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ABL Custodian Services Pty Ltd v Smith QDC 257
DISTRICT COURT OF QUEENSLAND
ABL Custodian Services Pty Ltd v Smith  QDC 257
ABL CUSTODIAN SERVICES PTY LTD ACN 097 889 720
District Court at Brisbane
11 December 2018
12 November 2018
Porter QC DCJ
PROCEDURE – CIVIL PROCEEDINGS IN STATE AND TERRITORY COURTS – ENDING PROCEEDINGS EARLY – where the plaintiff applies for judgment pursuant to rule 374(5) of UCPR – where there has been a repeated failure by the defendant to comply with orders for disclosure – where the defendant has not otherwise participated in the proceedings for some time – whether the sanction for non-compliance with the orders seeking to compel the performance of the duty of disclosure should be the entry of judgment for the plaintiff – whether the plaintiff is seeking costs under the covenant in the loan deed relied upon or by order from the Court.
Taxation Administration Act 1953 (Cth) Schedule 1 Division 355, s 355-155, 355-265
Uniform Civil Procedure Rules 1999 (Qld) r 5, 225, 374
Abigroup Limited v Sandtara Pty Limited  NSWCA 45
ABL Custodian Services Pty Ltd v Kunz  SADC 145
British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524
Clarke v State of New South Wales (2006) 66 NSWLR 640
Hendon Homes Pty Ltd v Centennial Group Holdings Pty Ltd  QDC 284
Johnson v Public Trustee of Queensland as executor of the will of Brady (deceased)  QCA 260
KAE v WAK  QCA 327
Klerck v Sierocki  QCA 355
Kyabram Property Investments Pty Ltd v Murray  NSWCA 87
Lee v Australia and New Zealand Banking Group Ltd  QCA 284
Lenijamar P/L v AGC (Advances) Ltd (1990) 27 FCR 388
Mango Boulevard P/L v Spencer & Ors  QCA 274
Mango Boulevard P/L v Spencer & Ors  QCA 207
Quinlan v Rothwell  1 Qd R 647
Quinlan v Rothwell  QSC 143
Resseck Pty Ltd v Buchanan  QDC 177
P D Tucker for the Plaintiff/Applicant
Results Legal for the Plaintiff/Applicant
- This is an application by the plaintiff for judgment pursuant to rule 374(5) of the Uniform Civil Procedure Rules 1999 (UCPR), by reason of the defendant’s repeated failure to comply with orders for disclosure.
- In the alternative, the plaintiff applies for orders that paragraphs 1A and 1B of the defendant’s defence filed 12 February 2018 (Defence), and any references or reliance upon paragraph 1A or 1B elsewhere in the Defence, be struck out; and, or alternatively all adverse inferences that may be drawn against the defendant at any trial of this proceeding.
- The application was filed on 15 October 2018 and was ultimately heard on Monday 12 November 2018. The defendant did not appear. For the reasons which follow, I consider that judgment should be entered for the plaintiff but will hear from the plaintiff further as to costs and the calculation of the judgment sum.
- The plaintiff seeks to recover a loan made to the Defendant for the purpose of obtaining an interest in the Great Southern Plantations 2005 investment scheme (the Scheme). Great Southern Managers Australia Limited (GSMAL) was the responsible entity for the Scheme. It offered “woodlots” in a timber cultivation scheme. It is notorious that the Scheme was one of a number offered by GSMAL which attracted beneficial taxation deductions for investors.
The plaintiff’s case
- The plaintiff pleads as follows. In about 2005, GSMAL published a Product Disclosure Statement for the Scheme which included a Scheme Application form and a Finance Application form.
- On or about that date, Mr Walsh, Mr Smith’s accountant, provided him with the PDS and applications.
- On or about 30 June 2005, Mr Smith executed and submitted a Scheme Application form for the issue of 20 woodlots in the Scheme at a cost of $60,000. He also sought finance for their acquisition from Great Southern Finance Pty Ltd (GSF) by way of a loan repayable over 10 years, with a 3 year interest only period, and sought that finance by way of a completed Finance Application Form.
- The loan application included a draft Loan Deed and a power of attorney which authorised GSF to enter into the Loan Deed on behalf of the borrower.
- Also on or about 30 June 2005, GSMAL accepted the application for woodlots and GSF approved the finance application. The woodlots were issued on that date and Mr Smith was issued a grower number.
- On 14 October 2005, GSF executed a Loan Deed in the form of the draft Loan Deed in its own right and as attorney for Mr Smith. The Loan Deed imposed ordinary and default interest rates of 11.5 and 14.5% respectively and was otherwise in terms of the application for finance. Also on that date Mr Walsh wrote to Mr Smith notifying him of finance approval and enclosing a copy of the Loan Deed and a repayment schedule.
- The rights under the Loan Deed were variously assigned, ultimately to the plaintiff. Mr Smith paid interest in accordance with the Loan Deed until 31 May 2008. He has been in default ever since. The term of the loan expired on 1 July 2015.
- The plaintiff also pleads the Settlement Deed in representative proceedings involving the Scheme commenced in the Supreme Court of Victoria in 2010 (the Group Proceeding). The plaintiff alleges that Mr Smith was a group member in those proceedings and did not opt out. It alleges that Mr Smith was thereby bound by a settlement of those proceedings approved by the Court and recorded in and given effect by a Settlement Deed.
- The Settlement Deed relevantly provides for acknowledgement of the “validity and enforceability” of Mr Smith’s Loan Deed. It also provided certain relief from interest liabilities. The plaintiff alleges Mr Smith’s loan account was credited with $14,112.23 in accordance with that term.
- The plaintiff claims the principal sum plus interest calculated on the basis contained in the Loan Deed.
