Cohen v Sacks

Conclusion

1. While it must be accepted that any delay in the hearing is not desirable and is likely to result in prejudice for the defendants, especially Dr Sacks, which any costs order may not adequately alleviate, I am satisfied that the evidence does establish an unusual set of circumstances in which justice requires that the hearing be adjourned until 2022, albeit earlier than the second half of the year for which Mr and Mrs Cohen contended.
2. I am satisfied that justice cannot be done between these parties without that adjournment as it must be and that directions can be given which will reduce the prejudice which the defendants are likely to suffer, as will, albeit to a limited extent, a costs thrown away order made in their favour.

The parties' cases

1. The motion was supported by affidavits sworn by Mr and Mrs Cohen and Mr Mutton, the practice director of the firm which acts for them, who were all cross-examined.
2. Mr and Mrs Cohen explained their financial circumstances, which they claim have become such that they cannot presently afford to incur the estimated further costs of preparation and hearing of their claims. Mr Mutton had sworn four affidavits but had limited personal knowledge of the conduct of the proceedings, Mr Crisp the firm's principal and Mr Suliaman, another solicitor, having day to day carriage of the matter.
3. The defence case was that Mr and Mrs Cohen had not discharged their burden of proof, the evidence not permitting the Court to make findings of fact with any degree of comfort about their true financial position, given what they had disclosed, which was not sufficiently supported by documentary evidence. Further, even on their case, what their future position might be remained a matter of speculation.
4. The defendant's contended that while Mr and Mrs Cohen could not conduct "Rolls Royce" litigation because they may not have as much money to spend on a trial as they had hoped, the hearing could still justly proceed.
5. Mr and Mrs Cohen's preferences had to be balanced against the defendants' position, especially that of Dr Sacks, as ss 56 and 58 of the Civil Procedure Act 2005 required, with the application depending on what the dictates of justice required. The defendants were entitled to expect that the litigation would be disposed of with reasonable dispatch: Richards v Cornford (No 3) [2010] NSWCA 134 at [42]-[45]. The effect on other litigants and efficient use of court resources also had to be taken into account: Sali v SPC Ltd 67 ALJR 841; [1993] HCA 47; and AON Risk Services Australia Lts v Australian National University 239 CLR 175; [2009] HCA 27 at [5], [30] and [116].
6. No authorities established that a plaintiff's impecuniosity was a basis for adjournment of a hearing. Further, that even costs recoverable on an indemnity basis would not compensate the defendants for time lost and duplication incurred when the litigation was delayed: Bomanite Pty Ltd v Slatex Corp Aust (1991) 32 FCR 379 at 392.
7. Account also had to be taken of relevant prejudice to Dr Sacks, of the kind identified in Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541 at 552-3. As time went by relevant evidence would be lost. That was because neither Mr and Mrs Cohen nor Dr Sacks had yet put on their competing evidence about what he had advised before the birth, on which the case turned.
8. It was also necessary to consider the stress which Dr Sacks suffered, given how his professional competence had been attacked: Bishopsgate Insurance Australia Ltd (in liq) v Deloitte Haskins & Sells [1999] 3 VR 863 at [60]. When such claims for many millions of dollars of damages are advanced there will be a heavy burden and serious prejudice, if the claim is "unjustifiably drawn out over many years", as Mr and Mrs Cohen sought.

The Court does have the discretion to order an adjournment on a plaintiff's application in circumstances of financial difficulty

