Travel Compensation Fund v Travel Guide Pty Ltd (In Liq)

[1997] FCA 75

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION  )           No. NG 585 of 1995

BETWEEN:TRAVEL COMPENSATION FUND

Applicant

AND:TRAVEL GUIDE PTY LIMITED (IN LIQUIDATION)

First Respondent

JOHN KEITH KNIGHT

Second Respondent

MATTHEW HOWDEN

Third Respondent

AIR AUSTRALIA WORLDWIDE MARKETING PTY LIMITED (IN LIQUIDATION)

Sixth Respondent

CORAM:Lehane J

PLACE:Sydney

DATE:31 January 1997

EXTEMPORE REASONS FOR JUDGMENT

LEHANE J:  The matter before the Court is an application by the third respondent for leave to file a defence in circumstances where the trial of the proceedings has been set down to commence on Monday next, 3 February.  It is necessary briefly to describe some of the background.  The applicant claims to be the body of trustees administering a scheme described as the Travel Compensation Fund established under the Travel Agents Act 1986 (NSW). It claims in substance recoupment by the third respondent of moneys which the applicant says that it has paid by way of compensation to customers of the first
and sixth respondents, each of which is said to have been a travel agent and (in the case of the first respondent) a participant in the scheme which the applicant administers.

Each of the first and sixth respondents is said to have failed to account for moneys paid to it by customers; it is alleged that the third respondent was, at the time of the acts or omissions giving rise to the failure to account, a director of each of the first and sixth respondents and that accordingly the applicant is entitled to recover from the third respondent, under subsection 40(4) of the Travel Agents Act, the amount of compensation which it paid.  The elements of the applicant's claim are set out in the amended statement of claim which, with an amended application, was filed in the Court on 3 September 1996. 

Although there was a suggestion that a defence may have been filed in Court by the third respondent at a directions hearing early in 1996, there is no such defence on the file and it appears highly likely, to my mind to the point of certainty, that that did not in fact happen.  It is common ground, however, that the third respondent gave to the applicant a draft defence towards the end of 1995.  There were directions hearings during the latter part of 1995 in which two successive orders were made for the filing of a defence by, among others, the third respondent.  Under the second of those orders defences were to be filed and served by 15 December 1995.

It seems that the draft defence to which I have referred may have been delivered before that date, but it is I believe certain that the defence was not filed in accordance with the
order, or at all.  A number of directions hearings then occurred during 1996.  What happened at those directions hearings is not in all respects entirely clear, and I can see nothing that is likely to be productive in attempting to obtain further clarification.  It is by no means clear to me, however, that among the many directions that were made during 1996, any further direction was made as to the filing of a defence by the third respondent to the statement of claim initially filed by the applicant or to the amended statement of claim.  Undoubtedly directions were made in relation to the filing of cross‑claims and defences to cross‑claims.  It does not appear, however, that relevantly they went further than that.  It should be noted, however, that in September 1996 the applicant's solicitors wrote to the solicitors for the third respondent indicating that no defence had been filed by the third respondent and requiring that that be done.  No response appears to have been made to that letter.

The matter then came before Sackville J at the long causes callover on 21 October 1996.  I have seen the transcript of what took place during those proceedings.  There was discussion of the question whether a defence to a cross-claim had been filed or served.  One had, in fact, although it no longer matters, been filed, but it appears that it may not have been served.  Nothing was said about the filing of a defence to the statement of claim or about a failure to file such a defence.  There was some discussion about the possibility that evidence might be filed by the third respondent, despite the fact that it had up to that time not complied with a series of directions requiring the filing of affidavits by particular dates. It may be said, I think, that a discussion of that kind is hardly
intelligible except by reference to a common understanding that the matter was not, so far as the third respondent was concerned, an undefended matter.

It is appropriate to turn to the substance of the defence which the third respondent seeks leave to file. The defence would put in issue a significant matter of law. In addition to putting that matter in issue it would put the applicant to proof of, I think, all the relevant allegations of fact in the amended statement of claim. The matter of law arises from a denial in the proposed defence that the applicant is the body of trustees of the compensation scheme. The denial is based upon the proposition that the regulation purporting to establish the scheme, that is to say, cl 20 of the Travel Agents Regulation 1995, is invalid because the prescription which it purports to make was not made in accordance with the enabling provision, s 57 of the Travel Agents Act.  I have not seen the draft defence which was given to the applicant by the third respondent late in 1995.  I have been told, however, that the substance of it was substantially identical to the substance of the defence now sought to be filed and that, in particular, it raised the question of law now sought to be raised by the defence with which I am concerned today.  That, as I understood what was said by counsel this morning, is common ground between the parties.

The situation with which I am confronted is by no means a satisfactory one.  It is indeed precisely the sort of situation which the practice of "case management" by way of directions hearings is designed to avoid.  It is particularly unfortunate that, in a case which had been set down for trial as a long case, a matter of this character should emerge
in the week before the trial.  Nevertheless, it must be dealt with and it is not sufficiently dealt with, in my view, by reference to considerations of the efficient use of court resources, the necessity of compliance with directions of the Court, or the proper management of the Court's lists.

