Gilles v Palmieri

Judgment

1. BASTEN JA: I agree with Leeming JA.
2. LEEMING JA: For the reasons which follow, the decision of the primary judge to refuse to extend the time for service of a statement of claim is vitiated by a series of errors. However, I have concluded that, even so, it was the right decision, such that the appeal should in substance be dismissed.

Factual background

1. The applicants, Mr Joseph Gilles and Mr Gregory Eliades, are the partners of a firm of solicitors, trading under the name Giles Payne & Co. They filed a statement of liquidated claim in the District Court of New South Wales on 27 November 2014 seeking judgment in the amount of $110,027.23 representing three unpaid tax invoices for legal fees charged to the respondents, Mr Vince Palmieri and DJZ Constructions Pty Ltd. (There was and is a dispute about whether both were clients of the firm, about which I should not be taken to be expressing a view.)
2. The tax invoices are dated 28 November 2008, 20 March 2009, and 5 June 2009. It will be seen that the statement of claim was filed one day before the sixth anniversary of the earliest of those tax invoices. The applicants maintained at first instance and in this Court that there was at least an issue as to whether their claim would become statute-barred, in part, had it been filed any later. However, the statement of claim was not served until 27 August 2015, some nine months after it was filed.
3. In the meantime, after the statement of claim had been filed but before it had been served, the applicants took two additional steps. First, on 1 May 2015, the applicants served a bill of costs in assessable form upon the respondents. Secondly, on 19 August 2015, the applicants made an application for costs assessment. The assessment was stayed, on the respondents' application, pending the resolution of these proceedings, principally on the basis that the bill of costs had been rendered more than six years before the application for assessment was filed.
4. Because the statement of claim sought relief in relation to a liquidated claim, it was required to be served within six months: UCPR r 6.2(4)(b). This did not occur. Each side filed a notice of motion in relation to the late service. The applicants sought an order extending the time for service, or alternatively orders dispensing with the requirement of service. The respondents sought orders that the originating process be set aside or struck out or dismissed. Both motions came before the primary judge on 4 December 2015.
5. A solicitor employed by the applicants had sworn an affidavit in which she assumed responsibility for the failure to serve within six months, including the following: "The failure to serve the Statement of Claim within time was an oversight on my part. I had incorrectly diarised the final date for service as 9 months from the date of filing instead of 6 months as required by the Rules. I did not serve the Statement of Claim immediately after filing as I was hopeful that some progress might be made between Giles Payne & Co and Navado Lawyers toward resolving the dispute; particularly as the Defendants were now beginning to provide some information as to the outcome of their costs negotiations and costs assessment in respect of the party-party costs orders made in the Defendants['] favour in the Supreme Court proceedings (as reflected in the letter from Navado Lawyers dated 10 June 2015). In the intervening period, I had also been working on preparing the matter for Costs Assessment in the event that discussions stalled."
6. It appears that the solicitor's affidavit prompted a notice to produce seeking production of "all documents touching upon the decision to serve or not to serve the statement of claim". Despite the references to her incorrectly diarising the date, no diary note was produced. A single document was produced, namely, an advice from counsel, and privilege was claimed over it.
7. The solicitor was cross-examined before the primary judge, including in relation to the absence of documents produced. The solicitor explained that she did not keep a paper diary, but kept an electronic diary which, so she said, was "not capable of reproduction": "Q: You say you incorrectly diarised the final date of service as nine months. A: Yes. Q: Where is the diary? A: I don't have an - I don't have a paper diary. Q: Do I take it that it's an electronic diary you keep? A: Yes, it is. Q: You appreciate the notice to produce included all electronic documents capable of being reproduced into writing? A: It's not capable of reproduction. I had made a - I hadn't made a formal notation, I had basically marked it with a cross that reminded me that that was the date. Q: So just a cross, no names, no parties? A: There was no name and no party, it was really just I would refer back to that date. It was a, a process of my own that I do inside my head when I go through my diary. I did not make a formal notation. If there was a formal notation I would have produced it. Q: But you chose not to produce the cross? A: As I said, it, it's a mental cross that I make. When I review the documentation - HER HONOUR Q: No, please, is there a document - and the word document includes electronic form - A: Yes. Q: - which is capable of being seen and therefore capable of being reproduced, because that which can be seen can be produced? A: It's not capable of being seen or produced. It was a mental exercise. Q: Are you telling me there is nothing that appears on any screen or any page? A: No. Q: So you're not saying you had a diary? A: No, I, I, I didn't use the diary in that way. Q: What did you put the cross on? A: I didn't put a physical cross on anything. It was in my head and I would go through my diary and I knew the dates and I had in my head that the date was nine months, so that it was the 27th of - I believe it was August that it had to be served by, so I would go through my head all the things that I had to do and that was the date that I had in my head."
8. The solicitor denied that the reason she had held off filing the statement of claim was that she was hoping to gain information in the interim. However, the solicitor accepted that she was "well aware" of the prohibition in s 355 of the Legal Profession Act 2004 (NSW) to the effect that a law practice must not commence or maintain proceedings to recover legal costs until a costs assessment has been completed. The solicitor was asked: "Q. In any event, was the prohibition ... against maintaining both sets of proceedings also in your mind as a reason why not to serve the statement of claim? A. Not as a reason why not to but as a, as, as a consideration, yes." However, the solicitor said that she understood that the Legal Profession Act 1987 (NSW) applied and that there was no equivalent in that Act to s 355.
9. The primary judge dismissed the application and made an order for indemnity costs. The proceedings were dismissed on the basis of an undertaking by the respondents to accept service of a fresh statement of claim which was not stale. This was with a view to allowing the dispute as to whether the proceedings were statute barred to be resolved in fresh proceedings.
10. No formal reasons were given; nor were any sought. Her Honour stated, during the course of argument, that she was taking the course of not giving reasons in order not to reach a view on the conduct in question, which, at least potentially, raised serious questions about the solicitor with carriage of the matter. It is clear that her Honour took the view that the power to extend the time for service either could not, or should not, be exercised so as to outflank the period prescribed by the Limitation Act 1969 (NSW). Her Honour variously referred to an absence of power to accede to the application, or that it would be an inappropriate exercise of discretion.
11. However, no fresh statement of claim seems to have been filed in accordance with her Honour's suggestion. Instead, the applicants have sought leave to appeal from the orders made by the primary judge.