- The plaintiff also pleads an alternative version of its claim which relies on the proposition that Mr Smith took the benefit of the loan under the Loan Deed and therefore must take the burden of the obligations under the Loan Deed.
The defendant’s pleading
- The defendant denies that he signed the Scheme Application form or the Finance Application form. He denies that his signature appears on those forms. That denial underpins his response to all the allegations in the statement of claim relating to the approval of the applications and execution of the Loan Deed. For example, he says even GSMAL issued the units to him and allocated him a grower number and even if GSF advanced funds (as the plaintiff alleges), those acts were ineffectual because he did not sign the applications.
- His allegation that he signed the forms does not however provide a sufficient pleading to the further allegations of acts done in relation to those approvals. As to those matters:
- (a)He admits Mr Walsh was his accountant but denies receiving the PDS and application forms from him in June 2005;
- (b)He denies receiving a letter from Mr Walsh letter notifying finance approval and enclosing the executed Loan Deed sent on 14 October 2005; and
- (c)He denies making any payments “in accordance with the Loan Deed” until May 2008.
- Mr Smith also denies that he was a group member in the proceedings. The basis for that belief appears to be that he did not execute any of the scheme documents. He denies receiving the Opt Out notice but admits he did not opt out of the Group Proceedings. He otherwise does not admit the allegations about the Group Proceedings and the settlement.
- In defence of the “benefit and burden” plea, Mr Smith pleads that he did not receive the benefit of the Principal Sum and denies he acquired the woodlots.
The key issues
- It can be seen from the above that the key issues in the proceedings are whether in fact Mr Smith signed the application documents or not, and in any case, whether he acquired the woodlots and took the benefit of them and the finance to acquire them.
- These issues give rise to a number of additional subsidiary issues including whether Mr Smith received Mr Walsh’s letter notifying him of the finance and woodlot issue and Loan Deed and whether he made payments in accordance with the Loan Deed (or the terms of his finance application for that matter).
- Documents which tend to prove or disprove any of these issues are disclosable.
- The proceedings were commenced on 19 July 2016. The plaintiff filed an amended statement of claim on 23 January 2017 and Mr Smith filed an amended defence on 3 February 2017. No amended reply was filed (a reply to the original defence having been filed on 7 December 2016). The matter then did not appear to progress until November 2017, when the plaintiff applied to place the matter on the Commercial List. I do not have any explanation for the delay in the proceedings for this period of some 10 months. Nothing turns on it for the purposes of this application.
- On 7 December 2017, I ordered that the proceeding be placed on the Commercial List and made orders for delivery of amended pleadings and disclosure by the parties. At that time the plaintiff also filed its list of documents based presumably on the existing pleadings. There is no evidence that Mr Smith had complied with his duty of disclosure at that time, nor since.
- There was no appearance by Mr Smith or his solicitors on 7 December 2017. However a letter was tendered from Mr Smith’s solicitors stating that Mr Smith did not consent to the proceedings being placed on the commercial list. Importantly, however, the letter did note that the parties were yet to undertake disclosure and proposed disclosure by 12 January 2018. That letter stated that Mr Smith’s solicitors were not instructed to appear, but the letter was tendered by the plaintiff at their request.
- The plaintiff filed its Further Amended Statement of Claim on 21 December 2017. Ms Smith filed his Second Amended Defence on 12 February 2018. These steps were generally taken in accordance with my 7 December 2017 orders. Immediately following filing of the Second Amended Defence the plaintiff sought Non-Party Disclosure from, inter alia, Mr Walsh and the directors of the company which may have operated the practice in which he worked.
- My 7 December 2017 orders also relevantly required:
- (a)The plaintiff to file any reply by 23 February 2018;
- (b)The parties exchange lists of any further disclosure by 16 March 2018.
- On 15 February 2018, the plaintiff’s solicitors wrote to Mr Smith’s solicitors, inter alia, calling for disclosure of the plaintiff’s tax returns as relevant for the reason set out in paragraph  below.
- On 21 February 2018, I extended the time for compliance with my orders for filing a reply and providing any further list of document to 23 March 2018 and 6 April 2018. Those orders were made on the papers with the agreement of Mr Smith’s solicitors.
- It is plain therefore that regardless of whether the duty to disclosure arose at some earlier time, Mr Smith was required to provide disclosure by 6 April 2018.
- It appears that the Notices of Non-Party Disclosure produced copies of Mr Smith’s personal tax returns for the 2005/2006 to 2008/2009 tax years. On 6 March 2018, the plaintiff’s solicitors provided copies along with a number of other documents produced by Mr Walsh. The returns showed that Mr Smith had claimed deductions for his investment in the Scheme. There were a number of other documents which tended to confirm that Mr Smith executed the applications forms. The plaintiff called on Mr Smith to reconsider his denials that he executed the key documents or that he did not ratify them.
- (It appears that Mr Tucker (who appeared for the plaintiff/applicant) was unaware that the plaintiff had copies of the tax returns. His submissions proceeded on the basis that they were held by Mr Walsh and that “they could be provided if the defendant were interested to ask”. Ultimately, nothing turns on this oversight.)
- On 13 March 2018, Mr Smith’s solicitors responded by relying on sections 355-155 and 355-265 Taxation Administration Act 1953 (Cth). Their preliminary view was that the returns were “protected information” which would not be admissible in the proceedings. Mr Smith has never resiled from that position.
- The plaintiff filed a reply on 23 March 2018 and a further list of documents on 16 April 2018. It included the tax returns to which Mr Smith’s solicitors referred.
- Since 26 April 2018, the plaintiff has endeavored to procure Mr Smith’s compliance with his duty of disclosure, without success.
