Spencer v VMD Packaging Pty Limited

NEW SOUTH WALES COURT OF APPEAL

CITATION: Spencer v VMD Packaging Pty Limited [2001] NSWCA 118

FILE NUMBER(S):
40337/00

HEARING DATE(S): 11/04/01

JUDGMENT DATE: 11/04/2001

PARTIES:
Dawn Kay Spencer, Colin Noel Spencer and Cecillia Serrano Howitt (Appellants)
VMD Packaging Pty Limited (Respondent)

JUDGMENT OF: Heydon JA Hodgson CJ in Eq Davies AJA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): 828/97

LOWER COURT JUDICIAL OFFICER: Delaney DCJ

COUNSEL:
Mr C J Bevan/Mr A C M Iuliano (Appellants)
Mr M F Holmes QC/Mr D Maddox (Respondent)

SOLICITORS:
John Carmody & Co (Appellants)
Matthews Dooley & Gibson (Respondent)

CATCHWORDS:
Civil Practice and Procedure - District Court - Case Management - Refusal to grant adjournment of hearing of liquidated claim - Whether matter should have been removed from running list and adjourned - Whether integrity and efficiency of list would have been prejudiced by adjournment - Where party that opposed adjournment would not have been prejudiced by adjournment in manner incapable of remedy by costs order - Where party that sought adjournment was prejudiced by its refusal - Where Amended Statement of Claim had raised new cause of action based on s 592 of the Corporations Law - Where first defendant was interstate and lost opportunity to prosecute defence - Where none of the parties were ready for trial . ND

LEGISLATION CITED:

DECISION:
See para 67

JUDGMENT:

THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40337/99
  DC   828/97
HEYDON JA
  HODGSON CJ in EQ
  DAVIES AJA
11 April, 2001

