Plaintiffs v Defendants

Supreme Court of Victoria|2007-06-20|Before: HARGRAVE J

PRACTICE AND PROCEDURE - self-executing order - non-compliance - defence struck out - application to set aside self-executing order - whether compliance had been established - relevant discretionary factors on hearing of application - Supreme Court (General Civil Procedure) Rules 2005, Rule 24.06(a).

1. By 4.00 pm on 2 March 2007, the First Defendant file and serve an affidavit which:

a) Lists and reconciles all the payments from the credits to the relevant bank and loan accounts the subject of the claims in the proceeding in relation to:

i) The acquisition or development of the property known as Lot 1, 41 Murrumbeena Road, Murrumbeena being the land more particularly described in Certificate of Title Volume 10589 Folio 916;

ii) The GST refund; and

iii) Payments made from the account ledger in the name of the Lamana Group Pty Ltd kept by Russo Pellicano Carlei on about 5 June 2003 from Maria Gadzhis as sole director and secretary of the Lamana Group Pty Ltd to George Gadzhis;

b) Lists and reconciles all the borrowings made or secured against the Murrumbeena land the subject of the claims and defences in the proceeding;

c) Lists whatever supporting documents or other documents recording or relating to the matters referred to in paragraph 1(a) and (b) of these orders that are or were in the possession or control of the First Defendant.

11 Mr Gadzhis did not comply with the 9 February order. In an affidavit sworn by his solicitor, Mr McNab, on 2 March 2007, he sought an extension of time until 15 March 2007 to comply with the order. Various reasons were given for non-compliance, including the unavailability of Mr Gadzhis' accountant to perform the task, late provision of documents by Mr Gadzhis to his solicitor and the inability to obtain relevant documents from a financier.

12 Notwithstanding the estimate by Mr McNab that the 9 February order could be complied with by 15 March 2007, it was not complied with by that time. This prompted the plaintiff to issue a summons seeking a self-executing order, to the effect that unless Mr Gadzhis complied with of the 9 February order his defence be struck out. This application was returnable on 16 March 2007. On that day, I ordered that Mr Gadzhis file and serve an affidavit giving a detailed estimate as to when he could comply with the 9 February order, and gave him leave to issue a subpoena to the financier from whom he was having difficulty in obtaining documents. The further hearing of the application for a self-executing order was adjourned until 23 March 2007.

13 Next, Mr McNab swore an affidavit in which he said that, based on advice from Mr Gadzhis' accountant, three weeks were required to comply with paragraph 1 of the 9 February order.

14 On 23 March 2007, I made the self-executing order which is the cause of the dispute which I must determine on this application ("the self-executing order"). Paragraph 1 of the self-executing order is in similar, but not identical, terms to paragraph 1 of the 9 February order. The amendments were agreed between counsel, after I raised the possibility that there was some ambiguity in the 9 February order.

15 Relevantly, the self-executing order provides:

1. By 4.00 pm on 23 April 2007, the First Defendant file and serve an affidavit which:

a) Lists and reconciles all the payments from the credits to the relevant bank and loan accounts the subject of the claims in the proceeding in relation to:

i) The acquisition or development of the property known as Lot 1, 41 Murrumbeena Road, Murrumbeena being the land more particularly described in Certificate of Title Volume 10589 Folio 916;

ii) The GST refund referred to in paragraphs 68 to 70 of the Amended Statement of Claim; and

iii) Payments of moneys made from the account ledger in the name of the Lamana Group Pty Ltd kept by Russo Pellicano Carlei on about 5 June 2003, which are the subject of the allegations in paragraphs 30, 32 and 34 of the Amended Statement of Claim;

b) Lists and reconciles all the borrowings made or secured against the Murrumbeena land the subject of the claims and defences in the proceeding;

c) Lists whatever supporting documents or other documents recording or relating to the matters referred to in paragraph 1(a) and (b) of these orders that are or were in the possession or control of the First Defendant.

...

3. In default of the First Defendant complying with paragraph 1 of this order the Defence of the First Defendant be struck out and the First Defendant be placed in the same position as if he had not defended the proceeding.

