Asia Pacific International P/L v Peel Valley Mushrooms Ltd. & Anor [1998] QCA 414

3 The plaintiff commenced proceedings by writ of summons on 25 February, 1998. The first defendant twice tried unsuccessfully to have the action transferred to the Supreme Court of New South Wales. It then delivered a defence on 9 April, 1998. On 1 June, 1998 it was ordered to deliver better particulars of its defence. It delivered an amended defence on 5 June, 1998. On 19 August, 1998, the plaintiff filed an application for summary judgment which included an application to strike out the defence and an injunction restraining the first defendant from dissipating its assets. On 24 September, 1998, Helman J gave the first defendant leave to defend; granted the injunction; struck out the defence and counter-claim but gave the first defendant leave to deliver a further amended pleading by 8 October, 1998 and certified the action for speedy trial.

4 On 8 October, 1998, the first defendant delivered its amended defence and counter-claim which sought to join as further defendants to the counter-claim the solicitors for the plaintiff, Messrs Brown & Fowler. Prior to the delivery of the further amended defence and counter-claim, there has been no intimation from the first defendant that it intended to claim damages against Messrs Brown & Fowler.

5 On 13 October, 1998 the plaintiff applied to have the counter-claim struck out to the extent that it sought relief against the solicitors. It sought also an order that the certificate of readiness be dispensed with and the action be set down for trial. The application was heard on 21 October, 1998 by Mackenzie J who, on 13 November, 1998, ordered that:

(a) the amended defence and counter-claim of the first defendant delivered on 8 October, 1998 be struck out to the extent that the counter-claim relates to David Brown and Norman Fowler;

(b) the certificate of readiness be dispensed with;

(d) the first defendant pay the plaintiff's costs of the summons; and

(e) the order of Helman J that the action be tried speedily be confirmed.

6 It is against this order that the first defendant has appealed and it is this order which the first defendant seeks to have stayed pending the determination of its appeal. According to enquiries made by the applicant's solicitors it is unlikely that an appeal could be heard before April, 1999. At a recent call over the action was set down for trial for three days commencing 15 February, 1999.

7 The applicant contends that unless the order of Mackenzie J is stayed it will be effectively deprived of its right of appeal, a debate over pleadings being superfluous after the conclusion of the trial.

8 The considerations to which a court will have regard when deciding whether to grant a stay of execution were discussed by this court in J C Scott Constructions v. Mermaid Waters Tavern Pty Ltd [1983] 2 Qd R 255 and in the context of applications for special leave to appeal to the High Court by Brennan J in Jennings Constructions Ltd v. Burgundy Royale Investments Pty Ltd [1986] HCA 84; (1986) 69 ALR 265. Neither of these cases is concerned with an application to stay an interlocutory judgment which gives rise, I think, to a different concern from those which arise when a stay is sought of a final judgment. Adapting what was said in both those cases, it would seem to me that an applicant for a stay of an interlocutory judgment pending appeal should show:

(b) the applicant will be disadvantaged if a stay is not ordered; and

(c) whether there is some competing disadvantage to the respondent should the stay be granted which outweighs the disadvantage suffered by the applicant if the stay is not granted.

9 Are there substantial prospects that the appeal will succeed?

10 By paragraph 12 of the further amended defence and counter-claim delivered 8 October, 1998, the first defendant alleged that it was an express term of the deed of variation of the loan agreement that it agreed to guarantee the further advance in consideration of the existing security for the loan to the plaintiff being replaced by a registered second ranking mortgage over defined property. By paragraph 13 it is alleged in the alternative that the term as to the substitution of security is to be implied from circumstances particularised. By paragraph 14 it is alleged that, as a consequence, the guarantee was conditional upon the plaintiff obtaining a registered second mortgage within a reasonable time, which is said to be prior to 10 July, 1998 when the second mortgage was registered. By reason of the breach of condition it is said that the first defendant is not liable on the guarantee. By paragraphs 18 to 23, the same delay in procuring registration of the second mortgage is said to be a breach of an equitable duty to obtain the security for the benefit of the guarantor. By reason of the breach it is said that the guarantor is discharged from liability.