Dawn Kay SPENCER v VMD PACKAGING PTY LIMITED
JUDGMENT

HEYDON JA:
Background
This is an appeal against an order of Delaney DCJ made on 29 March 2000 refusing an application that the matter before him be removed from the running list and adjourned, and against an order of Delaney DCJ made on 20 April 2000 that there be judgment for the respondent against the appellants in the sum of $357,505 with costs.
On 5 August 1997 the respondent filed a Statement of Liquidated Claim. The defendants to it were the respondents, Howitt & Spencer Pty Ltd and Ian Kenneth Howitt. The respondents and Mr Howitt were described as directors of Howitt & Spencer Pty Ltd. The claim was for $201,032.50 “being work done and goods provided to carry on business as per 17 invoices and one credit note and dated between 20/5/92 and the 22/12/92 … totalling $200,505 plus the cost of legal searches totalling $527.50” (Orange 23C-G). Interest of $104,239.23 was also claimed.
It seems that a Defence was filed in November 1997.
At some stage leave was given to discontinue the proceedings against Ian Kenneth Howitt, who was an undischarged bankrupt.
28 April 1998 was the review date allocated to the matter. Some directions were made.
On 26 May 1998 there was another status conference. The matter was stood over to a status conference on 29 June 1998.
On 29 June 1998 the matter was stood over so that another party could be joined.
On 24 August 1998 there was a further adjournment for an undisclosed reason.
On 21 September 1998 there was a further adjournment for an undisclosed reason: the respondent suggests that there was no appearance by the appellants.
On 13 October 1998, after a solicitor commenced to act for the respondent, the respondent filed a Notice of Motion seeking leave to file an Amended Statement of Claim pleading a cause of action against the appellants based on s 592 of the Corporations Law and joining Hawker Quality Products Pty Ltd as a defendant. The Amended Statement of Claim did not name Howitt & Spencer Pty Ltd as a defendant. It pleaded in paragraph 4 that the respondent supplied Howitt & Spencer Pty Ltd items, being mainly plastic bags for potato chips, pursuant to seventeen invoices dated 20 May 1992 to 22 December 1992. It pleaded that Howitt & Spencer Pty Ltd had not paid the sums demanded in the invoices; that Howitt & Spencer Pty Ltd had been placed in liquidation; that the appellants were directors of Howitt & Spencer Pty Ltd; that from 20 May to 22 December 1992 Howitt & Spencer Pty Ltd was insolvent; and that the appellants were therefore liable pursuant to s 592 of the Corporations Law as it was in force up to 23 June 1993. The Amended Statement of Claim claimed $200,505 plus interest. In the alternative, the Amended Statement of Claim alleged that the relevant contracts to supply the goods were with Hawker Quality Products Pty Ltd; that it was insolvent between 20 May and 22 December 1992; that the second appellant was a director of that company; and that he was liable under s 592. In my opinion that Amended Statement of Claim raised for the first time a cause of action based on s 592 of the Corporations Law. A fair reading of the original Statement of Claim would not suggest to the defendants that any claim against directors based on insolvent trading was made.
On 19 October 1998 there was a status conference. The appellants sought an adjournment and the respondent consented. There was an adjournment to 21 December 1998.
On 2 November 1998 Robison DCJ granted leave to amend pursuant to the Notice of Motion filed on 13 October 1998. He noted that the contents of the Amended Statement of Claim differed “considerably” from the Statement of Claim. He did not grant leave to join Hawker Quality Products Pty Ltd on the ground that it had been deregistered on 18 April 1997.
On 14 December 1998, pursuant to the leave granted by Robison DCJ to amend, the respondent served the Amended Statement of Claim, which had been filed on 6 November 1998. It erroneously stated that it had been issued on 5 August 1997 (which was the date when the Statement of Claim had been filed).
On 21 December 1998 there was a status conference. There was no appearance by the appellants until after the orders had been made. The matter was adjourned to 8 February 1999.
On 8 February 1999 there was a status conference. The matter was adjourned to 19 April 1999. There was no appearance by the respondent until after orders had been made.
On 19 April 1999 at the status conference the appellants were granted an adjournment to file a Defence. The matter was adjourned to 17 May 1999.
On 17 May 1999 there was a status conference. The Registrar referred the matter to a judge for directions. On 17 June 1999 the matter was stood over by the court to 23 June 1999.
On 21 June 1999 counsel for the respondent pointed out to Robison DCJ that the court would not be sitting on 23 June 1999. Robison DCJ stood the matter over generally.
On 12 October 1999 the appellants filed a Notice of Motion seeking the following order (inter alia):
“1. The amendment to the Statement of Liquidated Claim made pursuant to an order of this court made on 2 November, 1998 relate back to 13 October, 1998 (being the date of the filing of the Notice of Motion seeking leave to amend) (pursuant to Part 17 rule 4(5A).” (Black 27E-H).
On 8 November 1999 Robison DCJ made order 1 in the Notice of Motion filed on 12 October 1999. The intended effect of the order apparently was to prevent the amendments operating from 5 August 1997 and to ensure that they operated only from 13 October 1998. In turn this meant that if the appellants pleaded limitation defences, they would render the claims made in respect of all but three of the seventeen invoices statute-barred. It is noteworthy that nearly a year after the Amended Statement of Claim had been served no Defences had been filed.
Another event took place on 8 November 1999. The respondent filed in court three affidavits. One of them, that of Mr Kearney, a solicitor, annexed a report of the liquidator of Howitt & Spencer Pty Ltd dated 14 October 1999. The appellants did not object to the affidavit being filed.
On 17 January 2000 the appellants served Defences to the Amended Statement of Claim on the respondent. The affidavits verifying them were dated 15, 16 and 20 December 1999.
The matter does not appear to have come before the court after 8 November 1999 until 29 March 2000. It came before the court on that day against the background of the following circumstances. Before turning to them, the conduct of all parties to this point had been completely unsatisfactory from a procedural point of view. They had put themselves to considerable expense and they had put the court to considerable trouble in attending status conferences, or not attending them, which achieved no useful purpose.
