Kounnas v Citywide Civil Engineering Pty Ltd

Judgment 1BATHURST CJ: By summons filed on 28 June 2012 the applicant, Michael Jimmy Kounnas ("the applicant") sought leave to appeal against a decision of Judge Gibb of the District Court of New South Wales, refusing an application brought by him for security of costs in proceedings between the respondent, Citywide Civil Engineering Pty Ltd (in liquidation) ("the respondent") as plaintiff and the applicant as defendant. 2The claim made in the court below may be summarised as follows. The applicant was an employee of the respondent. The respondent claims that by an agreement between it and the applicant the applicant was entitled to order building supplies on the respondent's account and other building services from the respondent for his own personal use and for which the applicant would pay the respondent. The applicant apparently has raised two defences. First, he alleges that the goods and services provided to him were provided to him as part of his remuneration and the claim is, therefore, barred by s 120(2) of the Industrial Relations Act 1996. Second, he said the agreement involved the respondent doing residential building work without holding a license and to that extent the claim was barred by the Home Building Act 1989. 3On the application for security before the primary judge it was agreed that $50,000 was a fair and reasonable estimate of the likely costs of the applicant in the defence of the proceedings and also that if the respondent was unsuccessful in the proceedings it would be unable to pay these costs. Her Honour recorded that the company was insolvent, having liabilities in excess of $1.5 million and virtually no assets. The liquidator of the respondent noted that no other creditors nor the liquidators were prepared to underwrite the proceedings, a circumstance which her Honour described as hardly surprising, having regard to the limited return they would obtain even if the claim is successful. 4In considering the application, her Honour sought to apply the approach suggested by Beazley J, as her Honour then was, in K P Cable Investments v Meltglow (1995) 56 FCR 189 at 196-198, subsequently approved by this Court in Jazabas Pty Limited v Haddad [2007] NSWCA 291 at [2], [74]. Applying those principles, her Honour noted that the application was made in reasonably short time after service of the Statement of Claim, that the claim was prima facie regular on its face and disclosed a cause of action and, therefore, that in the absence of evidence to the contrary the Court should proceed on the basis that the claim was bona fide with a reasonable prospect of success. Her Honour noted that the respondent's impecuniosity was not caused by the applicant's conduct and that, if security was granted, the respondent would be unable to proceed with the litigation. However, in that context, her Honour referred to what was said by Meagher JA in Hession v Century 21 South Pacific Limited (1992) 28 NSWLR 120 approved in Green v CGU Insurance Ltd [2008] NSWCA 148; (2008) 67 ACSR 105 at [27] to the effect that proof of insolvency does not automatically confer an immunity from statutory provisions which deal with an insolvent plaintiff. 5Her Honour held that at the end of the day, a balancing exercise was required and that it seemed to her that, notwithstanding the risk of unfairness to the applicant, the appropriate course was not to stultify the proceedings by the ordering of security. 6The procedural history relating to the application before this Court is unfortunate to say the least. The primary judge delivered her judgment on 11 November 2011. A Notice of Intention to seek leave to appeal was served on the respondent on 15 December 2011, six days outside the time prescribed by Pt 51 r 8 of the Uniform Civil Procedure Rules 2005. A summons seeking leave to appeal was not filed until 17 July 2012, some six months out of time. The principal explanation for this is that a transcript was not available until 4 April 2012, which was provided to counsel on 19 April 2012. In oral submissions, senior counsel for the applicant pointed out that the judgment was not obtained until the same time. However there was no evidence as to the reason for the substantial delay in the preparation of the White Folder required by Pt 51 r 12 of the UCPR which occurred thereafter. Nor for that matter of why a summons could not have been filed, presumably taking advantage of the notes which must have been taken when the judgment of Judge Gibb was handed down. 7The matters to be taken into account in considering whether it is appropriate to grant an extension of time to file a summons for leave to appeal are well settled. The four factors of general relevance to such an application are the length of the delay, the reason for the delay, whether the applicant has a reasonably arguable case and the extent of any prejudice suffered by the respondent to the application. In the context of a summons for leave to appeal the fairly arguable case concerns the prospect of obtaining leave to appeal if the extension is granted: Tomko v Palasty (No.2) [2007] NSWCA 369; (2007) 71 NSWLR 61 at [55]; Nanschild v Pratt [2011] NSWCA 85 at [39]-[42]. 