Gispac Pty Limited v Michael Hill Jeweller

The Court timetable

1. The plaintiff has been in default of the timetable on two occasions by failing to serve the expert report.
2. In the lead up to the 20 October 2020 directions hearing, the solicitors for the respective parties substantially agreed the orders ultimately made by Registrar Jones at the hearing, except for Orders 4 and 5.
3. On 20 October 2020 at the directions hearing, Mr Jameson of counsel appeared for the plaintiff and Ms Muir of counsel appeared for the defendant. At that hearing, the following self-explanatory exchanges took place between the Registrar and the parties' legal representatives as to the time for service of the plaintiff's expert report (at T2 to T5): "JAMESON: … In respect of order 4, the only difficulty with that order was in respect of my client's expert evidence is just the date, we need an additional month as opposed to 3 November and what we're thinking is 4 December. … REGISTRAR: Thank you. Alright before I hear from you, Ms Muir, I'll just hear from Mr Jameson again. What's happened with the plaintiff's evidence, why is it so late? JAMESON: There's two parts to that Registrar. The evidence of my client was due in July. There was three weeks where my client didn't serve their evidence. Shortly after that three weeks, the defendant put on an amended defence and that defence raises some issues that we now need to address in the evidence. The steps we've taken to regularise what issues are in fact a dispute have included, for example, putting on the reply. And what we're seeking now is having regard to the defence is some time until December to finalise the lay and expert evidence. One particular issue is our client's ability to get access to some documents from the overseas manufacturer and siphon through those. That exercise is taking more time than we expected which is the reason why we couldn't consent to the 3 November order today and why we're seeking until the 4th for the most part. MUIR: Registrar, it's not appropriate in this case that the plaintiff be granted the indulgence that it seeks. The orders that should be made are orders 4 and 5 of the defendant's draft and that is because initially the plaintiff was ordered to file and serve its evidence by 3 April so this isn't its first default, it's its second. … Coming now to the sanction in order 5. It's not only appropriate but it's necessary in this circumstance because the plaintiff has not regarded itself to date as being bound by the Court orders. We're not asking to strike out, we haven't bought a motion to strike out. This is actually a pretty soft guillotine order in the circumstances and the Court should have some concern about plaintiffs concern about being sanctioned for further non-compliance. So it's appropriate that that order 5 be made. … REGISTRAR: Yes thank you. I've heard the submissions from both parties on these issues. I note that there has been some delay in the plaintiffs filing and service of its lay and expert evidence-in-chief. I note that there was a previous order that be served by April, that that order was then extended for that evidence to be served by July and I've heard the submissions of Mr Jameson in relation to (a) security for costs application and then an amended pleading which on Mr Jameson's submissions both impacted on the plaintiff's completion of their lay and expert evidence-in-chief. However, these matters cannot be seen to hold up the timetable and again I'll repeat that the matter should have been brought back to the Court and the reasons for the non-compliance should have been explained. I think in the circumstances the most appropriate outcome is for the parties to meet somewhat in the middle in relation to the timeframe. I do propose to make the proposed order 4 that's in the defendant's orders but I would like to amend that time Ms Muir to allow to 17 November so that the plaintiff has a little bit more time. I will make a guillotine order, Mr Jameson, it is appropriate in circumstances where this evidence needs to get on, it's been outstanding for some time. I do note your submissions in relation to the April date, however, the plaintiff has been on notice for many many months that this date was coming up. You've now got a further extension and it is appropriate in my assessment that there should be a guillotine order. …"
4. In short, the defendant sought that the plaintiff be ordered to serve its evidence by 3 November 2020, and that a Guillotine Order be made. Counsel for the plaintiff made a number of submissions opposing the imposition of a Guillotine Order, including that it was not appropriate in circumstances where the pleadings had only recently closed and that the plaintiff needed until 4 December 2020 in order to serve its expert evidence, principally on the basis that the plaintiff was experiencing difficulties obtaining copies of materials from its overseas manufacturer.
5. Ultimately, the Registrar determined that the making of the Guillotine Order was appropriate, although she ordered that the evidence be served by 17 November 2020, not 3 November 2020 as requested by the defendant. The Registrar made the following relevant orders, including the Guillotine Order (order 5): 1. By 5pm on Tuesday 17 November 2020, the plaintiff [is to] file and serve its lay and expert evidence in chief. 2. Any evidence served outside the time frame referred to in Order 4 cannot be relied upon by the plaintiff unless the plaintiff is granted leave by a judge to do so. 3. By 5.00 pm on Tuesday 23 February 2021, the defendant [is to] file and serve its lay and expert evidence in chief.

