Application for leave to appeal from interlocutory order - Primary judge's refusal to adjourn imminent trial - Whether exercise of discretion unreasonable - Turns on own facts

Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B, O 34 r 4

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175

The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40

1 REASONS OF THE COURT: The defendants in the primary proceedings, which were listed for trial commencing on Monday, 25 July 2016, sought leave to appeal against the primary judge's refusal, after a hearing on 19 July 2016, to vacate the trial dates and make certain ancillary orders. For the appeal proceedings against the order refusing the adjournment to have any practical utility, it was necessary to determine the application for leave to appeal against that order before the trial was due to commence. On Friday, 22 July 2016, we heard the defendants' application for an urgent appeal order and for leave to appeal against the refusal of an adjournment of the trial.

2 At the conclusion of the hearing, we made orders granting an urgent appeal order but refusing leave to appeal against the primary judge's order dismissing the defendants' application to adjourn the commencement of the trial. We indicated that we would publish reasons for making those orders at a later date. These are our reasons for that decision.

3 In these reasons, we shall refer to the appellants as the defendants and the respondents as the plaintiffs.

Plaintiffs' claim in the primary proceedings

4 On 4 May 2016, the plaintiffs commenced the primary proceedings by originating process supported by an affidavit of the first plaintiff, Mr Marusco. Mr Marusco is a director of the second plaintiff, M3 Building and Construction Pty Ltd (M3). M3 operates a business of constructing residential premises. The first defendant, Mr Martincic, is also a director of M3. The second defendant, his wife, has assisted with M3's business from time to time.

5 In essence, the originating process alleges that the defendants have misappropriated funds from M3's bank account. The defendants are alleged to have used two principal methods. First, it is alleged that the defendants falsified invoices from service providers for amounts which were paid into bank accounts which they controlled. Secondly, it is alleged that the defendants made cash withdrawals from the account, which were not authorised or necessary for M3's business. The bank account statements were annexed to Mr Marusco's first affidavit. Emma Levett, a forensic accountant, produced two forensic accounting reports which identified 251 'suspect transactions' since 1 January 2014, with a total value of approximately $1.33 million.

6 The plaintiffs claim declarations that the defendants have knowingly participated in the falsification of records of M3, an accounting of moneys unlawfully obtained, a permanent injunction restraining Mr Martincic from acting as a director of M3 and a mandatory injunction requiring that Mr Martincic transfer his shares in M3 to Mr Marusco at a price determined by an independent valuer.

7 Unfortunately, pleadings were not ordered in the proceedings below. The nature of the plaintiffs' claim is apparent from the affidavits filed in support of the originating process. However, for most of the life of the proceedings the defendants' defence has been opaque. The nature of the defence was not articulated even in general terms prior to the hearing before the primary judge on 19 July 2016.

8 As we understood the submissions of counsel for the defendants, the defendants accept that money has been paid, to the benefit of the defendants, from a bank account operated by M3. It is not apparent that the defendants deny the falsification of invoices purportedly from suppliers of goods and services to M3. However, the defendants wished to contend that the payments of money from M3's bank account for their benefit were authorised by the plaintiffs. We understand the defendants to contend that the claimed authority would give them a contractual or other entitlement to appropriate and retain the funds received from M3.

9 On 6 May 2016, the primary judge made freezing orders in relation to the defendants' assets, subject to an exception for certain living expenses and 'paying legal costs reasonably and necessarily incurred in defending these proceedings'. Specific restraints were also made in relation to specified assets including a house in Applecross and shares held in M3. Other interim relief was granted at this time. The freezing orders were extended until further order at an inter partes hearing on 13 May 2016, with the matter being listed for further hearing on 27 May 2016 to deal with an application for interlocutory injunctive relief.

10 That hearing to deal with an application for interlocutory injunctive relief was made unnecessary when, on 24 May 2016, the parties agreed to orders programming the matter for an expedited trial on 25 - 27 July 2016. Relevantly, the plaintiffs were required to file further affidavits by 23 June 2016, the defendants were required to file affidavits by 8 July 2016 and the plaintiffs were to file responsive affidavits by 15 July 2016. Any request for specific discovery was to be made by 21 June 2016 and provided by 24 June 2016.

11 On 30 June 2016, the defendants sought to vacate the trial dates because they could not be ready for trial. In essence this application was made on the basis that forensic accountants engaged by the defendants' solicitors did not have full access to M3's business records.