Issues arising on the appeal

1. In this Court, there was a concurrent hearing of the application for leave and the appeal. Leave was not opposed by the respondents. The parties raised a multiplicity of issues.
2. The proposed notice of appeal identified nine substantive grounds (in addition to a challenge to the costs order). However, in oral address, Mr Davidson SC (who appeared with Ms Hulmes in this Court but not below) helpfully acknowledged that it was sufficient to warrant the granting of leave and allowing of the appeal to address the complaints about the adequacy of reasons, the finding that the primary judge did not have jurisdiction and the miscarriage of the exercise of discretion (if that was what occurred). The applicants' submissions also touched upon the question which had been flagged before the primary judge, namely, whether by reason of certain acknowledgements in 2012 and 2013, the proceedings were in fact statute-barred.
3. The respondents for their part relied upon a notice of contention which introduced further issues, namely, whether the application was futile, whether there had ever been a contract with, or proper disclosure to, DJZ Constructions, and the effect of s 355 of the Legal Profession Act 2004. Against the response by the applicants that, by reason of the transitional provisions, it was the 1987 Act which applied, the respondents sought and were granted leave to amend their notice of contention so as to rely in the alternative upon provisions in the 1987 Act. The respondents accepted that to the extent that her Honour proceeded on the basis that she lacked power to extend the time for service of the originating process after such time as the Limitation Act provided had expired, her Honour was in error.

