JH7 Holdings Pty Ltd v Chung
[2024] QSC 55
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- Notable Unreported Decision
- JH7 Holdings Pty Ltd v Chung[2024] QSC 55
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JH7 Holdings Pty Ltd v Chung[2024] QSC 55
JH7 Holdings Pty Ltd v Chung[2024] QSC 55
SUPREME COURT OF QUEENSLAND
CITATION: | JH7 Holdings Pty Ltd (ACN 601664617) v Chung & Ors [2024] QSC 55 |
PARTIES: | JH7 HOLDINGS PTY LTD (ACN 601663617) (plaintiff) v KUO-JEN CHUNG (in his personal capacity and as trustee for the Chung Family Trust) (first defendant) JH3 HOLDINGS PTY LTD (ACN 619035755) (second defendant) ZHUO LI (first defendant added by counterclaim) LIMING HU (second defendant added by counterclaim) |
FILE NO/S: | BS 8669/20 |
DIVISION: | Trial Division |
PROCEEDING: | Application |
ORIGINATING COURT: | Supreme Court of Queensland |
DELIVERED ON: | 6 March 2024 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 23 February 2024 |
JUDGE: | Callaghan J |
ORDER: |
|
CATCHWORDS: | COURT PRACTICE AND PROCEDURE – QUEENSLAND CIVIL PRACTICE – UNIFORM CIVIL PROCEDURE RULES 1999 – FAILURE TO COMPLY WITH RULES OR ORDER – Where a guillotine order has been issued – Where the applicant seeks the exercise of a discretion to declare compliance – where the applicant in the alternative seeks to be relieved of the consequences of failing to comply with the guillotine order – circumstances in which the order was made – whether the non-compliance was inadvertent – prejudice to the plaintiff – prejudice to the defendant – injustice – application refused COSTS – Applicant for indemnity costs – indemnity costs refused |
COUNSEL: | M Goldsworthy for the applicant B Cohen for the respondent |
SOLICITORS: | HWL Ebsworth for the applicant Cohen Law for the respondent |
- [1]My reasons for judgment are as follows. This unfortunate piece of litigation now involves a counterclaim as well as this application, but I shall continue to refer to JH7 Holdings and the parties associated with it simply as the plaintiff, and Mr Chung as the defendant.
Background
- [2]As described by the plaintiff itself, the cause is “not complex.”[1]It is averred that some $842,873.46 was advanced to the defendant for the purposes of a joint venture property agreement.[2]The arrangement is said to be the subject of a written loan agreement. Of course, the materials before me contain a lot more detail. Different forms of relief are sought by the plaintiff and, as noted, a counterclaim has been made by the defendant. But for current purposes it all does really reduce to the proposition that one party claims to have given money to another party and to have nothing to show for it.
- [3]Proceedings were instituted originally in New South Wales but have been before this court since July 2020. It may be, as put by counsel for the plaintiff, that between then and August 2023 there had been “delay on both sides”. However, there was little more to be said about that after orders were made by Freeburn J on 11 August 2023. These were made in the absence of an appearance by the plaintiff, and included the following:
Order 2: by 4 pm on 15 September 2023 the plaintiff and first and second defendants by counter-claim file any amended reply and answer to the further amended counter-claim; ...
Order 4: Except as otherwise ordered by the Court, the evidence-in-chief of lay witnesses at the trial be given by affidavit; and
Order 5: By 4 pm on 3 November 2023 the plaintiff and first and second defendants by counter-claim:
(a) file and serve affidavits of evidence of each lay witness that they intend to call at trial; and
(b) serve a list of additional documents they intend to rely on at trial.
- [4]Implicitly, the affidavits were required to contain the evidence with which the plaintiff was going to prove its case.
- [5]On 20 November 2023, his Honour extended time for compliance with paras 2 and 5 until 4:00pm on 30 November 2023. He also made a further order which added a new dimension to proceedings. It included this paragraph:
If the plaintiff and first and second defendants by counter-claim do not comply with paragraphs 2 and 5 of the order made by Freeburn J on 11 August 2023 (as extended ...) by 4 pm on 30 November 2023, then, upon the solicitors for the first defendant filing an affidavit deposing to such noncompliance, there shall be judgment for the first defendant against the plaintiff on the claim and an order that the plaintiff pay the first defendant’s costs of the claim on the standard basis.
- [6]The orders made on 20 November 2023 also included an award of costs for that hearing and for a review on 6 November 2023 at which it may also be noted there was no appearance for the plaintiff. These were not the first costs orders made against the plaintiff.