1. The submission that a plaintiff's financial circumstances cannot provide a just basis for an order adjourning a hearing under s 66 of the Civil Procedure Act, may not be accepted. The Court's discretion is not so limited, either by that section or by ss 56, 57, 58 or 59, which also apply.
2. Those provisions require not only that the overriding purpose of the Act, the just, quick and cheap resolution of the real issues in the proceedings, be given effect, but that attention be paid to what the dictates of justice require, when an adjournment is sought. Also relevant is the just determination of the proceedings; the efficient disposal of the Court's business; the efficient use of available judicial and administrative resources; and the timely disposal of these and other proceedings at an affordable cost: s 57.
3. Section 58 requires that in considering whether to grant an adjournment and the terms of any orders sought, the Court may have regard to the matters specified in s 58(2)(b): "(i) the degree of difficulty or complexity to which the issues in the proceedings give rise, (ii) the degree of expedition with which the respective parties have approached the proceedings, including the degree to which they have been timely in their interlocutory activities, (iii) the degree to which any lack of expedition in approaching the proceedings has arisen from circumstances beyond the control of the respective parties, (iv) the degree to which the respective parties have fulfilled their duties under section 56 (3), (v) the use that any party has made, or could have made, of any opportunity that has been available to the party in the course of the proceedings, whether under rules of court, the practice of the court or any direction of a procedural nature given in the proceedings, (vi) the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction, (vii) such other matters as the court considers relevant in the circumstances of the case."
4. Section 59 also requires that the Court seeks to eliminate "any lapse of time between the commencement of the proceedings and their final determination beyond that reasonably required for the interlocutory activities necessary for the fair and just determination of the issues in dispute between the parties and the preparation of the case for trial".
5. As Sackville J's judgment in Deangove Pty Limited (Receivers and Managers Appointed & Anor v Commonwealth Bank of Australia [2002] FCA 1352 illustrates, however, circumstances can arise where hearing dates must be vacated on application of a plaintiff, who is experiencing problems in funding the litigation: at [4].
6. There, in November 2002 an application to vacate a nine-day hearing in December was granted, his Honour not being able to rule out that funding would become available. That conclusion was reached even though there were in that case deficiencies in the evidence. His Honour accepted that the evidence did establish that if required to proceed, the plaintiff's case would be prejudiced, because of defects in their preparation. He also considered that because there was still a month before the hearing, case management considerations could not be determinative. There it was possible to set the hearing down in late March 2003, so that there would not be further substantial delay and he held that substantial irrecoverable costs were not likely to be incurred and thus the adjournment had to be granted: at [9].
7. It is apparent that this Court is also given a discretion under s 66 to grant the adjournment sought which will be exercised, if that is what justice requires in the circumstances, considerations of costs, delay and other specified matters also having been given necessary consideration. But any adjournment must be to a day and cannot be indefinite: s 66(1).
8. Here the application made in February 2021 was also timely. There was also evidence which I accept established the difficult and unusual personal circumstances in which Mr and Mrs Cohen find themselves and the prejudice which they will suffer if not granted an adjournment. I have concluded that their unusual situation also warrants the grant of their application, if justice is to be done between the parties.
9. As Sackville J warned at [10], however, they should not expect any further indulgence from the Court. They must accept responsibility for funding their litigation, ensuring that the necessary steps to prepare the case for hearing are taken from this point, in accordance with the Court's directions and must expect that the case will be heard at the adjourned hearing.
10. I will return to the necessary directions.

The evidence does not establish that the experts' joint report triggered the application

1. Lying at the heart of what is in issue in the proceedings is what advice Dr Sacks gave, which is in dispute. The parties' witness statements have not yet been served, but the experts were asked to make competing assumptions, to which they referred in the joint report. Mrs Cohen's evidence was that she had not read the report and Mr Cohen's that it had not been the basis for their application.
2. Mr Mutton's evidence that he has had conversations and communications with Mr and Mrs Cohen since December 2020, including about the further costs of their litigation, was not challenged. In cross-examination he said that work on this had commenced in late November, early December.
3. Nor was Mr Muttons' evidence as to his awareness of Mr and Mrs Cohen's numerous attempts to obtain further funding, including applications to litigation funders, which had been rejected, challenged. That was also Mr Cohen's evidence, although he has had no response at all to two applications. It was on 22 January 2021 that Mr Mutton was instructed to make this application. The expert's report was dated 27 January and it was on 1 February that the defendants' consent for the adjournment was sought.
4. There is no basis for not accepting Mr and Mrs Cohen's evidence that their application was not triggered by the joint report, given Mr Mutton's unchallenged evidence about his prior discussions and instructions.

