Watt v Shepherd

Case [2021] FCA 561

FEDERAL COURT OF AUSTRALIA

Watt v Shepherd [2021] FCA 561  

File number: NSD 922 of 2019
Judgment of: RARES J
Date of judgment: 20 May 2021
Catchwords: PRACTICE AND PROCEDURE – default judgment under r 5.23 of Federal Court Rules 2011 – where respondents in default of Court orders – where respondents sought third extension of time to serve evidence and leave to amend cross-claim – where respondents’ default and application for leave not properly explained – where amendments added new claims and new parties to cross-claim – where subject of amended claims known to respondents from inception of litigation – whether granting extension of time and leave to amend would delay hearing – whether respondents would suffer prejudice if extension and leave not granted– whether overarching purpose of Federal Court of Australia Act 1976 (Cth) s 37M would be achieved by granting extension and leave – case management principles considered – Held: not in the interests of justice to grant extension of time or leave to amend cross-claim – defence struck out; cross-claim dismissed; default judgment entered in favour of applicants.
Legislation:

Federal Court of Australia Act1976 (Cth) ss 37M, 37N, 37P

Federal Court Rules 2011 rr 1.40, 5.23, 15.10
Cases cited:

Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175

Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303

Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101

R v Lawrence (Stephen) [1982] AC 510

Searson v Salmon [2014] FCA 748

Speedo Holdings BV v Evans (No 2) [2011] FCA 1227

Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245

Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (2016) 332 ALR 199

WGKS v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FCAFC 10

Yeo v Damos Earthmoving Pty Ltd; in the matter of Broadbeach Developments Pty Ltd (in liq) [2011] FCA 1129
Division: General Division
Registry: New South Wales
National Practice Area: Commercial and Corporations
Sub-area: Regulator and Consumer Protection
Number of paragraphs: 64
Date of hearing: 20 May 2021
Counsel for the Applicant: Mr R. Parsons
Solicitor for the Applicant: Bray Jackson & Co.
Counsel for the Respondent: Mr C. P. O’Neill
Solicitor for the Respondent: Logie Smith Lanyon Lawyers

ORDERS

NSD 922 of 2019
BETWEEN:

ESPIE IAN WATT

First Applicant

MAZZAWATTIE PTY LTD ACN 096 943 476 AS TRUSTEE OF SMSUT

Second Applicant

WATTABEAR PTY LTD ACN 148 915 262 (and others named in the Schedule)

Third Applicant
AND:

PHILLIP CHARLES SHEPHERD

First Respondent

MARK ROBERT STEIDLE

Second Respondent

RX HOLDINGS PTY LTD ACN 612 534 746 (and another named in the Schedule)

Third Respondent
AND BETWEEN:

PHILLIP CHARLES SHEPHERD (and others named in the Schedule)

First Cross-Claimant
AND:

ESPIE IAN WATT (and others named in the Schedule)

First Cross-Respondent

ORDER MADE BY:

RARES J

DATE OF ORDER:

20 MAY 2021

THE COURT ORDERS THAT:

1.The interlocutory application filed by the respondents on 14 May…

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Watt v Shepherd [2021] FCA 561
Case
[2021] FCA 561
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CaseChat Overview and Summary

Watt and another v Shepherd and another involved a dispute between the applicants and respondents over default judgments under the Federal Court Rules 2011. The applicants sought default judgment after the respondents defaulted in complying with court orders and failed to serve evidence. The respondents then applied for an extension of time to serve evidence and leave to amend their cross-claim. The legal issues included whether granting the extension and leave would delay the hearing, cause prejudice to the applicants, and whether it would achieve the overarching purpose of the Federal Court of Australia Act 1976 (Cth). The court held that it was not in the interests of justice to grant the extension or leave to amend the cross-claim. The court found that the respondents' default and application for leave were not properly explained, and the amendments added new claims and parties to the cross-claim. The court also found that the subject of the amended claims was known to the respondents from the inception of the litigation. The court concluded that granting the extension and leave would delay the hearing and cause prejudice to the applicants. The court also found that granting the extension and leave would not achieve the overarching purpose of the Federal Court of Australia Act 1976 (Cth). The court therefore dismissed the respondents' application and entered default judgment in favour of the applicants. The court also struck out the respondents' defence and dismissed their cross-claim. The court ordered the respondents to pay the applicants' costs of defending the interlocutory application. The applicants were required to file and serve written submissions identifying the bases on which they seek relief on their originating application, and any evidence in support, on or before 3 June 2021. The respondents were required to file and serve written submissions in reply, limited to 5 pages, and any evidence in reply on or before 17 June 2021. The matter was stood over to 25 June 2021.

Orders

Orders of the court

1. The interlocutory application filed by the respondents on 14 May 2021 be dismissed.

2. The respondents pay the applicants’ costs of defending the interlocutory application filed on 14 May 2021.

3. The defence filed by the respondents on 5 September 2019 be struck out.

4. The notice of cross-claim filed by the respondents on 15 October 2019 be dismissed.

5. The respondents’ oral application for a stay of proceedings made on 20 May 2021 be refused.

6. The applicants file and serve written submissions, limited to 5 pages, identifying the bases on which they seek relief on their originating application, and any evidence in support, on or before 3 June 2021.

7. The respondents file and serve written submissions in reply, limited to 5 pages, and any evidence in reply on or before 17 June 2021.