- [7]On 28 July 2020, Justice Trish Henry of the New South Wales Supreme Court ordered that the plaintiff pay the costs of the defendant in respect of the motion to transfer the proceedings to the Supreme Court of Queensland. On 26 August 2022, Kelly J ordered that the plaintiff pay the defendant’s costs thrown away of and incidental to the adjournment of a hearing scheduled for 29 August 2022 either by agreement or on the standard basis. Then on 13 September 2022 his Honour ordered that the plaintiff pay the defendant’s costs of and incidental to applications filed on 25 July 2022, 27 July 2022 and 12 September 2022 either by agreement or on the standard basis. None of these orders seems to have focused the plaintiff’s attention.
- [8]30 November 2023 arrived and JH7 made an application to Freeburn J “to vary or set aside” his order. In effect, it was another application for an extension of time within which to comply with the orders made on 11 August 2023. On this occasion the plaintiff was represented by senior counsel who, at the outset of the hearing, handed up an affidavit from the solicitor who was then acting for the plaintiff. In essence, this solicitor allowed that the job of representing the plaintiff was beyond him. Senior counsel proposed a further extension of time within which the plaintiff be allowed to comply with order 2 and that the other orders (concerning affidavit material) be vacated. It was also said that were the extension to be granted, new solicitors would be retained.
- [9]The effect of the orders sought would have amounted, as his Honour observed, to “going backwards”. The application was refused. In the result, the self-executing order made on 20 November 2023 continued to have operative effect; that is, the plaintiff was on notice that the guillotine would commence its descent by 4:00 pm that afternoon.
- [10]At about 3.50 pm, the plaintiff filed and served a “further amended reply and answer” that purported to satisfy the requirement of order 2. It also filed and served three affidavits in purported compliance with orders 4 and 5. No list of “additional documents” was filed. The defendant now seeks a declaration that the filing of these documents did not amount to compliance with the order made by Freeburn J with the result that given that an affidavit of noncompliance has been filed,[3]judgment should be entered for the first defendant against the plaintiff on the claim.
Legal principles
- [11]Conflicting authority addresses the concept of compliance with a guillotine order. There is, from the Federal Court, one line that is reflected in cases such as Smith v Barron.[4]These hold that the functional question is whether “as a matter of form and substance” the documents filed comply with the order made. Alternatively, in cases such as Ridge Lane Pty Ltd v Gadzhis[5]and ACN 092675164 (in liquidation) v National Builders Group Pty Ltd,[6]the question is said to be whether the document filed “constitutes a good faith attempt to provide the information required by the order”.
- [12]Given the conclusion I have reached, it is not necessary for me to attempt a reconciliation between, nor express a preference for, either line of authority. Neither test could be satisfied by the documents filed on 30 November 2023.
The pleading
- [13]The document in question is a reply to the defendant’s “further amended defence and further amended counter-claim”. Its adequacy as a pleading must be assessed in the context of that documentand the other pleadings. Any conclusion must be drawn after an assessment of the document as a whole, but in the course of argument, the defendant performed the exercise of deconstructing it in seriatim. Many examples of deficiencies were canvassed and the plaintiff made little or faint effort in reply to refute the specific inadequacies identified. In fact, Mr Goldsworthy, for the plaintiff, has conceded that the pleading is inadequate. No real attempt was made to justify its “substance and form”. It is allowed to be so deficient that it might be struck out. That does not, so it is further submitted, mean that its filing is nugatory. It might yet, so the argument runs “meet the good faith test”.
- [14]There is no clear guidance as to what is required when applying the “good faith” test. It is theoretically possible that an inadequate document filed by an incompetent solicitor could, in some circumstances, meet a requirement of “good faith”.
- [15]Nevertheless, the test must have an objective element. Good faith may be a subjective requirement, but it is measured against an objective standard. When a document is patently lacking the characteristics of something prepared by reference to basic standards of professional conduct, any claim to bona fides should be forfeited irrespective of the solicitor’s state of mind. So it is in this case.
- [16]The cumulative deficiencies in this document go beyond its susceptibility to a strike-out application. Paragraph [2] affords a useful example. It purports to reply to para 5A(a) of the further amended Defence. In para 5A(a), the defendant denied facts alleged in 5A of the statement of claim and asserted that he did not enter into an oral loan agreement with the plaintiff.
- [17]The response to this, as expressed in the aforementioned paragraph [2] reads as follows:
JH7 parties denies (sic) the allegation of paragraph 5A(a), because it is the conversation, the understanding of the terms mentioned in the conversation between the JH7 parties and the first defendant, which initiated and led to the eventuation of the loan agreement and the Joint venture agreement.
