Hakea Holdings Pty Ltd v McGrath

Federal Court of Australia|2021-06-18|Before: Yates J

The parties bring in agreed orders, or failing agreement their respective draft orders, giving effect to these reasons, by 4.00 pm on 25 July 2021. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 The plaintiff seeks leave to re-open its case to rely on the affidavits of Helena Golovanoff affirmed 21 April, 9 May, and 1 June 2021, and the affidavit of Ian Garth Campbell affirmed 7 May 2021. 2 Ms Golovanoff is the plaintiff's solicitor on the record and a partner in the law firm presently acting for the plaintiff, Holding Redlich. Formerly, the plaintiff was represented by Kennedys, in which Ms Golovanoff was a partner before moving to Holding Redlich on 3 April 2017. Mr Campbell was a solicitor employed at Kennedys, and then at Holding Redlich, who, for a time, had the carriage of this proceeding for the plaintiff. 3 The proceeding was commenced in the Supreme Court of New South Wales on 24 April 2017. The plaintiff alleges, amongst other things, that the first defendant, Steven James McGrath, who, at relevant times, was one of its directors, breached his duty to the plaintiff to exercise his powers and discharge his duties as a director with care and diligence: s 180(1) of the Corporations Act 2001 (Cth). 4 On 15 September 2017, Mr McGrath filed a Commercial List Response. However, on 24 April 2018, he presented a debtor's petition against himself. The administration of his estate in bankruptcy commenced on that date. Mr McGrath has not played an active role in the proceeding since filing his Commercial List Response. 5 On 21 September 2018, the Federal Circuit Court of Australia made an order that, to the extent required, leave be granted to the plaintiff, pursuant to s 58(3) of the Bankruptcy Act 1966 (Cth), to continue with, and take fresh steps in, the proceeding. 6 Subsequently, the second defendant was joined as a party to the proceeding. On 29 January 2019, the proceeding was transferred to this Court by order of the Supreme Court. 7 The hearing of this proceeding commenced on 19 April 2021. It was adjourned part-heard on 22 April 2021. 8 The second defendant opposes the application to re-open.