Why the circumstances warrant the grant of the adjournment

1. It is the combined result of the ongoing impact of their child's ill health, incurring the additional expenses which have flowed from their conduct of the other litigation which they had to commence in this Court in 2019 in relation to damage caused to their home, as well as those incurred in this litigation and the adverse impact of the Covid-19 pandemic on both Mr and Mrs Cohen's businesses, on which they relied to establish a basis for the adjournment of the hearing of these proceedings, which they claimed not to be in a position presently to fund.
2. For reasons which they explained in their affidavits, Mr and Mrs Cohen both anticipate that by 2022, together their financial position will have recovered to the point that they will be able to fund the continuation of these proceedings.
3. That the COVID-19 pandemic had adversely impacted their businesses, with the result that their financial position was such that they could not presently finance the April hearing, or that they would recover their position by the time of any resumed hearing, was disputed. It was also argued that a Ferrcom inference would be drawn against Mr and Mrs Cohen's case, given that they had not referred to their American Express credit cards in their affidavits and that they had not there documented interest free, indefinite loans which they had obtained.
4. IVF Australia Pty Ltd relied on the affidavit evidence of their solicitor Mrs Reid who outlined the relevant procedural history and Dr Sacks on the affidavit of Mr Cain, a legal officer.
5. On Mr Cain's evidence, in October 2020 Mr and Mrs Cohen were served with subpoenas to produce documents, including business activity statements, credit card records, information about trusts of which they were the beneficiary, costs associated with other litigation, as well as their passports. They failed to appear to answer the subpoenas in November 2020 and January 2021, but did not seek to have them set aside.
6. The parties' solicitors exchanged correspondence about this and documents were eventually produced. It emerged at the hearing that further volumes of documents were produced before the hearing in answer to notices to produce, which were it seemed, in part a subset of what had been subpoenaed. But when some further calls were made in relation to other records and a valuation of Mr and Mrs Cohen's home, the documents were not produced, there being an issue as to whether notice had been given that they were required. But there was finally no issue that the home had been valued at $5.25 million, not $5 million, as they had deposed in their affidavits.
7. There was thus a dispute about whether other records should have been produced, which is unnecessary to resolve. It is apparent that there are some relevant documents which have not been disclosed, which might have shed further light on the nature of Mr and Mrs Cohen's expenditure and the source of the funds to which they have had access.
8. Contrary to the defence case, nevertheless, I am satisfied that the evidence does establish the difficult and unusual circumstances in which Mr and Mrs Cohen made their adjournment application. That has persuaded me, on balance, that an evidentiary basis for their case was also established.

No Ferrcom inference

1. The defendants contended that neither Mr nor Mrs Cohen had been sufficiently frank about the state of their financial affairs, to permit the orders sought to be made, and that a Ferrcom inference would thus be drawn against them.
2. A Ferrcom inference was explained in Stambolziovski v Nestorovic and Camanaro Prestige Properties Pty Ltd t/as Sydneyhome Real Estate [2015] NSWCA 332 at [51]. It is a reference to what Handley JA said in Commercial Union Insurance Company of Australia Limited v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418E, applying Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8, to the situation where a party fails to ask questions of a witness in chief.
3. In Ferrcom it was held that the Court should not draw inferences favourable to an insured on matters going to whether it could and would have obtained insurance cover without a particular endorsement, there relevant to the question of damages, when no attempt was made to prove those matters by direct evidence and no relevant questions were asked of the principal of the insured.
4. Here the inference was sought to be drawn from Mr and Mrs Cohen's failure to disclose credit card transactions and the source of loans, in their affidavits. But the rule does not "permit an inference to be drawn that the uncalled or untendered evidence would in fact have been damaging to the party not tendering it. It cannot be used to fill gaps in the evidence or to convert conjecture and suspicion into inference": Stambolziovski at [57].
5. I am not satisfied that any adverse inference can be drawn. Mr and Mrs Cohen's affidavits disclosed their income and expenditure, the revenue and profits of their businesses, as well as their borrowings and debts and in Mr Cohen's case, other companies in which he had interests.
6. There was thus no issue that in total, they had in their affidavits disclosed their combined income from the 2015 to 2020 tax years of $1,129,003 and the legal costs which they had paid in respect of both proceedings, which totalled $1,519,399. Their evidence thus disclosed that they had had access to other sources of funds apart from what they earned from their businesses, to fund the litigation, with which Mr Cohen dealt in his affidavit and about which they were cross-examined.
7. On their evidence Mr and Mrs Cohen had been able to bear all the costs of their litigation to date, which far exceeded their income, because of other funds they had received from their parents, borrowed from their friends and from other borrowings. They had taken steps to refinance their mortgage, in order to reduce their outgoings, but had not sold their businesses or certain assets, in order to further fund the litigation. They included a whisky collection which Mr Cohen had promised to a friend, if he was unable to repay what had been borrowed from him.
8. The submission that the quantum and source of the funds used to sustain the litigation and their living expenses was not adequately explained, may thus not be accepted.