Sufficient grounds of appeal are made out to vitiate the exercise of discretion by the primary judge

1. It is unnecessary and inappropriate to determine all of the issues raised by the parties in submissions. Some of those issues (for example, whether there was an acknowledgment) cannot properly be determined on the materials before this Court. Others have not been determined at first instance and indeed some have not, until the hearing in this Court, ever been the subject of submissions (for example, which legal profession statute applied).
2. The primary judge gave no reasons for dismissing the statement of claim. On a fair reading of the transcript, her Honour appears to have taken that course in order to avoid the need to make findings, potentially adverse, to the solicitor giving evidence on behalf of, and employed by, the applicants. Her Honour indicated that she proposed to take that course, and there was no protest from counsel who then appeared for the applicants. However, this is not a case where the parties may be said to have waived the right to reasons by acceding to the course proposed by the primary judge. In circumstances where what was at stake was the dismissal of the proceedings, with any fresh proceedings being at least potentially subject to a Limitation Act defence, an express and unequivocal statement would be required in order to establish that the right to receive reasons had been waived.
3. Both parties proceeded on the basis that regard could be had to the comments by her Honour during the course of submissions to supplement the absence of reasons for the dismissal of the proceedings. In that respect, they were both in error. Exchanges during the course of submissions do not form part of the Court's reasons for judgment (at least in circumstances where they have not been incorporated as the judge's reasons): see for example AK v Western Australia [2008] HCA 8; 232 CLR 438 at [16] and [111]. The ground of appeal that the primary Judge failed to give adequate reasons is established.
4. The absence of reasons makes it problematic to determine whether her Honour dismissed the applicants' application because she considered that she lacked power to extend time or because she exercised her discretion against granting an extension of time. Statements were made during the course of the hearing suggestive of both bases.
5. It was common ground that, to the extent to which her Honour proceeded on the basis that she had no power to extend time, that also was in error. That common ground was correct. There is power in UCPR r 1.12 to extend the time for service of an originating process which has been filed within time, even if a limitation period has expired after the time for service has expired: see for example Weston in Capacity as Special Purpose Liquidator of One.Tel Ltd (in liq) v Publishing and Broadcasting Ltd [2012] NSWCA 79; 88 ACSR 80.
6. Moreover, the transcript discloses that her Honour was labouring under the misapprehension that until the originating process had been served, proceedings had not been commenced. That likewise was an error, and it was an error which materially affected her Honour's exercise of discretion, if indeed that was the basis for the orders made. Proceedings are ordinarily commenced by filing an originating process, although in urgent cases proceedings may be commenced and relief obtained before an originating process is filed. Service also goes to jurisdiction, in the sense that a court's authority to decide a dispute ordinarily depends upon the valid service of its process: see for example Laurie v Carroll (1958) 98 CLR 310 at 323-324, and s 47 of the District Court Act 1973 (NSW). But service is not itself required to commence proceedings. To the contrary, UCPR r 6.2 relevantly provides that "a person may commence proceedings in the court by filing a statement of claim or a summons". Service is a requirement of the rules, but (as the facility to make orders dispensing with service, or for substituted service makes clear) proceedings are commenced even though service has not been effected.
7. It should be said immediately that neither party informed the primary judge of those matters, although I did not understand them to be in dispute when the appeal was heard.
8. Each of the three substantive matters advanced on appeal on behalf of the applicants is therefore established. It follows that a grant of leave is warranted, and the exercise of discretion by the primary judge must be set aside.