8. The matter be stood over to 25 June 2021.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

The applicants and cross-respondents oppose the grant of the extension of time to file the outlines of evidence and the application to amend the cross-claim and rely upon the default of the respondents.The evidence on the interlocutory application Mr Nurse made two affidavits, the first on 14 May 2021 and the second at about 5:00pm on 19 May 2021. His first affidavit was directed to the extension of time to file the outlines of evidence, and the second to support the amendment to cross-claim, the draft of which was attached to his affidavit of 19 May 2021. In his affidavit of 14 May 2021, Mr Nurse said that he had taken carriage of the matter from another partner in his firm at an unspecified date in March 2021 because it had become apparent that Simon Francis, the previous partner with carriage of the matter, would be heavily occupied in an unrelated Supreme Court proceeding. He said that his firm had been instructed in February 2020, when it replaced the previous solicitors for the respondents, shortly before the impact of the COVID-19 pandemic. I infer that some time was necessary for the new solicitors to familiarise themselves with the matter, and as Mr Nurse explained, his firm was based in Melbourne and that city was particularly affected by COVID-19 restrictions that applied to a far greater degree than in some other parts of Australia, including Sydney, due to subsequent outbreaks of the disease in Victoria. Mr Nurse referred to the previous orders and noted that when the applicants had served their outlines of evidence by 12 October 2020 they did so about six months after the original orders of 21 February 2020 required. But, as he acknowledged, he made no criticism of that delay due to the disruptions caused by the pandemic and related restrictions. He said that the applicants had served eight outlines in total, and the documents referred to in those outlines were in excess of 1400 pages. I would infer that those documents included a number of substantial contractual documents that were likely to be bulky. He said that the applicants' outlines described a complex factual matrix. He asserted that there were issues about relevance and admissibility of facts in the outlines so far as they might correspond with the case. He said:In the circumstances, significant consideration was given as to whether it would assist the Court to address the matters raised in the Applicants' Outlines, or for the Respondents to prepare their statements essentially in isolation from the Applicants' Outlines, in response to the Applicants' pleaded case, and the Respondents' counterclaim. Ultimately the later course was adopted.During the same period of time, a number of related tasks that were being attended related to the Respondents' conduct of the proceeding, which would not be appropriate to raise in a public forum, including matters which would be the subject of claims for legal professional privilege. Mr Nurse quoted the email that Mr Francis had sent to my associate on 4 February 2021 (see [10] above), but he gave no evidence about who the two key witnesses were who were sick, or for what period, what was the relevance of, or what issues there were with, insurance cover, for what period either cause delayed matters or affected the progress of the claim, or what, if any, work had been done in preparing the outlines.

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

In response to my concerns that Mr Nurse’s affidavits had failed to give any real explanation of what his clients had done to comply with the previous orders to provide outlines of evidence, other than beginning that process in the first meeting with Mr O’Neill on 20 April 2021, almost three weeks after the expiry of last extension of time to 2 April 2021 had expired, the respondents sought to have a further adjournment, in order to provide a fuller or proper explanation of what had occurred, as well as why they had not raised the obvious claims that were now sought to be added in the amended cross-claim given that the amendments sought recovery of various very large sums of money for further loss or damage. They argued that the statement of claim made a number of very serious allegations against them, including claims that affected their integrity, and that they wanted to defend against them with evidence and explanations. Consideration Relevantly, s 37M of the Federal Court Act provides that the overarching purpose of the civil practice and procedure provisions in the Rules and the Act is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. That includes the objectives of the just determination of all proceedings before the Court, the efficient use of the judicial and administrative resources available for the purposes of the Court, the efficient disposal of the Court’s overall workload and of all proceedings in a timely manner, and the resolution of disputes at a cost proportional to the importance or the complexity of the matters in dispute. Correspondingly, s 37N creates a duty on each of the parties and their lawyers to conduct proceedings in a way consistent with the overarching purpose. Accordingly, s 37P(5) and (6) provide that, if a party fails to comply with a direction given by the Court about matters of practice and procedure, the Court may make such other order or directions as it thinks appropriate, including dismissing the proceeding in whole or part, striking out any part of a party’s claim or defence, disallowing or rejecting evidence, and ordering costs. Although the dictionary to the Rules defines an “applicant” as meaning a party other than a cross-claimant claiming relief, r 15.10 provides that, to the extent applicable and not inconsistent with Pt 15, the parties have to conduct a cross-claim in the same way as the principal proceeding, and that the Rules apply to a cross-claimant in the same way as they apply to the principal proceeding. Thus, for the purposes of giving effect to r 15.10, a cross-claimant is to be treated as an applicant and a cross-respondent as a respondent. In addition, r 1.40 provides that the Court, at any stage of the proceedings, can exercise a power mentioned in the Rules on its own initiative, or on the application of a party. Rule 5.23 deals with orders that can be made on default of a party and provides:5.23 Orders on default(1) If an applicant is in default, a respondent may apply to the Court for an order that:(a) a step in the proceeding be taken within a specified time; or(b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant:(i) immediately; or(ii) on conditions specified in the order.(2) If a respondent is in default, an applicant may apply to the Court for:(a) an order that a step in the proceeding be taken within a specified time; or(b) if the claim against the respondent is for a debt or liquidated damages—an order giving judgment against the respondent for:(i) the debt or liquidated damages; and(ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or(c) if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, or if the Court has ordered that the proceeding continue on pleadings—an order giving judgment against the respondent for the relief claimed in the statement of claim or alternative accompanying document to which the Court is satisfied that the applicant is entitled; or(d) an order giving judgment against the respondent for damages to be assessed, or any other order; or(e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order.Note 1: The Court may make any order that the Court considers appropriate in the interests of justice—see rule 1.32.Note 2: An order or judgment under this Division may be set aside or varied.