12 Affidavits from the defendants' solicitor, Mr Markovich, indicate that the defendants' accountants were not briefed until after the plaintiffs' forensic accounting report was received on 23 June 2016. It does not appear that the accountants were immediately provided with M3's banking records, which were annexed to Mr Marusco's first affidavit, or records of accounts controlled by the defendants. The proposition that access had been denied to M3's records was disputed. The first application to vacate the trial dates was refused by the primary judge on 30 June 2016.

13 A further application to vacate the hearing dates was dismissed by the primary judge on 19 July 2016.

14 In substance, Mr Markovich indicated that the defendants had been denied access to emails which were believed to support the defendants' case and would show Mr Marusco's authorisation of the payments. In support of that proposition, he relied on his own affidavit as to information he had received from the defendants and their accountants. In the course of his exchange with counsel, the primary judge observed that there was nothing concrete before him to indicate that any such document exists or ever existed, other than instructions conveyed from the defendants in broad terms.

15 Counsel for the defendants also submitted that the defendants were unable to defend themselves because they had run out of money. The primary judge noted that this was a matter for the defendants, but he saw nothing in the further affidavit on which the defendants relied to take the matter beyond the position as it was on 30 June 2016. He said that, if anything, the requirement for the trial to proceed had strengthened, as the matter had been entered for trial, the plaintiffs had complied with trial directions and the defendants had not and the defendants were in default of directions for them to file affidavits. He also noted affidavits filed by the plaintiffs which 'intensify how important it is this matter proceeds'.

16 The primary judge expressed his formal reasons for refusing the application in the following terms:

Well, for the reasons as canvassed with counsel as will be apparent from the transcript, I'm not persuaded to make any of the variations to the previous timetabling of the trial. In particular, I'm not persuaded that anything has emerged since I rejected a similar application on 30 June of this year to warrant an interference with the trial dates. The matter is entered for trial. This is an expedited trial.

The prima facie evidence put before me on a freezing order application is compelling. It's now supported by an expert report that is buttressing of the compelling case that was put before me. The defendants, as I assess the position, seem to have created a lot of dust and noise but have not actually ventured forth to articulate the semblance of a barely arguable defence to the concerning matters that are raised against them.

On that basis, all of the applications augmented by what has been discussed and canvassed with counsel in the transcript, and by reference to the submissions in writing of the plaintiff of 18 July which, in essence, I accept, means that none of the orders that are currently sought on today's application on 10 July 2016 can be made and I refuse those orders (ts 73).

17 The plaintiffs' written submissions, to which the primary judge referred, contended that the defendants had been provided with access to requested documents and the defendants were responsible for the failure to file a forensic accountant's report as required by the programming orders. The plaintiffs submitted that the evidence of the defendants' solicitor in relation to their financial position was inadequate, and referred to evidence of the potentially catastrophic financial consequences for M3 if an adjournment were granted.

18 The defendants now seek leave to appeal against the decision refusing an adjournment of the trial on the basis that the primary judge's discretion was exercised in a manner which was unreasonable or plainly unjust. Because this is an appeal against an interlocutory decision, leave to appeal is required under s 60(1)(f) of the Supreme Court Act 1935 (WA). Generally, leave should not be granted unless the decision below is plainly wrong or is attended by sufficient doubt to justify the grant of leave and a substantial injustice would be done if it remains undisturbed.[1]

19 The defendants seek to advance four particulars in support of their allegation that the primary judge's discretion miscarried.

20 First, it is contended that the defendants' forensic accountants were denied full access to the documents of M3, meaning that the accountants have had inadequate time to prepare their report.

21 For the following reasons, we do not consider that the defendants have been denied reasonable access to documents required for their defence, or that such limits which have been placed upon that access justified an adjournment of the trial.

22 It is not clear to us why the preparation of a forensic accounting report was critical to the proposed defence. The defendants do not deny that the transactions occurred, but contend that the transactions were authorised by way of written or oral communication by Mr Marusco to the defendants. Establishing the existence of that authority is not a matter which obviously requires expert evidence. Such authority could be established by the sworn testimony of the defendants as to the written and oral communications by which that authority was conferred.

23 Counsel for the defendants indicated that there are emails which would establish that authority to which the defendants do not have access, since the defendants are now excluded from M3's email accounts. However, the programming orders provided for the defendants to request specific discovery by 21 June 2016, with discovery to be provided by 24 June 2016. That was the available mechanism for the defendants to obtain copies of emails, the content of which they would have been at least generally aware, providing authority to appropriate M3's funds for their own purposes. It does not seem to have been necessary for the defendants to have engaged accountants, at considerable expense, to search for those emails.