The orders to be made by this Court

1. The question then arises what order should be made in place of those made by the primary judge. The problem confronted by the applicants emerges from the following chronology.
2. The solicitors had a satisfactory explanation for not commencing proceedings before December 2012. On 13 December 2012, this Court delivered judgment in proceedings in which the solicitors were parties: Pritchard v DJZ Constructions Pty Ltd [2012] NSWCA 413. Their involvement in the litigation created a risk that they might be prevented from pursuing their claim to recover costs due to be paid by the respondents. The delivery of the Court of Appeal judgment removed the possible impediment.
3. The evidence established that throughout the second half of 2013 a series of Calderbank offers passed between the applicants and the solicitors for the respondents concerning the outstanding question of costs. On two occasions, the applicants threatened commencing proceedings (the first time "within seven days", and the second time "immediately" and "without further notice"). The respondents made it clear that any such proceedings would be defended, and would result in a cross-claim for losses, including costs paid to the applicants. There is then evidentiary silence as to the delay which occurred throughout the whole of 2014. The statement of claim was ultimately filed on the last day before the expiration of the limitation period, 27 November 2014 (putting to one side whether there was an acknowledgment).
4. Thereafter an almost complete absence of explanation for the delay continued in the first half of 2015. However, the solicitor gave evidence that at least in the early part of the period for service, the failure to serve a statement of claim was a conscious decision on her part. She said: "Q: So when you say at paragraph 45, 'I did not serve a statement of claim', that was a conscious decision on your part not to do so? A: In the early part of the, of the process, yes, I was hopeful that the proceedings could be resolved without having to go [to] that step."
5. In June 2015 there was a further exchange of Calderbank offers, not all of which are in evidence. It will be recalled that this was the period when the six months provided for under the rules for service was coming to an end. On 2 June 2015, in a letter to the respondents' solicitors, the applicants' solicitor referred to a facsimile dated 2 June 2015 and stated: "the offer that you have made does not contain sufficient details for our client to be able to give it proper consideration. Mr Palmieri has previously made this offer and the following further information in support of the offer was requested from him on 15 May 2015".
6. The letter then sought details relating to the process of assessment and the total sum received by Mr Palmieri and DJZ Constructions in respect of work done by Giles Payne & Co. The letter said that until such information had been provided, they were not in a position to consider the offer made. The letter then went on to explain in some detail the calculations of assessed costs which the author maintained would have been expected to have been received. The letter stated that the respondents should have received at least $47,000 and "in our experience should have received approximately $58,047.07" [sic].
7. By letter dated 10 June 2015, the respondents' solicitors responded to the request for information, and advised that approximately $39,000 had been received on account of the costs included in the invoices dated 28 March 2008, 28 March 2009 and 5 June 2009.
8. There was no suggestion that, at the times in which Calderbank letters were being exchanged and information was being provided to the applicants, the respondents appreciated that the applicants had commenced proceedings against them.
9. The solicitor gave this answer to one of a series of questions asked by the primary judge: "[W]hen I was corresponding with the solicitors for Mr Palmieri my focus was on the costs assessment. It wasn't that I was deliberately ignoring the statement of claim, it wasn't at the forefront of my mind. At the forefront of my mind was the negotiations on costs and trying to resolve that by obtaining as much information as possible from Navado Lawyers on behalf of the first and second respondents."
10. However, as set out above, in answer to questions posed by counsel for the respondents, the solicitor denied that she had held off serving the statement of claim because she wanted to gain information in the interim.
11. The applicable principles are well established. Plainly the power to extend the time for valid service is to be exercised having regard to ss 56-59 of the Civil Procedure Act 2005 (NSW). It is relevant to consider "the attempts that have been made at service, the length of the delay, the reasons for the delay, whether the delay was deliberate, whether notice was given to the defendant, the conduct of the parties generally, and the hardship or prejudice caused to [the parties]": Arthur Andersen Corporate Finance Pty Ltd v Buzzle Operations Pty Ltd (in liq) [2009] NSWCA 104 at [43]. The onus lies upon the applicants to show "good reason" to extend time: see Wakim v Coleman [2010] NSWCA 221 at [38].