The costs estimate

1. The defence case was also that Mr and Mrs Cohen had not established how much more money they needed, given the inflated costs estimate on which they relied; there being no evidence that they had attempted to modify their costs to something more modest; or that they could not obtain further funding from their strong network of family and friends, who had already provided them with "eye watering levels of financial support on request."
2. Mr Mutton was not cross-examined on the basis that the costs estimate he had been involved in preparing was inflated. Nor about the considerable amount of costs for which his firm had already agreed to await the outcome of the other litigation to receive. That the costs estimate was not a proper reflection of the costs which would be involved in the proper conduct of the litigation for Mr and Mrs Cohen, was not established. He agreed that he did not know, for example, that all of the time estimated to be required for particular work, would be required, but explained that it was his discussions with Mr Crips and Mr Suliaman, which had resulted in the final estimate, they having advised what in their view was required.
3. There were two versions of the estimate. The final document reflected a 20 day hearing, rather than the 25 days allocated; updated advice by counsel and a solicitor; preparation of evidence in reply involving counsel; outstanding expert's fees of some $140,000; and 15 days' of preparation, involving senior and junior counsel, two solicitors, a clerk and assistant.
4. I accept that this estimate may be overstated, reflecting as it does pretrial preparation by six people for 15 days. But it must also be accepted that additional work may have to be done during the trial, which has not been included and that the trial might run for longer than 20 days, as has been allocated. In the result, that the costs incurred may not be as high as has been estimated may be accepted, but that they are significantly overstated is not apparent, complex as what here lies in issue plainly is.