11 Paragraphs 1 to 4 of the counter-claim repeat the matters I have just discussed and claim, as a consequence, the recovery of $578,000 paid pursuant to the guarantee. This is a claim in restitution, the moneys not being payable by the first defendant because it was discharged from its obligations as guarantor. The counter-claim then seeks relief against Brown & Fowler, alleging they owed a duty to the guarantor, in equity and at common law to perfect the security and ensure the benefit of the registered mortgage should not be lost. It is then said that by reason of breach of those duties, "Brown & Fowler armed Elitact with the ability to borrow further funds on the security of the said property" which it did, borrowing $4,500,000 secured by a first registered mortgage over the property. The first defendant then claims against Brown & Fowler the same amount, $578,000 paid pursuant to the guarantee.

12 The counter-claim then alleges that as a result of the breaches of duty by both the plaintiff and its solicitors the first defendant has suffered loss amounting to about $9,150,000. This claim appears without antecedents and devoid of explanation. It is given no contextual association with any allegation preceding it or following it.

13 It is not easy to understand from the particulars how the losses claimed were incurred or how they can be causally related to the alleged breaches of duty. Be that as it may, there is a claim for over $9,000,000 against the solicitors apparently unconnected with payments made or demanded pursuant to the guarantee.

"The applicant relied on four points in support of the application. The first was that the amended defence and counterclaim struck out by Helman J raised a counterclaim seeking a declaration that the first defendant was exonerated from liability, recovery of moneys paid under a mistake, equitable compensation, injunctions and other relief. It was submitted that no amendment to add Brown & Fowler was in contemplation before Helman J and that the amendment relating to the firm should be struck out as it went beyond the leave given to replead.

The second was that neither s.244(3) of the Supreme Court Act 1995, nor Order 25 rr. 11 and 12, permit joinder. The third was that neither the claim for equitable relief nor the cause of action for breach of common law duty of care were viable. The fourth was that if all else failed an order under Order 22 r.3(2) that that part of the counterclaim be disposed of separately should be made.

In my opinion it is unnecessary to go beyond the second point ...".

15 Section 244(3) of the Supreme Court Act 1995 provides that:

"The court ... shall ... have power to grant to any defendant in respect of any equitable estate or right or other matter of equity and also in respect of any legal estate right or title ... against any plaintiff ... and also all such relief relating to or connected with the original subject of the cause or matter ... against any other person whether already a party to the same cause or matter or not ...".

Having read the section his Honour referred to the decision of McPherson J in Watkins Ltd v. Plancorp No. 6 Pty Ltd [1983] 2 Qd R 501, in which his Honour said at 504:

"As between the plaintiff and defendant alone, no limit is imposed upon the nature of the matters that may be made the subject of a counter-claim ... to enable the court to pronounce a final judgment, both on the original claim and the cross-action, in the same action ... . Not quite the same degree of freedom to raise issues distinct from those in the original action exists in the case where it is sought to counterclaim against the plaintiff and a person not already a party to the action. In that event the counterclaim against the non-party is by s. 4(3) of The Judicature Act authorized only in respect of `relief relating to or connected with the original subject of the cause or matter ... ' ... . There is not a great deal of authority on the precise meaning and effect of the restriction ... in the case of a counterclaim against a non-party; but it is clear that the relation or connection which is required must exist between the `subject' of the original action and the `relief' claimed against the plaintiff and the non-party ...".

"The statement of claim is for the sum remaining unpaid by the first defendant as guarantor ... . There are two aspects to the defence. The first ... is that events ... have entitled the first defendant to be discharged from its obligation as surety. The second ... is that by reason of an equitable duty to take reasonable care that the benefits of the registered mortgage should not be lost the first defendant was entitled to be discharged from its obligation as surety. ... I have come to the conclusion that the claims against Brown & Fowler are not ones which may properly be joined in the counterclaim in accordance with the principles laid down in the authorities ... .

The claim of breach of equitable duty made against the plaintiff is essentially different from that made against Brown & Fowler in that the former is concerned with an allegation of failure on the part of the plaintiff to instruct its agents to do certain things which would protect the first defendant's position. The claim against Brown & Fowler is essentially an alleged breach of the firm's equitable duty or breach of common law duty to take steps which a professional person acting prudently would have taken in the circumstances ... ".