On some day before 3 March 2000 Delaney DCJ directed the Registrar to list all cases commenced before 1998 for hearing at the next available sittings. The next available sittings were those to be conducted at a three week running list commencing on 20 March 2000. There were 145 cases listed for hearing. This case was given the number 70.
Pursuant to Delaney DCJ’s direction, the parties were sent a document dated 3 March 2000. After setting out the plaint number and the name of the case it said (Black 51L-Q):
“Attached is a copy of the running list which will commence on 20 March 2000 at 9.30am.
Please note your position in the list.
These matters WILL NOT be called over on the 20 March, 2000.
Commencing 17 March 2000 and then on each sitting day at approx. 3.00pm a recorded message on Ph. No. 93775709 will indicate the matters to be called on the next sitting day. Alternatively, you or your agent can check the list for the following day, the list will be posted on the courtroom door at 3.00pm.”
The solicitors for the appellants received that document on 9 March 2000. There is no evidence that they communicated with the appellants about it.
On 23 March 2000 the solicitors for the appellants received a fax from the solicitors for the respondent which said (Black 52J-K):
“We enclose herewith by way of service a copy of the report from Smith & Williamson, Chartered Accountants dated 14 October 1999.”
This was the report which was annexed to the affidavit of Mr Kearney, filed in court on 8 November 1999.
On 24 March 2000 the solicitors for the appellants sent to the first and second appellants, and to counsel, the letter of 23 March 2000 with its enclosure. Counsel was informed: “We should be pleased to discuss the enclosure with Counsel at Counsel’s earliest convenience” (Black 53L). The first and second appellants, who lived in Toowoomba, were told: “We should be pleased if you would kindly contact the writer at this office for the purpose of discussing that enclosure” (Black 54L).
On 27 March 2000 the solicitors for the respondent served the solicitors for the appellants with Notices to Produce. Each called for production of “All Documents relating to dealings between the Plaintiff and Howitt & Spencer Pty Ltd in the period from 01.01.1992 to 31.12.92” (Black 57H).
On 28 March 2000 counsel for the appellants advised that the appellants should brief their own accounting expert with the report of Messrs Smith & Williamson and obtain an expert report in reply. The solicitors for the appellants on that day sent a letter to Young Barnesdall, Chartered Accountants. It said (Black 55M-P):
“We enclose herewith copy of a report of Smith & Williamson which was served upon us on 23 March, 2000.
We should be pleased to discuss that report with you, in conference, at your earliest convenience for the purpose of obtaining the appropriate expert’s accounting report in reply thereto.”
On 28 March 2000 the solicitors for the respondent served the solicitors for the appellants with Notices to Produce. Each called for the production of “All Documents relating to dealings between the Plaintiff and Hawker Quality Products Pty Ltd in the period from 01.01.1992 to 31.12.92” (Black 61H).
On 28 March 2000 the solicitors for the appellants prepared a Notice of Motion seeking (inter alia) the following orders:
“1. The matter be removed from the running list commencing on 29 March, 2000 and be given another date as the Court may determine.
2. The matter be placed in the commercial list at the Sydney Registry of the District Court.”
The Notice of Motion was supported by an affidavit of the same date setting out some of the background, in particular the correspondence from 3 March on. It also said (paragraphs 11-14 and 17-20):
“11. The issues in this matter are of a complex and technical nature and involve, inter alia, a determination of the solvency or otherwise of Howitt & Spencer Pty Ltd and Hawker Quality Products Pty Limited at a given point in time.
12. The Plaintiff has not sought directions in respect of discovery of documents, inspection of documents, issuing of subpoena, notices to admit facts and authenticity of documents or any other investigative interlocutory procedure.
13. Save for the report of Messrs Smith & Williamson, the Plaintiff has not put on any documentary evidence in support of the merits of its claim and accordingly the Defendants have not been in a position to know the case that they have to meet.
14. To the best of my knowledge and belief the Plaintiff has not sought to or inspected the premises where the Plaintiff alleges it delivered the goods the subject of these proceedings.
17. Due to the late service of the Plaintiff’s Notice to Produce at Hearing referred to in paragraphs 15 and 16 above, the Defendants will not be in a position to produce to the Court on 29 March, 2000, the documents sought in the Plaintiff’s Notices to Produce.
18. The First and Second Defendants reside in Toowoomba, Queensland where the First Defendant operates a pre-school centre. The First Defendant has today informed me she has not had sufficient notice of the date of the trial of this matter to arrange for the proper care of the children who will be in attendance at the pre-school whilst the First Defendant is required to appear to give evidence at the trial of this matter in the event the matter is called on for hearing on 29 March, 2000.
19. Mr Gelbart of Counsel today advised me he is unavailable to appear in these proceedings until 10 April, 2000 due to his appearance in proceedings currently on foot in the Administrative Appeals Tribunal.
20. In the circumstances I say this matter is not ready for hearing on 29 March, 2000 and I respectfully request this honourable Court grant the orders sought in the Notice of Motion handed up herewith.”
On 29 March 2000 the matter was called on before Delaney DCJ. Counsel for the respondent said he was ready to proceed. Counsel for the appellants made an application pursuant to the Notice of Motion. Counsel for the respondent did not object to short service of the Notice of Motion or to the solicitor’s affidavit. Counsel for the respondent referred to the fact that Mr Kearney’s affidavit of 9 November 1999 annexed the liquidator’s report. Counsel for the appellants said:
“we don’t deny that we didn’t receive the affidavit, we did received the affidavit, but I’ll be making submissions in relation to that.”
This is garbled: it is clear, however, that counsel for the appellants was admitting receipt of the affidavit. Any later submissions he made about it have not been recorded.
Counsel for the appellants relied on State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, on the factual matters in the affidavit, on the lack of prejudice to the respondent, and on the fact that the matter had “never, ever been put into a timetable”. He said that justice could be achieved if the matter was put “on a very, very tight timetable”. The trial judge refused the relief sought in the Notice of Motion and gave counsel for the appellants leave, which he had requested, to withdraw. The matter was stood down in the list.