5. Liberty is reserved to the First Defendant to apply in relation to paragraphs 1, 2 and 3 of this order.

16 The time fixed for compliance with paragraph 1 of the self-executing order was generous. It allowed a full month for Mr Gadzhis to comply. Further, liberty to apply was reserved to ensure that, if Mr Gadzhis was having difficulty in complying, he could approach the Court for an extension or variation of the order, in order to avoid his defence being automatically struck out if he did not comply within time.

17 Mr Gadzhis waited until the last day to attempt to comply with the self-executing order. On 23 April 2007 he swore an affidavit which purported to comply with paragraph 1(a) of the self-executing order. No attempt was made to comply with paragraphs 1(b) or 1(c) of the order. Accordingly, by force of paragraph 3 of the self-executing order, the defence of Mr Gadzhis was automatically struck out.

18 At the next directions hearing on 4 May 2007, counsel for Mr Gadzhis informed the Court that there had been a misunderstanding and that Mr Gadzhis' solicitor, Mr McNab, had understood that paragraphs 1(b) and 1(c) were not included in the self-executing order. This explanation was not supported by any evidence.

19 In all the circumstances, on 4 May 2007 I extended the time for compliance with paragraph 1 of the self-executing order until 4pm on 14 May 2007 and ordered that each of Mr Gadzhis and his solicitor, Mr McNab, file an affidavit explaining the non-compliance by Mr Gadzhis with paragraphs 1(b) and 1(c) of the self-executing order. Since that time, Mr McNab and Mr Gadzhis have filed affidavits explaining the misunderstanding. Initially, these affidavits were unsatisfactory. Further affidavits, in particular that sworn by Mr McNab on 30 May, have satisfied me that there was a genuine mistake as to the terms of the self-executing order, albeit one caused by inattention to detail amounting to incompetence. However, I am satisfied that the non-compliance with paragraphs 1(b) and 1(c) of the self-executing order was not deliberate.

20 At a hearing on 18 May, I made the following orders:

1. The Plaintiffs file and serve any summons seeking leave to enter judgment against the First Defendant, such summons to specify the form of judgment sought, by 4.00pm on 25 May 2007.

2. The First Defendant file and serve any summons seeking relief pursuant to rule 24.06 of Chapter I of the Supreme Court (General Civil Procedure) Rules 2005, and any further affidavit to be relied upon in support of that summons, by 4.00pm on 30 May 2007.

21 The plaintiffs did not file and serve any summons pursuant to these orders. It is apparent that they intended to wait and see whether Mr Gadzhis made any application for relief under Rule 24.06 and, if so, await the outcome of that application before determining their course of action.

22 On 30 May, Mr Gadzhis filed a summons seeking orders under Rule 24.06(a) extending the time by which Mr Gadzhis could comply with paragraph 1 of the self-executing orders until 1 June and, to the extent necessary, an order setting aside paragraph 3 of the self-executing orders. The form of the summons issued on behalf of Mr Gadzhis was criticised by counsel for the plaintiffs. However, it is plain enough that Mr Gadzhis was seeking that the Court exercise its discretion to relieve him of the non-compliance with paragraph 1 of the self-executing order, either by varying the terms of that order or by setting the self-executing order aside altogether. There is no question that Rule 24.06(a) gives the Court power to do either or both of these things.

23 Mr Gadzhis also swore an affidavit on 30 May 2007. He exhibited, as exhibit "GG-7", a number of documents which he swore contained a list and reconciliation in compliance with paragraphs 1(a), 1(b) and 1(c) of the self-executing order. The documents annexed to the affidavit were prepared by an accountant.

24 The application to vary or set aside the self-executing order was initially returnable on 1 June 2007. At that time, it was adjourned until 13 June 2007 for hearing on that day.

25 For the purposes of the hearing on 1 June 2007, counsel for the plaintiffs filed an outline of submissions. In that outline, counsel for the plaintiffs submitted that the documents exhibited to Mr Gadzhis' affidavit of 30 May 2007, as Exhibit GG7, did not comply with paragraph 1 of the self-executing order.