- [18]The defendant submitted that this was meaningless. In the course of the hearing, I announced that I was indeed having difficulty in imputing meaning to it. The plaintiff did not really attempt to educate me otherwise. There is some importance to that, because the effect of this verbiage is not confined to its own location. The same paragraph – [2] – is invoked in paras 3, 4, 5, 14 and 18, as a “reason” for the matters that are averred in those paragraphs. In fact, it is a “reason” for nothing but fits within a wider pattern of assertions that are in context either meaningless or non-responsive.
- [19]Other flaws are obvious on the face of the document. For example, paragraph 17 refers to documents “annexed” and marked “1” and “2”. There is nothing annexed to the pleading. Paragraphs 51 and 52 of the counter-claim describe the existence of an email sent by the defendant to the second defendant added by the counter-claim and to which there was no response. The plaintiff’s reply reads as follow:
JH7 parties deny the allegation 51 and 52, because the first defendant added by counter-claim did not recall rev=iving of any of the allegad email.
- [20]Apart from the egregious errors in form, this paragraph contains an impermissible denial of a fact that cannot be recalled.
- [21]Paragraph 10 of the pleading seals the fate of this already doomed document. It reads:
JH7 parties deny the allegation of paragraph 16(b); 17(b) 18 for the reason as paragraph 9 in this replyI m Stuck with reply to paragraph 14 to 18.
- [22]When considered in the context of the entire litigation – including the sequence of cost orders – the action of filing these documents involved, at the very least, turning a blind eye to the requirements of litigation. It could not be said that it was a good faith attempt to comply with an order of the Supreme Court. In the circumstances, there has not been compliance with order 2.
The affidavits and list of documents
- [23]Under this heading, it should be noted at the outset that no list of documents – of additional documents was served – at all. Mr Goldsworthy makes the point that if it was the plaintiff’s intention to run a case without any “additional documents”, then omission to file a list could not amount to noncompliance with the orders. I accept that submission and make no finding of noncompliance by reason only of the fact that the plaintiff has not prepared a list.
- [24]It remains untenable, however, to contend that the plaintiffs intended to conduct the entire case without any documents being adduced during evidence-in-chief and the absence of a list must be considered in conjunction with the omission from the affidavits of any reference to any document that might be tendered. This was an action which was said to be founded, at least in part, upon a written loan agreement, yet no such agreement is exhibited anywhere by anyone in any affidavit, nor are there any financial records (such as bank accounts) that might establish the movement of money.
- [25]In these circumstances, it is conceded necessarily that the affidavit material would be insufficient for the plaintiff to prove its case or defend the counterclaim. The plaintiff pointed out in this context that if there has been superficial but deficient compliance with a self-executing order, the court retains the power to make further orders for the supply of information. It is difficult, however, to take that submission much further. The only “further order” that might remedy this situation would be a repetition or reconstitution of the orders made by Freeburn J. The mere fact that requirements of guillotine orders can be reiterated is an unattractive reason for denying their effect. The affidavit material was inadequate both in substance and form and did not represent an effort made in good faith to comply with the order of Freeburn J.
Is there a residual discretion?
- [26]I agree with Mr Cohen that, in the absence of any other application by the plaintiff, there is no “residual discretion” to be exercised. The application is conducted to rules that do not contemplate a freestanding power to make things right for the dilatory plaintiff. No authority suggests the existence of a discretion sourced to common law or inherent jurisdiction. No further application was filed by the plaintiff. But betwixt the stirrup and the ground, Mr Goldsworthy made an oral application (under r 32 of the Uniform Civil Procedure Rule 1999), the terms of which were articulated only at the very conclusion of these proceedings.
- [27]This was, against the background of the plaintiff’s conduct, a precarious strategy. However, I am prepared to treat the application as having been made. In the result, I do have the discretion to relieve the plaintiff from the consequences of noncompliance with the orders of Freeburn J. In considering its exercise, I have admitted into evidence and considered all affidavit material from the solicitor who was acting for the plaintiff on 30 November 2023, along, of course, with the balance of the materials.
How should the discretion be exercised?
- [28]The discretion is one to be exercised cautiously and with due regard to the necessity for insisting upon compliance with the court’s orders.[7]Guidance to the way in which this discretion should be exercised can be found in authorities such as MTQ Holdings Pty v Lynch,[8]Jorgensen v Slater & Gordon Ltd,[9]and ABL Nominees Pty Ltd and Others.[10]The non-exhaustive list of relevant considerations includes:
- the circumstances in which the self-executing order was made;
- the reasons for noncompliance with it, including the question as to whether the failure to comply reflected indifference to the Court’s order;
- the prejudice to the defaulting party if relief were not granted;
- whether or not the defaulting party has a reasonably arguable case on the merits;
- and the prejudice to the innocent party, if relief were granted.
