Walsh and O'Meara Builders Pty Ltd v Greater Bendigo Developments Pty Ltd (in liquidation)
[2012] VCC 1809
•23 November 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION COMMERCIAL LIST BUILDING CASES DIVISION | Revised |
Case No. CI-10-03036
| WALSH & O'MEARA BUILDERS PTY LTD (ACN 080 056 060) | Plaintiff |
| v | |
| GREATER BENDIGO DEVELOPMENTS PTY LTD (ACN 129 519 928) (in liquidation) | Defendant |
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JUDGE: | HIS HONOUR JUDGE GINNANE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 30 July 2012 | |
DATE OF JUDGMENT: | 23 November 2012 | |
CASE MAY BE CITED AS: | Walsh & O'Meara Builders Pty Ltd v Greater Bendigo Developments Pty Ltd (in liquidation) | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1809 | |
REASONS FOR JUDGMENT
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PRACTICE- civil proceedings – overarching obligations - building case – whether hearing of the proceeding had commenced – whether overarching obligations applied to director of defendant bound by overarching obligations – defendant placed into liquidation during trial – conduct of trial - Civil Procedure Act 2010 ss 16, 18, 20-23, 25, 29, 73
COSTS – claim for costs against non party - County Court Act 1958 s 78A
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Andrew | Noble Lawyers |
| For Mr A Guicas | Mr P Lithgow | Valos Black & Associates |
HIS HONOUR:
The trial of this proceeding commenced on 23 April 2012. It is a building dispute. The plaintiff had agreed with the defendant to construct an office building in Bendigo. The defendant was a developer. On 30 April 2012, the defendant was placed into liquidation. The Court was informed of that event the following day and the proceeding was stayed pursuant to the provisions of the Corporations Act 2001. I reserved the costs of the trial.
Following directions that were given on 8 May 2012, the plaintiff brought an application under s29 of the Civil Procedure Act 2010 (“the Act”) alleging that Mr Anthony Guicas, a director of the defendant had breached overarching obligations contained in the Act which applied to him and seeking an order that he pay its costs of the proceeding on an indemnity basis. In the alternative, the plaintiff sought an order for costs against Mr Guicas under s 78A of the County Court Act 1958.
Section 29 of the Civil Procedure Act states:
(1) If a court is satisfied that, on the balance of probabilities, a person has contravened any overarching obligation, the court may make any order it considers appropriate in the interests of justice including, but not limited to—
(a) an order that the person pay some or all of the legal costs or other costs or expenses of any person arising from the contravention of the overarching obligation;
(b) an order that the legal costs or other costs or expenses of any person be payable immediately and be enforceable immediately;
(c) an order that the person compensate any person for any financial loss or other loss which was materially contributed to by the contravention of the overarching obligation, including—
(i) an order for penalty interest in accordance with the penalty interest rate in respect of any delay in the payment of an amount claimed in the civil proceeding; or
(ii) an order for no interest or reduced interest;
(d) an order that the person take any steps specified in the order which are reasonably necessary to remedy any contravention of the overarching obligations by the person;
(e) an order that the person not be permitted to take specified steps in the civil proceeding;
(f) any other order that the court considers to be in the interests of any person who has been prejudicially affected by the contravention of the overarching obligations.
(2) An order under this section may be made—
(a) on the application of—
(i) any party to the civil proceeding; or
(ii) any other person who, in the opinion of the court, has a sufficient interest in the proceeding; or
(b) on the court's own motion.
(3) This section does not limit any other power of a court to make any order, including any order as to costs.
Section 78A of the County Court Act states:
(1) The costs of and incidental to all proceedings are in the discretion of the Court and the Court may determine by whom and to what extent the costs are to be paid.
(2) In the due exercise of the discretion conferred by subsection (1), in any proceedings before the Court, the Court may order a legal practitioner to pay the costs of the proceedings or a portion of the costs.
(3) The Court may order that the costs of, and incidental to, a proceeding in the Court be assessed, settled, taxed or reviewed by the Costs Court.
Mr Landy of the plaintiff’s solicitors made an affidavit in support of the applications. Mr Guicas gave evidence during the trial in connection with the defendant’s adjournment application. He made an affidavit in opposition to the applications under s 29 and s78A and was cross examined on it.
The plaintiff in its Statement of Contentions alleged that Mr Guicas had breached the overarching obligations by:
(a)attempting to adjourn the trial at the last minute on spurious grounds (i.e. that Mr Guicas was suffering from a heart condition and would not be available for the week, secondly, that he had been admitted to hospital, when in fact he had not been admitted to hospital);
(b)prosecuting a counterclaim for substantial alleged defects claiming in excess of $100,000 for same. The counterclaim was shown during the trial to be overwhelmingly without merit. The defendant abandoned its own expert and did not challenge the plaintiff’s expert, instead it adopted the plaintiff’s expert’s evidence. Further, the defendant lacked standing to bring a claim for compensatory damages for breach of contract;
(c)prosecuting a counterclaim for common law damages for delay, when the contract stipulated liquidated damages for delay. This was not abandoned until 24 April;
(d)prosecuting a counter claim for liquidated damages, when the defendant knew, or ought to have known, through its director, Mr Guicas, that the plaintiff had been delayed and claims for extension of time had been submitted; and
(e)allowing the trial to run for five whole days and then placing the company into liquidation without notice to the court or the plaintiff.
The grounds of the plaintiff’s claim against Mr Guicas, who was not a party to the proceeding, pursuant to s78A of the County Court Act, were that:
(a)the defendant was obviously insolvent;
(b)Mr Guicas had played an active part in the conduct of the litigation; and
(c)Mr Guicas, or some person on whose behalf he was appointed, had an interest in the subject of the litigation.