24 The defendants did not initially seek to engage this mechanism. Rather, on 25 May 2016, the defendants' solicitor wrote to the plaintiffs' solicitor asking whether a forensic accountant appointed by the defendant would be given access to all of M3's records for the purpose of preparing an accounting report. On 9 June 2016 the defendants' solicitor indicated that he was still awaiting a response. Telephone discussions ensued, in which the defendants' solicitor requested that the defendants' accountants be given 'unrestricted access' to M3's records. The plaintiffs' solicitor indicated that the documents annexed to their forensic accountants' report would be provided and that the defendants should indicate what further categories of documents they required.

25 It appears from Mr Markovich's affidavit of 27 June 2016 that he did not meet with the defendants' accountants to discuss the scope of the report until 17 June 2016.

26 On 20 June 2016, the defendants' solicitor emailed the plaintiffs' solicitor requesting copies of certain documents including:

All emails relating to the documents relied upon and reviewed by M3's accountant[.]

27 Correspondence relating to documents followed but did not specifically address emails. On 24 June 2016, the defendants' solicitor emailed the plaintiffs' solicitor relevantly indicating that he had not received a response to his request for emails. It appears that there had been some discussion in which clarification of the request for emails was sought by the plaintiffs' solicitor. The defendants' solicitor advised:

I am asking for copies of all emails in which reference is made to, or which contained as attachments, any documents reviewed or relied upon by your expert.

28 Later on 24 June 2016, the plaintiffs' solicitor responded by email, relevantly indicating:

With regard to your request for email correspondence, we are instructed that [there] is no such correspondence save for a couple of emails attached to the report, because Emma Levett attended the office of the Company for a number [of] days and simply accessed the documents there.

29 On 30 June 2016, the defendants' solicitor sought confirmation from the plaintiffs' solicitor that two accountants could attend M3's offices on Monday, 4 July 2016 'and will be given access to all M3 records'. The plaintiffs' solicitor responded on the same day confirming that this was the case in relation to all documents to which Ms Levett had access, subject to the accountants signing a confidentiality agreement. On 1 July 2016, the defendants' solicitor reiterated a request for 'unfettered access to M3 company records'.

30 Further email communication occurred, which culminated in the plaintiffs' solicitor sending an email on 2 July 2016 indicating what would and would not occur at the accountants' visit. The plaintiffs' solicitor indicated that the defendants' accountants would not be entitled to sit down at Mr Marusco's computer and access his emails. This was for the stated primary reason that Mr Marusco's email inbox would be 'full of privileged legal advice relating to this matter, and may include confidential communications not relevant to the matter'. He indicated that if there was a document or category of document they had not seen, the accountants simply needed to ask, and M3 staff would attempt to assist as promptly as was reasonably necessary. He gave a number of specific examples as to how such a request might be made, including the following:

Accountant: we haven't seen any emails where you have sent documents to Emma [Levett] - can we please see all of those documents?

Marc [Marusco]: yes, not problem, I will print them for you now.

31 The attendance of the defendants' accountants at M3's offices is described in the affidavits of Guy Douglas sworn 12 July 2016 and Mr Marusco sworn 13 July 2016. The accountants remained in the offices for the day, and were given electronic copies of all documents they requested. No issues of privilege were raised which required Mr Douglas' involvement.

32 In his affidavit of 10 July 2016, Mr Markovich deposes that the 'accountants inform me and I believe that there is evidence of collusion between Mr Marusco and the defendants as to the manner in which transactions were conducted'. He also deposes that he is instructed by the defendants and believes that 'records were kept of all payments on computers such as will show Mr Marusco's knowledge and authorisation of payments.'

33 There is no substance to the defendants' complaints so far as they relate to a denial of unfettered access to M3's computer systems. Denial of such access was reasonably required to protect M3's legitimate interests, such as the preservation of legal professional privilege and the confidentiality of documents not related to any matter in issue in the proceedings.

34 There was both a formal and informal mechanism for the defendants to obtain access to relevant documents held by M3. The formal mechanism was to request discovery of specified classes of documents, and to invoke the assistance of the court if discovery of those documents was not provided within the time required by the orders. The most efficient and expeditious way for the defendants to obtain copies of email communication between Mr Marusco and the defendants was to request discovery of emails between those parties in a specified time period or which related to the impugned transactions. The informal mechanism was that offered by the plaintiffs: for the accountants to ask for categories of documents they required.