The plaintiff's explanation for delay

1. The expert report of Mr Mullins quantifies the loss suffered by the plaintiff by reason of the alleged breach of the sales agreement by the defendant. Mr Mullins was provided with a series of source documents from the plaintiff on 22 October 2020. Those documents included: 1. copies of all purchase orders issued to overseas manufacturers by the plaintiff in respect of the manufacturer of the goods the subject of these proceedings ("the products"); 2. copies of all invoices issued by overseas manufacturers to the plaintiff for the manufacture of the products ("the manufacturers' invoices"); 3. copies of source documents evidencing international freight charges for the shipping of the products to Australia; and 4. copies of internal courier charges to transport the products to the defendant's stores once they arrived in Australia and New Zealand.
2. The plaintiff says that it was required to take the following steps to locate the source documents: 1. As to the manufacturer's invoices, the plaintiff used multiple manufacturers in respect of the products. The manufacturers' invoices were receipted into the plaintiff's system. The manufacturer's invoices included charges for the products and those purchased for other customers of the plaintiff. As such, reviewing the amounts receipted in the system did not show the proportion of the manufacturers invoices that were attributable to the products. Ms Kjaergaard, who works for the plaintiff, was required to review the following information to locate the manufacturers' invoices: 1. the date when the products (based on their stock keeping unit) were receipted into the system; 2. the stock receipts (which would on some occasions refer to the manufacturers' invoice number); and/or 3. the date the manufacturers' invoices were receipted into the system. 1. Using this information, Ms Kjaergaard searched the emails sent from the manufacturers to the plaintiff's staff which attached the manufacturers' invoices. If that was unsuccessful, she would search the archive records at the NSW warehouse to locate the manufacturers' invoices. 2. To locate the international freight invoices, Ms Kjaergaard reviewed the emails sent to the plaintiff around the time of the manufacturers' invoices, to match them with an international freight invoice using either the container seal number; and/or the purchase order number in respect of the purchase order from the plaintiff to the manufacturer. 3. Where the international freight invoices could not be found in the correspondence between the international freight provider and the plaintiff, Ms Kjaergaard was required to search the paper archives at the NSW warehouse. 4. The internal courier charges were invoiced by Toll Group, TNT Express, Rohlig and/or DHL (collectively the "internal couriers"). Although the internal couriers issued invoices to the plaintiff, the courier invoices include charges relating to deliveries of products to other customers of the plaintiff as well as the products. Ms Kjaergaard had to locate the hard copies of the courier invoices from the plaintiff's archive at its NSW warehouse in order to provide instructions as to the charges on those invoices that were attributable to the defendant's deliveries. The courier charges were then matched to the invoices issued by the plaintiff to the defendant during the period of the courier charges. 5. The internal couriers issued invoices to the plaintiff ("courier invoices"), which were receipted into the plaintiff's system. However, the courier invoices include charges relating to deliveries of products to other customers of the plaintiff as well as the products. Ms Kjaergaard had to locate the hard copies of the courier invoices from the plaintiff's archive at its NSW warehouse in order to provide instructions as to the charges on the courier Invoices that were attributable to the defendant's deliveries. The courier charges were then matched to the invoices (where possible) issued by the plaintiff to the defendant during the period of the courier charges. 6. Prior to the orders being made on 20 October 2020, Ms Kjaergaard had prepared a number of summary schedules setting the products purchased by the defendant and these schedules were made available to Mr Mullins. 7. It is Ms Kjaergaard's evidence that prior to 1 December 2015, the plaintiff used a different operating system to that which it now uses. As a consequence of the change in operating system, various source material required by Mr Mullins for the period prior to 1 December 2015 had to be searched for manually rather than being extracted from a computerised system. The manual search was undertaken at the plaintiff's warehouse in NSW. 8. A staff member of the plaintiff worked full time on locating the material required by Mr Mullins, but despite undertaking these searches on a full-time basis, the material took far longer to locate than was originally anticipated. The source documents were provided to Mr Mullins as and when they were located rather than in one cohesive bundle. 9. In addition, even after extensive searches were undertaken, some of the source material was still unable to be located. As a consequence of the lengthy and complicated nature of the search for material required by Mullins the plaintiff was unable to finalise the expert report and serve it in accordance with the Orders made on 20 October 2020.
3. In his report, Mr Mullins quantifies the loss suffered by the plaintiff in relation to the second of those claims set out above, namely the breach of contract and repudiation claims. Mr Mullins quantifies the loss suffered in respect of the breach of contract claim in the order of $1,380,000 and in respect of the repudiation claim in the order of $24,000.