The overarching obligations said to have been breached by Mr Guicas were those contained in s16 the paramount duty to further the administration of justice in relation to the civil proceeding; s18 dealing with frivolous or vexatious applications, s19 the taking of steps to avoid a dispute; s20 the duty to cooperate; s22 the use of reasonable endeavours to resolve the dispute; s23 making attempts to narrow the issues in dispute and s25 minimising delay.
Each of these provisions is contained in Chapter 2 of the Act. They are in the following terms:
16. Paramount duty
Each person to whom the overarching obligations apply has a paramount duty to the court to further the administration of justice in relation to any civil proceeding in which that person is involved, including, but not limited to-
(a) any interlocutory application or interlocutory proceeding;
(b) any appeal from an order or a judgment in a civil proceeding;
(c) any appropriate dispute resolution undertaken in relation to a civil
proceeding.
18. Overarching obligation-requirement of proper basis
A person to whom the overarching obligations apply must not make any claim or make a response to any claim in a civil proceeding that-
(a)is frivolous; or
(b)is vexatious; or
(c)is an abuse of process; or
(d)does not, on the factual and legal material available to the person at the time of making the claim or responding to the claim, as the case requires, have a proper basis.
19. Overarching obligation to only take steps to resolve or determine dispute
For the purpose of avoiding undue delay and expense, a person to whom the overarching obligations apply must not take any step in connection with any claim or response to any claim in a civil proceeding unless the person reasonably believes that the step is necessary to facilitate the resolution or determination of the proceeding.
20. Overarching obligation to cooperate in the conduct of civil proceeding
A person to whom the overarching obligations apply must cooperate with the parties to a civil proceeding and the court in connection with the conduct of that proceeding.
22. Overarching obligation to use reasonable endeavours to resolve dispute
A person to whom the overarching obligations apply must use reasonable endeavours to resolve a dispute by agreement between the persons in dispute, including, if appropriate, by appropriate dispute resolution, unless-
(a) it is not in the interests of justice to do so; or
(b) the dispute is of such a nature that only judicial determination is
appropriate.Example A proceeding where a civil penalty is sought may be of such a nature that only judicial determination is appropriate.
23. Overarching obligation to narrow the issues in dispute
If a person to whom the overarching obligations apply cannot resolve a dispute wholly by agreement, the person must use reasonable endeavours to-
(a) resolve by agreement any issues in dispute which can be resolved in that way; and
(b) narrow the scope of the remaining issues in dispute-
unless-
(c) it is not in the interests of justice to do so; or
(d) the dispute is of such a nature that only judicial determination is
appropriate.
25. Overarching obligation to minimise delay
For the purpose of ensuring the prompt conduct of a civil proceeding, a person to whom the overarching obligations apply must use reasonable endeavours in connection with the civil proceeding to-
(a) act promptly; and
(b) minimise delay.Do the provisions of the Civil Procedure Act apply to this proceeding?
10. This proceeding was commenced before the commencement of the Civil Procedure Act on 1 January 2011. The transitional provisions contained in s73 state:
(1)The overarching obligations apply in relation to all civil proceedings commenced on or after the commencement of Parts 2.2 to 2.4 of Chapter 2.
(2)If a civil proceeding has commenced before the commencement of Parts 2.2 to 2.4 of Chapter 2 but the court has not begun to hear and determine that proceeding, on and from the commencement of that Part, the overarching obligations apply in relation to that proceeding.
(3)If a civil proceeding has commenced before the commencement of Parts 2.2 to 2.4 of Chapter 2 and the court has begun to hear and determine that proceeding before the commencement of that Part, the overarching obligations do not apply in relation to that proceeding.
11. The term “civil proceeding” is defined to mean any proceedings in a court other than criminal proceedings or quasi criminal proceedings: s3.
12. On 22 September 2010, the Court awarded summary judgment to the plaintiff against the defendant pursuant to the provisions of the Building and Construction Industry Security of Payment Act 2002 in the sum of $53,863.23, inclusive of interest. It refused to grant summary judgment in respect of a second claim.
13. There is authority that the Court does not commence to hear and determine a proceeding by merely determining an application in a proceeding. The plaintiff submitted that the Court hears and determines the proceeding at trial – see Hodgson v Amcor Ltd[1] and Jackson v Newns.[2] The Explanatory Memorandum to the Civil Procedure Bill is of relevance. It states in respect of the transitional provisions:
“However, if a court has begun to hear and determine a civil proceeding before the commencement of this Part, the overarching obligations do not apply in relation to that proceeding. This will ensure that there is no change in the obligations in trials that are ongoing at the date of the Bill’s commencement.”[3]
[1][2011] VSC 63 at [28]
[2][2011] VSC 32
[3]P27
Mr Guicas submitted that by determining at least part of the plaintiff’s claim on the summary judgment application, the Court had commenced to hear and determine the proceeding.
15. It was not suggested that the Court should treat the counterclaim separately for the purposes of determining the current issue. For some purposes a counterclaim is regarded as an independent or separate proceeding.[4] However, it is unlikely that the overarching obligations were intended to apply to only part of a proceeding. Such an approach would be difficult to implement.
[4]See Civil Procedure Victoria p2703
16. I consider that the phrase “hear and determine” in s73 is principally directed at the hearing and determination of a proceeding at a trial and not the hearing and determination of issues in respect of interlocutory issues eg the provision of particulars of a pleading. However, I also consider that the provision would extend to a proceeding whereby a significant issue has already been determined by summary application. Such an issue has been heard and determined.
17. In this case the Court has heard and determined one of the two claims for progress payments. While the summary judgment resulted in an interlocutory order, no appeal has been lodged and the defendant paid the sum due under it to the plaintiff. In those circumstances, it would be incongruous to say that the Court has not commenced to hear and determine the proceeding.
18. I therefore consider that the overarching obligations relied on by the plaintiff did not apply to the conduct of this proceeding.