Re (a) – Circumstances in which the order was made
- [29]It is emphasised that the delay occasioned by the default is really confined to that period between 11 August 2023 and now, and that prior to 11 August 2023 there had been, as I have noted, “delay on both sides”. Freeburn J knew all that, and this is not the opportunity to review the merits of his decision. The order was then confirmed by him in open court at the hearing in which the plaintiff was represented by senior counsel. The plaintiff was, at that stage, already contemplating a change of legal representation and once that was effected could, at any stage, have lodged an appeal accompanied by arequest for extension of time if necessary. Potentially, other options were available. There is nothing about the circumstances in which the order was made that would inform an exercise of discretion in the plaintiff’s favour.
Re (b) – Reasons for noncompliance
- [30]It is clear that the failings of the plaintiff’s former solicitor – as admitted in the affidavit material – are the substantial cause of its noncompliance with the orders of Freeburn J. There is a tension between the proposition that courts do not like to see parties suffer prejudice by reason of incompetent lawyers and the general proposition that a litigant must bear the consequences of a failure to comply with a guillotine order, whether that failure was due to the litigant or its solicitor.[11]
- [31]Resolution of this tension involves application of an onus to those who would seek to rely upon the incompetence of lawyers as a basis for the exercise of the discretion. The defaulting solicitor’s own affidavit (prepared by the solicitors acting for the plaintiff now) establishes some of his failings, and I can draw inferences about others. In fact, I can draw firm conclusions adverse to this solicitor. However, I perceive the functional onus requires the plaintiff to establish more than that. The language of the authorities makes this clear. It has been said that:
A party seeking to avoid a (guillotine) order must establish both that there was no intention to ignore or flout the order and that the failure to comply with it was due to circumstances outside the party’s control.[12]
- [32]Similarly, it has been said that the party who has disobeyed a court order (at their peril) must therefore demonstrate that circumstances exist which would justify the exercise of the discretion.[13]
- [33]The materials do not demonstrate that the situation was out of the plaintiff’s control. The former solicitor has not sworn that it was, nor has anyone done so on behalf of the plaintiff. Indeed, there is no sworn material emanating from the plaintiff at all with the result that it has neither established that its failures were beyond its control, nor demonstrated circumstances that would compel an exercise of the discretion in its favour.
Re (c) and (d) - Prejudice to the plaintiff
- [34]It is said that the plaintiff has lost the benefit of the aforementioned $842,873 and that the defendant has had the benefit of this property for the last seven years. There is self-evident prejudice to the plaintiff in being deprived of the opportunity to present a case that rectifies this situation. This prejudice might be compounded in this case by the existence of the counter-claim. There are facts in issue on the counter-claim that are inextricably intertwined with the facts relevant to the claim. The plaintiff may be placed in the position of having to run a trial in the counter-claim on those same issues but be unable to receive judgment.
- [35]All that may be true, but I cannot assess its effect in the abstract. The extent of the prejudice must depend, to some extent, on the prospects of success – in both claim and counter-claim. When considering the claim, loss of an opportunity to present a hopeless case could not adequately be described as a prejudice. The plaintiff’s difficulty is that there is nothing before me that in real terms allows for an assessment as to the strength of the evidence that it might adduce.
- [36]As noted above, the affidavit material that has been filed does not even rise to the level of a prima facie case. It is said that I can have regard to my “own experience” and to the pleadings in order to find that “the claim is one of substance”. That does not seem right. A judge’s “own experience” cannot ever be known fully to the parties, and in these circumstances there would be unfairness involved in deciding any issue on such a basis. And I am unconvinced that on the basis of the pleadings it would be possible to make an assessment as to whether the plaintiff has, to use the language of MTQ Holdings Pty v Lynch at [56], “a reasonably arguable case on the merits”.
- [37]A conclusion about “apparent merit” necessarily demands, at the very least, identifying of the existence (even if not the probative value) of prospective evidence. Perhaps the inquiry goes no further than establishing that a presentable prima facie case does in fact exist, but I cannot even do that. An examination of incomplete and inadequate pleadings is unlikely to take things further.
- [38]I was told from the bar table that there was in existence a draft pleading that was “90 per cent advanced” which could be tendered for the purposes of considering whether the discretion should be exercised. From this, and from the existence of the former solicitor’s affidavit, I infer that the plaintiff was aware of the possibility that further material relevant to the exercise of the discretion could be put into evidence on this application. However, a 90 per cent complete draft pleading was never going toassist in that regard, at least not without some further evidence from the solicitor preparing it. Something else which demonstrated a reasonably arguable case was required. This might have taken any number of forms but, in the result, there is just nothing.