The second Bogatez affidavit

1. The second Bogatez affidavit dated 1 December 2020 is related to the Mullins Report. Mr Bogatez gives evidence as to the plaintiff's accounting systems and his responses to specific questions asked of the plaintiff by Mr Mullins. He also gives evidence as set out earlier in this judgment as to the further steps that were taken to search for missing invoices which were unable to be located due to an issue with the plaintiff's IT servers.
2. Between the 20 October 2020 directions hearing and 30 November 2020 when the Mullins Report was served, multiple letters of instruction were sent to Mr Mullins, and the various requests for documents made by Mr Mullins were answered by the plaintiff's solicitors (Aff Rae at [17]-[20]). Contemporaneously with those communications, the plaintiff was still experiencing difficulties obtaining copies of some of the documents necessary to brief Mr Mullins, particularly in regards to documents relating to the overseas manufacturer of the paper bags (Aff Rae at [18]-[26]).
3. On 17 November 2020, the plaintiff filed and served the first affidavit of Mr Bogatez dated 17 November 2020 (Aff Rae at [6]). In the cover letter, the plaintiff's solicitors requested a short extension of time to 20 November 2020 to serve its expert evidence. On 20 November 2020, that request was rejected by the defendant's solicitors (although the defendant did not assert any prejudice that would be suffered by the extension) (Aff Rae at [7]).
4. On 30 November 2020 (9 business days following the Guillotine Order), the plaintiff served the Mullins Report. On 1 December (10 business days following the Guillotine Order), the plaintiff served the second Bogatez affidavit (Rae at [8]).