19. Nevertheless, as there was substantial argument about whether Mr Guicas had breached the overarching obligations and because of the overlap that exists between the submissions put in respect of the overarching obligations and in respect of the application of s78A, I will at a later point in the judgment state the conclusions that I would have reached, if I had found that the overarching obligations did apply.
Did the overarching obligations apply to Mr Guicas?
20. There is a preliminary point concerning the overarching obligations if they did apply in this proceeding. It is whether the overarching obligations applied to Mr Guicas, who was not a party to the proceeding. I will express my conclusion about that issue.
21. Section 10 of the Act, which is headed “Application of overarching obligations – participants” states:
(1)The overarching obligations apply to ─
(a) any person who is a party;
(b) any legal practitioner or other representative acting for or on behalf of a party;
(c) any law practice acting for and on behalf of a party;
(d) any person who provides financial assistance or other assistance to any party in so far as that person exercises any direct control, indirect control or any influence over the conduct of the civil proceeding or of a party in respect of that civil proceeding, including, but not limited to ─
(i)an insurer;
(ii)a provider of funding or financial support, including the litigation funder.
(2)Subject to subsection (3), the overarching obligations do not apply to any witness in a civil proceeding.
(3)The overarching obligations (other than the overarching obligations specified in sections 18, 19, 22 and 26) apply to any expert witness in a civil proceeding.
(4)Subsection (3) is in addition to, and not in derogation of, any existing duties applying to expert witnesses.”
22. As stated, Mr Guicas was a director of the defendant. He is a building practitioner of 25 years’ experience. He was appointed as the superintendent under the contract made between the plaintiff and the defendant. He became a director of the defendant after the contract was signed.
23. There were two other directors, Mr Neil Keyte and Mr Alistair Smith. Each of the directors was a shareholder in the defendant. Mr Guicas said that:
“Its like most development companies, a vehicle for development as most companies are, and then as the company completes, its usually most companies are shut down.”[5]
[5]T542
24. The defendant sold the building soon after its construction was completed in December 2009. There was no evidence of how the proceeds of sale were distributed. Once the building was sold, the defendant had no assets other than any funds that its directors might provide.
25. The defendant’s source of income over the last 12 months has been the directors, who have paid bills as required while the proceeding was on foot. Mr Guicas and the other directors agreed to underwrite the defendant’s costs for the first three days, and later five days of the proceeding. Mr Guicas gave evidence that he had provided about $25,000 in funds for the costs of the proceeding, over the last two years. There were initially financial arrangements in place to fund the trial for three days, which was the estimate of its length provided by Mr P Cahill, the defendant’s solicitor. Mr Guicas said that he was obliged to reimburse Mr Keyte a further sum of $12,500 for his share of costs incurred in respect of the trial.
26. Counsel for Mr Guicas argued that the overarching obligations would not have applied to him and advanced a narrow reading of s 10(1) of the Act, limiting it to insurers and litigation funders and persons with a similar interest. However, I consider that the words of s 10 should not be given a restricted meaning. Mr Guicas did provide financial assistance to the defendant and exercised, at the least, some indirect influence over the conduct of the proceeding. Therefore, if the overarching obligations had applied to the conduct of this proceeding, they would have applied to Mr Guicas.
Description of the proceeding
27. It is necessary to describe in a little detail the nature of the proceeding and the conduct of the trial.
28. The plaintiff sued for payment claims: the first payment claim was for $60,025.90. A further progress claim was for $67,062.60. As previously stated, the plaintiff obtained summary judgment for $53,863.23 in respect of the first progress claim.
29. The defendant, in a counterclaim, alleged that the plaintiff did not complete the work within the time required. It further alleged the works were not carried out in accordance with the contract. Thirdly, it claimed liquidated damages for delay. It also sought common law damages for delay. Fourthly, it sought the cost of rectifying work.
30. Mr Cahill, the defendant’s solicitor signed the proper basis certification overarching certificate in relation to the defence.
31. In reply, the plaintiff pleaded that the defendant lacked standing in law to prosecute its claim because it had sold the property. It also alleged that the date for practical completion had been extended. Thirdly, it alleged that the defendant was responsible for delays in the plaintiff bringing the works to practical completion and, that accordingly, it was entitled to extensions of time until 14 December 2009, at which date the works were practically completed. It relied on Extension of Time Claim No 2, dated 23 March 2009, which related to the installation of the lift panels and Claim No 9, dated 11 November 2009, which related to the completion of the fire services and the obtaining of the occupancy permit. It argued that Mr Guicas, the superintendent failed to respond to the extension of time claims as required by contract. It alleged that any damages that the defendant was entitled to recover were limited to liquidated damages. The contract provided for liquidated damages for any delay in completing the Works at the rate of $2,000.00 per day (clause 34.7 and Part A Annexure).
32. Mr Guicas, in an affidavit opposing the summary judgment application, referred to the paragraphs of the Defence and Counterclaim that alleged that the plaintiff had breached the contract, stating:
“I refer to Paragraphs 27-29 inclusive of the Defence and Counterclaim filed herein and say that the contents thereof are true and correct. I have estimated the amounts set out in Paragraphs 29 (c)(d) thereof from my own knowledge as a building practitioner and of my knowledge of the Building Project.”
33. Paragraph 29(c) of the counterclaim dealt with the costs of completing the Works and paragraph 29(d) dealt with the costs of rectifying works not carried out in accordance with the contract.
The conduct of the trial
34. On Friday 20 April, Mr Guicas and Mr Keyte, who was also a director of the defendant, met with Mr Philip Hayes of counsel, who had been retained to act for the defendant, in preparation for the trial. Mr Guicas’ evidence was that he told Mr Hayes that he had been released from hospital the previous day and was still feeling the effects of the operation, and he was unsure whether he would be fit to attend Court on Monday 23 April. Mr Guicas stated in his affidavit that in the conference he was informed that it was not necessary for any of the directors to be present at Court on 23 April, as it was expected there would be argument regarding an adjournment because of the defendant’s desire to file expert evidence in response to the plaintiff’s expert report of Mr P Harris, which was relevant to the programme of the building works and the claims for liquidated damages.