12. The present litigation discloses the following matters all of which point against extending the time for service. 1. Much of the period of delay is unexplained by the applicants (I have in mind the whole of 2014, leading up to filing on 27 November 2014 and the first half of 2015) in circumstances where the applicants had threatened, on two occasions in 2013, to sue. 2. I would infer that the decision to file on 27 November 2014 was a conscious decision to file on the last day before the limitation period (at least arguably) expired. 3. There is nothing to suggest that the respondents were told that proceedings had been commenced against them. 4. The evidence from the solicitor was unsatisfactory, at least in part. In particular, the words "I had incorrectly diarised the final date" do not readily bear the meaning which she sought to ascribe to them, namely, a "mental cross" as part of a "mental exercise". This was something which only became clear following the service of a notice to produce and the cross-examination reproduced above. 5. There is no evidence at all from the applicants themselves (Mr Gilles and Mr Eliades). It is to be recalled that this is not the typical case where a solicitor acting for a creditor makes an error for which the client should not be held responsible. This was a case where the creditors chose not to retain a separate firm of solicitors to act them. Rather, the firm acted for itself. Indeed, Mr Gilles verified the statement of claim as the Senior Partner of the firm on the day it was filed. 6. I accept the unchallenged evidence that an employed solicitor believed, wrongly, that she had nine months to serve the statement of claim. However, there was no evidence from either of the partners of the firm, who (I would infer) must have made the decision to sue on the day before the limitation period arguably expired, who must have been involved in the subsequent decision to take steps to obtain a costs assessment (because of the cost incurred at that stage) and who I would infer gave instructions that the statement of claim not be served immediately. It is not established that they shared their employee's erroneous belief.
13. Just as was the position in Arthur Andersen Corporate Finance v Buzzle Operations Pty Ltd (in liq) at [104], I conclude that the cogency of the case in refusing to extend time is far stronger than the case for granting it. The Court is required to have regard to the degree of expedition with which the applicants have approached the proceedings, and the degree to which the applicants' lack of expedition has arisen from circumstances beyond their control: see Civil Procedure Act, s 58(1), (2)(b)(ii) and (iii). There has been a substantial and at least in part conscious delay by the applicants, including after commencing proceedings, parts of which remain unexplained, and which is not addressed merely by pointing to the absence of demonstrated prejudice to the respondents. Although the primary judge's discretion miscarried, the correct substantive order was made.
14. That said, the order for indemnity costs was based upon the false premise that the application was (to use the words of the primary judge) "completely misconceived" because "I don't think I do have the power to extend". To that extent the appeal must be allowed, and the indemnity costs order replaced with an ordinary order as to costs. Otherwise, the appeal should be dismissed. Although there were errors made by the primary judge, they were contributed to by the way the application was presented, and I would also propose that costs follow the event, the question of indemnity costs being an insignificant aspect of the written and oral submissions.
15. It is inappropriate to determine (a) whether the 1987 or 2004 Legal Profession Act applies, (b) whether there was an acknowledgement such as to avoid the operation of the Limitation Act, and (c) the issues raised by the respondents in relation to identity and proper costs disclosure to them by the applicants. I do not wish to encourage further litigation, but those issues may arise subsequently between the parties, and on different evidence and with fuller submissions than have been provided to this Court. In those circumstances, it is best to say nothing about these matters, none of which can bear on the orders made today. Nor is it necessary to address in any detail various unsatisfactory aspects of the preparation of the White Folder, which included a partial reproduction of the solicitor's affidavit, with some pages altered, and new pages included which had not been in evidence before the primary judge, a matter to which counsel for the respondents drew the Court's attention, but did not seek to take any further. It suffices to note that the potential seriousness of altering the appeal books was referred to in ACES Sogutlu Holdings Pty Ltd (in liq) v Commonwealth Bank of Australia [2014] NSWCA 402; 89 NSWLR 209 at [159].
16. The orders which I propose are: 1. Grant leave to appeal. 2. Dispense with the requirements to file and serve a notice of appeal. 3. Appeal allowed in part. 4. Set aside order 5 made on 4 December 2015, and in lieu thereof order that the plaintiffs pay the defendants' costs of the proceedings (including the costs of the notices of motion filed on 16 September 2015 and 27 October 2015). 5. Otherwise dismiss the appeal. 6. The appellants pay the respondents' costs of the appeal (including the application for leave to appeal).
17. SACKVILLE AJA: I agree with Leeming JA.

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