26 On 8 June 2007, Mr Gadzhis swore a further affidavit. I infer that this affidavit was filed as a result of the detailed submissions filed by counsel for the plaintiffs on 1 June 2007 in which it was submitted that the documents exhibited to the 30 May 2007 affidavit did not comply with paragraph 1 of the self-executing order. Mr Gadzhis exhibited, as "GG-8", a revised set of documents which he swore contained a revised list and reconciliation in compliance with paragraphs 1(a), 1(b) and 1(c) of the self-executing order. These documents were prepared by new accountants, and included a letter dated 6 June 2007 from those accountants, in which the view was expressed that they believed the documents complied with the self-executing order. No affidavit was sworn by the accountant who prepared the letter or the accompanying documents.

II. APPLICABLE LAW

27 The terms of a self-executing order must be clear and unambiguous. The party against whom the order is made should know precisely what must be done in order to comply and avoid the automatic operation of the order. The terms of a self-executing order should not invite debate about whether or not the party required to comply, in order to avoid automatic operation of the order, has in fact complied.[1]

28 Order 24 makes specific provision for the Court to dismiss a proceeding for want of prosecution or to order that a proceeding be dismissed, or a defence struck out, for failure to comply with an order for particulars, discovery, inspection or answers to interrogatories. Further, Rule 24.05 expressly preserves the inherent power of the Court in this regard. In particular, the inherent power of the Court to make a self-executing order is preserved.

29 Rule 24.06 gives the Court power to set aside or vary, without the necessity for any appeal, any order made under Order 24 or under the inherent power of the Court as referred to in Rule 24.05. Rule 24.06 provides:

24.06 Setting aside judgment

The Court may set aside or vary -

(a) an order under this Order or an order referred to in Rule 24.05;

(b) a judgment entered or given upon the failure of a party to do any act or take any step which under these rules the party is required to do or take or to comply with an order that the party do any such act or take any such step.

30 Prior to the existence of Rule 24.06, where a claim was dismissed, or a defence was struck out, by reason of the operation of a self-executing order, an appeal was necessary.[2] On the hearing of the appeal, the appeal court had a wide discretion to set aside or vary the self-executing order if injustice flowed from the operation of that order.[3]

31 In Composite Buyers v JC Taylor Constructions[4] Lush J summarised the approach of an appeal court to the exercise of the power to set aside or vary a self-executing order in the following terms:

an appeal against an order may succeed if it is shown that the order in the result had operated to deprive a party unjustly of his right to a trial of the issues in the action even though no fault was to be found in the making of the order at the time when it was made.

To succeed in an appeal upon this ground the would-be appellant must show that supervening events have caused the order to which he was subject to operate in a manner which has turned out to be unjust. It will in most cases be a matter of degree to determine whether the existence of the suggested supervening injustice is such as to justify the interference of an appellate court.

32 In Composite Buyers, Lush J referred to the need to balance any prejudice to the party benefiting from the operation of the self-executing order against the prejudice to the party adversely affected. In that case, each of two defendants served a third party notice upon a third party. It was not suggested that either of the two defendants who gave the third party notices was prejudiced by the default which had led to the self-executing order taking effect. Lush J concluded in this regard:

My view of the situation is that no prejudice having been shown, and despite the fact that aspects of the third party's conduct of its case were such as to merit a disciplinary order from the learned judge, the balance of this application is in the third party's favour.[5]

33 Later, Lush J referred to the particular risk of injustice to the third party and concluded that this risk was one which "in the absence of prejudice to the defendants, outweighs the faults and errors of the third party and the solicitors."[6]

34 Rule 24.06 gives the Court, without the necessity of an appeal, the same power to set aside or vary a self-executing order as that which was previously only exercisable on appeal. Accordingly, the principles upon which appeal courts acted provide a useful guide to the exercise of the discretion under Rule 24.06. In particular, the Court in exercising its discretion under Rule 24.06 must balance the prejudice to the party adversely affected by the operation of the self-executing order against any prejudice to be suffered by the opposite party if the self-executing order is set aside or varied.