35. The trial commenced on Monday, 23 April with an estimate of 3 days. Mr R Andrew appeared for the plaintiff and Mr Hayes for the defendant. Mr Hayes, immediately after announcing his appearance, stated that his client, the defendant, sought an adjournment of the proceeding. He relied on two grounds in support of the adjournment application. One was that the plaintiff on 17 April 2012 had served an amended reply and defence to counterclaim which had raised the issue of its entitlement to an extension of time until 14 December 2009. He argued that the plaintiff now relied on a new ground for obtaining an extension of time. He also argued that the defendant had only recently received notice of the plaintiff’s intention to rely on the expert report of Mr R Harris, in support of the extension of time claims. The defendant argued that the plaintiff’s extension of time claims had been refused by the superintendent, Mr Guicas and that the plaintiff was not entitled to challenge his decision. The defendant sought time to reply to Mr Harris’ report. Mr Guicas later gave evidence that he had contacted at least one expert, but it was unable to respond in the time available.
36. The second ground for the adjournment advanced by counsel was that Mr Guicas was in hospital for urgent medical treatment and he had not been able to consider Mr Harris’ report properly. Mr Hayes stated that his instructions were that Mr Guicas would be unavailable for a number of days and that a medical certificate was coming. He produced an email sent to Mr Guicas by a urology trainee at the Westmeadows Hospital in Sydney, which referred to Mr Guicas’ heart condition and stated:
“Mr Guicas has been booked in at the Epworth Hospital for Monday the 23rd of April 2012 for aforementioned tests and will be unavailable on the day and possibly admitted overnight pending results.”
37. The plaintiff opposed the adjournment application.
38. In fact, Mr Guicas had been in hospital on two occasions in April and had been released most recently on Thursday 19 April. There was no evidence that he was in hospital on Monday 23 April. Mr Guicas made an affidavit exhibiting a letter from his cardiologist at the Epworth Hospital. Mr Guicas stated that he was in hospital on 8 and 9 April as a result of developing symptoms in relation to existing heart problems. He returned to the hospital on 18 April. He was an inpatient overnight and released the next day. His cardiologist at Epworth Hospital in a letter dated 23 May 2012 stated that he had organised to perform a percutaneous coronary intervention with balloon angioplasty and stent on Mr Guicas and:
“I performed this procedure on the 18th of April and deployed as stent in the right coronary artery. Anthony was discharged from hospital on the 19th of April with the advice not to return to work for 2 weeks and to take extreme care with any physical activity which might cause increased likelihood of bleeding from his groin puncture site.”
39. In Mr Guicas’ affidavit, there is no suggestion that he had arranged to, or did attend, the Epworth Hospital on 23 April.
40. I adjourned the hearing for a short time to read Mr Harris’s report and then informed the defendant’s counsel that it should find out what medical information was going to be put before the court, including information about whether Mr Guicas was going to be in a position to instruct counsel about matters that needed to be raised.
41. Upon resumption of the hearing, Mr Hayes stated that he had spoken to his instructor solicitor, Mr Cahill, who is a sole practitioner in Bendigo. Mr Cahill and Mr Guicas did not attend the first day of hearing. Mr Hayes stated that Mr Guicas was at Epworth Hospital.[6] He stated that Mr Guicas would be in hospital until at least 3pm and had been in and out of Epworth for the last two days. He stated that a medical certificate would be forthcoming. There is no mention of any of these matters in Mr Guicas’ affidavit.
[6]T 34
42. At 2.30pm on 23 April, Mr Hayes handed to the Court an unsworn affidavit from Mr Cahill about the timing of the defendant’s dealing with Mr Harris’ report and the possibility of obtaining a report in reply. Mr Cahill stated that Mr Guicas had told him that he would not be in a position to provide instructions and would not be capable of attending court and understanding the evidence. The affidavit, which was sworn on 23 April, stated that:
“ I understand from Mr Guicas from a telephone conversation during mid morning today that he will have difficulty in providing instructions and will not be capable of attending Court and understanding the evidence and being cross-examined. Mr Guicas advised that he was in Epworth Hospital in preparation for a series of tests to be undertaken on him during the course of the day. I have recently, shortly prior to swearing this Affidavit attempted to contact Mr Guicas by telephone, but I have been unable to do so.”
43. The evidence given by Mr Guicas and Mr Cahill does not able me to determine how it was that counsel was instructed that Mr Guicas was in hospital on 23 April, when it appears that he was not.
44. I adjourned the hearing until the following day and directed Mr Cahill that Mr A Smith and Mr N Keyte, directors of the defendant company, should be in attendance at that time.
45. The next day, Mr Cahill and Mr Guicas attended and gave evidence and were cross-examined. Mr Guicas did not give evidence that he had been at the Epworth Hospital on 23 April.
46. After hearing evidence and submissions, at about 2:45pm on 24 April, I refused the application for adjournment. Therefore, a day and three-quarters was spent on hearing and determining the unsuccessful adjournment application. The plaintiff sought the costs of that adjournment on an indemnity basis. I reserved the question of costs until I delivered judgment after the completion of the trial.
47. Before evidence was called, Mr Hayes in an opening summary of the defendant’s case, stated that he concurred with the plaintiff’s submission concerning liquidated damages. I took this to mean that he agreed that the contract provision concerning liquidated damages prevented the defendant’s claim for common law damages. He stated that the defendant pursued the claim for $48,000, which was for liquidated damages, because the plaintiff had delayed the completion of the works. The defendant also pursued a claim for damages for works requiring rectification or completion, although a number of claims which were initially included in the counterclaim were no longer pursued.
