Winn v Stewart Bros Constructions Pty Ltd

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SUPREME COURT OF SOUTH AUSTRALIA

(Civil: Civil)

WINN v STEWART BROS CONSTRUCTIONS PTY LTD

[2012] SASC 150

Judgment of The Honourable Justice Blue

31 August 2012

CORPORATIONS - LEGAL CAPACITY AND RELATIONS WITH OUTSIDERS - EXTERNAL LITIGATION PROCEDURE - APPEARANCE IN COURT BY COMPANY AND REPRESENTATION

In 2006, the appellant/plaintiff (Mr Winn) sued the respondent/defendant (Stewart Bros) in the District Court of South Australia for damages for breach of contract and negligence in the construction by Stewart Bros of his house. Stewart Bros was represented in the action by solicitors for five years.

Shortly before trial which was listed for May 2012, the Judge who was case managing the action to trial as designated trial Judge authorised the sole director and shareholder of Stewart Bros, Mr Stewart, to represent the defendant company in the action pursuant to rule 27 of the District Court Rules 2006 (SA).

Mr Winn appealed against that order.

Held:

1.       The Court on an application for authorisation under rule 27 should weigh all factors pointing in favour of and against authorisation. The Court must be satisfied that the overall balancing of factors favours authorisation before granting authorisation.

2.       The factors relevant to the exercise of the discretion are not limited and will vary from case to case, but typically include:

a.       whether the company is plaintiff or defendant;

b.      whether the director is also a party (co-plaintiff or co-defendant);

c.       the stage which the case has reached;

d.      the time over which and the manner in which the case has progressed and the conduct of both parties to that point;

e.       the degree to which financial considerations inhibit the company from obtaining legal representation and in particular whether the denial of authorisation is likely to stultify the prosecution or defence of the action;

f.       the degree to which the time and cost of the trial will be extended due to the company being represented by a lay, self-interested advocate (and the impact this has on the interests of the other party and the public interest in the fair, efficient and timely administration of justice);

g.      the extent to which the director is to be a witness in the proceeding;

h.      the significance of a lay advocate not being subject to the ethical  precepts that bind legally qualified advocates.

3.       The trial Judge erred by failing to consider the question what (if any) additional time and cost would be likely to be incurred at trial by reason of the company’s representation by a lay advocate compared to a legal practitioner.

4.       Appeal allowed.

5.       Order authorising Mr Stewart to represent the defendant set aside.

6.       Mr Stewart’s application for authorisation to represent the defendant should be remitted to the District Court for reconsideration.

District Court Civil Rules 2006  (SA) Rule 27, discussed; Civil Procedure Act 2005 (NSW) Section 19; Corporations Act 2001 (Cth) Section 1335(1); County Court Civil Procedure Rules 2008 (VIC) Rule 1.17(1); Court Procedures Rules 2006 (ACT) Rule 30(4); Development Act 1993 (SA) Section 72;

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Details
Case
[2012] SASC 150
Decision Date

CaseChat Overview and Summary

In this case, the plaintiff, Mr. Winn, is appealing a decision made by the District Court in relation to a construction dispute. Mr. Winn had engaged an architect, a building certifier, and a mechanical engineer to design and oversee the construction of a house on his land. He entered into a contract with Stewart Bros Constructions Pty Ltd to construct the house, but upon completion, Mr. Winn alleged that there were twelve defects in the design and construction of the house. He initiated legal proceedings against Stewart Bros, the architect, the engineer, and the certifier.

The primary legal issue before the court was whether the Master was correct in exercising the discretion under rule 27 to deny the defendant's application to be represented by its director, Mr. Stewart, at trial. The court had to consider the relevant factors and balance them against each other to decide if the discretion was exercised reasonably.

The court found that the exercise of the Judge's discretion under rule 27 miscarried. In determining whether to exercise the discretion itself or remit the application for reconsideration by the District Court, the court identified several factors relevant to the exercise of the discretion. The factors considered included the role of the company as a defendant, the stage of the case, the financial resources of the company, and the potential impact on the other party and the public interest if the company were to be represented by a lay advocate. The court concluded that the Master should exercise the discretion itself and not remit the application to the District Court.

As a result of the court's decision, the appeal was allowed, and the matter was remitted to the Master for the exercise of the discretion under rule 27. The court did not provide any specific final orders, as the matter was to be decided by the Master in light of the court's decision.

Orders

Orders of the court

Full text does not contain this section.