35 The only specific request for emails was that which we have noted above. The scope of the request, and purpose for making it, was difficult to discern from its terms. The plaintiffs' solicitor informed this court that he did not appreciate that the defendants were contending the transactions were authorised or that they were seeking emails that would assist in establishing that authority until the hearing before the primary judge on 19 July 2016. In the circumstances described above, it was quite understandable that he would not appreciate the subjectively intended scope or purposes of the defendants' request. The defendants cannot reasonably complain that they have been denied access to documents which they have not clearly requested.

36 The defendants point to the terms of the confidentiality agreements which their accountants were required to sign as indicating the extent of the restrictions placed on their access. There is no substance to that contention. The undertaking merely required the accountants to use information obtained from M3 only for the purposes of preparing expert evidence in the proceedings and to keep confidential (including from the defendants) any information that was not related to the subject matter of their report.

37 Secondly, it is contended that the defendants' ability to defend the action was curtailed by the freezing order, their loss of income and the court's refusal to release assets from the freezing orders. The defendants submit that they are unable to pay money to cover the costs of the accountants and counsel into the trust fund maintained by the defendants' solicitors.

38 This issue was raised late in the day. The defendants had not contended, before filing Mr Markovich's affidavit of 10 July 2016, that they could not afford to pay the accountants to complete their report or to pay counsel to appear at trial.

39 We note that the freezing order generally does not preclude the defendants from paying reasonable legal costs. The only assets which the defendants have been refused permission to sell (on 19 July 2016) are their Applecross property and two motorbikes. While the legal expenses exception does not apply to the sale of the house, to grant permission to sell in the week prior to trial would not assist the defendants in paying money into their solicitor's trust account prior to trial.

40 Further, there was no direct evidence by their defendants as to their financial position. The only evidence of that matter is hearsay evidence in Mr Markovich's affidavit, and bank statements annexed to that affidavit. The plaintiffs point to other bank accounts controlled by the defendants, including accounts into which most of the funds derived from the 'suspect transactions' identified by Ms Levett were paid,[2] whose balances have not been disclosed. In those circumstances, the primary judge was entitled to give little weight to the evidence adduced by the defendants as to their financial position.

41 The third matter raised by the defendants concerns comments made by the primary judge at the hearing on 19 July 2016 anticipating matters to which he would have regard in considering an application to extend time for the defendants to file affidavits and the extent to which he would allow the defendants to cross-examine the plaintiffs' witnesses. However, the manner in which procedural discretions might be exercised in the future does not control the exercise of the discretion to adjourn the trial.

42 The fourth matter raised is that the defendants' solicitor, Mr Markovich, who appeared as counsel before the primary judge and this court, does not feel competent to defend the action and the defendants do not have funds to brief counsel. However, the issue of funding legal representation is simply an aspect of the financial argument which we have discussed. We also note that there is little basis for thinking that the defendants' financial position will improve in the short term. In any event, the matter does not appear to be legally or factually complicated, and will turn on an assessment as to whether the documentary evidence establishes that M3's funds have been transferred to the defendants' bank accounts, without any authority giving rise to a contractual or other right to retain the funds, under the guise of falsified invoices. This is not a matter which requires the services of senior counsel. Mr Markovich is an experienced lawyer. He was admitted as a practitioner on 4 February 2002. Mr Markovich is very familiar with the issues in the primary proceedings.

43 In dealing with the adjournment application, it was also relevant to consider the prejudice to the plaintiffs if the trial was adjourned. The evidence before the primary judge was that M3 was in a precarious financial position due to the alleged misappropriation of funds by the defendants. M3 has made arrangements with certain creditors on the basis that the matter will be resolved at a trial in July. If the trial is adjourned to late in the year, there is a prospect that M3 will be placed into administration or liquidation and the matter may never come to trial. If that occurs the completion by M3 of seven homes currently under construction may be imperilled. The plaintiffs are also legitimately concerned about the further legal expenses which an adjournment of the trial will entail. The primary judge was required to weigh the competing prejudice to the parties which would result from the grant or refusal of an adjournment.