48. Mr Guicas stated in his affidavit that early in the proceeding in 2010, Mr Cahill had advised the directors that the defendant had a valid claim for liquidated damages because of the delay in completion of the project and also had claims for defective and incomplete building works.
49. Mr Guicas stated that, during the course of the trial, it became clear that the difference between the plaintiff’s and the defendant’s experts’ assessments in relation to certain of its defective or incomplete work claims, principally being a claim in relation to the car park, was only approximately $5,000. The directors instructed counsel to abandon claims arising from that difference because it was uneconomic to argue over such a small amount and in order to shorten the duration of the trial and hopefully remove the need to call an expert witness.
50. Mr Guicas said that Mr Hayes also recommended that, as there was a mechanism for claiming liquidated damages, the delay claims for interest and rental foregone, should not be pursued by way of claims for general damages. The directors accepted that recommendation.
51. The defendant withdrew its claim for the interest incurred to pay for the works from 12 November 2009 to 17 December 2009 and for bank bill fees charged to roll over the bills to that latter date. A claim for rent foregone because of the delay in completing the building was withdrawn. The amount of the claim for completion costs had been reduced in the amended counterclaim dated 4 April 2012 to $8,265 in reliance on a report from SJ Foley & Associates, which put the figure at $8,665. The Foley report put the cost of make good works at $10,900
52. The costs of rectifying works not carried out in accordance with the Contract was said in the Amended Counterclaim to be $95,888.82, of which $24,844.60 was for a fresh application of a non-skid surface to the car park slab and $51,795.00 was for future applications of that surface. The Foley report did not include those items.
53. Mr Guicas stated that the cost of the sealing of the car park had been removed by Mr Cahill and Mr Keyte without his knowledge from the counterclaim, or the items that the Foley report was to assess - it was not clear from his evidence to which he was referring.[7]
[7]T554-555
54. Mr Guicas stated that as superintendent under the building contract, he considered that because the plaintiff had failed to comply with the contractual provisions dealing with claims for extensions of time, that it had lost the right to claim them. He stated that Mr Cahill advised the directors that the failure to comply with the contractual mechanism for obtaining extensions of time provided a good foundation for the defendant’s defence in relation to this aspect of the plaintiff’s claim.
55. On the Thursday, when the trial resumed after Anzac Day, Mr Walsh, a director of the plaintiff, gave evidence and then Mr Harris was interposed and his evidence given. Mr Walsh completed his evidence on Monday 30 April. There was extensive cross-examination of both these witnesses.
56. Mr Guicas stated that by Anzac Day, it was clear the trial was unlikely to be completed in anything like the three days estimated. However, even allowing for the benefit of hindsight, the prospect of the case being completed in three days was never realistic.
57. Mr Guicas stated that the directors were concerned about the lengthening of the trial and sought advice from Mr Hayes as to its likely duration. They were informed that there was every likelihood that the trial could possibly be completed by Monday 30 April, which was three hearing days later, given the concessions that they were prepared to make by abandoning aspects of their counterclaim and not calling an expert. This would give the trial a duration of five days. The directors were prepared to provide funding for the trial on this projected duration.
58. Mr Guicas stated that late on Friday, 27 April, after the Court hearing had been completed, he was informed by Mr Hayes and Mr Keyte that the trial was unlikely to be completed on Monday, 30 April, and that the Judge had indicated that the trial could take up all, or most of the next week.
59. Mr Guicas had further concerns about the funding of the trial, particularly as the directors had originally arranged to fund it on the basis of a three day estimate.
60. On Saturday, 28 April, the directors of the defendant had a further conference with Mr Cahill in his office with Mr Hayes and Mr Guicas on the telephone and they expressly raised the prospect of the defendant’s ability to continue funding the trial. Mr Hayes informed them that it would be advisable to discuss their options with an appropriate professional advisor if the defendant was unable or unwilling to continue funding the trial.
61. The directors instructed Mr Hayes to make an inquiry on their behalf as to whether they could obtain advise concerning their options as directors and the ramifications if the defendant was unable to continue to fund the trial.
62. Mr Guicas stated that further telephone discussions between the directors over the weekend confirmed that they would either have to provide further funding for the trial or consider alternatives.
63. On Sunday evening, 29 April, Mr Guicas sent his fellow directors an email stating:
“I disagree with Simon’s opinion that we ‘just got to weather this one out’.
As per my discussions today on the phone to you all. We are technically insolvent as of Friday and as directors we have a responsibility not to incur any further debts for GBD.
This situation has been brought on by the incorrect advice of Peter Cahill, his miss management of the case, and lack of preparation when briefing Mr Hayes. This I continually voiced my concerns about from day one but was assured by both AS and NK that Peter had the experience and was up to the task. This was totally wrong.
Without going into any of my past emails and detailed concerns about this matter I will be moving that we need to liquidate the company at our meeting tomorrow morning. Should you not agree at that time I will be handing in my resignation as a director of GBD.
Unless anyone can provide professional written advice as to why this should not occur I see no other option.
See you both at 8.00am at Mr Hayes’ Office to discuss the matter with the liquidator.” (emphasis in the original)
64. Mr Guicas stated that he continued to work on the case over the weekend. At 8am on Monday 30 April, Mr Guicas attended a meeting with Mr Malcolm Howell of Jirsch Sutherland and other directors of the defendant in Mr Hayes’ chambers. The directors sought advice from Mr Howell concerning the defendant’s options, although they did not make a decision at that stage. Mr Howell advised them of the steps that needed to be undertaken if the defendant was to be placed in liquidation or administration.
65. Around lunchtime on Monday, 30 April, while the trial was continuing, a meeting of the directors of the defendant was convened for the purpose of considering, and, if appropriate, passing a resolution in relation to placing the defendant into liquidation or administration.