Later that day, counsel for the respondent said he was ready to proceed and that the matter would take half an hour. The trial judge then stood the matter over “part heard” until the next day. On the next day, the case was heard without any attendance by or representation of the appellants.
The Trial Judge’s Reasoning in Relation to the Adjournment
This reasoning appeared in two places - in the ex tempore judgment of 29 March 2000 and in the reserved judgment (which was principally devoted to the merits of the Amended Statement of Claim) of 20 April 2000.
In his ex tempore reasons for judgment, the trial judge set out some of the dates on which matters had been before the court in 1998 and 1999. He said that after 29 June 1998 “this case came to the proverbial grinding halt. Because nobody seemed to be able to be ready for the case to be dealt with, the matter was continually adjourned” (Red 38R-S). He described his direction to the Registrar. He summarised the affidavit relied on. He said: “The defendants’ witnesses are said to be interstate, and … no arrangements can be made for them to be available today” (Red 40F).
In fact the evidence related not to mere witnesses, but to the first appellant, a party. She had pleaded a defence under s 592(2)(a) of the Corporations Law (to the effect that if debts had been incurred by Howitt & Spencer Pty Ltd, they were incurred without her consent): she bore the onus of proof on that issue, and could scarcely succeed on it without attending and giving evidence. In fairness to the trial judge, it must be noted that that specific point was not apparently put to him by counsel for the appellants.
The trial judge concluded (Red 40H-M):
“The history of this case indicates quite clearly that either two courses of action are available to the Court. Either the action could be struck out, or it could be heard. As the plaintiff says that the plaintiff is ready to proceed, the latter course will be taken. The application for an adjournment is refused.”
In his reserved judgment the trial judge repeated his summary of the history. He then said (Red 43L-T):
“Notice of Listing had been given to the defendants in respect of the running list indicating the position of the case therein. No application had been made prior to the date the matter was called on, either for a special fixture because of the needs of witnesses or was any other problem notified to the Court, which could not have permitted the case to proceed on the date that it was called on.
Because of the state of the list on 29 March I stood the matter over after I gave Mr Ioliano leave to withdraw. He said that he required to withdraw to protect his appeal rights.
The case proceeded to hearing.”
Notice of Appeal
It is convenient to set out the relevant part of the Notice of Appeal, not only because it is argumentative in form, but because to some extent the appellants’ written argument actually adopted in terms what had been put in the Notice of Appeal. The relevant parts are (Red 53-54):
“2. His Honour erred on 29 March, 2000 in the course of refusing the appellants’ adjournment application by rejecting the following submissions put on the appellants’ behalf in support of that application, namely, that it would be procedurally unfair, or would amount to a denial of natural justice, to hear and determine the proceedings during the Court’s then current running list having due regard to the following factors:-
(i)the closure of the pleadings only four (4) weeks earlier on the filing of each appellant’s Defence to the Amended Statement of Liquidated Claim;
(ii)the issue of the Court’s running list hearing notice on 3 March, 2000 - less than one week after the pleadings closed;
(iii)the respondent’s delay in prosecuting the proceedings, as the party with the carriage of the proceedings, for the previous two (2) years due to the addition of parties, the removal of parties and the amendment of the pleadings by the withdrawal of and addition of new causes of action;
(iv)the respondent’s belated bringing of statute-barred claims necessitating his Honour Judge Robison DCJ ordering as late as 2 November, 1999 the limitation of the amended pleadings to exclude statute-barred claims;
(v)the service by the respondent of its only expert accounting report (going to the question of solvency of the corporation that the appellants were directors of for the purposes of sec. 592 Corporations Law) on 23 March, 2000 in breach of Part 28 rule 8(3) District Court Rules (DCR) requiring its service no later than 29 February, 2000 for tendering into evidence at a trial to be held as at 29 March, 2000;
(vi)the absence of any notice of motion brought pursuant to Part 28 rule 8(5) DCR seeking an abridgement of time for service under Part 28 rule 8(3) DCR;
(vii)the impossibility of preparation of the appellants’ case in defence of the proceedings on receiving nineteen (19) clear days notice of the trial of the proceedings from the Registry (on 9 March, 2000) so soon after the closure of the pleadings with two (2) of the appellants resident in Queensland and non-party lay witnesses overseas at the time of the Court’s running list;
(viii)the impossibility of responding to the respondent’s expert accounting report between its service on 23 March, 2000 and the listed trial date on 29 March, 2000 by virtue of the absence on leave of the appellants’ chosen accounting expert, Mr P Rowe, FCA, of Young Barnsdall & Co;
(ix)the fact that Counsel briefed for the appellants was unavailable to appear at the trial at such short notice, and the complexity of the proceedings made it impossible to find alternative Counsel at such short notice; and
(x)the principle enunciated by the High Court in Queensland v JL Holdings Pty Limited (1997) 189 CLR 146 cited to his Honour that the appellants’ right to have their Defences, subject to being arguable, determined on the merits, was paramount to the Court’s case management and running list considerations.
3. His Honour erred at Judgment page 3 in concluding that the only two (2) courses open to him on the available evidence and having due regard to the above mentioned submissions was a choice between striking out the action on the one hand or hearing it immediately because the respondent was then ready to proceed to a trial on the other hand, when there was, in accordance with the principle enunciated in Queensland v JL Holdings Pty Limited (supra), a third, albeit the only reasonable, alternative course open to his Honour in the absence of any evidence of insurmountable prejudice to the respondent, namely, an adjournment of the proceedings to permit the appellants to properly prepare their case in defence of the proceedings for a trial on the merits.”
The Appellants’ Submissions

