Olympic Airways SA v Nelson Wheeler Arnold and Mann Judd Associates P/L & Ors [1998] VSCA 28

5. By third party notice dated 5 June 1996, NWA joined as a third party Mann Judd Associates Pty Ltd ("MJA"). NWA alleges that on about 25 June 1992, Olympic retained MJA to undertake a business evaluation of CTG. It alleges that pursuant to that retainer MJA on or about 30 June, or alternatively 6 July 1992, provided a written business evaluation report ("the Mann Judd report") to Olympic. The Mann Judd report is alleged to have contained various negligent representations as to CTG and its affairs, made in breach of a duty of care owed to Olympic and as misleading and deceptive conduct, and, further, MJA is alleged to have failed to advise of inaccuracies in other representations made by one Alysandratos of CTG to Olympic relating to CTG and contained in the NWA report. NWA alleges that in deciding to purchase the shareholding in CTG, Olympic relied upon the Mann Judd representations and the failure of MJA to advise of inaccuracies in the Alysandratos representations. NWA claims that if Olympic has suffered any loss by purchasing the shareholding, that loss was caused by the negligence or misleading and deceptive conduct of MJA. It thus alleges that MJA is liable to Olympic and, hence, NWA is entitled to contribution from MJA pursuant to Part IV of the Wrongs Act 1958.

8. Olympic has commenced two other proceedings relating to losses alleged to have been sustained by purchasing the shareholding of CTG. In these proceedings Olympic sued Alysandratos and Consolidated Travel (Vic.) Pty Ltd as defendants. NWA has been joined by those defendants as a third party in these proceedings. On 24 November 1997 Master Kings ordered that all three proceedings be tried together and that evidence in one be evidence in all the other proceedings.

11. On 7 August 1998 MJA applied on summons before a judge of this court for summary judgment against NWA on NWA's third party claim in the proceedings, and on 11 August his Honour allowed the application and ordered that judgment be entered for MJA against NWA and that NWA pay MJA's costs of the third party claim. NWA now seeks leave to appeal against this judgment and order.

14. The order dismissing NWA's third party notice as vexatious or an abuse of process is interlocutory in nature and accordingly leave to appeal is required; Wickstead v. Browne (1992) 30 N.S.W.L.R. 1, at 11 per Handley and Cripps, JJ.A., Little v. State of Victoria (unreported, Court of Appeal, 30 June 1998), per Callaway, J.A. at 6-9. See also Border Auto Wreckers (Wodonga) Pty Ltd v. Strathdee [1996] VSC 55; [1997] 2 V.R. 49. Accordingly the applicant must establish that the order was wrong or attended with sufficient doubt to justify leave, and that substantial injustice would be done by leaving the decision unreversed; Niemann v. Electronic Industries Ltd. [1978] VicRp 44; [1978] V.R. 431. The nature and effect of the order will, however, have a bearing on the issue whether substantial injustice would follow if the order was left undisturbed; Niemann at 439. The order here had the effect of terminating NWA's action against MJA. In any case, because of the urgency of the application (the trial of the three actions is expected to commence in October), the application was referred into court to be heard at the same time as the appeal itself, if leave should be granted.

17. The onus in such an application lay on MJA to show that it has a good defence to the action; Wickstead v. Browne, at 11. MJA was obliged to establish that NWA's case against it was "absolutely hopeless"; Dey v. Victorian Railways Commissioners [1949] HCA 1; (1949) 78 C.L.R. 62, at 90 per Dixon, J. It is clear that such an application on affidavits should not succeed where important facts are in dispute; Wilson v. Union Insurance Co. [1992] NTSC 107; (1992) 112 F.L.R. 166, at 181; or are not available to one or both of the parties; P.J. Constructions (Vic.) Pty Ltd v. Myko Pty Ltd & Ors. (unreported, Full Court of Victoria, 29 October 1981) per Starke, J. at 14.

20. At the hearing of the application, counsel for MJA submitted that the evidence did establish that MJA had a good defence to the third party claim. In essence the submission was that the final decision by Olympic to purchase the CTG shareholding was made by resolution of its board held in Athens on 29 June 1992 and that the deed of purchase was executed on or about 30 June 1992. MJA's submission was that the evidence showed that at no time was the Mann Judd report before the Olympic board. Counsel for NWA submitted in response that even if this evidence were admitted, the documentary evidence before the court showed that six copies of the Mann Judd report had been provided by MJA to Alysandratos (of CTG) on 30 June 1992, and that he was to fly that day to Athens with the report. The evidence further showed that Alysandratos provided copies of the report to one Grammatikos, the managing director of Olympic, who had been invested by the Board of Olympic with a very wide authority to take all necessary steps in respect of the dealings with CTG. NWA's submission was that the question of reliance should be considered at all times until the time when Olympic became contractually bound to purchase the shares, that date not being known at the time the application was heard by the learned judge. NWA submitted that had the Mann Judd report been negative, Grammatikos may well have taken steps to ensure that Olympic did not act upon its resolution of 29 June 1992, and that it did not become contractually bound to purchase the shares. NWA submitted that evidence of all relevant events in Athens was not then available to the Court, and that such evidence should be explored and tested at trial before the judge could come to the conclusion that NWA's case was hopeless.