66. The directors decided to place the defendant into liquidation and to appoint a liquidator. The defendant was placed into liquidation on the afternoon of 30 April 2012. The liquidator was Mr Malcolm Howell.
67. As previously stated, while all this was going on the trial was continuing. The plaintiff tendered the report of Mr R Simpson, a registered building practitioner, concerning the work that the defendant alleged had not been carried out in accordance with the contract and as to the scope and cost of rectification and completion works. He provided an estimate of $12,331.70. He attended Court, but the defendant consented to the tender of his report without him having to give evidence.
68. Mr Landy stated in his affidavit that upon returning to Court after the lunch adjournment on 30 April, he observed Mr Keyte shake hands with Mr Hayes and leave the Court. He did not return.
69. At about 3pm, the plaintiff closed its case and Mr Hayes opened the defendant’s case. Mr Hayes stated that the defendant would not be taking issue with Mr Simpson’s report. He stated that Mr Guicas was the defendant’s only witness, but that he was not available that afternoon because he had a professional commitment, but he would be available the following day to give evidence. He also requested an opportunity to “work through” Mr Simpson’s report.
70. Mr T Landy, the solicitor in the employ of the plaintiff’s solicitors, made an affidavit concerning the history of the litigation and attaching the liquidator’s declaration of independence, relevant relationships, prior engagements and indemnities.
71. Under the headings “Declaration of Relevant Relationships Circumstances of Appointment and Referral Source”, the liquidator’s declaration stated:
“The Company was referred to Jirsch Sutherland by its Barrister, Mr Phillip Hayes. I note that third party clients of Phillip Hayes have been referred to Jirsch Sutherland previously for other insolvency related matters.
I received a telephone call from Phillip Hayes on 28 April 2012 regarding whether I could meet with his client on 30 April 2012.
I subsequently met with the client on the morning of 30 April 2012 to discuss director’s duties in general and the potential insolvency of the company should funding of the current County Court proceedings no longer be available. I met the client again later on the same day in order to initiate the liquidation process.
Neither the Company nor the directors have been charged in respect of said meetings prior to my appointment”
72. When the case resumed on Tuesday, 1 May Mr Hayes stated that he appeared as matter of courtesy to inform the Court that the defendant had been placed into liquidation on the previous day.
The Plaintiff’s case against Mr Guicas
73. The case against Mr Guicas was put in a number of ways. These included matters relating to the adjournment application in that it was argued that he failed to take appropriate action such as to ensure that the expert report was available on time. Mr Guicas had a copy of Mr Harris’ report since 5 April. He conferred with Mr Hayes on Friday 20 April. Mr Guicas had sworn the affidavit in opposition to summary judgment in September 2010, in which he had shown no difficulty in dealing with the substantive issues. Mr Guicas’ position was different from the other directors because he was a building practitioner.
74. Mr Guicas had failed to ensure that his medical appointments did not interfere with the case. Most of Monday, 23 April was taken up with what were said to be attempts by the defendant to provide a medical certificate to explain Mr Guicas’ non-attendance.
75. The plaintiff submitted that Mr Hayes’ opening summary of the defendant’s case contained a substantial abandonment by the defendant of its counterclaims for the cost of making good alleged defects and for common law damages for delay. The plaintiff argued that it was not an acceptable for a party to civil litigation to make an ambit claim and then abandon significant parts of it. The defendant had received the Foley report in March 2012 and should have then acted on the conclusions that it reached. It argued that it was open to conclusion that the counterclaim had been brought to stop the plaintiff from having its claim heard and from obtaining payment. Ultimately nearly all of the counterclaim had been abandoned. The defendant’s counterclaim as pursued at trial was within the jurisdiction of the Magistrate’s Court.
76. The plaintiff argued that the defendant’s case was always hopeless because it had sold the property in December 2009.
77. The plaintiff also argued that it was apparent that counsel in cross-examining Mr Harris for an extensive period was bereft of instructions from Mr Guicas and the time taken in cross-examination was not justified.
78. The plaintiff also argued that the evidence strongly supported its Extension of Time claims. Nothing of substance had been put by the defendant to challenge them.
79. Mr Guicas’s case was that he had acted on legal advice. He had been in ill health and hospitalised. He and Mr Cahill considered that an expert’s report should be obtained to respond to Mr Harris’ report. The defendant was placed into liquidation because it had insufficient finance to fund the litigation. It had not been shown that Mr Guicas had acted unreasonably or exceptionally. He had no involvement in the case other than acting as a director and potential witness.
Consideration of the evidence and submissions
80. As previously stated, although I have determined that the overarching obligations did not apply to this proceeding, I will state the conclusions that I would have reached if they had applied. I will then consider the plaintiff’s claim for costs under s78A of the County Court Act. The factual matters that I discuss in respect of the overarching obligations are also of general relevance in determining the application under s78A.
81. The Civil Procedure Act is significant new legislation intended to benefit litigants, the justice system and therefore the community by imposing significant obligations on the conduct of civil litigation. The main purposes of the Act are contained in s1(1) and include:
“(c) to provide for an overarching purpose in relation to the conduct of civil proceedings to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute.”
82. The effect of these obligations in a given case will depend on its individual circumstances.
83. The plaintiff’s claim under the Act, in order to succeed, has to establish on the balance of probabilities, that Mr Guicas breached the overarching obligations. The plaintiff must produce proof that persuades the Court. Suspicion and conjecture are insufficient.
84. A difficulty in dealing with alleged breaches of the overarching obligations and with the application under s 78A of the County Court Act is that the case was not argued to its finality. The Court is being asked to award costs in respect of conduct in an incomplete case. Therefore, the Court has to consider whether a claim had a proper basis in circumstances, where the defendant, because it was placed into liquidation, has not put submissions explaining the basis for its claims. For example, the argument that the defendant did not have standing to pursue damages claims against the plaintiff appears correct, at least in respect of claims for completion or rectification costs, but the Court did not receive final submissions about that and the other defences or claims made in the counterclaims. The conclusion that the defendant did not have the right to bring a claim for liquidated damages for delay may not have been so clear. The Court did not receive submissions whether the defendant could maintain a claim for liquidated damages for delay after it had sold the building and land.