The plaintiff's submissions

1. The plaintiff submitted this is an appropriate case for leave for the following reasons.
2. First, the fact that a 'soft' guillotine order has been made does not have the effect that the party to whom it applies is prevented from adducing further evidence in the proceedings. The terms of the Guillotine Order itself make that clear with the inclusion of the caveat that no further evidence can be served "unless the plaintiff is granted leave" to do so. The question of leave is therefore primarily one of balancing the justice to plaintiff and any injustice to the defendant.
3. Secondly, very little prejudice has been asserted by the defendant in its evidence on the application (other than perhaps inferentially by pointing to the fact that the proceedings have been on foot since June 2019) (Aff Hinckfuss [4]). In that respect, the plaintiff submitted that the defendant's opposition is, in effect, akin to the defendant seeking an order under r 12.7 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR") that the plaintiff's claim be dismissed for want of due dispatch. The plaintiff submitted that these proceedings do not fall within the territory of such an order, particularly where the evidence is now ready to be served and the proceedings are less than two years old.
4. If there was any such prejudice, the plaintiff says it has sought to rectify it by its recent conduct. On 23 February 2021, the defendant served its evidence in the proceedings. However, the plaintiff has offered its consent to orders entitling the defendant to serve evidence in response (second Rae Affidavit at [18]). Further, the Court is yet to set a hearing date, and having regard to the consent offered by the plaintiff, there is no risk that the defendant will not be in a position to respond to the evidence on loss before such a hearing is listed.
5. Thirdly, the plaintiff says there is significant prejudice to the plaintiff if the leave application is refused. The Mullins Report constitutes the only loss evidence in the proceedings. If the plaintiff is not entitled to rely on it, the Court will not have available to it a quantification of damages, and the plaintiff will be shut out from seeking the loss it says it has suffered which is not insubstantial (on Mr Mullin's view, it is in the order of $1,400,000).
6. Fourthly, the plaintiff noted that the defendant asserts that the Mullins Report, insofar as it relates to the "first term", is irrelevant (Hinckfuss affidavit at [9]). However, that assertion is incorrect. While the plaintiff does not bring a case concerning the first term "shortfall" under the sales agreements (that is, for failure to pay invoices in relation to the shortfall), the plaintiff does maintain a case in respect of damages arising from breach of contract in relation to the sales agreements (second Rae affidavit at [15] and [16]).
7. In any event, the plaintiff submitted that this is not a matter that would prevent leave being granted. The Mullins Report is plainly relevant to the proceedings, and the case as formulated has advanced significantly since the solicitors' correspondence was sent in 2019 (including at the hands of the defendant following the service of its amended defence in August 2020). The plaintiff says that any specific questions as to admissibility of evidence ought to be determined at the hearing in the usual way, and to consider a relevance objection without a proper hearing and regard to all of the evidence would be premature.

The defendant's submissions

1. Counsel for the defendant submitted that there are considerations that need to be taken into account when the Court is conducting its holistic exercise, as the plaintiff is seeking the Court's indulgence. The defendant submitted that the plaintiff does not have an automatic entitlement to that indulgence, and considerations other than prejudice and the absence of a hearing date being fixed include the absence of a proper explanation.
2. While the defendant accepts that the plaintiff will be prejudiced if not allowed to rely on this evidence, it argues that the plaintiff has not provided a satisfactory explanation for why did not comply with the 20 October 2020 order.
3. Although at [34] of its statement of claim filed 17 June 2019 the plaintiff quantifies its claims for failure to pay invoices, and failure to buy the alleged annual quantity at some $2,500,000, the defendant is pursing claims only for loss of profits, and no longer seeks the full amount of the alleged shortfall.
4. The defendant submitted that unless the plaintiff's persistent non-compliance is sanctioned, it may continue its pattern of default and long, inadequately-explained delays. As a result, the duration of this litigation will extend, and the parties' costs will be increased unnecessarily.
5. Mr Hinckfuss (Aff [6]-[8]) submitted that the Mullins Report contains irrelevant material which, if allowed, will produce wasted time and costs. The defendant submitted that there is no reason why the Court cannot form a view on the relevance of this material now based on the issues in dispute on the pleadings, and the Notice to Admit Facts. Judgments about relevance are made on the pleadings in disputes regarding discovery, notices to produce, subpoenas and strike out applications. There is no reason why a case management exercise should be treated any differently.
6. Third, the defendant submitted that if the plaintiff is granted leave, the timetable for the plaintiff's evidence will need to be revised again and the defendant will need time to respond to the late material. Further, if the plaintiff's application were to succeed and obtain a costs order against the defendant, the plaintiff's delay would cost the defendant in interest.

Considerations applicable where a guillotine order has been made

1. The Court's power to grant leave is discretionary and exercisable in accordance with the overarching case management principles set out in ss 56 to 60 of the Civil Procedure Act 2005 (NSW). In the matter of Pure Nature Sydney Pty Ltd [2018] NSWSC 482 at [12], Black J referred to Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, where the High Court emphasised the significance of delay in proceedings, and the fact that a costs order should not be treated as an automatic solution to problems created by failures to conform with the objectives of case management:
2. Both parties referred to Dawson as liquidator of J R Line and Safety Services Pty Ltd (in liq) v Alam [2020] NSWSC 1679, where Gleeson J held (at [17]): "[17] It is open to the Court, as a matter of case management, to reconsider this [guillotine] order given the particular circumstances of the case. To allow further evidence is not inconsistent with proper case management principles, as counsel for the defendants suggested, nor would it be sending the wrong message to parties that guillotine orders can be easily overcome. It all depends on the circumstances and an assessment of the balance of justice and injustice to the parties in allowing further evidence."
3. As the other cases referred to by both parties involve different factual circumstances, including where a hearing date had already been allocated, I do not need to refer to them here.