The appellants put the following written submissions (Orange 1J-2S):
“1. There was no evidence of any prejudice to the respondent had the appellants’ adjournment application been granted, either at all or which could not have been overcome by a costs order: Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 154.8.
2. Having regard to the issues pleaded in paragraph 2 of the Notice of Appeal (Red AB53) which were raised before his Honour it must have been apparent to his Honour that there was no reasonable impediment to the adjournment application being granted in the interests of justice.
3. His Honour wrongly treated the appellants as being responsible for the delays in the prosecution of the proceedings in the Court below that are summarised at the foot of page 1 and the top of page 2 of the interlocutory judgment (Red AB39-40) when, properly understood, it was the respondent, as the party with the carriage of the proceedings in the Court below, who was responsible for those delays by virtue of its conduct over a two year period in initially failing to prosecute the proceedings at all after their commencement and then completely repleading its case under new causes of action (namely, sec 592 Corporations Law) joining additional parties without regard to the terms of sec 14 of the Limitation Act.
4. His Honour misunderstood the test which he had to apply as enunciated in Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146, which was cited to his Honour (Black AB65), by treating himself as having had only two courses of action available in dealing with the appellants’ adjournment application, namely, either striking out the action for want of prosecution or hearing it, when in fact the only course open to his Honour, in the absence of any evidence of any prejudice to the respondent, was to grant the adjournment either with or without a consequential costs order: interlocutory judgment p 3 (Red AB40).
5. His Honour’s refusal to grant the adjournment sought by the appellants deprived the appellants of their only opportunity to have their defences to the proceedings determined on the merits because the proceedings were not then ready for a trial on the merits for the reasons given in paragraphs 2(i), (ii), (v), (vi), (vii), (viii) and (ix) of the Notice of Appeal: Red AB53-54.
6. The appellants had no alternative but to withdraw their appearance after the adjournment application was refused as they had no prospect of successfully defending the proceedings on the merits, without Counsel briefed in the matter being available or any witnesses or documentary evidence to make good their defences: Black AB65/34; AB66/31.
7. The refusal of the adjournment resulted in a denial of procedural fairness or natural justice to the appellants, in that the proceedings were heard and determined in their absence, and this amounts to a substantial wrong or miscarriage of justice within the meaning of Part 51 rule 23: Queensland v JL Holdings Pty Ltd at 154-155, as their Defences (Red AB10-19) were arguable.”
The Respondent’s Submissions
The respondent put the following written submissions (Orange 27J-30J):
“1. As regards whether an adjournment should be granted, Practice Note 33, rule 12.4 provides inter alia that ‘Adjournments and extension of deadlines are granted only in special circumstances, never for a simple failure to prepare’. The whole scheme of Case Management is that a party must never come to the court assuming that an adjournment will be given and if any adjournment is to be sought, the application should be made as early as possible so that the position on the hearing day will be clear.
2. At the hearing of the application for an adjournment, the appellants raised no issue which would not have been known to them weeks or even months before the commencement of the running list in which the matter was placed. More specifically, by notice dated 3 March 2000, the appellants were notified of the circumstances under which the matter would be listed (Black AB51).
3. His Honour has not, as submitted by the appellants, ‘wrongly treated the appellants as being responsible for the delays in the prosecution of the proceedings’. His Honour made no such finding. It is submitted that the delays were caused largely by the appellants:
(a)the appellants did not file and serve Notice of Grounds of Defence until a Defence to the Amended Statement of Liquidated Claim was filed on or about 10 December 1999;
(b)the appellants’ representative failed to attend Status Conferences on 24 August 1998 (there may have been some confusion as to the time), 21 September 1998, 21 December 1998 (Mr Leybourne arrived after the Registrar had adjourned the matter to 8 February 1999);
(c)it was the appellants who requested an adjournment of the Status Conferences on 19 October 1998, 8 February 1999 and 19 April 1999; the only adjournment requested by the plaintiff resulted from one of the non-appearances of the appellants listed in (b) above;
(d)the adjournment of the Status Conference on 17 May 1999 was by consent, and the adjournment on 23 June 1999 was by the court (as the court was not sitting in that week).
4.            It is in the light of the numerous adjournments, most of which are listed above, that his Honour declined a further adjournment. In considering the adjournment application, his statement that there were only two courses of action open to him (ie striking out the action, or hearing the matter), is based on the premise that a further adjournment would [not] be granted: at Black AB40H he says ‘The history of this matter indicates quite clearly that either two (sic) courses of action are available to the Court’ (underlining mine). While it is conceded that his Honour could have granted an adjournment, it is submitted that in making his finding as to courses of action open to him, he had already decided (whether expressly or impliedly) to refuse an adjournment.
5. The appellants submitted that it was his Honour’s refusal to grant an adjournment which ‘deprived the appellants of their only opportunity to have their defences to the proceedings determined on the merits’. The Respondent submits that it was the appellants’ failure to prepare for the hearing (eg make travel arrangements, arrange alternative Counsel) which resulted in the appellants’ lack of readiness for the hearing: See Touma v Saparas (supra).
6. The appellants submit that ‘the appellants had no alternative but to withdraw their appearance after the adjournment application was refused’. Clearly, even without witnesses, the appellants may well have succeeded at the trial: when Mr Iuliano (Black AB65/10) raised the issue of the appellants’ inability to respond to the respondent’s expert report, the transcript reads as follows:
Iuliano:‘Our expert is away, he came back today, we are going to need time to respond to that expert’s report.’
His Honour:         ‘Why?’
Iuliano:‘Because, your Honour, it raises issues - this is a case that involves allegations …’
His Honour:         ‘You won’t have to meet that report because it hasn’t been served in accordance with Part 28 rules 8 and 9, will you?
Iuliano:   ‘That’s right your Honour, however …’
His Honour:         ‘That solves your problem, what are you worried about?’
Iuliano:These are my instructions, I’m not briefed in the matter per se, Mr Gelbart is. I cannot do justice to my clients in allowing this matter to run today. In the event that it does run …’
His Honour:         ‘You can always withdraw’.
Iuliano:   ‘They will be my instructions your Honour’.
That is, the appellants were informed by his Honour that, at least at that stage, he was minded to reject the tender of the expert report. Without that report, the respondent’s case at trial may well have been doomed, and yet the appellants chose to withdraw (Black AB66/35) rather than proceed.
7. That the proceedings were determined in the absence of the appellants was due to:
(a)          the appellants’ failure to prepare for the trial; and
(b)the appellants’ decision to withdraw, even in the circumstances illustrated in paragraph 6 above.
There was no denial of procedural fairness.
8. No submission is required.
It is noted that the expert report by the liquidator (Black AB106-108) was placed in the hands of the appellants in November 1999, as an annexure to the affidavit of Mr Kearney sworn on 5 November 2000.
Very little notice of the application for the adjournment was given to the plaintiff/respondent. There is no explanation given by the appellants for this lack of adequate notice.”
The Submissions Considered
It seems to be common ground that the respondent would not have been prejudiced by an adjournment in any way which could not be compensated for in costs. No argument was put on behalf of the respondent to suggest the contrary.
There were debates as to who was responsible for the procedural delays. These appear to be immaterial since there appears to be no explicit finding by the trial judge that the procedural delays were caused by the appellants, nor any reliance by him in the operative part of his reasoning on any such finding.
A further submission made was that the appellants had no alternative but to withdraw after the adjournment application was refused. I would reject that submission. It was not true that the appellants thereafter had no prospects of successfully defending the proceedings or that they had to do this in order to preserve their appeal rights. There were, as will be seen, significant issues on which they must have had some real prospects of victory had they had lawyers present to remind the trial judge of the relevant points.
A further matter raised in the written submissions, which appears to be irrelevant to the merits of the trial judge's reasoning, was that the appellants gave the respondent little notice of their application on 29 March 2000.
The initial question in considering the trial Judge's reasoning must be: did the trial judge make any error within the narrow class of errors permitting discretionary judgments on matters of practice and procedure to be interfered with? That is, did he make any error of principle or fact, take into account any matter which was irrelevant, fail to take into account anything which was relevant, or arrive at a result which was so unjust as to indicate that some error of the former classes must have occurred even though it could not be specifically identified?
The appellants submitted to this court that there were a number of errors.
