EOB Pty Ltd v White[2020] QDC 237

DISTRICT COURT OF QUEENSLAND

Background

1. [1]
   This is primarily an application for leave to take a step in the proceeding, despite a considerable delay.
2. [2]
   The action commenced by claim of statement of claim filed on 10 June 2015. It seeks damages for breach of contract and other consequential orders arising out of the first defendant’s previous employment with the plaintiff and the contractual arrangements between the parties including what is said to be a restraint of trade clause in the relevant agreement.
3. [3]
   Broadly, as the applicant/plaintiff submits, the first defendant was the Gold Coast manager of the plaintiff’s business, and a director and shareholder of the plaintiff from 2008 until 26 November 2014. The plaintiff is essentially a bookkeeping service and trades as Eyes on Business.
4. [4]
   The second defendant apparently registered the business name Hands on Business on or about 13 July 2014. The second defendant thereupon employed the first defendant on 1 December 2014, that is, soon after her leaving the plaintiff’s employment. The first defendant apparently became a director of the second defendant on 12 March 2015.
5. [5]
   The plaintiff’s claim against the first and second defendants therefore relates to the establishment of what is said to be a competing business, using confidential information and soliciting clients, during the first defendant’s employment and restraint period.
6. [6]
   The matter was heard at considerable length on 11 September 2020. Although the application seeks not only leave to take a step in the action under r 389 of the Uniform Civil Procedure Rules (“UCPR”), the further orders sought, which were part of the application, are for further or better disclosure by the defendants. It eventuated that the parties agreed that I should reach a concluded position as to whether leave to take a step in the action should be granted, and if so on what terms, and that the arguments about disclosure, which could be substantial and lengthy, should be set aside for future resolution if necessary, bearing in mind that if the plaintiff were unsuccessful in leave to take a step, the disclosure issue would not need to be resolved.
7. [7]
   The parties made written submissions and extensive oral submissions.

Chronology

8. [8]
   The proceedings commenced in June 2015 and the pleadings proceeded normally and without significant delay until an impasse was reached regarding disclosure in 2016. The last step taken in the matter, prior to the present application, was on 4 October 2016 when the defendants served their fourth supplementary list of documents.^[1]
9. [9]
   Rule 389 requires the plaintiff to obtain an order from the court before taking a further step in that proceeding, given that more than two years have elapsed from the time the last step was taken – r 389(2).
10. [10]
    The plaintiff refers to the factors bearing upon the discretion enlivened, particularly as set out in the well-known authority of Tyler v Custom Credit Corp Ltd ^[2] .
11. [11]
    Justice Atkinson there set out a non-exhaustive list of the relevant factors:

1. How long ago the events alleged in the statement of claim occurred and what delay there was before the litigation was commenced;
2. How long ago the litigation was commenced or causes of action were added;
3. What prospects the plaintiff has of success in the action;
4. Whether or not there has been disobedience of court orders or directions;
5. Whether or not the litigation has been characterised by periods of delay;
6. Whether the delay is attributable to the plaintiff, the defendant or both parties;
7. Whether or not the impecuniosity of the plaintiff has been responsible for the pace of the litigation and whether the defendant is responsible for the plaintiff’s impecuniosity.
8. Whether the litigation between the parties would be concluded by the striking out of the plaintiff’s claim;
9. How far the litigation has progressed;
10. Whether or not the delay has been caused by the plaintiff’s lawyers being dilatory:
11. Such dilatoriness will not necessarily be sheeted home to the client but it may be. Delay for which an applicant for leave to proceed is responsible is regarded as more difficult to explain than delay by his or her legal advisors.
12. Whether there is a satisfactory explanation for the delay; and
13. Whether or not the delay has resulted in prejudice to the defendant leading to an inability to ensure a fair trial.