- On 26 April 2018, the Plaintiff’s solicitors wrote to the Defendant’s former solicitors’ lawyers pursuant to rule 444 UCPR, seeking disclosure from the Defendant. That letter called for compliance with my order for disclosure (though it referred to 13 April 2018 as the date for disclosure). It also focused particularly on the duty to disclose taxation returns. The letter contended that those returns would be relevant because they would show whether a claim for deductions based on the investment in the Scheme and borrowing costs had been made and therefore would tend to prove or disprove whether Mr Smith signed the Scheme documents or otherwise assented to or ratified the investment in the Scheme and borrowing for that purpose. In my view, those documents would plainly be of fundamental relevance to those issues. The letter called for a response by 2 May 2018.
- On 27 April, Mr Smith’s solicitors notified that their instructions had been terminated. They remained on the record until 1 May 2018, when Mr Smith filed a Notice That Party Is Acting In Person specifying an address for service at Allambi Avenue, Broadbeach Waters. He provided no email address but did include a mobile number.
- The matter was listed for further directions before me on 3 May 2018. Prior to that time it appears (as is the usual practice) that my associate had sent an email to the parties in relation to the directions hearing. On 2 May 2018, the plaintiff’s solicitors inquired by email if Mr Smith’s former solicitors had informed him of the directions hearing. They responded that they had forwarded my associate’s correspondence and tried to call Mr Smith but without acknowledgment.
- Mr Smith did not appear at the directions hearing. No evidence was put before me on this application as to whether Mr Smith was aware of the hearing nor of whether any steps were taken to contact him. That is not to say that did not occur, just that it was not in evidence on this application. I note however that proper notice was provided to his solicitors on the record at the time.
- On 3 May 2018, I directed that Mr Smith provide disclosure by 18 May 2018. No evidence was put before me on this application of service of this order or of it being drawn to Mr Smith’s attention until 25 May 2018. That is not to say that did not occur, just that it was not in evidence on this application. This is of course of little concern in circumstances where he was subsequently informed of the order and took no steps to comply with it or my subsequent order.
- The matter was listed for further directions on 1 June 2018.
- On 25 May 2018, the plaintiff’s solicitors wrote to Mr Smith providing a copy of my 3 May 2018 orders and other proposed orders including an order that disclosure be made by 30 June 2018. (I note that the letter was written a week after time for compliance had passed.) On 31 May 2018, the plaintiff’s solicitor spoke with Mr Smith. He swears that Mr Smith said he was unwell and would not attend on 1 June 2018, but consented to the order proposed.
- On 1 June 2018, I ordered that Mr Smith give disclosure by list of documents by 30 June 2018. Again I can find no evidence of this order being served on Mr Smith prior to the expiry of the time for compliance, though he ought to have known that the order was likely to be made given the content of the 25 May 2018 letter and the telephone conversation on 31 May 2018.
- On 9 July 2018, the Plaintiff’s solicitors wrote to the Defendant pursuant to rule 444 UCPR, seeking disclosure from the Defendant. The letter calls for compliance with the 30 June 2018 order for disclosure. It highlights the relevance of the tax returns and other documents relevant to the Scheme along with statements which might confirm or disprove the making of interest payments. It foreshadows an application to compel disclosure if the list of documents is not provided by 13 July 2018. The letter was sent by express post to the address for service at Broadbeach Waters. That letter was also sent by email to the email address of the defendant’s wife Ms Carole Smith, who informed the plaintiff’s solicitors on 11 July 2018 that Mr Smith used that email address. Mr Smith later asked the plaintiff’s solicitors not to send email addresses to his wife’s address as it was not his email address.
- In any event, on 12 July 2018, the plaintiff’s solicitors spoke to Mr Smith who confirmed receipt of the letter, asked for more time to respond and said he thought the matter was on hold. The plaintiff’s solicitors rejected that suggestion.
- On 19 July 2018, the plaintiff’s solicitors wrote again asking when the List of Documents would be provided. No response was received to that letter.
- In August and September 2018 the Plaintiff’s solicitors made repeated calls to the Defendant asking for his disclosure and despite promises, it was not provided. They have also sent emails to Ms Smith’s email address, though there is no evidence of any response by Mr Smith to any of those emails.
- On 2 October 2018,  the matter came before me for directions. I made the following orders:
- (a)That Mr Smith serve a list of documents by 12 October 2018; and
- (b)That if he complied with that order but did not disclose his tax returns, he file and serve an affidavit which explained that omission.
- Mr Smith did not appear. No evidence was put before me on this application that Mr Smith was given notice of the review. That is not to say that did not occur, just that it was not in evidence on this application. However, the bringing of the application was foreshadowed in telephone conversations with Mr Smith.
- On 3 October 2018, Ms Kipps of the plaintiff’s solicitors posted to the address for service a copy of the 2 October 2018 orders. She also sent them to Ms Smith’s email address. A sealed copy of the order was posted and emailed on 5 October 2018. That correspondence also included a draft of the application now before the Court with the statement that the plaintiff “intends to file the enclosed draft application on 15 October 2018 and seek that it be heard on 19 October 2018 without further notice to you”.
- On 15 October 2018 the plaintiff’s solicitor served the application by email and by express post. On 19 October 2018, I adjourned the matter for hearing to 12 November 2018. On 30 October 2018, the plaintiff served further affidavits by post and gave notice of the adjourned hearing date. Ms Adams of the plaintiff’s solicitors spoke with Mr Smith on 1 November 2018 about the application. Amongst other things:
- (a)Mr Smith asked Ms Kipps not to send emails to Ms Smith’s email address (This impliedly confirms that emails to that address reached his wife. I think it reasonable to infer that Ms Smith would at least have told Mr Smith if she received emails from the plaintiffs’ solicitors);
- (b)Mr Smith also said he was unwell but did not provide details. He also said that he would not attend Court and that “if he survived he would fight our client to the end”; and
- (c)Ms Adams urged Mr Smith to seek legal advice. He said he would not do so.