The first error they relied on was the statement by the trial judge to this effect (Red 40H-J):
"The history of this case indicates quite clearly that either two courses of action are available to the court."
The word "either" is an error for the word "only". The trial judge did not indicate that there was a third possibility, namely, that which was the subject of the Notice of Motion under consideration, in effect, a short adjournment. The respondent seeks to explain that observation away by saying that the trial judge "had already decided ... to refuse an adjournment", and therefore he excluded that course from consideration. If the trial judge had already excluded that course from consideration he was arguably committing the error of pre-judgment and, in any event, gave no specific reasons as to why only those two courses were open. It follows that I would accept the submission of the appellants in relation to that error.
The second error on which the appellants relied related to the trial judge's description of the first appellant as merely a witness. He said, in the course of summarising the affidavit: "The defendants' witnesses are said to be interstate and ... no arrangements can be made for them to be available today." The first appellant lived at the material time with her husband in Queensland. The affidavit indicated she was in charge of a school and it was not possible to leave the school unattended on short notice. To describe her merely as a witness, it was submitted, indicates an error in that she was in truth a party witness who had a defence pleaded which could only be established by her evidence, namely a defence under s 592(2)(a) to the effect she had no knowledge of and did not consent to the incurring of the relevant debts. The respondent submitted that para 18 of the affidavit which dealt with this matter was quite inadequate and that no explanation was offered as to why she had only lately informed her solicitor of her inability to travel to Sydney. In my judgment a fair reading of the solicitor's affidavit reveals that though the solicitor does not explicitly say so he did not realise when receiving the letter from the court on 9 March that the matter might well come on for trial in the three week period commencing on 20 March. In particular, the solicitor did not realise that outcome was likely until he began to receive correspondence from the solicitors for the respondent from 23 March on. If there be any error in handling of matters on the appellants' side of the record, in my judgment it was plainly an error by the solicitor. I should stress, however, that he has not been heard on that question. It has not been demonstrated there was any fault on behalf of the first appellant. The consequence of the trial judge's order is she lost an opportunity to prosecute a defence which could only be prosecuted through her evidence. In my judgment that second error is an error in the exercise of the judge's discretion.
The appellants adopted some observations which fell from the court to suggest a third error. In the course of argument before the trial judge he observed that the accountant's report, that is to say the liquidator's report, on which the respondent wished to rely had not been served within the period delineated by the District Court Rules and he gave, at the very least, a very firm indication that it was unlikely it would be received into evidence. It followed from that, first, that the respondent was not ready to proceed with the trial in the manner in which it wished to proceed with the trial and, secondly, as counsel for the appellants put to the trial judge, they were not ready either because they wished to put on a report. It is not necessary in s 592 litigation that an accountant's report be tendered, although it is not an uncommon course. The ultimate question of whether a company is insolvent on a particular date is one for the court and the most determinative material in that regard is not the opinion of experts but the inferences to be drawn from the primary records of the company and those with whom it was dealing. Though it might have been possible for the parties to proceed to trial without reliance on accountants' reports, it was not the way in which either side was contemplating the trial should proceed. The third error complained of was, in effect, to suggest that an extremely unjust result was being arrived at in circumstances where the consequence of the trial judge's order was to force on a trial when there was no readiness on the part of any party for that trial. In my judgment that submission of the appellants is sound.
The next error, or errors, assigned by the appellants related to a decision of this Court, namely, Touma v Saparas (unreported, 17 February 2000, Powell JA, Stein JA and Hodgson CJ in Eq). The complaint made by the appellants was that the trial judge must have erred in relying on the reasoning in that case because he referred to it in the course of argument. The precise time at which he referred to it is a little unclear. The transcript (Black 65L) records the giving of the trial judge's judgment at a time when the application before him had scarcely commenced and at a point before counsel for the appellants had put submissions. It is common ground there must be some error in the transcript and the judgment was delivered late in the argument or at the end of it. However that may be the trial judge did say:
“Your application is granted. You’re entitled to withdraw. You might have a look at the decision of Saparas in the Court of Appeal decided a couple of weeks ago. It would be worthwhile having a look at that, Separas v Bechara, unreported Court of Appeal, Stein J, with whom Sheller and Handley agree, decided somewhere about 25 February I think it was. You’re given leave to withdraw and the matter is stood down in the list.”
That reference was a reference to Touma v Saparas. The appellants submitted it was an error to, as it were, treat Touma v Saparas as analogous to the case before the trial judge and in truth the case before the trial judge was much more analogous to the State of Queensland v J L Holdings. I would agree with the submission of counsel for the respondent that the mere reference by the trial judge to Touma v Saparas in the course of argument is insufficient to suggest it played a determinative role when he mentioned the case in neither of the two judgments he delivered. Counsel for the respondent says it cannot be erroneous to do no more than refer counsel to a case which the judge indicated might have some relevance. I would agree with that submission.
That leads to what might be regarded as the fifth alleged error. It was submitted that where the trial judge had set out the history of the matter and had referred to various adjournments of proceedings at various interlocutory stages without reasons being given, that suggested that the trial judge had fallen into error in attributing all, or most, of the blame to the appellants. As indicated earlier I do not think a fair reading of the trial judge's reasons for judgment does attribute all or most of the blame to the appellants.
The final error complained of was put in this way. It was submitted it was wrong of the trial judge to leave a case of this kind, with all the other 144 cases in the list, to be heard in the three week sitting commencing on 20 March without having regard to the special nature of these proceedings once it had been indicated to the trial judge on 29 March this was a major commercial action which involved a major change in its character in the middle of the proceedings, namely the introduction of a course of action based on s 592. The respondent submitted in evaluating whether that was an error one had to bear in mind the appellants had never at any stage, so far as the evidence or materials before this court reveals, sought directions in relation to affidavits or the discovery of documents or any other pre-trial procedural step characteristic of complex commercial litigation in the Supreme Court or the Federal Court. What the respondent says is correct but it leaves untouched, I think, the essential soundness of the appellants' proposition. Section 592 litigation is not common litigation in any court and, in particular, it is not common litigation in the District Court. It does depend on analysis of the records of companies not all of whose managers and directors may be available or willing to assist in explaining them. Late though the appellants made this point, it was a point that had some force and, accordingly, I would accept that an error of the kind contended for took place.
In the circumstances one turns next to whether this Court should exercise the discretion afresh or remit it to the District Court. It seems pointless to remit it to the District Court because all relevant materials are before this Court. One important matter is the need for the District Court to observe the integrity of its own process by adopting a strict approach to litigants before it in relation to procedural questions. The appellants do not challenge the trial judge's decision to put the matter in the running list. Once it was there, the solicitors for the appellants must have realised that there was every prospect that the matter would be called on for trial on some day after 20 March. The appellants could have sought to have the matter removed from the list at any time in the period 9 March to 20 March on the ground of the need for a special fixture in view of the residence and work commitments of the first appellant in Queensland. The appellants could have sought an adjournment on a ground of want of readiness. Difficulties about counsel could have been examined immediately after 9 March and overcome by briefing fresh counsel. The difficulties in relation to the liquidator's report on one view should have been appreciated when it came to hand in November 1999 and, in any event, could have been dealt with had the problem been adverted to immediately after 9 March. However, the question is this. Once the matter was, without any complaint, placed in the running list and once it is accepted there was sufficient time to have readied the matter for trial after 9 March, albeit with considerable effort, was it wrong for the judge to refuse an adjournment even though steps had not been taken after 9 March when the grant of an adjournment would not prejudice the respondent and when it would arguably prejudice the appellants?