It is necessary to consider whether filing of the defence at this stage in the proceedings is likely to cause prejudice to the applicant of a kind which cannot be properly remedied and, on the other side, the degree of prejudice which might be suffered by the third respondent were leave not to be granted.  If one looks at the matter in that way, two things emerge: one, to which I shall return, is that by putting in issue a series of allegations of fact the third respondent does no more than require the applicant to prove, substantially in the manner in which, in any event, the applicant would have to prove it, each essential element of fact supporting its claim against the third respondent.  The other matter relates to the question of law.  That is a matter which, as it was raised in the 1995 draft defence, must have been within the applicant's contemplation for quite some time.  The point is a purely legal one.  It does not depend upon the calling of any evidence.  It is simply a matter for argument.  In those circumstances, and for reasons to which I shall come, it seems to me appropriate that the third respondent ought to be permitted to make the contention which the defence would raise.  I should add that there was no suggestion that it was not at least arguable and my impression, prima facie, is that it is.

For those reasons I would, in any event, give leave to file the defence.  There is, however, another consideration to which I think it is appropriate that I refer.  Counsel for
the applicant, in the course of argument this morning, suggested, as I understood him, that he had proposed to move for what he described as a default judgment under O 10 r 7 of the Federal Court Rules, or possibly under O 11 r 23.  Of the two, the applicable rule is clearly O 10 r 7; the default concerned is one in complying with a direction of the Court rather than a failure to observe the timetable provided by O 11.

A number of comments may be made about that.  Under the Rules such a motion is to be made on notice and is to be supported by affidavit.  It would have been open to the applicant to move for judgment under O 10 r 7 at any time following failure to comply with relevant directions.  No notice of motion has been filed though one may possibly be taken to have been foreshadowed in a letter from the applicant's solicitors to the solicitors for the third respondent of 22 January 1997.  In any event, under the procedure followed in this Court - that is, under the Rules - the mere failure to appear, or to file a defence does not amount to an admission.  The principles are clearly stated in the decision of the Full Court in a case in some respects similar to this, MY Distributors Pty Ltd v OMAQ Pty Ltd, reported at (1992) 36 FCR 578.

It follows that the failure to file a defence does not produce the consequence that allegations in a statement of claim are to be taken as admitted.  It is only when a defence is filed, and an allegation in the statement of claim not traversed, that an admission is deemed under the Rules to have been made.  Secondly, authority in this Court makes it clear, in my view, that if the procedure under O 10 r 7 is sought to be relied upon by an applicant, by moving for final judgment under that Rule, the hearing of the motion
constitutes a trial and the facts relied upon as the necessary elements of the applicant's claim must be proved by admissible evidence: see Australian Securities Commission v McLeod (1994) 54 FCR 309 (Drummond J), especially his Honour's observations at 314.

In the result, were the applicant here to seek to rely on that procedure it would follow, I think, that a proceeding would take place very little different from that which will occur if a trial takes place as it is set down to take place next week.  I can see no reason why in such a proceeding it would not be open to the third respondent to rely on whatever legal matters are available to him, principally, no doubt, that sought to be relied upon in the defence.   There is no such motion at present before me, but because the matter was raised, and to some extent discussed during the course of argument this morning, it seemed to me appropriate to refer briefly to it.

I should add that I have noted and had regard to the statement to me this morning by the solicitor for the third respondent that he did not propose to seek leave to file any evidence.  I have already mentioned that several successive directions were made for the filing of evidence by the third respondent, and that none has yet been filed.  I am proceeding, therefore, on the footing  that a trial of this matter will involve the applicant seeking to prove, by its evidence, the necessary elements of its claim and legal argument as to what follows from the facts then proved.

For those reasons, I give leave to the third respondent to file in Court the defence handed up this morning which I shall initial and date and place with the papers.
The third respondent also handed up a form of notice of motion, seeking principally to strike out the amended statement of claim.  In the present circumstances, where the matter is to be heard next week and where the matters which would arise on the motion will in any event be dealt with at the trial, I am not disposed to permit the filing of the notice in Court.  It is of course open to the third respondent, if so advised, to file the notice of motion in the ordinary way in the registry, but, in light of what I have said, any such motion is likely to be otiose.

As for costs, I am prepared to hear the parties on them, but in the circumstances I think the appropriate order, subject to any matters which the parties may wish to put to me, is that costs be reserved.

I certify that this and the preceding 7 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:  31 January 1997

Heard:  31 January 1997

Place:  Sydney

Decision:  31 January 1997

Appearances:  Mr T S Hale and Mr I Mescher of counsel instructed by Minter Ellison appeared for the applicant.

Mr E L Mura of Hillman Mura & Consultants appeared for the third respondent.