Background

Background to the litigation

Mr Winn appeals against that order. Background facts In 2001, Mr Winn engaged an architect to design and provide instructions to a builder concerning the construction of a house upon his land. Mr Winn engaged a building certifier to inspect and certify the design of the house. Mr Winn engaged a mechanical engineer to design and supervise the construction of the mechanical services (including air conditioning) for the house. In 2002, Mr Winn entered into a contract with Stewart Bros to construct the house. Construction commenced in 2002 and was completed in mid 2005.[1] [1] Stewart Bros claims, and Mr Winn denies, that practical completion was achieved at that point. In November 2006, Mr Winn instituted the action in the District Court, initially against the architect and Stewart Bros and later also against the engineer and certifier. Mr Winn alleges that there were twelve defects in the design and construction of the house, namely:1.water was permitted to enter the house due to :(a) the height and slope of the paving;(b) the absence of rebates in the concrete slab;(c) inadequate damp proofing to external walls;(d) inadequate sealing of floors;(e) inadequate sealing of window and door frames;(f) inadequate sealing of the balcony;(g) the height of the sewer relief gully;(h) the roof down pipe location;2.there were defects in the air conditioning;3.there were more minor defects in:(a) the range hood and flue;(b) aluminium skirting;(c) motorised windows. Mr Winn alleges that the defects referred to at 1 (a), (b) and/or (c) in turn caused consequential damage to:(a) the internal face of the external walls;(b) the external face of the external walls;(c) the retaining walls;(d) the garage ceiling; (e)the floors (rectification of which overlaps completely with the defect in item 1(d) above). Mr Winn alleges that the responsibility for the defects was that of:1.the builder Stewart Bros for defective construction in the case of all twelve defects and all consequential damage;2.the architect for defective design and failure to instruct the builder in construction in the case of eleven defects (all except the air conditioning) and all consequential damage;3.the engineer for defective design and supervision of the builder in respect of the air conditioning, motorised windows and sealing of the floors;4.the certifier in respect of the height and slope of the paving and the absence of rebates in the concrete slab. Mr Winn alleges that the twelve defects in the design and construction of the house and five items of consequential damage would have cost approximately $1.3 million to rectify (based on a quote from a tradesperson from each relevant specialty in the building industry) and that he suffered losses due to delay and loss of amenities of approximately $100,000 giving a total loss of approximately $1.4 million. Mr Winn did not incur the rectification costs, but instead sold the house in mid 2010 after disclosing the defects to the purchaser. Stewart Bros was represented in the action by solicitors from the outset. Stewart Bros counterclaimed $230,000 being the balance said to be owing to the builder under the building contract. Stewart Bros applied for summary judgment on its counterclaim. In September 2007, Mr Stewart filed an affidavit in which he guaranteed that Stewart Bros would repay the $230,000 to Mr Winn if summary judgment were granted on the counterclaim and Stewart Bros were ultimately found liable for defective work in the action at trial (or on settlement). Mr Winn paid the $230,000 to Stewart Bros in satisfaction of the counterclaim.

Evidence

Evidence Before The Court

It follows from paragraph [49] above that the exercise of the Judge’s discretion under rule 27 miscarried. In those circumstances, the question arises whether I should exercise that discretion myself or whether I should remit the application for reconsideration by the District Court. Additional Evidence On the hearing of the appeal, additional evidence was adduced by both parties. Mr Winn tendered financial statements of Stewart Bros for the years ended 30 June 2010 and 30 June 2011. Mr Stewart tendered balance sheets for the company for the years ended 30 June 2004 and 30 June 2009 and the eight months ended 29 February 2012. Mr Stewart tendered correspondence between his accountant and the company’s insurance broker and banker in 2004 relating to the increase in share capital. Mr Stewart tendered two letters by his accountant dated 26 April and 7 June 2012 explaining the share capital transactions in 2004 and 2010 (parts of which were not received on objection by Mr Winn). Mr Stewart gave oral evidence concerning those transactions. Mr Stewart gave oral evidence concerning the company’s present financial position, the payment of superannuation and his personal financial position. On my ruling that the quantum of the settlement sums received by Mr Winn from the architect, engineer and certifier was relevant and should be disclosed, Mr Winn tendered the settlement agreements. These show the collective receipt by Mr Winn of a substantial proportion of his total claim of approximately $1.4 million but a shortfall on that total claim exceeding the $400,000 (or thereabouts) which he claims against Stewart Bros.Factors relevant to fresh exercise of discretion In order to determine whether I should exercise my own discretion on the rule 27 application or remit it to the District Court, I first identify the factors which need to be considered on the exercise of the discretion. First, it is relevant that the company is a defendant and not plaintiff. That is, the defendant is not invoking the jurisdiction of the Court but is compulsorily before the Court because Mr Winn is invoking of the jurisdiction of the Court. This is not a factor which points in favour of authorisation, but does represent an important context in which other factors are to be considered. This factor is reduced somewhat in weight because originally Stewart Bros brought a counterclaim for the balance of monies due pursuant to the building contract and that sum was paid on the basis that it would be returned if and to the extent that Mr Winn was successful in his claim. This in turn is offset somewhat by the fact that Stewart Bros agreed to repay that amount if unsuccessful in the action on the premise it would be permitted to defend the action on the merits. Secondly, Mr Winn informed me during the hearing of the appeal that, if authorisation is granted to Mr Stewart, Mr Winn intends to join Mr Stewart personally as an additional defendant making a claim against him pursuant to his guarantee referred to at [11] above. If such a claim is prosecuted against Mr Stewart, there is a prospect that the Court would need to decide on the merits as between Mr Winn and Mr Stewart (independently of any default judgment obtained against Stewart Bros as a result of denial of authorisation) whether the company is liable to Mr Winn for defective building work to determine whether Mr Stewart is liable to Mr Winn on the guarantee. This is a factor which tends to point in favour of authorisation because a trial of the same issues would be required in that eventuality on the claim against Mr Stewart personally in any event.

