Hoy & McCormack v Honan & anor [1997] QCA 250

I consider it unnecessary to repeat the circumstances in detail. The delay was largely caused by the impecuniosity of the respondents, which was in turn attributed to the losses sustained in the transaction which has given rise to their claim. Whether or not the appellants could have entirely avoided the prejudice of which they complain, it could have been substantially reduced by prudent conduct on their part. They have been aware of the existence of the claim, the transaction to which it relates and considerable detail concerning the respondents' allegations since July 1991, but did not take obvious steps to obtain and preserve evidence.

Having regard to these matters and the other circumstances referred to by Derrington J., I agree with his Honour that the appeal fails.

I also agree that the appropriate order is that the appeal be dismissed with costs to be taxed.

The appellants are defendants in this action brought by the respondents. By this appeal they seek to overturn an order under O. 90 r. 9 of the Rules of the Supreme Court granting leave to the respondents to proceed despite that more than three years since the last step in the action had passed.

When the alleged cause of action arose, the appellants, and particularly Mr McCormack, were said to be the solicitors for the respondents. It is alleged that he was negligent in his advice to the respondents, or alternatively that he knew that some at least of his advice was wrong, which is tantamount to fraud.

The action relates to the respondents' loss of a substantial amount of money by investment in a joint venture for logging timber in the Solomon Islands. A shelf company was used to represent their interests, and another was used as the joint venture vehicle. Mr McCormack acted as a director of both companies.

It is alleged that the venture failed for lack of a logging licence, allegedly contrary to representations that had been made to the parties, and the claim against Mr McCormack is that he advised the respondents that all was secure in that regard. In substance, apart from denying that he owed professional duties to the respondents, his defence is that any relevant information that he passed on to the respondents had been received by him in good faith from a Mr Mauriasi, a supervisor who had been engaged by the respondents to obtain the relevant licence, and from Mr Waleilia, a solicitor in the Solomon Islands who had been engaged to provide services to the joint venture, and that he was justified in acting on it.

These events occurred in 1987 and 1988, but it was not until late in 1988 that the problems surfaced. As a result the respondents' company was wound up in June of 1989 and Mr McCormack was orally examined by its liquidator in December 1990 and January 1991 on, among other things, the facts behind the failure of the venture.

The writ in this action was then issued promptly in April 1991 and a statement of claim was delivered in the following July. Consequently, the nature of the allegations and of the claim were known in some detail by the appellants reasonably soon after the events related to the alleged cause of action arose, and much earlier than is often the case in matters of this nature. This is a factor that is favourable to an application for leave to proceed.

It may be contrasted with an important feature that is influential in an application to extend the limitation period for the commencement of an action. In such a situation the defendant may not be aware of the prospect of an intended action or of the nature of allegations and claims relating to it. While the principles as to prejudice applying in both cases may be the same, the result is different because of the difference in the circumstances in which they operate. This distinction was referred to by Mackenzie J in Collingwood v Calvert & Ane (Unreported Qld C/A 6.12.1996 - App No 3028 of 1996).

After some interlocutory matters concerning particulars, the statement of claim was struck out in March 1992 and the respondents delivered a second one in the following month. In that same month the appellants requested further and better particulars, but these were not delivered, and late in June the respondents' solicitors wrote to the appellants' solicitors forecasting substantial amendments to the statement of claim.

Nothing further happened until July 1993 when the respondents delivered a notice of intention to proceed, but they did not do so because they were impecunious and could not fund the action at the time. However as the result of recent arrangements with their creditors they commenced their application for leave to proceed on 25 October 1995, that is, about seven years after the loss came to light and three and a half years after the last step in the action. In anticipation of leave, they delivered an amended statement of claim on 23 February 1996. The grant of leave was made in April 1996.

One explanation for the delay was the respondents' change of solicitors on reasonable grounds during the relevant period, but that has not been shown to have contributed to it for it would have occurred in any case as the result of the respondents' impecuniosity.

A further explanation offered applies to the last month of the three year period following their last step in the action, when the respondents' solicitor became seriously ill and could not attend to the matter; but it is not alleged that in the absence of illness he would have acted differently, nor is it suggested that their financial position would have allowed them to take any further step at that time.

This is academic as the learned Chambers Judge accepted the truth of the explanation for the delay based on impecuniosity and the appellants do not take issue with that part of his judgment. There was certainly no intentional or contumelious delay.

It is further alleged and not disputed that the respondents' impecuniosity was the result of the losses suffered in the transaction, allegedly as the result of the appellants' default. This reason too seems to have been accepted below, and although the evidence is sparse, again it has not been challenged that their impecuniosity flowed from their losses in the venture.