- No List of Documents has been provided.
- The plaintiff applies for orders under Rule 374 UCPR. That rule provides:
374 Failure to comply with order
- (1)This rule applies if a party does not comply with an order to take a step in a proceeding.
- (2)This rule does not limit the powers of the court to punish for contempt of court.
- (3)A party who is entitled to the benefit of the order may, by application, require the party who has not complied to show cause why an order should not be made against it.
- (4)The application—
- (a)must allege the grounds on which it is based; and
- (b)is evidence of the allegations specified in the application; and
- (c)must, together with all affidavits to be relied on in support of the application, be filed and served at least 2 business days before the day set for hearing the application.
- (5)On the hearing of the application, the court may—
- (a)give judgment against the party served with the application; or
- (b)extend time for compliance with the order; or
- (c)give directions; or
- (d)make another order.
- (6)The party who makes the application may reply to any material filed by the party who was served with the application.
- (7)The application may be withdrawn with the consent of all parties concerned in the application or with the court’s leave.
- (8)A judgment given under subrule (5)(a) may be set aside—
- (a)if the application is made without notice—on an application to set the judgment aside; or
- (b)otherwise—only on appeal.
- (9)Despite subrule (8), if the court is satisfied an order dismissing the proceeding was made because of an accidental slip or omission, the court may rectify the order.
- It is to be noted that:
- (a)Rule 374 UCPR applies where a party does not comply with an order to take a step in the proceeding:
- (b)A party who is entitled to the benefit of the order may, by application, require the party who has not complied to show cause why an order should not be made against it; and
- (c)The application must allege the grounds on which it is based and, unusually, is evidence of the allegations specified in the application.
- (d)The Court’s powers under Rule 374(5) are broad and permit the giving of judgment against the party served with the application or the making of another order.
- It is plain from the above review of the facts that the precondition in Rule 374(1) has been met: Mr Smith has failed to comply with directions to file and serve his list of documents on at least 3 occasions. Further, while the application might have been more detailed in respect of the breach relied upon, I consider it was sufficient to meet the requirements of Rule 374(4), particularly in the context of the repeated Rule 444 letters and other demands for disclosure. The question to be determined on the application is what order to make under Rule 374(5). The following authorities provide assistance.
- In Johnson v Public Trustee of Queensland as executor of the will of Brady (deceased)  QCA 260, Applegarth J (with whose reasons McMurdo P and Chesterman JA agreed) emphasised that the exercise of the discretion under rule 374(5) should have regard to rule 5 UCPR and “the general consideration as to whether the interests of justice warrant the exercise of the discretion”. His Honour observed at paragraphs  to :
The exercise of the discretion conferred by UCPR r 374 must take account of the purpose of the rules, which is “to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense.” The rules are to be applied with the objective of avoiding undue delay, expense and technicality and facilitating the purpose of the rules. In accordance with UCPR r 5(3), a party such as the appellant “impliedly undertakes to the court and to the other parties to proceed in an expeditious way”, and the Court may impose appropriate sanctions if a party does not comply with the rules or an order of the Court.…
In considering the exercise of the discretionary power conferred under UCPR r 374 to terminate a proceeding account must be taken of “the need for reasonable access to the courts”. The interests of justice also require account to be taken of the financial and personal strain imposed on litigants, witnesses and other parties who are affected by a party’s failure to comply with a court order without adequate explanation or justification. The costs associated with bringing applications arising from non-compliance with court orders cannot always be recovered in full or at all by a costs order. …
In considering a comparable rule in the Federal Court Rules, Wilcox and Gummow JJ stated that the discretion conferred by the rule was “unconfined, except for the condition of non-compliance with a direction ... [b]ut two situations are obvious candidates for the exercise of the power.” The first was “cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period”. The second were cases “whatever the applicant’s state of mind or resources - in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent.” Their Honours observed that although the history of the matter will always be relevant, it is more likely to be decisive in the first of those two situations:
“Even though the most recent non-compliance may be minor, the cumulative effect of an applicant’s defaults may be such as to satisfy the judge that the applicant is either subjectively unwilling to cooperate, or for some reason, is unable to do so. Such a conclusion would not readily be reached; but where it was, fairness to the respondent would normally require the summary dismissal of the proceeding.”
In the second of the two situations postulated by their Honours, namely a significant continuing default, it was observed:
“it does not really matter whether there have been earlier omissions to comply with the Court’s directions. Ex hypothesi the default is continuing and is imposing an unacceptable burden on the respondent.”
[Footnoting in original]
- This case involves the failure by Mr Smith to comply with his duty of disclosure. The considerations that arise in that situation were considered by the Court of Appeal in KAE v WAK  QCA 327. In that case, as here, the appellant had failed to comply with orders directed at securing compliance with the duty of disclosure. Muir JA (with whom White JA and Philippides J agreed) observed (footnotes omitted):
 In the course of argument, the primary judge said to the appellant, "Look, your compliance has been less than even rudimentary". The appellant assented. The primary judge stated:
"You have ignored a series of orders from this Court. I am convinced of that. You have delayed. You have perseverated. You have denied your opponent the opportunity to see documents. Why should I not strike your application out?"
 The appellant's response was, "I would then have no option but to go bankrupt, your Honour. I owe my parents".
 The appellant had been put on notice that such an application may be made at the time of the appearance before Ann Lyons J on 17 December 2009.
 The appellant's failure to give disclosure has made it impossible for the matter to be prepared for trial, let alone tried. His non-compliance has plainly put the respondent to great inconvenience and expense and has caused her distress and financial hardship. The purpose of the Uniform Civil Procedure Rules 1999 (Qld) is, "to facilitate the just and expeditious resolution of the real issues in civil proceedings at a minimum of expense". Rule 5(3) provides:
"In a proceeding in a court, a party impliedly undertakes to the court and to the other parties to proceed in an expeditious way."