What Mr and Mrs Cohen's evidence established

1. The child was born in April 2013 and the rare syndrome which he suffers was diagnosed in October 2013. There is no issue that this has resulted in serious disability, which requires his ongoing care with costly assistance, for part of which Mr and Mrs Cohen receive grants and rebates. Mr and Mrs Cohen both gave evidence that this had also adversely affected their own health and their ability at times to earn income, to a considerable extent. This was not challenged and supported by the documentary evidence.
2. Their evidence was that the other litigation which they brought in 2019 was the result of the damage caused to their home by building works undertaken next door and that it had also had adverse impacts on their financial position. The latter was not challenged.
3. In her cross-examination Mrs Cohen denied that they had brought those proceedings in order to stop a development. She said that they had to be brought in order to stop the house in which they continued to live being destroyed; that they did not have the choice of prosecuting one case, rather than the other; and that they could not presently sell the house, which had been damaged.
4. On Mr Mutton's evidence, while Mr and Mrs Cohen had initially obtained relief in those proceedings, they have not yet been finally heard. They now have a liability to pay costs of some $130,000 to the defendants, as the result of their unsuccessful pursuit of a contempt motion. The matter is ready for mediation, witness statements and expert reports having been served, with over $1 million in costs having been incurred, including over $400,000 solicitors' costs yet to be paid.
5. Mrs Cohen also denied having given the building proceedings priority and in re- examination, said that when both proceedings were commenced, she had not expected either to cost what they have.
6. In her affidavit Mrs Cohen explained the impact of the pandemic on her business to have resulted in the suspension of identified projects and the cancellation of others; with the result that it had no capacity to pay wages to its four employed staff, who were placed on Job-Keeper, on which one employee remained. While she said in her affidavit that there were still three employees, she agreed in cross-examination that there were only two. She also explained changes she had made to her business model and work she is pursuing in different sectors until the retail sector in which it normally operated recovered, as well as how since January 2021, her business had started picking up. In the result she believed that her income would by the end of 2021 have returned to its 2019 level and that they would be able to fund the litigation in 2022.
7. Mrs Cohen also disclosed her income in the years from 2015, all derived from the business, which had reduced considerably in 2020 by comparison to 2019, as had the business' trading profit; as well as her assets and expenses, including those incurred for their child's ongoing care, for which they received some rebates.
8. Mrs Cohen agreed in cross-examination that she had not tried to sell or mortgage her business, jewellery, one piece of art, or to access her superannuation. She also agreed that on average her revenue from 2016 to 2019 had averaged $105,000 per quarter and that from July to September 2021 it had increased to $78,000, which she said had included reimbursement from clients of furniture purchased for them.
9. Mrs Cohen also accepted that she had understood from the outset, that there would be considerable expense involved in this case, relying as it did on the evidence of international experts, who would have to confer with those called by the other parties and that a hearing might exceed 3 weeks. Mr Cohen had a similar understanding. Mrs Cohen denied knowing before the unsuccessful mediation in this case, that their funds would not permit them to run the hearing to completion.
10. In his affidavit Mr Cohen also disclosed his income from his business since 2015, as well as its revenue and profits and his other assets and liabilities, as well as the sources of very considerable interest free borrowings, his expenses and his unsuccessful efforts to obtain litigation funding. His evidence that the pandemic had prevented him from travelling to China as he usually did to ensure quality of what was produced there, which had led to adverse consequences, including the need for substantial rectification works of some $800,000, was not challenged.
11. Mr Cohen also explained the basis for his belief that in 2022 he will have been able to rebuild his business and financial position, so that he can fund the ongoing pursuit of his litigation.
12. In cross-examination Mr Cohen was asked about when he had become aware that the valuation of his home was $5.25 million. Mr Cohen said he had not opened an attachment to an email he received where this was stated, having earlier been told that the valuation there referred to was for $5 million, as was Mrs Cohen's understanding. This was evidence that the defendants submitted would not be accepted, but I do not accept that the evidence was inherently implausible.
13. Mr Cohen also agreed that he understood from the outset that the litigation would be lengthy and costly and would have to be funded, as it proceeded, including for the experts necessary to be retained. But he denied that he had instructed that an adjournment be sought because of the joint report. He was cross-examined about the borrowings obtained from family and friends and agreed that the position he had revealed was that he currently had paltry sums with which to fund the litigation, including because he had used some $100,000 from a superannuation fund, to operate his business and pay his mortgage.
14. Mr Cohen agreed that he had not attempted to sell his business or otherwise to use it as security to fund the litigation, or to sell his home or interest in another business, which is not presently trading, although he said he had refinanced his mortgage to reduce his outgoings. He agreed that he had known the costs of the litigation he was pursuing could blow out, but that he had not expected it to be as expensive as it was.
15. Mr Cohen also agreed that historically the sales which his business had made were not steady. Downturns in 2017 and 2018 were the result of relapses of issues caused by matters the subject of these proceedings. He agreed that he and Mrs Cohen had still managed to fund their litigation, despite it costing several times their combined income, because of the support they had received from others and drawing down on their house.
16. Mr Cohen also agreed that sales in 2020 had been excellent, resulting in a profit of $930,422 by comparison to $474,203 in 2019, but said that this had related to a particular sale. He also agreed that sales in the first quarter in 2021 of $1,429,107 had been good, but explained that they could not be annualised. He was not cross-examined about the basis for his expectation that they could fund the litigation in 2022. In re-examination Mr Cohen said that they wished the litigation to proceed, but did not presently have the money, including for what still had to be done before the hearing.
17. The defence case was on the one hand, that on this evidence, the loans which Mr and Mrs Cohen had already obtained to fund the litigation were largely irrelevant, because they were interest free and could be paid back at any time. But on the other, that there was no evidence that they could not obtain more such loans, which had to be taken into account, contrary to the case which they had advanced.
18. I do not accept that this a just basis for refusing the adjournment, especially given the amounts already borrowed to fund the litigation to this point, which are unsecured.
19. It was also argued that it was possible that funding might be imminently available from two other funders, who had not responded to the application for funding. That is also not a proper basis to refuse the adjournment.
20. The case finally pressed was that the evidence established that while Mr and Mrs Cohen's expectation that they could fund the litigation in 2022 would not be accepted, involving as it did mere optimism, it would be concluded that they had not proven that pre-Covid, their businesses were profitable enough to fund the litigation, but post-Covid they are not.
21. That was not their case.
22. I am satisfied that the evidence established that: 1. Mr and Mrs Cohen had faced challenges funding the litigation before the impact of the pandemic, that being the result of the adverse impact of their child's ill health on their own health and ability to work in their businesses; 2. the other litigation which they had to pursue in 2019 exacerbated the resulting problems in their financial position; 3. they had to obtain assistance from others to meet their ongoing obligations to fund this litigation; 4. the pandemic also had an adverse impact on both of their businesses and that it was understandable that they used available resources to ensure the continuation of the businesses on which their livelihood and the funding of this litigation depended; 5. they have been able to turn both of their businesses around, Mr Cohen to date more successfully than Mrs Cohen; 6. they have taken steps to reduce their expenses and obtain further funding for their litigation, but not with the result that they presently have the means to continue funding these proceedings to the conclusion of the scheduled hearing, given their existing obligations and commitments; 7. that given the improved results their businesses have already achieved and work which they each expect to have in the near future, their expectation that in 2022 they will have recovered their financial position to the point that they will be able to fund the final preparation and hearing of their claims in these proceedings, does have a reasonable basis.
23. If that expectation does not materialise with the result that Mr and Mrs Cohen do not comply with the Court's further directions for preparation of the matter for hearing, these proceedings are likely to be brought to an end for want of prosecution. Justice requires that the delay caused by the adjournment be as short as justly possible. On the evidence I have discussed I am satisfied that the hearing should thus be adjourned to commence on Monday 28 February 2022, when it will be listed for a hearing of 25 days.