Resolution

1. This application requires the Court to make a discretionary decision as to whether or not to allow the plaintiff to rely upon the Mullins Report and the second Bogatez affidavit.
2. I accept that the plaintiff had already defaulted twice by not serving the expert's report by the due date. That is why the sanction of the Guillotine Order was made. The delay in serving the Mullins Report and the second Bogatez affidavit is 11 days outside the date set by the Guillotine Order set by the Registrar.
3. On 20 October 2020 at the directions hearing, the plaintiff requested that time be extended to serve the expert's report on loss and damage until December 2020 to finalise the lay and expert evidence, as they had to get access to some documents from the overseas manufacturer and siphon through them.
4. I have referred to the plaintiff's fulsome explanation for the delay earlier in this judgment. It is my view that the plaintiff has provided a satisfactory explanation as to the reasons for delay in serving the evidence.
5. I also take into consideration the fact that the plaintiff would be severely prejudiced if it could not rely on the Mullins Report and the second Bogatez affidavit. The defendant has been granted additional time to serve its expert evidence due to the plaintiff serving its expert's report late.
6. Senior counsel for the defendant referred to the fact that the defendant served a notice to admit, and that in the document which Mr Bogatez refers to at [32] in Annexure A to the notice, Mr Bogatez he says that in about 2016 the terms were updated to a new set of terms. It appears that the URL terms link to the version "23 1 2012-reviewed" was no longer operational from that point onwards. The 2016 terms and conditions are not the same as the 2012 terms and conditions. There was no dispute on this issue such that it has been formally admitted.
7. However, the plaintiff says that the difference in the terms and conditions goes nowhere, because all Mr Bogatez is saying is that the link to the old link (2012 version) is gone, and there is now a link to those 2016 terms and conditions. This does not affect the proper construction of the contract.
8. It is my view that it is not appropriate that the Court exercises its power to excise parts of the Mullins Report where the plaintiff has what seems to be at least an arguable case. In these circumstances, the whole of the Mullins Report together with the evidence should be ruled upon at trial.
9. The Court, as a matter of case management, can reconsider the Guillotine Order given the particular circumstances of the case. In summary, it is my view that there has been a satisfactory and fulsome explanation for the delay in the service of the Mullins Report and the second Bogatez affidavit. The delay was relatively short and as I have noted, no hearing date has been allocated. The prejudice to the plaintiff in not being permitted to rely upon these documents is significant. The defendant will now have an opportunity to obtain and serve its expert's report and evidence. As to interest, if the defendant is successful at trial it may make an application on the basis that it is entitled to prejudgment interest. I have come to the conclusion that in all these circumstances, the balance of justice demands that the plaintiff be permitted to rely upon the Mullins Report and the second Bogatez affidavit. I grant leave for the plaintiff to do so.

The result

1. The result is that the plaintiff is granted leave to serve the Mullins Report and the supplementary Bogatez affidavit dated 1 December 2020.

Costs

1. Although the plaintiff has been successful in its motion, it has served its expert report and the second Bogatez affidavit outside the period permitted in the timetable. It required leave of the Court to rely upon them. To do so meant that the plaintiff required the Court to grant an it indulgence. In these circumstances, in the exercise of my discretion, the appropriate order for costs is that the plaintiff pay the defendant's costs of the notice of motion.

The Court orders that: 1. The plaintiff is granted leave to rely on the expert report of Wynand Mullins dated 30 November 2020 and the second affidavit of Edwin Bogatez dated 1 December 2020. 2. The plaintiff is to pay the defendant's costs of the motion.

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: 26 March 2021