After noting that a grant of leave to proceed with the action would of itself cause some prejudice to the appellants by reopening their potential liability, the learned Chambers Judge also acknowledged that "a delay of eight or nine years will almost certainly adversely affect the recollection of witnesses unaided by contemporaneous records of events about which they give evidence, particularly if they have had no reason to recollect or reflect upon those events during that time". Significantly this correctly refers back to the total delay from the time of the relevant events.

He also found that the facts of this case disestablish much of that prejudice. One reason was that an extensive oral examination of Mr McCormack by the liquidator took place comparatively soon after the failure of the joint venture, that is, not long after the alleged provision by Mr McCormack of his professional services; and it was transcribed. As His Honour observed, the examination was in great detail and concerned the matters that would be canvassed in the trial of this action. He found that this would enable Mr McCormack to deal precisely with the allegations contained in the current statement of claim. With the advantage of prompting from this transcript and his files there is therefore little reason to believe that his evidence would be substantially prejudiced by the passage of time.

Further, despite that it was struck out, the first statement of claim would have informed the appellants early and in sufficient detail of the alleged cause of action, and this should have enabled them to make prompt enquiry and to undertake any desirable protection of the evidence. The second statement of claim would have consolidated this understanding as it did not depart from it in substance. His Honour found that:

"The second defendant could have been under no misapprehension as to the factual issues to be canvassed upon the trial when served with the statements of claim with which he has been served. Moreover, with his background and training it would have been an obvious first step for him to then procure statements, evidence etc. to meet the allegations in the statements of claim about which he had been so exhaustively examined in the Magistrates Court."

The appellants argue that they were justified in delaying the pursuit and protection of evidence because of a letter of the respondents' solicitors in June, 1992, advising that they would be making substantial amendments to the second statement of claim. However, this letter was not received until three months after the delivery of that pleading, by which time they should have taken appropriate action concerning the evidence. As it turns out, the further amendments referred to, as revealed in the latest edition of the statement of claim, do not extend the scope of the earlier allegations and claims. In these circumstances the appellants' excuse for withholding enquiry and protecting evidence is unconvincing.

This is relevant to the appellants' major claim, namely, that they suffer irreparable prejudice because evidence from Mr Waleilia and Mr Mauriasi supporting their defence has become unavailable due to the delay. Mr Waleilia cannot find his relevant files, which would have contained substantial details but were probably destroyed after seven years in accordance with his usual practice, and he has difficulty in recollecting events without recourse to them. Mr Mauriasi's present whereabouts are unknown, but the investigation of this has been inadequate to support any finding of loss of this witness, and the claim in this respect should be disregarded.

In respect of Mr Waleilia's destruction of his files and the erosion of his memory by time, the respondents argue that it is not shown that the material that has been lost would have availed the appellants. That is not to the point. The appellants are now deprived of the opportunity of finding evidence that might support a defence, and that loss of a real opportunity is itself a matter of prejudice.

A more serious feature is the appellants' own failure to record Mr Waleilia's and Mr Mauriasi's evidence within a reasonable time and to arrange for the preservation of the former's files. On Mr Waleilia's timetable for their destruction, the files should still have been available in 1995, well after the delivery of the second statement of claim. As His Honour found, the allegations and claims should have put the appellants on early enquiry at once. If it had been carried out, it should have led to the recording and preservation of the evidence. This would have largely neutralised the effect of the further delay which is the subject of their present complaint: cf. Slade v Adco Ltd The Times, 7 December 1995, referred to in Shtun v Zalejska [1996] 1 WLR 1270, 1284.

In Bishopsgate Insurance Australia Ltd v Deloitte Haskins & Sells (Unreported, Vic. Court of Appeal, 9 September 1994) it was said on the issue of amelioration of prejudice:

"Thus occasionally it might be said that a defendant has been aware in detail of the allegations to such an extent that he would be able to recall each of the relevant events and take steps to record his recollections and to instruct solicitors to obtain statements from each of the other relevant witnesses at a time when they could likewise recall the events with ease."

The prejudice claimed is therefore substantially due to the appellants' own delay in the sense in which it is significant in applications of this nature: cf. Lewandowski v Lovell (1994) 11 WAR 124; Holmes v Civil & Civic Pty Ltd (Unreported, Court of Appeal 14 September 1992, No. 15 of 1992).

The effect of prejudice flowing from delay in the case where the defendant has no knowledge or expectation of the basis of an action and consequently cannot preserve evidence is plainly different from its effect where the defendant knows of this but takes no steps to preserve it. The rationale of the rule requiring leave to proceed after a long delay is to prevent abuse of process. The Court must be satisfied that the continuation of the proceedings would not involve injustice or unfairness to one of the parties by reason of delay or other matter: Walton v. Gardiner (1993) 177 CLR 378; Brisbane South Regional Health Authority v. Taylor (supra) at 871. If there is no injustice or unfairness to the appellants because any prejudice resulting from delay has come substantially from their own default, then there cannot be said to be injustice or unfairness to them.