 The appellant was in clear breach of his implied undertaking and his conduct has frustrated the purpose stated in Rule 5(1). The following observations in Mango Boulevard P/L v Spencer & Ors are apposite:
 Paragraph  of the joint reasons in Aon Risk Services Australia Ltd v Australian National University explains the meaning of 'just resolution' in the ACT equivalent of r 5(1) of the Uniform Civil Procedure Rules 1999 (Qld). Their Honours there said:
'... Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs.'
 The joint reasons proceed to explain that 'justice cannot always be measured in money' and that emotional and financial strain on litigants who are natural persons and financial stress on corporations are relevant considerations, as are the effect of uncertainty on business and other plans and on the deployment of resources.
 The present Chief Justice of Australia, when a judge of the Federal Court, referring to a statement of principle to the effect that a party could be protected by a costs order, observed:
'... That may well have been so at one time, but it is no longer true today ... Non-compensable inconvenience and stress on individuals are significant elements of modern litigation. Costs recoverable even on an indemnity basis will not compensate for time lost and duplication incurred where litigation is delayed or corrective orders necessary.'
 The decision in Aon acknowledges, at least implicitly, what has long been recognised: delay is productive of significant increases in the costs of litigation. Such costs have long been a concern of legislators, judges, lawyers and members of the public. The approach in Aon and the discipline it imposes on litigants addresses these concerns."
 Compliance with the rules relating to disclosure is not optional. Their purpose is to secure a fair trial in accordance with due processes of the court and, I might add, to ensure that the parties’ conduct of the proceeding and the court’s determination are properly informed.
 In Australian National Airlines Commission v The Commonwealth, Mason J said:
"... it is central to our conception of the administration of justice that documents relevant and material to the issues arising in litigation should not be withheld from the parties and that each party enjoys as an incident of his right to a fair trial the right to present as part of his case all the relevant and material evidence which supports or tends to support that case. ..."
Mason J went on to remark on the undermining of public confidence in the administration of justice and in the judicial process which may result from the withholding of relevant and material documents from parties to litigation.
 Although the consequences for the appellant of the primary judge's order may have been harsh, he was the author of his own misfortune. His conduct deprived the respondent of the ability to have the proceeding resolved in a timely and cost effective way. She has been put to unnecessary inconvenience and expense. The maintenance of public confidence in the courts is dependent, in part, on insistence by the courts on the performance by litigants of their obligations under rules such as Rule 5 and the rules relating to disclosure. The primary judge, with respect, was correct in deciding that the appellant should be permitted no further indulgence.
- An analysis of the considerations which inform the Court’s response to chronic failure to comply with the duty of disclosure in particular is set out in another decision in the Mango Boulevard saga: Mango Boulevard P/L v Spencer & Ors  QCA 274 where Muir JA again gave the leading judgment. His Honour there relevantly observed:
 Under r 225 where a party fails to "disclose a document" the party entitled to disclosure may apply "for an order dismissing all or part of the proceeding". Whether it is appropriate to dismiss all, none or part of the proceeding calls for the exercise of a judgment by the tribunal, having regard to all relevant facts. In this case, relevant considerations were: the potential significance of the defective disclosure to material issues in the case; the importance of those issues; the persistence of the failures; whether genuine attempts had been made to remedy default in compliance with court orders and disclosure obligations; and whether the appellant demonstrated any willingness and ability to remedy default and minimise prejudice to Mango.
 The principles applicable to the exercise by the court of its power to stay or dismiss proceedings on the basis of abuse of process are explored in the following passage from the reasons of Mason CJ, Deane and Dawson JJ in Walton v Gardiner quoted by the primary judge:
"... The inherent jurisdiction of a superior court to stay its proceedings on grounds of abuse of process extends to all those categories of cases in which the processes and procedures of the court, which exist to administer justice with fairness and impartiality, may be converted into instruments of injustice or unfairness. Thus, it has long been established that regardless of the propriety of the purpose of the person responsible for the institution and maintenance, proceedings will constitute an abuse of process if they can be clearly seen to be foredoomed to fail .... Again, proceedings within the jurisdiction of a court will be unjustifiably oppressive and vexatious of an objecting defendant, and will constitute an abuse of process, if that court is, in all the circumstances of the particular case, a clearly inappropriate forum to entertain them. Yet again, proceedings before a court should be stayed as an abuse of process if, notwithstanding that the circumstances did not give rise to an estoppel, their continuance would be unjustifiably vexatious and oppressive for the reason that it is sought to litigate anew a case which has already been disposed of by earlier proceedings. The jurisdiction ... in such a case was correctly described by Lord Diplock in Hunter v Chief Constable of the West Midlands Police ... as 'the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party ... or would otherwise bring the administration of justice into disrepute among right thinking people.' "
 Counsel for Mango relied on the following passage from the reasons of Millett J in Logicrose Ltd v Southend United Football Club, cited with approval by Chadwick LJ in Arrow Nominees Inc v Blackledge:
"...that the object of the rules as to discovery is to secure the fair trial of the action in accordance with the due process of the court; and that, accordingly, a party is not to be deprived of his right to a proper trial as a penalty for disobedience of those rules - even if such disobedience amounts to contempt for or defiance of the court - if that object is ultimately secured, by (for example) the late production of a document which has been withheld. But where a litigant's conduct puts the fairness of the trial in jeopardy,..., or where it amounts to such an abuse of the process of the court as to render further proceedings unsatisfactory and to prevent the court from doing justice, the court is entitled - indeed, I would hold bound - to refuse to allow that litigant to take further part in the proceedings and (where appropriate) to determine the proceedings against him. The reason, as it seems to me, is that it is no part of the court's function to proceed to trial if to do so would give rise to a substantial risk of injustice. The function of the court is to do justice between the parties; not to allow its process to be used as a means of achieving injustice. A litigant who has demonstrated that he is determined to pursue proceedings with the object of preventing a fair trial has forfeited his right to take part in a trial. His object is inimical to the process which he purports to invoke.