Background 9 The plaintiff seeks to rely on the four affidavits, including the documents annexed to them, to prove that it made a claim on Mr McGrath in respect of his alleged breach of duty. The claim is said to have been made by delivery of a letter of demand, dated 20 January 2017, to a particular email address on that day (the 20 January 2017 claim). 10 The significance of proving delivery to Mr McGrath of the letter of demand, on this date, is that the plaintiff held a contract of insurance which was entered into by the second defendant for and on behalf of the members of Lloyd's Syndicate 2468. The plaintiff contends that the contract of insurance responds to its claim against Mr McGrath. It wishes to prove that it made a claim on Mr McGrath within the policy period, even though it now contends that the contract of insurance did not require it to take that step. 11 For its part, the second defendant contends that the plaintiff must establish that it made a claim on Mr McGrath, which came to Mr McGrath's attention, by no later than 4.00 pm on 23 January 2017 - the expiration of the policy period. 12 Whether the plaintiff made a claim on Mr McGrath within the policy period is a significant matter in dispute in the proceeding. 13 The evidence before me shows that, in January 2017, the plaintiff's solicitors (then, Kennedys) attempted to serve a number of letters of demand on Mr McGrath at different addresses by various means. Mr Campbell was the solicitor responsible for doing this. He used information provided to him in confidence by the liquidators of Denham Constructions Pty Limited - of which Mr McGrath was the sole director, secretary, and shareholder - in about January 2017. The information was provided in a spreadsheet or table. It included the email address to which the letter of demand dated 20 January 2017 was sent. Mr Campbell copied the spreadsheet or table to his computer, but not to the file maintained in respect of the matter. Mr Campbell's evidence is that he deleted the spreadsheet or table from his computer in about February or March 2017. 14 I note for later reference that, on 2 June 2017, following service of a subpoena on the liquidators (in the context of preparing an application for substituted service on Mr McGrath), Mr Campbell received by email (apparently by way of informal production), from the solicitors for the liquidators, copies of email correspondence between Mr McGrath and the liquidators. This correspondence reveals use by Mr McGrath of the email address to which the letter of demand dated 20 January 2017 was sent. 15 Mr Campbell forwarded the email (including the attached email correspondence between Mr McGrath and the liquidators) to the plaintiff, with a copy to Ms Golovanoff. The copy sent to Ms Golovanoff was placed on Holding Redlich's file. Ms Golovanoff's evidence, which I accept, is that she has no recollection of receiving or reading Mr Campbell's email or its attachments at the time, and that she only became aware of these documents following investigations conducted after the proceeding was adjourned part-heard on 22 April 2021. 16 When it pleaded its case against the second defendant, the plaintiff appeared to accept that it was required to establish that it had made a claim on Mr McGrath within the policy period. In its Amended Commercial List Statement, which stands as its pleading in this Court, the plaintiff pleaded that it made the 20 January 2017 claim. Although the mode of delivery is not particularised, the generality of the pleading encompasses delivery by email. 17 At the time it prepared its Amended Commercial List Statement, the plaintiff must have known that it had made, or at least attempted to make, other (like) claims on Mr McGrath. These claims are not pleaded. There is no evidence before me directed to the reason why the plaintiff sought to rely only on the 20 January 2017 claim. I assume that the decision to rely only on this claim was a considered one. When the second defendant filed its defence on 10 September 2019, it expressly put in issue the fact that the letter of demand dated 20 January 2017 was delivered to Mr McGrath. That alleged fact remains in issue. 18 In opening its case, the plaintiff also appeared to accept that it was required to establish that it had made a claim on Mr McGrath during the policy period. However, it departed from its pleaded case and relied, instead, on three other claims said to have been made on Mr McGrath. The first was the service, on 4 January 2017, of a letter of demand sent to Mr McGrath at a street address in Mittagong, New South Wales (the 4 January 2017 claim). The second was the service, on 18 January 2017, of a letter of demand sent to Mr McGrath at another email address (the 18 January 2017 claim). The third was the service, on 18 January 2017, of a letter of demand sent to Mr McGrath at a street address in Killara, New South Wales. The Killara address was one given by Mr McGrath in his Commercial List Response. It now appears that this address was given falsely. 