It is clear, I think, that the refusal of the adjournment did prejudice the appellants in at least three ways. First, a perusal of the evidence tendered before the trial Judge on 30 March reveals that the defendants, now appellants, had a reasonably arguable case that from at least 3 June 1992 written orders were apparently received in the name of Hawker Equity Products Pty Limited, not Howitt and Spencer Pty Limited. Secondly, limitation defences had been pleaded which were not dealt with by the trial judge but which were at least arguable. Thirdly, there were s 592(2)(a) defences. There is no evidence in support of them but they were verified on affidavit and the possibility of their success was open.
The trial judge's reliance on what might be called the integrity and efficiency of the list is understandable but to have granted the adjournment could scarcely have prejudiced the operation of the running of the list in this case given there were 144 other matters and given this particular matter was not in fact reached on 29 March 2000.
The appellants reminded the court of a number of authorities.
First, State of Queensland v J L Holdings Pty Limited (1997) 189 CLR 146 at 153-155:
“The Court in allowing the appeals before it adopted the words above of Bowen LJ in Cropper v Smith [(1974) 48 ALJR 481 at 482; 4 ALR 615 at 618] and said:
‘As the defence, if established, would be a complete answer in either action, the amendments sought should have been allowed unless it appeared that injustice would thereby have been occasioned to the respondent, there being nothing to suggest fraud or improper concealment of the defence on the part of the appellants With the exception of the suggestion of prejudice arising in respect of the loss of the possible claim against the nominal defendant, the matters relied upon by the respondent in opposition to the amendment sought go at the most to delay and irregularity only, matters which are relevant to costs but do not constitute injustice to the respondent in the sense in which that expression is used.’
The majority in the Full Court dismissed these remarks saying that ‘times have changed since 1884, and even since 1974’. They referred to a passage from the judgment of Toohey and Gaudron JJ in Sali v SPC Ltd [(1993) 67 ALJR 841 at 849; 116 ALR 625 at 636] where their Honours said:
‘The contemporary approach to court administration has introduced another element into the equation or, more accurately, has put another consideration onto the scales [See GSA Industries Pty Ltd v NT Gas Ltd (1990) 24 NSWLR 710. For the implications of this aspect for the amendment of pleadings, see Ketteman v Hansel Properties Pty Ltd [1987] AC 189; The Commonwealth v Verwayen (1990) 170 CLR 394]. The view that the conduct of litigation is not merely a matter for the parties but is also one for the court and the need to avoid disruptions in the court's lists with consequent inconvenience to the court and prejudice to the interests of other litigants waiting to be heard are pressing concerns to which a court may have regard.’
The majority concluded:
‘Unless we are to mouth the repeated cautions about discretionary judgments, case management, efficiency, practice and procedure, and the advantages of the managing judge, only to ignore them when it comes to the crunch, this appeal must be dismissed.’
It may be said at once that in the passage which we have cited from Sali v SPC Ltd Toohey and Gaudron JJ are not to be taken as sanctioning any departure from the principles established in Cropper v Smith and accepted in Clough and Rogers v Frog. Sali v SPC Ltd was a case concerning the refusal of an adjournment in relation to which the proper principles of case management may have a particular relevance. However, nothing in that case suggests that those principles might be employed, except perhaps in extreme circumstances, to shut a party out from litigating an issue which is fairly arguable. Case management is not an end in itself. It is an important and useful aid for ensuring the prompt and efficient disposal of litigation. But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim.
The majority emphasised that the primary judge, Kiefel J, was the trial judge, had been responsible for the management of the present case since 1994 and was in the best position to judge the effect of the proposed amendment. Even so, the application for leave to amend was made before a date was fixed for hearing. The date when fixed was six or so months ahead. It is not apparent that any complex issues of fact are raised by the amendment sought, but even if they are, in a hearing that is estimated to last some four months, they must surely be able to be accommodated. The fact that the new defence which the applicants seek to put in issue may possibly be met on reply by a plea such as that of estoppel or waiver does not suggest any reason for the refusal of the amendment. Moreover, whatever the state of the pleadings, the point which the applicants seek to raise by the amendment may not be avoided on trial if, as seems to be so, it would be apparent from the documents themselves. The purpose of the amendment was, according to the applicants, merely to avoid taking JLH by surprise. But if the amendment sought does raise a new defence and not merely a matter which JLH is required to prove in any event, it constitutes a substantial, if not complete, answer to JLH’s claim. If it is arguable, the applicants should be permitted to argue it, provided that any prejudice to JLH might be compensated by costs. No doubt prejudice to JLH may also be averted, as Carr J in dissent in the court below pointed out, by appropriate orders expediting such procedures as the parties might seek to employ as a result of the amendment.
The majority in the Full Court considered that costs are not these days considered the ‘healing medicine’ they once were. They referred to the speech of Lord Griffiths in Ketteman v Hansel Properties Ltd [[1987] AC 189] and the decision of this Court in The Commonwealth v Verwayen [(1990) 170 CLR 394 at 464-465, 482]. In Ketteman Lord Griffiths said [[1987] AC 189 at 220]:
‘justice cannot always be measured in terms of money and in my view a judge is entitled to weigh in the balance the strain the litigation imposes on litigants, particularly if they are personal litigants rather than business corporations, the anxieties occasioned by facing new issues, the raising of false hopes …’
In this case, which is of a commercial nature, the litigants are on the one side a developer and on the other side government, and there is nothing which would indicate any personal strain which would justify the conclusion that costs are not an adequate remedy for prejudice caused by the amendment sought to the pleadings.
In our view, the matters referred to by the primary judge were insufficient to justify her Honour’s refusal of the application by the applicants to amend their defence and nothing has been made to appear before us which would otherwise support that refusal. Justice is the paramount consideration in determining an application such as the one in question. Save in so far as costs may be awarded against the party seeking the amendment, such an application is not the occasion for the punishment of a party for its mistake or for its delay in making the application. Case management, involving as it does the efficiency of the procedures of the court, was in this case a relevant consideration. But it should not have been allowed to prevail over the injustice of shutting the applicants out from raising an arguable defence, thus precluding the determination of an issue between the parties. In taking an opposite view, the primary judge was, in our view, in error in the exercise of her discretion.”
Secondly, reference was made to Touma v Saparas in particular paras 27 and 31.
Thirdly, reference was made to a Frugniet v State Bank of New South Wales (1999) NSWCA 458 at [31]-[32] in the judgment of Handley JA (Mason P concurring) and [84]-[89] in the judgment of Beazley JA who, though dissenting, does in those paragraphs conveniently set out the key principles relating to discretionary decisions to refuse an adjournment. Beazley JA referred to Sali v SPC Ltd (1993) 116 ALR 625. At 628-9 Brennan, Deane and McHugh JJ said:
“In Maxwell v Keun [[1928] 1 KB 645, at 650, 657, 658] the English Court of Appeal held that, although an appellate court will be slow to interfere with the discretion of the trial judge to refuse an adjournment, it will do so if the refusal will result in a denial of justice to the applicant and the adjournment will not result in any injustice to any other party. That proposition has since become firmly established and has been applied by appellate courts on many occasions. [See, for example, Walker v Walker [1967] 1 WLR 3276, at 330; Carryer v Kelly (1969) 90 WN (Pt 1) (NSW) 566, at 569; Bloch v Bloch (1981) 55 ALJR 701, at 703; 37 ALR 5, at 580-9]. Moreover the judgment of Atkin LJ in Maxwell has also been taken to establish a further proposition: an adjournment which, if refused, would result in a serious injustice to the applicant should only be refused if that is the only way that justice can be done to another party in the action [Walker [1967] 1 WLR, at 330; Carryer (1969) 90 WN (Pt 1) (NSW), at 569]. However, both propositions were formulated when court lists were not as congested as they are today and the concept of case management had not developed into the sophisticated art that it has now become.
In determining whether to grant an adjournment, the judge of a busy court is entitled to consider the effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the court as well as the interests of the parties. As Deane J pointed out in Squire v Rogers [(1979) 27 ALR 330, at 337] this ‘may require knowledge of the working of the listing system of the particular court or judge and the importance in the proper working of that system of adherence to dates fixed for hearing’. What might be perceived as an injustice to a party when considered only in the context of an action between parties may not be so when considered in a context which includes the claims of other litigants and the public interest in achieving the most efficient use of court resources.”
Those authorities indicate case management considerations and considerations based on the efficient running of the list must give way to the need to avoid injustice and that adjournments ought to be allowed if no prejudice is caused to the opposing party which is incapable of remedy by a costs order.
An application of those principles to the present circumstances in my opinion leads to the conclusion that the trial judge erred in refusing the adjournment and a proper exercise of the discretion would have led to a grant of the adjournment.
Accordingly, it is not necessary to deal with the second part of the appeal, namely, the appeal against the orders of the trial judge made at the trial, but the orders cannot stand in view of the fact that the trial should not have taken place when it did.
Orders
I would propose the following orders:
1. Order that the appeal be allowed.