12. [12]
    Her Honour continued:

“The Court’s discretion is, however, not fettered by rigid rules but should take into account all of the relevant circumstances of the particular case including the consideration that ordinary members of the community are entitled to get on with their lives and plan their affairs without having a continuing threat of litigation and its consequences hanging over them. When proceedings have been prosecuted by a plaintiff in a dilatory way, the Court may dismiss a proceeding for want of prosecution or impose a sanction as to costs.^[3]”

13. [13]
    On an application for leave to proceed, the applicant must show that there is good reason for excepting the particular proceedings from the general prohibition in a case in which three years have lapsed from when the last proceeding was taken.^[4] The Court must be satisfied that the continuation of the proceedings would not involve injustice or unfairness to one of the parties by reasonable delay.
14. [14]
    Her Honour referred inter alia to the older authority of Dempsey v Dorber. There the applicant suffered injuries from a motor vehicle accident on 31 May 1981. He issued a writ claiming damages on 30 May 1984 (the last day of the limitation period). It was served on a licensed insurer on 29 May 1985 but never served on the defendant. On 9 June 1982 the insurers had advised that the issue would be limited to quantum, however they later refused a request that they cause an appearance to be entered for the defendant. On 26 May 1988 the defendant applied to dismiss the action for want of prosecution and on 6 June 1988 the plaintiff replied by summons for leave to proceed under O 90 r 9. No explanation was given for the failure to keep the action alive. That applicant was successful on appeal, the Court holding that an applicant for leave to proceed must show that there was good reason for excepting the particular proceedings from the general prohibition in a case in which three years had elapsed. Secondly, while the reason for the delay was a relevant circumstance, a satisfactory explanation or the delay was not a condition precedent to the granting of leave to proceed. Thirdly, that the proper approach was to identify the relevant factors, assess the weight to be given in the circumstances of the case to each of them, and then to determine whether, on balance, there were good reasons for making the order. The question of whether the defendant was likely to suffer prejudice as a result of the delay was always a relevant circumstance. Finally, it was said that an action should only be dismissed for want of prosecution when the Court was satisfied either that the default had been intentional or contumelious or that there had been inordinate and inexcusable delay and such delay would give rise to a substantial risk of prejudice to the defendant.
15. [15]
    The way in which the issue was analysed in Dempsey v Dorber is to some extent qualified by the existence of the more recent and different rule in r 389, particularly reducing the relevant timeframe to two years from three years, and the way in which jurisdiction has been approached since; see paras [3] to [5] in Tyler and indeed other more recent authorities. Nevertheless, some of the observations in Dempsey v Dorber are helpful background, in my view.

The applicant’s submissions

1. (a)
   Bearing in mind the Tyler factors, the applicant submits that the events alleged in the statement of claim occurred just prior to the first defendant’s resignation from plaintiff on 26 November 2014 and up until 26 November 2017, when the longest restraint is said to have expired.
2. (b)
   There was no delay when the proceedings were commenced in a timely manner on 30 June 2015.
3. (c)
   The plaintiff prima facia has reasonable prospects, given that it is admitted that:

   1. The first defendant was the Gold Coast manager of the plaintiff’s business, and a director and shareholder of the plaintiff from 2008 until 26 November 2014;
   2. The plaintiff and the first defendant entered into an employment agreement and a BMS agreement, both of which on the face contain restraints about the conduct now the subject of these proceedings.
4. (d)
   There has been no disobedience of Court orders or directions.
5. (e)
   There has been a delay in litigation (but this is not unexplained, see below).
6. (f)
   The plaintiff submits the delay has been caused by

   1. the failure of the first and second defendants to properly comply with their disclosure obligations;
   2. The alleged conduct of the first defendant, resulting in the loss of clients by the plaintiff which is said to have caused the plaintiff financial loss which in turn affected its capacity to pursue the claim;
   3. The additional legal costs incurred by the plaintiff because of the defendants vigorous opposition to making proper disclosure; and
   4. A decision by the plaintiff, after weighing the costs and time being spent in extracting disclosure from the defendants, to concentrate on repairing the damage caused to it by the allegations complained of.^[5]
7. (g)
   Pleadings have closed and despite the objections of the defendants, disclosure is occurring.
8. (h)
   New evidence has been obtained including instructions from past clients of the plaintiff to the defendant, indicating contact between them, sent apparently in error to the plaintiff, indicating that they had retained the defendants; i.e. an evidentiary basis for an ongoing connection between the plaintiff’s ex-clients and the defendants.
9. (i)
   There is in this case a counter claim which remains unresolved.