19 Why did the plaintiff adopt this course? In her affidavit affirmed on 1 June 2021, Ms Golovanoff says that, in the lead-up to the hearing, a solicitor in her employ, who then had carriage of the proceeding for the plaintiff, was not aware of any evidence that demonstrated Mr McGrath's use of certain addresses, to which like demands were sent, including the email address to which the 20 January 2017 claim was sent. Without this evidence, a decision was taken to rely on the claims referred to in the plaintiff's opening, in the belief that the plaintiff could demonstrate that the relevant letters of demand had been "sent" to Mr McGrath. 20 This explanation sits uncomfortably with the fact that, when it pleaded its case against the second defendant, the plaintiff relied on - and only relied on - the making of the 20 January 2017 claim. As I have said, this was obviously a considered decision. Further, even though Mr Campbell had not placed on file the information he had received in January 2017 about Mr McGrath's possible whereabouts, the correspondence between Mr McGrath and the liquidators, which Mr Campbell had received on 2 June 2017, and copied to Ms Golovanoff, had been placed on file. It is this very material on which the plaintiff now seeks to rely. 21 The second defendant made no complaint about the plaintiff's departure from its pleading, and the hearing proceeded accordingly. It was, of course, for the plaintiff to prove that it had made a claim on Mr McGrath within the policy period. It had no reason to assume that it would not bear the onus of proof in relation to the new case it was advancing in that regard, and it had no reason to assume that the second defendant would not actively contest that case. 22 As the hearing proceeded, the second defendant adduced evidence which called into question whether any of the claims, on which the plaintiff had opened its case, was effective under the contract of insurance. 23 On the second day of the hearing, the plaintiff abandoned its reliance on service of the letter of demand at the Killara address. It accepted that this was not an address at which Mr McGrath resided at the relevant time (although it appears that another Mr McGrath did). 24 The plaintiff maintained its case in respect of the making of the 4 January 2017 claim and the 18 January 2018 claim. Indeed, on 22 April 2021, which was the last day of the appointed hearing, I granted leave to the plaintiff, over the second defendant's opposition, to adduce further evidence, at a later date, to make good its case in respect of the 4 January 2017 claim. I was persuaded to grant leave because of the importance of the issue to the plaintiff's case and because the hearing could not conclude within the appointed hearing dates in any event, given that there remained an outstanding issue in relation to the reception of expert evidence directed to the quantum of the plaintiff's claim, which required further case management. 25 As I have recorded, the proceeding was adjourned part-heard on 22 April 2021. A case management hearing was appointed for 10 May 2021. 26 At the case management hearing on 10 May 2021, the plaintiff informed the Court that it no longer relied on the 4 January 2017 claim. Moreover, further investigations conducted by the plaintiff's solicitors in the meantime - namely, restoration of Mr Campbell's email mailbox at Kennedys - revealed that "bouncebacks" had been received in respect of some of Mr Campbell's attempts to serve a letter of demand on Mr McGrath. On 6 May 2021, it came to Ms Golovanoff's attention that the 18 January 2021 claim had not been delivered. 27 As matters now stand, the plaintiff accepts that none of the three claims, on which it opened its case, was effective for the purposes of the contract of insurance (assuming that the making of a claim on Mr McGrath within the insurance period was a condition of that contract). The intent of the present application is to permit the plaintiff to return to its pleaded case to prove the making of the 20 January 2017 claim. 28 As I have said, the four affidavits are directed to proof of that matter. However, they also include evidence of the following facts. On 23 April 2021, the plaintiff's solicitors became aware, through contact with Mr Campbell, that the liquidators of Denham Constructions had provided him with email addresses at which Mr McGrath might be contacted. This caused Ms Golovanoff to instigate various searches for communications from the liquidators. These searches included restoring Mr Campbell's email mailbox at Kennedys. When searches were conducted of the restored mailbox, the correspondence between Mr McGrath and the liquidators, which had been informally produced on 2 June 2017, was found. What is more, following service by the second defendant of a notice to produce dated 14 May 2021, it was then realised that the email, with its attached correspondence between Mr McGrath and the liquidators, which Mr Campbell had copied to Ms Golovanoff, had been placed on Holding Redlich's file. 29 The plaintiff accepts that the documents on which it now seeks to rely to prove that it made the 20 January 2017 claim, were in its possession in 2017. The plaintiff accepts that its late reliance on these documents could have been avoided. It accepts, further, that, should leave be granted, it should be responsible for the costs thrown away by reason of this late reliance.