17 The first defendant submits that his Honour erred in this conclusion, failing to appreciate that the issues raised by paragraph 19 of its further amended defence were identical to those raised by paragraph 6 of the further amended counter-claim which is the basis for the suit against Brown & Fowler. Paragraph 19 pleads that in breach of the alleged equitable duty the plaintiff failed to take reasonable care not to lose the benefit of the security by failing to ensure its agent David Cass arranged registration of the mortgage within a reasonable time and in failing to instruct Mr Cass to lodge a caveat over the title. By contrast, paragraph 6 of the counter-claim pleads that in breach of the equitable duty and in breach of a common law duty to take reasonable care, Brown & Fowler failed to preserve the benefit of the security by not ensuring registration of the mortgage or by lodging a caveat.

18 The matter need not be, and should not be, determined on this application but it is not clear to me that the issues which arise from these two paragraphs are the same. No doubt some of the evidence needed to prove them will be common to both but the allegations appear to me to be different. Paragraph 19 pleads a failure by the lender to preserve the security by failing to direct or control its agent, Mr Cass. The other issue is that Brown & Fowler, for their own part, did not discharge a duty which lay upon them not arising from their capacity as solicitors for the lender.

19 Adopting, as I do, what McPherson J said in Plancorp, there must be some rational connection between the subject of the original action and the relief claimed against Brown & Fowler. It seems impossible to say that there is any connection between the subject of the claim and the relief sought against Brown & Fowler in paragraph 11 of the counter-claim. The first defendant, though, points to the identical claim made for the recovery of the $578,000 paid pursuant to the guarantee which can be recovered if the guarantee is not binding. There is no doubt this claim is related to the subject of the claim. The first defendant therefore submits that not all of the counter-claim against Brown & Fowler could have been dismissed.

20 The plaintiff submits that the judgment of Mackenzie J can be supported on one or more of the grounds not addressed by his Honour; that is, that the amendment went beyond what was allowed by the order of Helman J; that the restitutionary claim against Brown & Fowler was demurrable and that, as a matter of discretion, the claims against Brown & Fowler should be heard separately to avoid delay to the action.

21 There seems to be some substance in each of these points. In relation to the second it will be recalled that the first defendant alleges that it has paid the plaintiff $578,000 pursuant to a guarantee not binding on it.

22 As against Brown & Fowler, the pleading, having set out the circumstances which are said to give rise to duties to protect the security and breach of that duty, claims that the solicitors are liable to repay the sum of $578,000 as money received by their principal and converted to the use of the principal.

23 It is not immediately apparent why, as a matter of law, the solicitors should be liable to repay moneys it is not alleged they received and when it is alleged that the moneys were paid to their principal against whom an order for repayment is sought.

24 Even if there were thought to be a sufficient connection between the subject of the claim and of the counter-claim against the solicitors, the circumstances I have just described would provide a strong basis for thinking that the court would make an order pursuant to O 22 r 3(2) that that counter-claim be tried separately so as not to delay the plaintiff's claim.

25 It is doubtful, in my view, whether there is a good arguable case of an appeal.

26 Even if the first defendant had good arguable grounds for its appeal the question of disadvantage weighs against the grant of the stay.

27 Should the trial proceed before the appeal is determined the result will not be that the first defendant loses its right to recover damages against Messrs Brown & Fowler. If it has a good claim it can make it the subject of separate proceedings. Given the present state of the civil list, it is by no means certain that such a freshly commenced action would be heard much after the trial of the present action were the appeal successful and the further amended defence and counter-claim allowed to stand.

28 Any additional time or costs that may be occasioned to the first defendant by reason of having to bring fresh proceedings rather than have its claim determined in the plaintiff's action is a consequence of its own very late decision to make this very substantial claim which it has not yet sufficiently pleaded.

29 The plaintiff would be significantly disadvantaged by the stay. It has been given trial dates in mid-February next year which will have to be vacated if a stay is ordered. The appeal could not be heard, at the earliest, until April and judgment may be some months after that. The action has twice been certified as one which should be tried speedily. While the material does not go so far as to suggest the first defendant has deliberately sought to delay the action it appears that it has been dilatory in pleading and in providing particulars. An injunction was necessary to prevent it disposing of its assets. The attempted joinder of the solicitors came very late, without any prior notice and at the time when the parties could confidently expect an early trial.

30 It appears to me that there is no real disadvantage to the first defendant in refusing the stay while there is a substantial disadvantage to the plaintiff should a stay be granted.

31 I would accordingly dismiss the motion for stay of the judgment of Mackenzie J delivered on 13 November, 1998.