85. Section 16 of the Act contains the paramount obligation, that persons to whom the overarching obligations apply owe to the Court. Claims under s29 of the Act can be made when breaches of the overarching obligations, contained in the sections that follow s16, occur. I will consider each of the overarching obligations that were relied on in turn
86. Section 18 of the Civil Procedure Act prohibits a person from making a claim or making a response to a claim that is frivolous, vexatious or an abuse of process, or which does not have a proper basis. The words frivolous, vexatious or an abuse of process usually refer to cases which are clearly not sustainable.[8] The requirement of a proper basis is a broad concept. The words of s18(d) suggest that it would, at least include, information that justifies the factual allegations made and an arguable basis for the legal claims that are pursued.
[8]See eg the cases collected in Civil Procedure Victoria, vol 1, p 3418.11 in the discussion on the principles governing the ordering of summary judgment
87. I do not consider that the plaintiff has established that Mr Guicas breached the obligation contained in s18. Mr Guicas did not make the claim, the defendant did. He was one of three directors of the company. I accept his evidence that the directors acted on legal advice in deciding how the litigation should be conducted. His email to his fellow directors on 29 April 2012 forcefully expresses the point that they had persuaded him to rely on the solicitor’s advice.
88. I should record that Mr Cahill is not a party to these applications and has not had the opportunity to respond to the comments made in Mr Guicas’ email. I make no finding about their validity.
89. I accept the plaintiff’s argument that Mr Guicas is likely to have brought greater practical building expertise to the conduct of the litigation. However I am not satisfied that he adopted a controlling role in the conduct of the litigation. He did not give the overarching obligations certificate. His evidence is that he acted on the advice of the company solicitor. He described the other directors as “hard nosed developers” and “very experienced developers”[9]. He is not a legal practitioner. His email to his fellow directors on the evening of 29 April concerning the solvency of the defendant suggests that he had no more say in the conduct of the litigation than the other directors.
[9]T557
90. The defendant’s claims for liquidated damages under the contract and for general delay damages could not both succeed. However claims are often made in the alternative and their formulation was primarily a matter for determination by the lawyers acting for the defendant. When counsel raised this matter with the directors they accepted his advice.
91. So far as the defects and completion costs were concerned Mr Guicas expressed disagreement with the deletion of the sealant claim from the completion costs claim. That was a item with a significant cost.
92. The decisions to adopt Mr Simpson’s completion and rectification estimates and thereby to abandon reliance on the Foley report were announced on 30 April, the day when the defendant was placed into liquidation. These decisions appear to have been caused by the directors being unwilling to continue to fund the litigation. Mr Guicas’ email of 29 April reveals that he was aware of his duties as director to ensure that the company did not trade when he considered that it was insolvent.
93. Mr Guicas maintained that the plaintiff’s Extension of Time claims could not succeed because he had already refused them. The determination of that issue would have turned on questions of fact and law. It cannot be concluded on the material before the Court that Mr Guicas’ viewpoint had no proper basis.
94. Similar conclusions apply to the overarching obligation in s19 – to only take steps to resolve or determine the dispute. Emphasis was placed on the adjournment sought on the first day of the trial. However, Mr Guicas had been hospitalised a few days previously and had a stent inserted and told not to work for two weeks. He was apparently told by the defendant’s that he need not attend Court. It was inappropriate to give him that impression. However, I accept that he acted on the advice given to him by his lawyers.
95. It has not been established that Mr Guicas took any step in connection with the proceeding that contravened the obligation contained in s19. That obligation is to not to take a step in connection with a claim or a response to a claim unless the person reasonably believes that it is necessary to facilitate the resolution or determination of the proceeding. The evidence is that Mr Guicas acted on legal advice, although because of his building experience he had a view about a number of the plaintiff’s and defendant’s claims.
96. An important question in respect of each of the overarching obligations is whether they are breached by a person to whom they apply, who chooses to cease funding litigation brought by another person during its course, because it has continued longer than anticipated. A similar issue arises for consideration in respect of applications against non-parties under s 78A of the County Court Act. Each case will depend on its particular circumstances and the reason for the person’s actions. However, I am not persuaded that it has been established that Mr Guicas was obliged, in any sense relevant to these applications, to provide any further funding for the defendant’s conduct of the litigation.
97. In the case of s 20, the obligation to cooperate in the conduct of the proceeding, no factual matter was relied on additional to those considered in deciding the alleged breaches of ss 18 and 19. It has not been established that Mr Guicas took any step that breached this obligation.
98. So far as the obligation under s 22, of using reasonable endeavours to resolve the dispute, is concerned, there was no evidence before the Court about what steps were taken to resolve the dispute by way of mediation or discussions regarding settlement. No breach by Mr Guicas of this obligation has been established.
99. Section 23 contains the overarching obligation to narrow the issues in dispute. The plaintiff argued that the defendant’s claims were without substance. Counsel for the defendant did narrow the defences and counterclaims on the first day of the trial. Further claims were in effect abandoned on the last day of the trial but that was in circumstances where the insolvency of the defendant created the likelihood that it was going to be placed into liquidation.
However, again it has to be taken into account that Mr Guicas, although a building practitioner and the superintendent, was not a lawyer. His evidence was that he and the other directors acted on the advice of the defendant’s solicitor and counsel, who had been retained to conduct the trial. It commonly occurs that counsel, when retained, will advise parties to narrow the issues that they are to pursue at trial. That is what occurred in this proceeding.