16. [16]
    As to the counter claim, when the hearing proceeded instructions were sought by the defendant’s counsel and it was indicated that if leave for the plaintiff to take a step in the proceeding was refused, the counter claim would not be persisted with. It is also true that, if the plaintiff’s action does continue, the defendants will need leave to take a step in their counter claim, although, of course, they are at a much stronger position to do so than is the plaintiff on the present application.

The reason for the delay

17. [17]
    Evidence is provided by the plaintiff’s solicitor, Mr Hartnett, who outlines in his affidavit (court file document number 10) at paragraphs 41 and following that:

• On information from Ms Jakins, a director of the plaintiff, the first defendant’s actions resulted in business losses in the range of an estimated $90,000.00 per annum (from lost clients, some of whom may have gone over to the defendants).
• It was as a consequence of the time and cost incurred by the plaintiff during the process of discovery that it was decided that it was in the best interests of the company and its shareholders to allocate the directors available time to rebuilding the finances of the business following the first defendant’s departure and to conserve the plaintiff’s expenditure on legal costs being incurred at the time (in other words, the plaintiff made a somewhat considered decision, presumably with the assistance of legal advice, to not pursue the litigation at that time).
• That the loss of clients from the defendant’s actions meant that the plaintiff suffered financially and this materially affected the plaintiff’s financial capacity to pursue the claim against the defendants.
• The plaintiff has, however, now added clients or customers to replace those clients or customers taken by the first defendant (and is thus presumably in a better financial position to pursue the litigation).
• The plaintiff now has additional information to support its claim and now wishes to pursue it to a hearing.

18. [18]
    Some of these rather broad assertions are fleshed out later in Mr Hartnett’s affidavit, at paragraphs 92 and 93 where there is evidence that the defendants now act for a number of the plaintiff’s previous clients, possibly in breach of the restraint, with reference to such things as email communications.
19. [19]
    Thus the plaintiff submits in essence although there has been a significant delay, there is at least an explanation for the delay which is logical and there has not otherwise been dilatory behaviour or disregard of court orders. It submits that it has prima facie reasonable prospects of success. Even if the explanation for the delay is not considered to be particularly satisfactory, it must be balanced in the exercise of the discretion that there is no specific prejudice pointed to by the defendants and there is no reason to think that a fair trial of the issues could not proceed. Thus in all the circumstances the plaintiff argues for the relevant leave.

The defendants’ submissions

20. [20]
    The defendants submit that their requirement for leave to take a step after a delay of two years recognizes that unnecessarily delaying proceedings has a tendency to bring the legal system into dispute and to decrease the chance of a fair trial (referring to Tyler). As noted in Tyler, members of the community are entitled to get on with their lives and plan their affairs without having the continuing threat of litigation and its consequences hanging over them.
21. [21]
    The defendant submits that in truth there is little evidence to establish that it has been dilatory in its disclosure obligations. The defendants had delivered five lists of documents by 4 October 2016; and, further, from that time the plaintiff, presumably with the assistance of legal advice, did not seek any relief from the court in respect of disclosure, rather allowing almost four years to elapse before the present application was made.
22. [22]
    As to the submission that the defendants’ complained of conduct had the effect of causing loss of income, and the relevance of this to the plaintiff’s decision not to continue the litigation, it is submitted that there is no proper evidence as to the plaintiff’s financial position during the period of the delay; the evidence is nothing more than broad assertions. Emphasis is placed on the apparent deliberate decision not to pursue the litigation. It is submitted that this is different from an inability to pursue it as a result of impecuniosity. Reference is made to Australia Abalone World Pty Ltd v Yin [2020] QDC 190 at [18]. In that case observations were made about the broad statements to the effect that the plaintiff could not afford to conduct the proceeding, partly due to other litigation.
23. [23]
    The defendants submit that leave should not be granted under r 389(2) automatically (no doubt this is correct in principle). The plaintiff’s evidence in support of the application is said to disclose no satisfactory explanation for the inordinate delay in the proceedings and the application should be dismissed. It is submitted that this is particularly so where the plaintiff has chosen not to give their required explanations personally, but rather on information and belief through Mr Hartnett, thereby avoiding exposing officers of the plaintiff to cross-examination.
24. [24]
    I pause to note that the defendants’ material at the hearing of the application included a recent affidavit from the first defendant going to the issues of disclosure. Leave was sought by the plaintiff’s counsel to cross-examine the deponent, particularly in relation to the true extent and nature of the disclosure, and after somewhat lengthy argument on the point leave was refused.
25. [25]
    Finally the defendants submit that if leave is granted, the plaintiff’s evidence discloses a level of financial difficulty and thus security for costs should be given as a condition of any grant of leave (although there is not presently a formal application for security for costs before the court). Reference is made to the orders in Australian Abalone referred to above, where this was done. There are also, unsurprisingly, arguments as to costs.