Re (e) Prejudice to the defendant
- [39]Were the discretion to be exercised against them, the defendant would be effectively denied a judgment regularly obtained and which brought to an end litigation in which they had repeated success in obtaining costs orders. It is relevant to consider whether if the plaintiff was allowed to resume its action, further prejudice could be offset by further costs orders. However, the prospect of further such orders being made in their favour does not, and would not, wholly ameliorate prejudice to the defendant.
- [40]As written by French J, as his Honour then was, in Bomanite Pty Ltd v Slatex Corporation Australia Pty Ltd:
... 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 are necessary.[14]
- [41]Those comments were endorsed by Muir JA in Mango Boulevard Pty Ltd v Spencer where his Honour remarked:
Justice cannot always be measured in money ... 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 on the deployment of resources.[15]
- [42]That said, and accepting that to allow this litigation to continue would, in some senses, be prejudicial to the defendant, there does not seem to be any “extraneous” prejudice of relevance, or at least there is no evidence of it. For that reason, this consideration does not weigh heavily against the plaintiff.
Injustice?
- [43]However, when all relevant considerations are synthesised and the wider context of the litigation is assessed, it cannot be concluded that the success of this application would be the root cause of any injustice. Rather, the source of injustice, if there is one, is to be found in the plaintiff’s own omissions. To the extent that these trace to the failures of the solicitor who previously acted, the situation is susceptible to other remedies.
Conclusions
- [44]There is insufficient reason to refrain from application of the principles that parties generally are responsible for the actions of their lawyers and that the orders of the court should be enforced. In the result, and notwithstanding the able arguments of Mr Goldsworthy, the order the court will be that the court declares:
- The oral application by the plaintiff and first and second defendants by counterclaim made on 27 February 2024 is dismissed.
- By 4:00pm on 30 November 2023, the plaintiff and first and second defendants by counterclaim did not comply with paras 2 and 3 of the orders made by Freeburn J on 11 August 2023, as extended by paras 2 and 3 of the orders made by Freeburn J on 20 November 2023.
- On 5 December 2023 upon the filing of the affidavit of Alexander William Thompson, sworn 5 December 2023, judgment was entered for the first defendant against the plaintiff on the claim and an order that the plaintiff pay the first defendant’s costs of the claim on the standard basis, pursuant to para 4 of the 20 November 2023 orders.
Costs
- [45]The defendant has made an application for indemnity costs. It is submitted that the case is one which has been maintained and persisted in when, had the plaintiff been properly advised, it ought not to have been advanced or maintained. Ultimately, the case has been decided by way of the exercise of a discretion. The plaintiff was wrong about the reasons why I had the discretion and only belatedly did what was necessary to invest me with it. Nevertheless, along the way I was directed to the law that was applicable to its exercise, and I was at least provided with some functional argument as to why it should be exercised in the plaintiff’s favour.
- [46]I remain disturbed about the lack of materials, which might have been capable of establishing reasons for noncompliance and prejudice to the defendant, but given that the exercise of the discretion is an exercise to be formed after synthesising all of the relevant factors, I cannot conclude that the failures of the plaintiff were so wholesale as to fall into the category in which it is said they lie. The case might be a marginal one, but in the result, I have concluded that it is not one in which an order of indemnity costs is appropriate. And so the order of the court will be:
- The plaintiff and first and second defendants by counter-claim pay the first defendant’s costs of the application filed 7 December 2023, and the oral application.
Footnotes
[1] Submissions of plaintiff, dated 20 February 2024, [1].
[2] Plaintiff’s amended statement of claim, CFI 78 [12A].
[3] Affidavit of Alexander William Thompson, sworn 5 December 2023.
[4] [2004] FCA 1596; 2004 139 FCR 566.
[5] [2007] VSC 212.
[6] [2014] VSC 530.
[7] Jorgensen v Slater & Gordon Ltd [2008] VSCA 110 at [50].
[8] [2007] WASC 49.
[9] [2008] VSCA 110.
[10] [2012] VSCA 231.
[11] MTQ Holdings Pty Ltd v Lynch [2007] WASC 49 at [54].
[12] Ibid, [46].
[13] Brakatselos v ABL Nominees Pty Ltd and others [2012] BSCA 231 at [33].
[14] [1991] 32 FCR 379 at 392.
[15] [2010] QCA 207 at [21].