reasons. First, the appointment of new counsel was not, of itself, necessarily sufficient to support an amendment, citing the decision of the Full Court in WGKS v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FCAFC 10 at [20] (Rares, Moshinksy and Stewart JJ): J [52]. Second, the evidence of Mr Nurse failed to give any substantive information about any activities that the Shepherd parties undertook between the receipt of the outlines of evidence from the Watt parties on 12 October 2020 and the interviews conducted by Mr O’Neill on 20 April 2021: J [52]. Third, the suggestion by Mr Nurse that there may have been relevance or admissibility issues with the material in the witness outlines of the Watt parties provided no basis for the delay in the Shepherd parties providing their outlines: J [54]. Fourth, the evidence of Mr Nurse in asserting that some “related tasks” affected the conduct of the proceedings by the Shepherd parties “which would not be appropriate to raise in a public forum” was opaque: J [54]. Fifth, the identity of the witnesses who had suffered illnesses, as asserted in the 4 February email, was not disclosed. Nor was the period of the alleged illnesses, the nature of the alleged insurance issues, when the issues were resolved nor their impact on the Shepherd parties’ conduct in the proceedings. Further, no explanation was provided as to why Mr O’Neill had not interviewed any witnesses prior to 20 April 2021: J [55]. Sixth, there was no substantive evidence as to what, if any, difficulties might have precluded the Shepherd parties from substantially progressing their outlines of evidence prior to February 2021: J [55]. Seventh, the Shepherd parties did nothing in April 2021 to bring the matter back to Court notwithstanding their default in complying with the 4 February 2021 orders: J [56]. Eighth, no explanation had been provided by the Shepherd parties as to why they had still not finalised or served the outlines of evidence, given that it was now a month after the interviews were conducted with Mr O’Neill, other than a reference to the fact that new claims had been raised in the course of those interviews. Mr O’Neill conceded that these matters were known to the Shepherd parties from at least the inception of the proceeding, however no explanation was provided as to why it took more than a year after the engagement of new solicitors for these matters come matters to come to light: J [56].

Ratio Decidendi

Legal Principle Established

The following statement by Kitto J in Australian Coal and Shale at 627 was described in Mallet at 634 by Wilson J as a succinct statement of the principle in House v The King:… the true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. Again, the nature of the error may not be discoverable, but even so it is sufficient that the result is so unreasonable or plainly unjust that the appellate court may infer that there has been a failure properly to exercise the discretion which the law reposes in the court of first instance: House v The King. [Footnote omitted and emphasis added.] The restatement of the House v The King principle by Kitto J in Australian Coal and Shade expands the scope of the principle in that it uses the phrase “failing to give weight or sufficient weight to relevant considerations”, rather than the language employed by the plurality in House v The King of “he does not take into account some material consideration”. In Rodgers v Rodgers (1964) 114 CLR 608; [1964] HCA 25, McTiernan, Taylor and Owen JJ described the restatement of the House v The King principle by Kitto J in Australian Coal and Shale as a “convenient summary” of the principles applicable in appeals from orders involving discretionary judgments, and quoted the passage in full (at 619). The restatement by Kitto J was also quoted in full and applied in Risk v Northern Territory (2007) 240 ALR 75; [2007] FCAFC 46 at [113] (French J, as his Honour then was, Finn and Sundberg JJ), Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137; [1987] FCA 504 at 147 (Davies, Lockhart and Neaves JJ), and Bomanite Pty Limited v Slatex Corp Aust Pty Limited (1991) 32 FCR 379; [1991] FCA 536 at 387 (Gummow J). In Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25, McHugh J found (at 556) that the primary judge in that matter “did not fail to consider or fail to give sufficient weight to any matter he was required to consider” and that “his conclusion was not so ‘unreasonable or plainly unjust’” that an appellate court could infer that the primary judge had failed to properly exercise the discretion, citing Australian Coal and Shale at 627. In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; [2008] HCA 4, Gummow ACJ, Kirby, Hayne and Heydon JJ said in response to the question of whether the primary judge had conducted the correct “balancing exercise” in the exercise of the Court’s discretion:137“Balancing exercise”? The orthodox approach to appellate intervention in relation to discretionary decisions requires the expression “balancing exercise” to be employed only with care.138The question is what the particular statute or rule of law conferring the discretion contemplates as relevant or irrelevant factors. If it mandates that particular weight be given to one factor, that mandate must be obeyed. But, in the absence of any such mandate, the question of what weight the relevant factors should be given or what balance should be struck among them is for the person on whom the discretion is conferred, provided no error of law is made, no error of fact is made, all material considerations are taken into account and no irrelevant considerations are taken into account, subject to the possibility of appellate intervention if there is a plain injustice suggesting the existence of one of the four errors just described even though its nature may not be discoverable, or if there is present what has come to be known as “Wednesbury unreasonableness”. [Footnotes omitted.]