44 Order 34 r 4 of the Rules of the Supreme Court 1971 (WA) (Rules) empowered the primary judge to adjourn the trial to such time as he thought fit if he thought it 'expedient in the interests of justice to do so'. That rule is to be construed and applied so as best to ensure the attainment of the objectives referred to in O 1 r 4B(1) of the Rules.[3] Those objectives include promoting the just determination of litigation, disposing efficiently of the business of the court, maximising the efficient use of available judicial resources and facilitating the timely disposal of business.

45 Also relevant to the exercise of the discretion to grant an adjournment is the requirement of O 1 r 4A that:

The practice, procedure and interlocutory processes of the Court shall have as their goal the elimination of any lapse of time from the date of initiation of proceedings to their final determination beyond that reasonably required for interlocutory activities essential to the fair and just determination of the issues bona fide in contention between the parties and the preparation of the case for trial.

46 The discretion to grant or refuse an adjournment must also be exercised consistently with the obligation of the court to determine disputes in a manner which is procedurally fair. However, it is well established that this does not require that a party be given an unlimited opportunity to present a case or defence. What is required is that the parties are provided with a sufficient opportunity to present their cases.[4] A party who is given a sufficient opportunity to present their case, and who fails to take advantage of that opportunity without reasonable cause, cannot complain that they have been denied procedural fairness because the court has declined to provide a further opportunity to do so.

47 In considering whether determination of litigation is just, regard must be had to the interest of other parties to the litigation and other litigants in other cases. Speed and efficiency, in the sense of minimum delay and expense, are aspects of the just resolution of proceedings. Considerations of speed and efficiency cannot detract from the requirement that a party to litigation be given sufficient opportunity to present their case. However, where a party has been given a sufficient opportunity to present their case, a decision about an adjournment to provide a further opportunity must take account of the injustice to the other parties which may follow from the delay, expense and disruption which results from a listed trial not proceeding.[5]

Disposition of application for leave to appeal

48 The opportunity which the programming orders in this matter gave to the defendants to prepare for trial was limited by the imperative, initially recognised by both parties, for expedition. However, the opportunity remained and it was incumbent on the defendants to diligently and expeditiously prepare for trial. The evidence before the primary judge supported the conclusion that the defendants had not taken advantage of that opportunity, and that the difficulties which they faced in obtaining expert evidence were largely of their own making. The defendants were at fault in failing to brief their accountants about information in their possession earlier, not being sufficiently proactive in securing the report and in failing to utilise the formal and informal means available to them to obtain copies of relevant documents.

49 Further, there was no direct evidence before the primary judge that the payments to the defendants were authorised or that emails or other documents in M3's possession would actually assist in establishing that authority. The plaintiffs had filed detailed evidence of the misappropriation of funds by the defendants using falsified invoices. Despite being required to file affidavits by 8 July 2016, there was no evidence from either defendant as to the existence of authority for those transactions made for their benefit, or the existence of emails which established that authority. The defendants, who were the only parties who had not complied with programming orders, requested the vacation of imminent trial dates to enable them to obtain documents required for them to establish their defence. In that context, it was incumbent on the defendants to do more than have their solicitor depose, in very general terms, as to the instructions he had received from them. The primary judge was correct to give weight to the defendants' failure to adduce evidence to show they actually had a defence which would be assisted by access to further documents.

50 In all the circumstances, we are not convinced that the defendants have been deprived of a sufficient opportunity to prepare their defence. The prejudice which results to the defendants from the refusal of an adjournment must be balanced against the prejudice to the plaintiffs if an adjournment were granted. It is also necessary to consider the loss of court time which would follow from the grant of an adjournment, which the primary judge had recognised on 30 June 2016 (ts 31) was subject to demand from others seeking to engage the resources of the court.

51 Having regard to all of the above considerations, we are not satisfied that the discretion of the primary judge to grant or refuse an adjournment miscarried. It was open to the primary judge to be satisfied that, on balance, the interests of justice were best served by refusing an adjournment.

52 We are not satisfied that the decision below is attended by sufficient doubt to justify the grant of leave. We also note that even if, contrary to our view, the refusal of an adjournment would operate to deny procedural fairness to the defendants, then the defendants could take that point in an appeal from any final orders which may operate to the prejudice of their interests, on the ground that there had been a miscarriage of justice. In all the circumstances, we consider that leave to appeal should be refused.

[1] The State of Western Australia v Bond Corporation Holdings Ltd (1991) 5 WAR 40, 54 - 57.

[2] See page 12 of Ms Levett's first report, account numbers 0099567, 0412743 and 0797298.

[4] Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [98], [102], [112].