Further, in this context, a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court. The court does not do justice to the other parties to the proceedings in question if it allows its process to be abused so that the real point in issue becomes subordinated to an investigation into the effect which the admittedly fraudulent conduct of one party in connection with the process of litigation has had on the fairness of the trial itself."
 There is no allegation of fraudulent conduct on the part of the appellant or Spencer but the discussion in the final paragraph of the passage just quoted is pertinent to the matters under consideration. An inordinate amount of time, energy and, no doubt, money has been consumed in the course of Mango's attempts to obtain a fair trial. If the evidence before the primary judge had demonstrated that all reasonable steps had been taken and would continue to be taken by the appellant to meet its disclosure obligations, the outcome of the application may have been different. But even then, it would have been necessary to consider whether Spencer's and the appellant's past conduct had removed or greatly reduced the possibility that due disclosure could be made.
 As counsel for the appellant submitted, the jurisdiction to grant a stay or dismiss the action is to be exercised "with great care" and "extreme caution". The rationale for the exercise of such a power "is the avoidance of injustice between parties in the particular case", the need to prevent the administration of justice being brought into disrepute, and the protection by the court of the integrity of its processes.
- Although concerned with Rule 225 and the general law doctrine of abuse of process rather than Rule 374, I consider his Honour’s observations nonetheless identify considerations relevant to the discretion conferred by Rule 374 in the context of failure to comply with disclosure orders.
- When a party to continuously fails to comply with disclosure obligations, there are courses of action available to a court other than to enter judgment. These include issues-based sanctions including striking out paragraphs of a pleading. Of course, no sanction might be considered appropriate if the court might form the view that a fair trial can still be had, upon the court’s drawing adverse inferences against the party in default of disclosure obligations.
Judgment should be entered
- In my view, this is an appropriate case in which the sanction for non-compliance with the orders seeking to compel the performance of the duty of disclosure should be the entry of judgment for the plaintiff. I hold that view for the following reasons.
- First, Mr Smith’s refusal to provide disclosure is of very considerable significance to the key issues in dispute on the pleadings. The plaintiff places emphasis on the failure to disclose tax returns. As I have observed in paragraph  above, the tax returns are of significant relevance to the central issue raised by Mr Smith’s defence. His failure to disclose them undermines the fairness of the trial process. I do not think that the fact that the returns are already in the hands of the plaintiff materially reduces the unfairness arising from the failure to disclose. There is a reasonable argument that the tax returns as disclosed by Mr Walsh under the Notice of Non Party Disclosure, as Mr Smith’s solicitors contended (see paragraph  above) were unlawfully disclosed and might not as a consequence be able to be tendered in evidence. Arguments might be advanced to the contrary, however the plaintiff should not have to carry the burden of dealing with that issue in circumstances where it arises only because of the defendant’s failure to comply with the duty of disclosure.
- The focus on the central significance of the tax returns should not distract from the broader injustice arising from Mr Smith’s unwillingness to provide disclosure and to engage more broadly in the disclosure process. It is easy to imagine that other documents which he might have in his possession or power would be of direct relevance to the central questions of whether he signed the scheme applications or otherwise adopted or ratified them. His bank statements might cast light on his denial that he paid interest as alleged. His possession of signed copies of any of the key documents would also be relevant, as would his possession of documents from Mr Walsh referring to the Scheme and Mr Smith’s investment in it.
- There is an affidavit by Mr Walsh to the effect that, based on his practices, he considers the documents were signed by Mr Smith in his presence as shown on the copies. That evidence is bolstered by the other contemporaneous documents exhibited to his affidavit apparently showing Mr Smith was given advice about the Scheme and investment in it. This evidence tends to suggest that disclosure by Mr Smith would be of assistance to the plaintiff. Whether that is correct or not, however is not the point. The fact is that the plaintiff is entitled in the course of preparation for trial to have Mr Smith comply with his duty to disclose in respect of all issues in dispute on the proceedings, whatever the result of the process might be.
- Second, Mr Smith’s current position is that not only will he not disclose the tax returns, but he has insisted (by his solicitors) that the copies held will be objected to on the basis of their alleged unlawful acquisition by the plaintiff. That position reflects an unwillingness to take steps which might alleviate the prejudice to the plaintiff of his refusal to give disclosure.
- Third, in my view, Mr Smith’s conduct since his solicitors ceased to act for him show an intention not to co-operate at all in the resolution of the proceedings, much less the prompt and efficient resolution of the proceedings. This conclusion flows not just from his continuing disregard for the Court’s orders for disclosure, but from his failure to appear at any directions hearing or other hearing or seek to do so, or to otherwise engage in any way in the progress of the proceedings. The attempts by the plaintiff to secure Mr Smith’s compliance with his duty of disclosure have delayed the progress of the matter for some 6 months. In my view this is an example of the first situation contemplated in Lenijamar P/L v AGC (Advances) Ltd referred to above in Johnson. While the evidence before me of notification of my May and June orders is inadequate, the evidence does show that those orders ultimately came to Mr Smith’s attention, as did previous demands for disclosure given to his solicitors and subsequent orders by me.
- Fourth, given Mr Smith’s past conduct, I have no confidence that further opportunities will result in Mr Smith complying with his duty to disclose. His conversation with Ms Adams referred to in paragraph  above supports that view. I am conscious in reaching this view that his failure to give disclosure has really only stymied the litigation since 26 April 2018. In scheme of some commercial disputes, that is not a long period. However, as I have said, his approach during that period has been one of total disengagement. I see no basis for confidence that that will change.