2.Order that the judgment and orders of Delaney DCJ made on 29 March 2000 and 20 April 2000 be set aside.

3.Order that the proceedings be remitted to the District Court at Parramatta for a new trial.

4. Order that the respondent pay the costs of this appeal.

HODGSON CJ in EQ: I agree with the judgment that has just been delivered. I would just add a couple of matters.
As stated by Heydon JA, Delaney DCJ expressed the view that only two courses of action were available to the court, either striking out the action, or hearing the action.
It was submitted by Mr Holmes QC for the appellants that a fair reading of his Honour's judgment would indicate that his Honour's reasons for that view were that there had been significant delays in the past occasioned by the appellants, and also that the application for the adjournment was not made when the appellants' solicitors received notice of the hearing on 9 March, but only on 29 March when the matter was listed to be heard.
In my opinion that submission cannot be sustained. The view of the trial Judge was a view neutral as between the two parties, whereas the reasons suggested by counsel were reasons perhaps for refusing an adjournment, but they had nothing to do with the other alternative put by the trial Judge, namely, striking out the action. In my opinion, the judgment of the trial Judge showed no justification for limiting his consideration to those two alternatives, and for not further considering the alternative of an adjournment.
The other matter relates to something in the judgment of the actual hearing of the matter. Although, having regard to the decision on the refusal of the adjournment, it is not necessary to make a ruling on the substantive decision, there is one matter of principle that I think deserves comment.
At the ex parte hearing, at which the defendants were not represented, there was tendered before the trial Judge an accountant's report. In relation to that report the trial Judge said this:
The report of Smith and Williamson, chartered accountants, was served late. However, this was a matter that was well known to the defendants, and was a matter which they could have raised in objection to that report being tendered, had they decided to remain at the hearing and deal with the issues raised by the plaintiff. They did not do so and there being no objection, that report was tendered.
The trial Judge then proceeded on the basis that the report was admitted into evidence.
The report was unsworn and therefore was hearsay and, in my opinion, it should not have been admitted in evidence at the ex parte hearing unless it fell within some exception to the hearsay rule. The mere fact that the hearing was ex parte, and for that reason no objection was made to the hearsay material, does not in my opinion justify the admission of hearsay material.
The District Court Rules do permit expert reports to be admitted in certain circumstances and, on that basis, would support an exception to the hearsay rule. The relevant rules are Pt 28 r 9(1) and r 8(3) and (5).
9(1) Subject to rule 9C (2) (b) (ii), where an expert's report is served in accordance with rule 8 or an order is made under rule 8 (3), the report is admissible as evidence of the expert's opinion and, where the expert's direct oral evidence of a fact upon which the opinion was formed would be admissible, as evidence of that fact, without further evidence, oral or otherwise.
8(3) Unless the Court otherwise orders, in proceedings to which this rule applies, each party to the proceedings shall, at least 28 days before the trial, serve experts' reports and hospital reports on each other party who has an address for service in the proceedings.
8(5) An application to the Court for an order under subrule (3) (other than an order solely for abridgement or extension of time) may be made without serving notice of the motion.
If there had been application made under Pt 28 r 8(5), an order could have been made under Pt 28 r 8(3). The application need not be made by notice of motion, and in this case it is possible an order under Pt 28 r 8(3) might have been justified.
However, there does not appear in this case to have been anything that could fairly be regarded as such an application, or anything that could be fairly regarded as such an order. As appears from the passage quoted, the basis of the trial Judge's decision appears to have been the tender was not objected to. While non-objection to hearsay at a contested hearing - particularly one in which the relevant party is represented by counsel - may justify the admission of hearsay material on the basis that the objection is waived, in my opinion this is not generally the case in an ex parte hearing, and the hearsay rule has to be observed.
DAVIES AJA: I agree with Heydon JA and with the additional observations of Hodgson CJ in Eq.
[Counsel addressed on the costs of the proceedings before Delaney DCJ.]

HEYDON JA: The court makes a fifth order, that there be no order as to the costs of the proceedings before Delaney DCJ on 29 March 2000 and 30 March 2000.

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LAST UPDATED: 30/04/2001

[2001] NSWCA 118

11 April 2001