Relevant principles 30 The principles on which the Court proceeds in considering an application to re-open are discussed in a number of cases, most notably in Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 at [24], which was approved by the Full Court in Colin R Price & Associates Pty Ltd v Four Oaks Pty Ltd [2017] FCAFC 75; 251 FCR 404 at [168] - [169]. I refer also to Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471 at 478D - 479D; F.Y.D Investments Pty Ltd v Promptair Pty Ltd [2017] FCA 1097 at [30] - [33]; and Wade v J Daniels and Associates Pty Ltd [2020] FCA 1708 at [281] - [282]. 31 These cases make clear that there is no hard and fast rule, and no fixed categories of case, where leave to re-open can be granted, although in Bradshaw Kenny J noted that, generally speaking, there are four recognised, but non-exhaustive, classes of case in which leave may be granted: fresh evidence; inadvertent error; mistaken apprehension of the facts; and mistaken apprehension of the law. However, common to all applications to re-open is the central question of whether the interests of justice are better served by allowing or rejecting the application.

Consideration 32 The plaintiff advances its application for leave to re-open on the basis of inadvertent error and a mistaken apprehension of the facts. It submits that, at the time it opened its case, it was not aware that its evidence would fall short of establishing the three ways in which it contended that a claim had been made on Mr McGrath within the policy period. Indeed, the tenor of its submissions is that, through circumstances not of its making, it was caught unawares by the evidence that the second defendant adduced, and the closing submissions it made, on this issue. 33 This way of framing the application to re-open does not capture the true complexion of the matter. The undeniable fact is that on 15 April 2021, two business days before the commencement of the hearing on 19 April 2021 - and, it seems, without earlier warning or explanation - the plaintiff abandoned its pleaded case, on which the second defendant had placed reliance, and advanced an entirely new case with regard to the making of claims on Mr McGrath within the policy period. The plaintiff cannot attribute its present predicament to anything but the forensic decisions it made, its inadequate trial preparation, and its failure to properly undertake its discovery obligations. 34 First, Mr Campbell did not keep a record of the information he was given by the liquidators, which he used to send the letter of demand to Mr McGrath on 20 January 2017. This particular information was simply lost to the plaintiff's solicitors' file. 35 Secondly, the plaintiff's solicitors lost sight of the information they were given by the liquidators' solicitors on 2 June 2017, which they did place on file. As I have noted, this information included email correspondence from Mr McGrath using the email addresses to which the letter of demand was sent on 20 January 2017. 36 Thirdly, on 27 May 2019, the plaintiff was ordered to give discovery by reference to categories that included the covering email or emails for Kennedys' letter of demand to Mr McGrath dated 18 January 2017 and any responses thereto, including any automatically generated email responses or delivery receipts or messages about the inability to deliver the email or emails. The categories also included the covering email or emails for Kennedys' letter of demand to Mr McGrath dated 20 January 2017 and any responses thereto, including any automatically generated email responses or delivery receipts or messages about the inability to deliver the email or emails. The adjectival relevance of these categories is plain. Discovery in these categories was sought to test whether the plaintiff had effectively made the 18 January 2017 claim and/or the 20 January 2017 claim. 37 Proper discovery required examination of not only the information that was on the plaintiff's solicitors' file, but also Mr Campbell's email mailboxes at Kennedys and at Holding Redlich, given that he had had carriage of the proceeding on behalf of the plaintiff for a significant period of time, including when the proceeding was commenced. Mr Campbell's mailbox at Kennedys was only examined in the period after the second defendant had made its closing submissions, when the plaintiff's solicitors realised the difficulties of proof that confronted the plaintiff with respect to the case on which it had opened. 38 Had discovery been properly carried out, the plaintiff would have been in a position in 2019 to file and serve affidavit evidence containing the very information it now seeks to adduce. It is unlikely, therefore, that it would have abandoned its pleaded case with respect to the 20 January 2017 claim. Further, it is improbable that it would have advanced the 18 January 2017 claim given that, on proper investigation, there was clear evidence that the letter of demand sent to Mr McGrath, on which that claim is based, had not been delivered. As events have transpired, the plaintiff has simply witnessed the unravelling of the contested case it chose to run. 39 Although these facts are not propitious for the application that is now made, I am persuaded, nonetheless, that I should permit the plaintiff to re-open its case, on this issue, on the limited basis sought, for the following reasons. 40 Even though the plaintiff submits that it was not required by the contract of insurance to make a claim on Mr McGrath within the policy period, I apprehend that proof of making such a claim remains a significant issue in the proceeding which could be determinative of the plaintiff's claim against the second defendant if leave to re-open is not permitted. I do not think that justice would be served by shutting out the plaintiff from adducing the evidence it already has, and could have served at an earlier time, when the fault for not doing so appears to lie with its legal representatives. 41 In saying this, I acknowledge the cogency of the second defendant's submission that granting leave to re-open will necessarily cause further delay in the resolution of this matter, and further cost to the parties. But both these matters can be addressed by remedial orders in circumstances where the proceeding is already necessarily part-heard, for the reason I have noted above. 42 I accept that granting leave to re-open will open up a new factual enquiry. I accept that the second defendant will need to assess the basis on which the plaintiff says that Mr McGrath received the 20 January 2017 letter of demand by email. In this regard, the plaintiff invites the Court to infer that the email address to which the letter of demand was sent was operated by Mr McGrath on 20 January 2017, given his use of the same email address in September 2016. This is a contentious matter, but I do not think that its resolution will necessarily require unduly extended hearing time given the discrete nature of the issue, its potential importance to the case, and the limited scope of the evidence which the plaintiff now wishes to adduce (which has been placed before me on this application). 43 I accept that evidence about Mr McGrath's usage of different email accounts, and the frequency with which he checked the email address in question, could be relevant to this issue. I accept that these matters could have been the subject of cross-examination of the plaintiff's witnesses and that the second defendant could have investigated adducing its own evidence had the plaintiff properly prepared and served its own evidence earlier. However, the second defendant does not contend that it would be prejudiced in undertaking these investigations now, beyond the questions of delay and cost it has raised. 44 I would grant leave to re-open on the condition that the plaintiff makes available its relevant witnesses for further cross-examination, if required. This step might be unnecessary if the plaintiff is prepared to make admissions which are satisfactory for the second defendant's purposes. The plaintiff has already stated that, if asked, its witnesses would say that they were not aware of Mr McGrath using the email address to which the 20 January 2017 claim was sent. 45 I would also grant the second defendant a reasonable period of time within which to make its investigations and to prepare its own evidence on this issue, if it wishes to do so. As I understand it, the plaintiff does not oppose that course. 46 Plainly, costs have been wasted in pursuing fruitless issues, and further costs will be incurred in prolonging the hearing to receive the further evidence to be adduced on this question. As I have noted, this is accepted by the plaintiff. 47 I do not propose to make any order now providing for those costs. However, I do propose to make an order now about the costs of the application to re-open. Even though the second defendant has been unsuccessful in its opposition, the plaintiff should pay those costs, regardless of the result. The second defendant's opposition was justifiable in the circumstances, it was advanced on reasonable grounds, and the plaintiff has sought a significant indulgence, which it might not have been granted in other circumstances. 48 Finally, nothing I have said in these reasons should be taken as signifying any view on my part as to the probative value of the evidence that the plaintiff now seeks to adduce, beyond the fact that the evidence raises a question to be tried that warrants the granting of the leave that is sought.

disposition 49 Leave should be granted to the plaintiff to re-open its case on the limited basis it has sought. I will leave it to the parties to confer as to the further directions that should be made in relation to this aspect of the case. The parties should bring in agreed orders giving effect to these reasons by 4.00 pm on 25 July 2021. If agreement is not reached, the parties should provide their respective draft orders by that time. I certify that the preceding forty-nine (49) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Yates.

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