23. In rejecting NWA's submissions, the learned judge, in his reasons for judgment, said that -

"The likelihood that the board of Olympic, in making its decision of 29 June, relied on a report dated 30 June is very small indeed and relies entirely on the difference between Athenian time and Melbourne time. Even on the most favourable view, however, the chance that the board had any opportunity to properly consider the Mann Judd report before its decision was made is negligible."

His Honour went on to note that there was no material at that stage to the effect that any member of the then board of Olympic had seen, let alone relied on, the Mann Judd report before the decision to execute the deed of sale and purchase was made, and then dealt with a submission of NWA that the position might change at trial. His Honour took the view that the likelihood of any admission being made by a relevant witness to the effect that the Olympic board did indeed rely on the Mann Judd report was unlikely in the extreme. His Honour then considered a submission by NWA that if Mann Judd had, before the execution of the deed of sale and purchase, informed Olympic of the true financial position of CTG then the Olympic board would have changed its decision of 29 June and declined to proceed with the transaction the following day. His Honour said that that submission involved the five following propositions -

"1. That Mann Judd had a duty to formulate correct conclusions about the financial position of CTG within a maximum of five days. 2. That Mann Judd then had a duty to transmit these conclusions to a representative of Olympic within that time. 3. That the conclusions would have led to advice to the effect that the deed of sale and purchase not be executed. 4. That that advice would have been transmitted through the initial recipient to the board. 5. That the board would have acted upon that advice, rescinded its decision to execute the deed and refused to bind itself to the relevant transaction."

29. The learned judge took the view that none of these propositions was pleaded by NWA and that in any event these propositions faced the difficulty that Grammatikos, who had asked MJA to prepare the report, had allowed eight to nine days for the completion of the task entrusted to MJA, and accordingly that MJA had until 3 July or the following day before the receipt of the report was due. Accordingly his Honour took the view that everything pointed to the practical impossibility of NWA being able to establish the facts (presumably reliance by Olympic) without proof of which its claim against MJA could not be made out.

"It is ... clear that in these days where there is a very proper concern for the expeditious and, as far as possible, economical disposition of litigation, the court not hesitate in a proper case to ensure that parties are not unjustly required to participate in a continuation of a litigious process which is demonstrably without foundation. It seems to me that those conditions obtain here."

36. In this Court issue was raised as to the admissibility of much of the evidence relied on by MJA before the learned judge, including various documents which have been produced in the related proceedings and affidavits made and answers to interrogatories sworn by Olympic and various of its directors. I do not think that it is necessary in this appeal to determine whether this material was properly received by his Honour, although I should say that in the consideration of an application for summary judgment I should have given little or no weight to some of the material (such as answers to interrogatories) relied on by MJA, save where that material could properly be used as an admission against interest.

39. The learned judge was evidently concerned to prevent MJA being forced to continue as a party to very complicated and expensive proceedings (in which, as I understand it, the parties will be required to visit Greece for part of the hearing), in circumstances where the case against MJA was "demonstrably without foundation". He said that in that situation the third party (MJA) might well be forced to settle, not on the basis of a true compromise, but because it would be economically less disadvantageous to pay something to the relevant defendant (NWA) than to remain in the action to recover at the trial's end costs less than it was required to spend to defend the proceedings. I have considerable sympathy with these views which, a reading of the transcript of argument shows, were also based on his Honour's understandable concern for the most efficient and least expensive method of resolution of the three actions which have resulted from Olympic's purchase of the CTG shareholding.

42. Nevertheless, in my view his Honour was, with great respect, in error in granting MJA's application. Since the action will proceed shortly to trial, it is desirable that I say as little about the facts of the case as is consistent with an adequate explanation of why I think the appeal should succeed.