8In my opinion, having regard to the nature of the proposed appeal, the inadequately explained delay is sufficient of itself to deny the claim for an extension. It is well established that if applications for security are to be made, they should be made promptly. The same must apply to an application to appeal from a decision of the primary judge refusing to order security. Whilst it is true that no particular prejudice has been shown to have been caused by the delay, the length of such delay and the inadequate explanation of themselves provide a sufficient basis for refusing leave, particularly in the case of an interlocutory judgment on a matter of practice and procedure, such as the one in question. The time limits imposed by the rules are there to ensure expeditious disposal of appeals or applications for leave to appeal. They are not there to be ignored in the manner which has occurred in the present case. 9I should indicate also that, in my view, the applicant has not established a sufficiently arguable case that leave to appeal would be granted. In a case such as the present which involves no issue of principle or question of general public importance, the applicant at least would have to establish injustice, in the sense of going beyond it being reasonably arguable that the primary judge was in error: Carolan v AMF Bowling Pty Limited [1995] NSWCA 69; Zelden v Sewell [2011] NSWCA 56 at [22]; Jaycar Pty Limited v Lombardo [2011] NSWCA 284 at [46]; GKD v Director of Department of Family & Community Service [2012] NSWCA 219 at [10]. 10In the present case the judgment was a discretionary judgment and error in the House v The King sense would need to be demonstrated. The primary judge set out and purported to apply the correct principles. It is correct that she did not directly refer to cases which have held that an insolvent corporation cannot resist an order for security for costs merely by proving that it cannot fund the litigation from its own resources but must prove that it cannot do so even with reliance upon other resources available to it (from the company's shareholders or creditors): Bell Wholesale Co v Gates Export Corporation (1984) 2 FCR 1 at 4; Tradestock Pty Limited v TNT (Management) Pty Limited (No 2) (1977) 14 ALR 52 at 55; K P Cable Investments Pty Limited v Meltglow supra at 197; Green v CGU Insurance Ltd supra at [27]. However, it does not follow from these cases that security will automatically be ordered against an insolvent company if its shareholders or creditors are not prepared to indemnify it against the cost of litigation on reasonable grounds: Dae Boong International Co Pty Limited v Gray (2009) NSWCA 11 at [23]-[26]. Further, in reaching her decision the primary judge referred to Green v CGU Insurance supra at [27] where the principles derived from those cases was expressly referred to. In those circumstances, it is by no means clear she did not take them into account in the exercise of her discretion. Although her reasons do not clearly articulate this, they are in my opinion, sufficient to indicate that she at least took the matter into account. 11Finally, in considering the question of injustice, it must be remembered that the Court does have power to make an order for costs against the third party if the circumstances of the case warrant it: Knight v FP Special Assets Ltd [1992] HCA 28; (1992) 174 CLR 178 at [14]. If a court ultimately came to the view that the liquidator had no justification in bringing the proceedings in question, it may well be that such an order would be made. 12In these circumstances an application for extension of time should not be granted, the summons filed by the applicant dismissed and the applicant be ordered to pay the respondent's costs. 13ALLSOP P: I agree with the reasons of the Chief Justice. I would simply add the following. 14The lack of satisfactory explanation for the delay for me would be determinative. No explanation of the delay from April was made, that being the time when the transcript and judgment can be taken to have been delivered by the transcript service, but also the delay from November 2011 to April is said to be explained by the lack of transcript. The delay from time to time of transcripts is well known. That is not in any way a criticism of the transcript service. Lawyers, including solicitors, have a responsibility to take a proper note of proceedings. Such a note should have been taken and there is no evidence that it was not taken. If there is any confusion or lack of clarity about any aspect of the matter, the solicitors should consult with each other about a correct and accurate record to allow a prompt decision to be made as to whether or not to take a step under the Civil Procedure Act 2005. 15It is simply not satisfactory for cases to be held up in the District Court for ten months while everyone waits for an overburdened court reporting service to prepare transcripts and then take three months after their delivery. Practitioners are required to keep notes of the essentials of what occurs in Court. This includes, in particular, the terms of judgments and the elements of arguments put to judicial officers. 16Assuming that was done, there is simply no reason to conclude that the matter could not have been brought on timeously. If those notes were not taken, they should have been and there should be in those circumstances, no ground to complain about refusal of an application where delay on that ground has occurred. 17The delay of the applicant has held up a District Court case for ten months on what we were told today. That alone is prejudice for me to warrant the refusal of the application.