So far as the obligation in s 25 is concerned - to minimise delay, I have taken into account that the Court was not informed of the correct details of Mr Guicas’ whereabouts on 23 April. I also consider that he should not have been given the impression that an adjournment would be readily granted. However, Mr Guicas was under medical direction not to return to work for two weeks and to take extreme care with relevant physical activity. Therefore, there was a medical basis for the adjournment application to be made, although the Court was misinformed of its detail.
The other basis for the adjournment application was the need for the defendant to obtain an expert report in response to Mr Harris’ report. I was not persuaded that an adjournment should be granted on that ground. It appears that Mr Cahill supported the need for such a reply statement. However, Mr Harris’ report was of recent origin. I do not consider that the application for an adjournment to obtain such a report in reply, breaches this overarching obligation, even when the application was unsuccessful. In the normal course the defendant would have been ordered to pay the plaintiff’s costs of this unsuccessful adjournment application.
For the above reasons, had I considered that the overarching obligations applied to this proceeding, I would not have been persuaded that Mr Guicas had breached them.
Section 78A of the County Court Act 1958.
I have set out the terms of s 78A earlier in this judgment. That section gives the Court power to award costs against a person, who is not a party to the proceedings, in appropriate cases.
The circumstances that guide the discretion to award costs against a non-party were discussed in Knight v FP Special Assets Ltd.[10] Mason CJ and Deane J referred to the significance of indentifying the “real party” to the litigation even if that person is not a party on the record.[11] Their Honours stated:
“ For our part, we consider it appropriate to recognize a general category of case in which an order for security should be made against a non-party and which would encompass the case of a receiver of a company who is not a party to the litigation. That category of case consists of circumstances where the party to the litigation is an insolvent person or man of straw, where the non-party has played an active part in the conduct of the litigation and where the non-party, or some other person on whose behalf he or she is acting or by whom he or she has been appointed, has an interest in the litigation. Where the circumstances of the case fall within that category an order for costs should be made against the non-party if the interests of justice require that it be made.”[12]
[10](1992) 174 CLR 178
[11](Supra) at p190
[12](Supra) at pp192-193
In Rushton (Qld) Pty Ltd v Rushton (NSW) Pty Ltd[13], Muir J stated:
“In my view the mere fact that a person is the sole director and shareholder of an unsuccessful litigant corporation will not, without more, suffice to justify a costs order against that person. And that is so even if the person was the corporation’s sole, principal or ultimate decision maker in relation to the litigation.
To conclude otherwise would be to ignore the principle that costs orders against non-parties are ‘exceptional’ and ought to be made only if appropriate in the interest of justice. The control of a corporate litigant by a director who is also its sole or majority shareholder is an unremarkable occurrence. It is sanctioned by a long established legislative framework which recognizes that a company has an independent legal personality distinct from that of its members and that neither members nor directors, as a general proposition, are personally liable for its acts and defaults.”[14]
[13][2004] QSC 47
[14](Supra) at [12]-[13]
In this case, the defendant’s solvency depended on the provision of funds from its directors. Mr Guicas and the other directors, did take an active part in the conduct of the litigation and as shareholders stood to benefit from its outcome.
Despite these matters, I do not consider that Mr Guicas was a “real party” to the proceeding. He was one of three directors and shareholders. It does not follow that because a company has no assets other than funds advanced by its directors that they are the real parties for the purposes of determining whether costs should be awarded against them.
I refer to the above reasons that I have given in determining that if the overarching obligations had applied, the plaintiff has not established that Mr Guicas had breached them. For similar reasons, I consider that no order for costs under s 78A of the County Court Act should be made against him. Although, an experienced building practitioner, he acted on legal advice from the defendant’s solicitor and its counsel. He agreed to the narrowing of issues when he received legal advice that the defendant should do so. He considered that the defendant had a defence to the plaintiff’s extension of time claims. He provided a reason for not being at Court on the first day.
Mr Guicas provided funding to assist the defendant participate in the litigation, but did so on the basis of the estimates of the length of the litigation that he had received. He incurred debts that he still has to repay in doing so. He agreed to the liquidation of the company when the funds that had been considered sufficient to fund the litigation proved insufficient.
I do not consider that the circumstances of this case justify a costs order against Mr Guicas under s78A of the County Court Act..
Concluding observations
My reason have largely considered the actions of Mr Guicas. That is because the plaintiff is seeking the unusual outcome, at least until the commencement of the Civil Procedure Act, of an order for costs against a non-party. The plaintiff bears the onus of proving that such an order should be made. It is clear that those who control the plaintiff are entitled to criticize the manner in which the proceeding was conducted on behalf of the defendant. The plaintiff has ended the proceeding in an invidious position through no fault of its own, with costs being incurred and not having obtained the Court’s determination of its claim against the defendant. It is a fact of commercial life, not least in the building and construction industry, that there are risks in dealing with companies with no real assets, or which if they have assets, may dispose of them. It is not unusual for a company to conduct litigation on a limited budget sufficient only to meet the costs of the estimated hearing.
The defendant did prolong the trial, at least by the adjournment application for the first two days, thereby causing the plaintiff to incur costs for no good reason and also consuming the funds that the directors had provided for the case. If the case had gone to judgment, then in all probability, regardless of its outcome, the defendant would have been ordered to pay the plaintiff’s costs of those days. However, the Court is asked to order that the plaintiff’s costs of the proceeding be paid by one director of the defendant. The evidence does not justify such an order.
Finally, I do consider that the Court should have been informed by at least lunchtime on 30 April that the directors of the defendant were considering its future in a manner that may affect the future of the litigation. Costs continued to be incurred on the afternoon for no good purpose. However, it has not been established that the decision as to when the Court was to be informed of the proposed liquidation of the company was made by Mr Guicas.
I dismiss the plaintiff’s application for orders against Mr Guicas under s 29 of the Civil Procedure Act and s78A of the County Court Act.
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