- Fifth, the attempts by the plaintiff to secure Mr Smith’s compliance with his duty of disclosure have caused it additional costs. As observed above in the quote from Arrow Nominees referred to by Muir JA in Mango Boulevard: “a fair trial is a trial which is conducted without an undue expenditure of time and money; and with a proper regard to the demands of other litigants upon the finite resources of the court”. The result of Mr Smith’s conduct has been to require the plaintiff to expend considerable time and resources to securing compliance with a basic procedural step, with no result.
- Sixth, I have taken into account that the jurisdiction to enter judgment other than on the merits, inter alia, under Rule 374 ought to be exercise with care. I have also considered the proposition advanced in a number of decisions of Robin DCJ that the Court should be more careful in ordering judgment against a defendant on a claim which was not tested on the merits than against a plaintiff in default. However, each case must be determined on its own facts. In a case such as this, where the substantive defence is narrow and is so directly impacted by the failure to disclose, I think the ordering of judgment is an appropriate response in all the circumstances. Further, the plaintiff has put on substantial evidence which tends to support its positive case, (which is after all a rather straight forward one), in addition to the evidence of Mr Walsh which tends to support its position on the key issues in dispute.
- In addition, the circumstances of this case are such that I am not persuaded that some lesser order would be appropriate. The disclosure in this case is will be fundamental to resolution of the central issue in the proceedings. It is difficult to see how the plaintiff can have a fair trial in accordance with the Rules if the rules relating to disclosure are not complied with. Further, I lack any confidence that Mr Smith would begin to co-operate in the prompt and efficient resolution of the proceedings, even if some kind of lesser order could be formulated which would address the unfairness arising from the failure to disclose.
- Accordingly, I will order judgment for the plaintiff under Rule 374(5).
FORM OF ORDERS
- The plaintiff seeks its costs to be paid on an indemnity basis. It made no submission as to the why costs ought to be ordered on that basis at the hearing. However, one might infer it arises from the entitlement to legal costs under clause 7.1(c) of the Loan Deed. The clause requires Mr Smith to pay the Lender all costs and expenses incurred by the Lender in relation to the enforcement of rights under this the Loan Deed including legal costs and expense on a full indemnity basis.
- In exercising the Court’ discretion to order costs of a proceeding under Chapter 17A, Part 2 UCPR, and under Rule 681 in particular, the Court is not bound by contractual agreements to pay costs on a particular basis. So much appears to follow from Rule 680 UCPR which provides that a party cannot recover any costs of a proceeding from another party other than under the Rules or an order of the Court. It is confirmed by authority. The authorities also make clear that in exercising the discretion to order costs, the Court can and frequently will take into account a contractual promise to pay costs of proceedings on some basis.
- However, that does not mean that a party to proceedings cannot seek judgment on the contractual promise to pay legal costs. The promise is neither unlawful nor unenforceable, despite Rule 680 (and cognate provisions). That argument was dealt with directly in Abigroup Limited v Sandtara Pty Limited  NSWCA 45, Stein JA (with whom Giles JA and Young CJ in Equity agreed in substance) observed:
7 The appellant submitted that because s 76 of the Supreme Court Act says that costs shall be in the discretion of the court and Part 52A rule 8 of the Supreme Court Rules says that a party cannot recover costs except under an order of the court, the Act and rules displace any contractual entitlement to recover costs. Even if that not be correct, it submitted that once the Supreme Court has spoken on costs, that is an end of the issue, thus removing any right to recover costs on any other basis. In other words, it submitted that any contractual right is extinguished or overridden. Further, it was open to Sandtara to seek indemnity costs in the Supreme Court on the basis of cl 18.02, indeed on one occasion it did so, but unsuccessfully.
8 Reliance was placed by the appellant on the English Court of Appeal decision in Gomba Holdings Ltd v Minories Finance  Ch 171. In that case the court held that under the terms of a mortgage the defendants were entitled to recover their actual costs and expenses and that they were contractually entitled to payment on an indemnity basis. The court said that normally the court's discretion as to costs should be exercised to correspond with the contractual entitlement (194). My reading of Gomba, however, does not assist the submission of the appellant. It certainly does not support the proposition that the power to make an order for costs or the making of an order for costs in a court extinguishes or overrides a contractual right to costs.
9 It is, of course, correct that a court is not bound to give effect to any extra curial contract as to costs when exercising its discretion to award costs. It does not follow, however, that the discretion takes over from the contract and the exercise of discretion against giving effect to the contract precludes enforcement of the contract as to costs. As Salter J said in Mansfield v Robinson  2 KB 353 at 359, agreements as to costs are common practice and perfectly valid and enforceable. Gomba did not overrule Mansfield, as seems to have been suggested by the appellant. Although Scott LJ noted that some of the dicta in Mansfield was not easily reconcilable, the judgment of the court is consistent with Mansfield, see for example at 194 - 195. For other relevant examples see In Re Shanahan (1941) 58 WN (NSW) 132 at 134; Maher v Network Finance Ltd (1986) 4 NSWLR 694; and Elders Trustee & Executor Co Ltd v Eagle Star Nominees Ltd (1986) 4 BPR 9205. The contractual right simply stands independently of the curial power and order.
- In my respectful view it is this reasoning which informed Philip McMurdo J’s observations in Lee as follows:
 The respondent prevailed on the question of the enforceability of its mortgage. That incorporated terms by which the appellant agreed to pay its legal fees, upon a full indemnity basis, relating to the enforcement or exercise of its powers as a mortgagee. The terms of the appellant’s guarantee also provided for the payment of costs and for an indemnity against any loss by the respondent as a result of any breach of a relevant facility or of the guarantee itself. Upon the basis of these provisions, the respondent says that its costs should be paid and upon the indemnity basis.