They concede that the learned Chambers Judge correctly imposed on the respondents the burden of showing that there was good reason for excepting this case from the general prohibition on proceeding after three years after the last step in the action applied by O.90 r.9. He also correctly imposed on the plaintiffs the onus of proof that prejudice such as to produce injustice to the appellants would not be suffered by them: Tate v McLeod [1969] Qd R 217 at 224; Bruce Pie & Sons Pty Ltd v Mainwaring [1987] 1 Qd R 304, 309; Dempsey v Dorber [1990] 1 Qd R 418 at 420.

However where a respondent to an application such as this alleges prejudice by reason of the effluxion of time, the position is as follows:

"It is for the respondent to place in evidence sufficient facts to lead the Court to the view that prejudice would be occasioned and it is then for the applicant to show that these facts do not amount to material prejudice."

Cowie v. State Electricity Commission of Victoria [1964] VicRp 103; [1964] VR 788 at 793, approved in Campbell v. United Pacific Transport Pty Ltd [1966] Qd R 465 per Gibbs J at 474; Brisbane South Regional Health Authority v. Taylor [1996] HCA 25; (1996) 70 ALJR 866 per Toohey and Gummow JJ at 868. The prejudice caused by delay was explained in the last mentioned case by McHugh J at p 871 but it is not necessary to elaborate on it here.

None of this is challenged by the appellants, but they complain that the learned Chambers Judge erroneously limited the time to be taken into account when considering the prejudice flowing from delay. He referred only to the delay after the last step in the action rather than that produced by the total passage of time since the events relevant to the action. In Brisbane South Regional Health Authority v Taylor (supra) in an application for the extension of the time to commence an action after the period of limitation had expired, it was held that the whole of the period was relevant to the question of prejudice relating to witnesses' memories.

The reasons for judgment appealed from seem to indicate that the period applied was limited to the period of delay, though as it has been noted above, in referring to the effect of the passage of time on the memory of witnesses, it referred to the correct length of years.

Even if a wrong approach was taken on this point, this does not affect the substance of the decision below, for the error did not touch any relevant consideration. The specific prejudice alleged to flow from the loss of Mr Waleilia's files occurred only in the period of the delay and consequently the error has no practical effect in this respect. Mr McCormack's evidence is protected against any memory defect, and the only feature of prejudice shown to be associated with the entire delay is Mr Waleilia's, and perhaps Mr Mauriasi's, forgetfulness, which could have been largely ameliorated by the appellants. Again, the error had no material application. In the result there is no injustice in permitting the case to proceed despite this prejudice.

While it is true that the public interest requires that disputes be settled as quickly as possible, where as here the matter was pursued promptly at first and the plaintiffs' later delay is excusable, this proposition has much more limited relevance: Bishopsgate Insurance Australia Ltd v Deloitte Haskins & Sells (supra).

Because the learned Chambers Judge acted on a wrong principle in failing to have regard to the entire period of delay, this Court should exercise afresh the discretion invested by the rule even though the misapplication of the rule had no substantive effect. Because the delay is satisfactorily explained and because any prejudice to the appellants can be attributed in a substantial part to their own inaction, the justice of the case does not support their claims. The respondents have shown that they should be exempted from the Rule's prima facie prohibition against their continuation of their action.

The appeal therefore should be dismissed with costs.

The facts germane to this appeal are set out by Derrington J, whose reasons I have had the advantage of reading. His Honour's discussion demonstrates that the prejudice the appellants have sustained through the delay is in large measure attributable to their omission, or that of their lawyers, to take appropriate steps in a timely way to preserve records and to obtain information.

The explanation offered in argument for the appellants' inactivity relates to a letter written in June 1992 notifying them that the respondents proposed to amend their pleadings. This, it is said, justified a decision to wait until the new case became apparent. Three things may be said about this submission. First, no one deposed to a causal connection between the foreshadowed amendments and the inactivity. Secondly, an inference that there was a relationship between the two is scarcely irresistible given the absence of relevant activity in the three months between the delivery of the second statement of claim and the letter. Thirdly, the letter did not suggest that the proposed "substantial" amendments might raise a case so radically departing from that then pleaded as would have led an ordinarily prudent solicitor to decide not to take the relatively inexpensive steps needed to preserve the files of Mr Waleila and, if it matters, to obtain information from Mr Mauriasi in the meantime. In short, the inactivity by the appellants which is the main cause of the risk to a fair trial posed by the delay and its consequences cannot be justified by a concern on their part to minimize costs or by a belief that the respondents might not press on with the litigation.

There was a satisfactory explanation for the delay. In all the circumstances, in my opinion, the respondents demonstrate that there is good reason for excepting these proceedings from the general prohibition imposed by O. 90 r.9. I therefore agree in the orders Derrington J proposes for the disposition of the appeal.