Consideration

26. [26]
    In my conclusion the leave to take a step should be allowed. In terms of the helpful but non-exhaustive list of factors in Tyler, the relevant events took place about six years ago. There was no significant delay before the litigation was commenced, and it was proceeded with relatively quickly up to the point when the plaintiff ceased doing so, apparently in the balancing process referred to above, where it considered that further debates about disclosure were expensive and non-productive; and generally the plaintiff was better to attempt to recover its financial situation by attending to its business rather than expend time and expense on further pursuit of the litigation. It is, of course, correct to observe, as the defendants do, that the decision was not communicated to the defendants, who thereupon have had the litigation hanging over them for some time.
27. [27]
    It is a case where the plaintiff’s prospects of success in the action are at least reasonable, in my conclusion. There has not been disobedience of court orders or directions. The delay is somewhat lengthy, and is solely attributable to the plaintiff in the way outlined above.
28. [28]
    I could not at this stage, on the current information, reach a conclusion about the particular degree of impecuniosity of the plaintiff at any particular stage. Nor could I reach a conclusion as to whether the defendants are responsible for that impecuniosity (which would of course be a significant factor). However, I do accept the plaintiff’s submission that the business decision taken at the time, as established by the affidavit material, was at least a logical reason for the deliberate choice to not pursue the litigation more quickly. If there is a continuum of quality of such reasons for delay, in my view the explanation proffered here falls at neither the best nor the worst end of such reasons. It is at least better than the reasons in Dempsey v Dorber, and is probably significantly better than the reasons in Australian Abalone.
29. [29]
    It is relevant that the litigation between the parties would likely be concluded if the leave to proceed were not given, given the indication that the counter-claim would not be pursued.
30. [30]
    The litigation has progressed a significant distance; pleadings are closed (at the moment) although an amendment to the plaintiff’s pleadings is quite possible, depending upon further developments including not only the fate of this application but the further argument about disclosure.
31. [31]
    Finally, there is no identifiable prejudice to the defendants, other than the prejudice which is inherent in any delay of significant time.^[6]
32. [32]
    However, in the circumstances as presently demonstrated, I could not conclude that the delay has resulted in prejudice to the defendants leading to an inability to ensure a fair trial. This is particularly so where the proceedings were commenced relatively promptly; both sides were represented from that early stage; much of the evidence is documentary in nature; and presumably, to the extent that proofs of evidence of potential witnesses would assist witnesses now in refreshing their memory, there is no reason to think that relevant proofs of evidence would not have been taken in the proper preparation of the matter at an early stage. Certainly no direct evidence is referred to by the defendants along those lines for the purposes of the hearing of this application.
33. [33]
    The result is that the plaintiff should have leave to proceed. As to the conditions thereof, it was argued by the defendant that an order for security for costs should be made, along the lines of the decision in Australian Abalone, where this course was taken of the court’s own motion. The plaintiff resists this, firstly on the basis of short notice and lack of opportunity to properly respond, and also pointing to a number of distinguishing factors in this case: the shorter delay, the counterclaim, the plaintiff’s much lesser misconduct, the fact that the plaintiff in Australian Abalone had been in voluntary administration; and generally that the plaintiff’s position in that case was simply much worse.
34. [34]
    The plaintiff’s submissions should be accepted on this point, and there should not presently be an order for security for costs. If the defendants do wish to make such an application in the future, it can be filed and proceeded with in the normal manner, with both sides having an opportunity to present relevant evidence and submissions on appropriate notice.
35. [35]
    I will hear the parties as to costs.