 But the respondent is not seeking to recover its costs as a liquidated debt owing under these instruments: rather it is seeking to have the Court, in the exercise of its discretion as to costs, make an order which corresponds with what it says is its contractual entitlement. As its argument appears to accept, the existence of this contractual entitlement does not require an order for the payment of its costs and upon the indemnity basis. In such cases, it remains a discretionary judgment for the court, although the discretion should ordinarily be exercised in a way which corresponds with the mortgagee’s contractual entitlement. The question then is whether the discretion should be exercised other than according to the respondent’s contractual right. In my view, there are circumstances here which warrant such a departure.
- Here the plaintiff pleads its entitlement under the Loan Deed to legal costs: see paragraphs 18 and 18A(e)(iii) of the current statement of claim. However its claim seeks judgment for legal costs under the Loan Deed in the alternative to a claim for an order form this Court for indemnity costs: see paragraph 4 of the claim. Further, it appears that the judgment sum of $165, 366.72 includes two items of legal costs, but the calculation of the sum claimed thereafter appears to have been carried out on the basis of excluding legal costs.  I infer that the plaintiff intended to seek legal costs on an indemnity basis in reliance on an order of the Court, but the position is unclear and inconsistent. The plaintiff needs to make clear what it seeks in respect of costs and on what basis.
The application of the default rate to the principal sum
- The plaintiff submits that the judgment sum is $241,162.32. The judgment entered under Rule 374(5) is not a judgment on the merits. However, I do not accept that the discretion conferred excludes any scrutiny of the judgment sum sought, particularly bearing in mind the broad scope of Rule 374(5)(d). My analysis of the legal costs claimed involves such scrutiny.
- Further to the legal costs issue, the account statement relied upon by the plaintiff shows overdue interest being charged on the principal sum from February 2011. The Loan Deed in evidence demonstrates that overdue interest on the principal sum arises only if that sum is due and payable. It only becomes due and payable if there is a demand for payment following a default comprising an Acceleration Event. I cannot see where the plaintiff pleads or proves any demand prior to expiry of the term of the loan in 2015, notwithstanding the default in payment of interest which would comprise an Acceleration Event under the Loan Deed. This could have a significant consequence given the effect of monthly compounding.
- Accordingly, I order that there be judgment for the Plaintiff under rule 375(5)(a) of the Uniform Civil Procedure Rules against the Defendant and that the plaintiff provide submissions costs and on the calculation of the judgment amount in the light of the matters raised in paragraphs  to  of these reasons.
Afd of KE Kipps (filed 28.09.18) (eCourt Doc 30) at para 14, EXH pp 165-194; Afd of S Flamer-Smith (filed 25.10.18) (eCourt Doc 37) EXH SFS-2, pp258-287.
Affidavit of N Humzy-Handcock (filed 3.05.18) (eCourt Doc 22) EXH pp 8-9.
Ibid. at EXH p.16.
Ibid. at EXH p. 17.
Affidavit of K E Kipps (filed 28.09.18) (eCourt Doc 30) at paras 18 to 39.
Affidavit of K E Kipps (filed 28.09.18) (eCourt Doc 30) at EXH pp210-214.
Notice That Party Is Acting In Person (filed 1.05.18) (eCourt Doc 21).
Affidavit of K E Kipps (filed 28.09.18) (eCourt Doc 30) EXH KEK-1, pp 217-219.
Affidavit of K E Kipps (filed 28.09.18) (eCourt Doc 30) at paras 30 – 39.
eCourt Doc 32. See Afd of L Adams (LTRF granted 12.11.18) at paras 3 and 4 re no list of documents provided or otherwise made disclosure.
UCPR r 5(1).
UCPR r 5(2).
UCPR r 5(4).
Quinlan v Rothwell  1 Qd R 647 at  in the context of an application to strike out proceedings for want of prosecution; cf Quinlan v Rothwell  QSC 143.
Lenijamar P/L v AGC (Advances) Ltd (1990) 27 FCR 388, 396.
British American Tobacco Australia Services Ltd v Cowell (2002) 7 VR 524, 590-591.
Clarke v State of New South Wales (2006) 66 NSWLR 640 at 666. See also ABL Custodian Services Pty Ltd v Kunz  SADC 145 at  cf .
SeeTaxation Administration Act 1953 (Cth) Schedule 1, Division 355.
Klerck v Sierocki  QCA 355 at  per Fraser JA.
Hendon Homes Pty Ltd v Centennial Group Holdings Pty Ltd  QDC 284; Resseck Pty Ltd v Buchanan  QDC 177.
See the schedule of affidavit references at Annexure A to the plaintiff’s outline (LTRF granted 12.11.18).
Lee v Australia and New Zealand Banking Group Ltd  QCA 284 at ; Kyabram Property Investments Pty Ltd v Murray  NSWCA 87.
Lee v Australia and New Zealand Banking Group Ltd  QCA 284 at .
Afd of S Flamer-Smith (filed 25.10.18) (eCourt Doc 37), paras 46, 47, EXH SFS-1, pp163-169; Afd of L E Adams (filed 8.11.18) (eCourt Doc 41) EXH p 6.
Afd of S Flamer-Smith (filed 25.10.18) (eCourt Doc 37), paras 46, 47, EXH SFS-1, pp163-169; Afd of L E Adams (filed 8.11.18) (eCourt Doc 41) EXH p 6.
Mango Boulevard P/L v Spencer & Ors  QCA 207 at .
- Published Case Name:
ABL Custodian Services Pty Ltd v Norman Smith
- Shortened Case Name:
ABL Custodian Services Pty Ltd v Smith
 QDC 257
11 Dec 2018