Costs

1. The usual order under the Uniform Civil Procedure Rules 2005 (NSW) is that costs follow the event: r 42.1. But on an application such as this, the price of the adjournment sought must be a costs thrown away order, as was the case in Deangrove.
2. Like Sackville J was in that case, I am satisfied that the costs order should be made on an indemnity basis, given the adverse consequences of the adjournment for the defendants, one for which they bear no responsibility at all.
3. While that cannot be adequate recompense for the defendants' resulting position, it is just in the circumstances.

Further orders

1. Of concern to the defendants was that Mr and Mrs Cohen and Dr Sacks had not yet served their statements. The vacation of the hearing should not result in a delay in the preparation and service of those statements. The parties must also confer about other orders necessary to prepare the matter for the 2022 hearing. It will be listed before Harrison J on 5 March 2021 for further directions.
2. For these reasons I order that: 1. The hearing listed to commence on 12 April 2021 and consent orders for case management made in December 2020 are vacated; 2. The matter is listed for hearing for 25 days commencing 28 February 2022; 3. The parties are to confer and file proposed orders for further preparation of the matter for hearing, including service of Mr and Mrs Cohen's statements, within a reasonable timeframe after the directions hearing; 4. The matter is listed for directions before Harrison J on 5 March 2021 at 9.30am; and 5. Mr and Mrs Cohen are to bear the defendants' costs thrown away as the result of the vacation of the hearing, on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 16 February 2021