Decision

Reasons for decision

Mr Winn contends that the circumstances before the Judge so overwhelmingly militated against grant that any decision to grant authorisation must necessarily have been unreasonable.[58] It is not necessary to consider this contention in light of my conclusion at [49] above. However, it is implicit in my reasons which follow in the next section that I do not accept that contention.[58] In the sense described in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.Conclusion It follows from paragraph [49] above that the exercise of the Judge’s discretion under rule 27 miscarried. In those circumstances, the question arises whether I should exercise that discretion myself or whether I should remit the application for reconsideration by the District Court. Additional Evidence On the hearing of the appeal, additional evidence was adduced by both parties. Mr Winn tendered financial statements of Stewart Bros for the years ended 30 June 2010 and 30 June 2011. Mr Stewart tendered balance sheets for the company for the years ended 30 June 2004 and 30 June 2009 and the eight months ended 29 February 2012. Mr Stewart tendered correspondence between his accountant and the company’s insurance broker and banker in 2004 relating to the increase in share capital. Mr Stewart tendered two letters by his accountant dated 26 April and 7 June 2012 explaining the share capital transactions in 2004 and 2010 (parts of which were not received on objection by Mr Winn). Mr Stewart gave oral evidence concerning those transactions. Mr Stewart gave oral evidence concerning the company’s present financial position, the payment of superannuation and his personal financial position. On my ruling that the quantum of the settlement sums received by Mr Winn from the architect, engineer and certifier was relevant and should be disclosed, Mr Winn tendered the settlement agreements. These show the collective receipt by Mr Winn of a substantial proportion of his total claim of approximately $1.4 million but a shortfall on that total claim exceeding the $400,000 (or thereabouts) which he claims against Stewart Bros.Factors relevant to fresh exercise of discretion In order to determine whether I should exercise my own discretion on the rule 27 application or remit it to the District Court, I first identify the factors which need to be considered on the exercise of the discretion. First, it is relevant that the company is a defendant and not plaintiff. That is, the defendant is not invoking the jurisdiction of the Court but is compulsorily before the Court because Mr Winn is invoking of the jurisdiction of the Court. This is not a factor which points in favour of authorisation, but does represent an important context in which other factors are to be considered. This factor is reduced somewhat in weight because originally Stewart Bros brought a counterclaim for the balance of monies due pursuant to the building contract and that sum was paid on the basis that it would be returned if and to the extent that Mr Winn was successful in his claim. This in turn is offset somewhat by the fact that Stewart Bros agreed to repay that amount if unsuccessful in the action on the premise it would be permitted to defend the action on the merits.