45. The case made by NWA on the application was that MJA had been asked by Grammatikos on 25 June 1992 to perform an audit and evaluation of the business of CTG within eight or nine days, Grammatikos having been given by the Olympic board on 11 June complete authority to do all things necessary to negotiate and conclude the purchase of the CTG shares. NWA's report had been received by Olympic on or about 30 May and distributed to members of the board prior to the 11 June board meeting. Heads of agreement were then signed between Olympic and CTG on 12 June. On 22 June, however, Arthur Anderson & Co sent to Olympic's solicitors a review of the NWA report in which the validity of the methodology used by NWA was questioned. Arthur Anderson on 23 June proposed that further work should be done in relation to CTG, a matter which may have led Grammatikos to request MJA on 25 June to perform the audit and evaluation on the business of CTG. The affidavits of Georgio Kasimis, and Stavros Psycharis (two members of the board of Olympic at the time) both contain assertions to the effect that had they been aware of the Arthur Anderson criticisms of the NWA report, they would not (as at 30 June 1992) have agreed to the proposed purchase proceeding.

48. MJA was indeed given eight or nine days by Grammatikos to perform its audit of the business of CTG, but its first report was in fact provided after only some four days, by delivery on 30 June to Alysandratos of CTG. It is not known when the report reached Grammatikos, or, for that matter, Athens. MJA's counsel relied on the fact that on 29 June, Olympic's board resolved to confirm its "in principle" decision of 11 June to purchase the CTG shareholding, that the only evidence before the judge was consistently to the effect that MJA's report was not handed to Alysandratos until 30 June, and that there was no material to the effect that any member of the board had seen, let alone relied on, the Mann Judd report before the decision to execute the deed was made; rather, it was the positive evidence of Olympic that its board did not rely on the Mann Judd report prior to the execution of the formal deed to acquire the 50 percent interest in CTG. Furthermore it was submitted that since the board neither relied on nor was induced by the Mann Judd report when it resolved to purchase the shareholding in CTG, whatever knowledge Grammatikos may have had of the Mann Judd report remained irrelevant to the issue of reliance since it was not communicated to the board prior to the execution of the deed.

51. The learned judge's decision is, it seems to me, very largely based on the view that since the Olympic board decided on 29 June to approve and confirm its decision of 11 June to accept the CTG proposal and execute all relevant contracts, and since the deed of sale and purchase of shares were, according to answers to interrogatories, executed on 30 June, it was in effect impossible for NWA to make out a case of reliance by the Olympic board on the Mann Judd report, particularly since the report was not received by Alysandratos in Australia until 30 June. For myself, putting to one side the procedural arguments as to the evidence upon which these conclusions were based, I should not be prepared to draw the conclusion for which MJA contends upon the basis of affidavits or answers to interrogatories at this stage of proceedings. This material remains to be tested by cross-examination at trial. The facts in dispute, and which, in my view, remain on the pleadings for the parties to establish or disprove, include -

1. when the decision of the Olympic board to proceed with the agreement, made on 29 June, was communicated to CTG; 2. when the deed for the sale and purchase of shares, executed by the Olympic board on 30 June, was exchanged with CTG or its solicitors; 3. whether by the time of either of the events referred to in 1 or 2 above, Grammatikos had received the MJA report, and/or communicated its contents to any other Olympic director; 4. whether MJA, knowing of the contents of the NWA report and the representations made by Alysandratos to Olympic, and knowing that a purchase by Olympic of a shareholding in CTG on the basis of the NWA report and these representations was imminent, should have discovered that the NWA report was faulty and/or that the Alysandratos representations were false, and have communicated these facts to Grammatikos or the Olympic board, or otherwise warned Olympic of the dangers of acting on the NWA report or the Alysandratos representations; 5. whether if MJA had done so, by telephone or fax to Grammatikos or to any other member of the Olympic board, before or after the actions of Olympic on 29 or 30 June, the likely result of such a warning would have been the postponement of the completion of the agreement for the purchase by Olympic of the CTG shareholding.

55. Such a case is, I think, at least open on the pleadings, and not clearly contradicted by the facts properly available at the hearing of the application. It would, in my view, be wrong to shut out NWA from the opportunity of making a case of this nature, at this stage of the proceedings. I do not agree, with respect, with the learned judge's conclusion that such a case is not open on the pleadings as they stand. The potential injustice to MJA of being required to remain party to these proceedings until their conclusion, at a cost greater than would ordinarily be recovered, might well be met by an appropriate costs order. NWA has been warned that its case is arguably very thin. If at the end of the trial the NWA case is shown to be no stronger, and therefore as speculative as MJA have always claimed, there would be a considerable argument for an award in MJA's favour of solicitor-client costs, all other things being equal.

58. Since in my view the order dismissing NWA's claim against MJA was made in error, this is an appropriate case for granting leave to appeal. The appeal should, in my view, accordingly be allowed with costs, the order below set aside, and in lieu thereof, MJA's summons of 7 August should be dismissed with costs.

73. The order of the Court will be in accordance with these minutes.

3. Respondent to pay applicant's costs of application.

2. Order below set aside.3. In lieu thereof, application by summons filed on 17 July 1998, as amended on 7 August 1998, dismissed with costs.