Ratio Decidendi

Legal Principle Established

The Master had also considered the inherent jurisdiction of the Court on the basis that Mr Garrett fell outside the class of persons entitled to apply under rule 36.11 and in the course of doing so the Master referred to Radford as authority for the proposition that the mere fact that a company cannot afford legal representation is not in itself a sufficient exceptional circumstance.[41] Gray J went on to uphold the decision to refuse to exercise any inherent jurisdiction that may exist and identified four reasons which militated against the exercise of any such jurisdiction. Those reasons did not include any reference to the ability of the company to afford legal representation and in any event were confined to consideration of the inherent jurisdiction as opposed to the jurisdiction under the Rules. In short, in that case, Gray J simply did not address the question which arises in this case under rule 27 of the 2006 Rules.[41] Ibid at [30].Rationale for requiring authorisation While caution needs to be exercised in considering authorities in other jurisdictions which consider differently worded rules, those authorities do identify several rationales for the principle that a company does not have an absolute right to be represented by a person other than a legal practitioner. 1.The opposite party may be disadvantaged by the time and cost of the proceeding being extended due to the company not being represented by a legally qualified advocate.[42]2.The public interest in the efficient and timely administration of justice may be prejudiced by the time and cost of the proceeding being extended due to the company not being represented by a legally qualified advocate.[43]3.The public interest in the fair administration of justice may be prejudiced by the fact that a lay advocate (unlike a legally qualified advocate) does not owe a duty to the Court and to the parties in the litigation to ensure that the Court is properly informed and not misled.[44][42] Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O’Keefe CJ, 6 September 1994) per Mahoney AP.[43] Ibid per Mahoney AP; Hubbard Association of Scientologists International v Anderson and Just [1972] VR 340 at 343 per Smith, Little and Gowans JJ.[44] Bay Marine Pty Ltd v Clayton Country Properties Pty Ltd (No 2) (1986) 8 NSWLR 104 at 105-106 per Kirby P; Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O’Keefe CJ, 6 September 1994) per Mahoney AP.Relevant factors The factors relevant to the exercise of the discretion are not limited and will vary from case to case. The direction in which a factor points and the weight to be accorded to it will vary from case to case. However, authorities identify several recurring factors which are typically relevant. Those factors in a case such as the present in which a director seeks to represent the company as advocate at trial include the following.1.The role of the company as plaintiff or defendant. It may be (depending on other relevant factors) that authorisation will be more readily granted to a defendant because the defendant is not invoking the jurisdiction of the Court and in this sense is an involuntary party.[45]2.Whether the director is also a party in his or her own right (co-plaintiff or co-defendant). It may be (depending on other relevant factors) that authorisation will be more readily granted if the director is co-plaintiff or co-defendant (as the case may be) with the company.[46] In some cases, this may tend to point against authorisation.3.The stage which the case has reached. It may be (depending on other relevant factors) that authorisation will be more readily granted if the case is well advanced rather than at the outset.[47] In some cases, this may tend to point against authorisation.4.The time over which and manner in which the case has progressed from inception to when the application is made and the conduct of both parties to that point.[48]5.The degree to which financial considerations inhibit the company from obtaining legal representation. In particular, if the denial of authorisation is likely to stultify the prosecution or defence of the action (as the case may be), that is a substantial factor in favour of the grant of authorisation.[49] At least where the company is a plaintiff, regard will usually be had not only to the financial resources of the company itself but also of the shareholders who stand to benefit from the litigation if successful.[50]6.The degree to which the time and cost of the trial will be extended due to the company being represented by a lay, self-interested, advocate (which impacts both upon the interests of the other party and the public interest as described above).[51]7.The extent to which the director is to be a witness in the proceeding.[52]8.The importance of the lay advocate not being subject to the ethical precepts that bind a legally qualified advocate.[53][45] See for example Cytel Pty Ltd v Peoplebank Recruitment Pty Ltd [2006] FCA 985 at [10] per Bennett J.[46] Young v ICM Agriculture Pty Ltd [2009] FCA 1065 at [22] and [27] per Lindgren J. See also, in the different context of a co-defendant applying to represent a co-defendant where he or she is a natural person, Galladin Pty Ltd v Aimnorth Pty Ltd [1993] SASC 3914; (1993) 60 SASR 145 at 147-148 per Perry J.[47] Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing). See also, in the different context of a co-defendant applying to represent a co-defendant where he or she is a natural person, Galladin Pty Ltd v Aimnorth Pty Ltd (1993) 60 SASR 145 at 147-148 per Perry J.[48] Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68; Worldwide Enterprises Pty Ltd v Silberman (2010) 26 VR 595 at [41] per Weinberg JA (Bongiorno JA agreeing).[49] Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing). [50] Simto Resources Limited v Normandy Capital Limited [1993] FCA 305 at [9] per French J; Checked-Out Pty Ltd v Eagle Eye Inspections Pty Ltd [2002] FCA 1002 at [14] per Emmett J. [51] Molnar Engineering Pty Ltd v Burns (1984) 3 FCR 68 at 73-74 per Smithers J and 80-81 per Keely J; Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported, Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA, and O'Keefe CJ, 6 September 1994) per Mahoney AP; Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing).[52] Pacific Air Freighters (Qld) Pty Ltd v Toller [2000] FCA 343; 171 ALR 519 at [7] per Drummond J; Cytel Pty Ltd v People Bank Recruitment Pty Ltd [2006] FCA 905 at [9] per Bennett J. [53] Scotts Head Developments Pty Ltd v Pallisar Pty Ltd (Unreported, Supreme Court of New South Wales Court of Appeal, Mahoney AP, Powell JA and O'Keefe CJ, 6 September 1994) per Mahoney AP; Worldwide Enterprises Pty Ltd v Silberman (2010) 237 FCR 292 at [41] per Weinberg JA (Bongiorno JA agreeing).