35 Ordinarily, a party who is in default under a self-executing order cannot expect to have the discretion under Rule 24.06 exercised in the party's favour unless, at the time of the application to set aside or vary the self-executing order, the party has complied with the terms of the order. In this case, the plaintiffs contend that Mr Gadzhis has not, even now, complied with paragraph 1 of the self-executing order. In an endeavour to establish this, detailed written submissions were filed and supplemented by detailed oral argument. The effect of the submissions was that Mr Gadzhis was wrong to swear that the documents exhibited to his affidavits on 30 May 2007 and 8 June 2007 complied with paragraph 1 of the self-executing order. The argument involved a detailed examination of the exhibited documents, the discovered documents referred to in those exhibits and other documents. It was submitted that there were gaps and inaccuracies in the information which Mr Gadzhis has belatedly provided.

36 In Freeman v Rabinov,[7] the self-executing order required the plaintiff to file and serve a supplementary affidavit of documents within a prescribed time. In default of compliance, it was ordered that the plaintiff's claim be dismissed and his defence to counterclaim be struck out. A supplementary affidavit of documents was filed within the prescribed time, but the defendant contended that the affidavit was insufficient because it contained two defects. The first of these defects was as to the required form of the affidavit. It was held that this was fatal to the sufficiency of the affidavit, and that the self-executing order had therefore operated according to its terms. The second defect was the failure in the supplementary affidavit of documents to properly describe some lost cheque butts. Lush J found that this defect in the supplementary affidavit of documents did not make it insufficient to comply with the self executing order. Accordingly, if this had been the only defect, the self-executing order would not have operated to automatically dismiss the plaintiffs' claim and defence to counterclaim. Lush J reached this conclusion in the following terms:

The rule applicable to cases of this kind may be deduced from Republic of Liberia v. Rove (1876), 1 App.Cas. 139 H.L. and Reiss v. Woolf, [1952] 2 Q.B. 557; [1952] 2 All E.R. 803. In the former case the Republic, the plaintiff in the action, was ordered to file a full and sufficient affidavit of discovery, to be made by one or more of its officers or ministers. Enlargements of time were ordered, the last of which fixed a date and directed that in default the action should stand dismissed. An affidavit sworn by the Republic's Consul General in London was filed. It seems to have been treated as evident, at ([1952] 2 Q.B.) p.146, that there were many documents omitted from the affidavit. Lord Hatherley, at pp. 145-6, said: "If a defendant, simpliciter, one of the persons directly concerned, is asked to make an affidavit as to the state of the documents in his possession, then, whatever be the state of the documents within his own knowledge, he is answerable, upon his oath, to state what he knows upon that subject, and when he swears that there were such and such documents and no others, that oath is all that the person asking the discovery of documents is entitled to."

The House of Lords held, however, that the order had not been complied with by filing an affidavit by an officer in England who could have no knowledge of affairs in Liberia.

In Reiss v. Woolf, supra, at p.559, a case concerning a self-executing order for further particulars, the particulars ordered having been delivered in time but, in some cases, in the form that the party was unable to give further particulars until discovery, Somervell, L.J., with the concurrence of the other members of the Court of Appeal, quoted and adopted the following passage from the judgment of Devlin, J. then under appeal: "If 'default' means default in the sufficiency of one or more of the answers I should not consider that the event was defined with precision; whether or not it had taken place might be the subject of a genuine conflict of opinion which could only be resolved by further adjudication. If I thought this to be the right construction of the order I should follow Abalian v. Innous, [1936] 2 All E.R. 834 and treat it as inoperative. The order can conform with the principle in that case only if it is treated as an order that is dealing with the time of compliance rather than with the mode of compliance. The order does fix a time very precisely, and I think it can and should fairly be construed as a time order. So construed, 'default' refers to default in the delivery of a document within the specified time. I do not, of course, mean that any document with writing on it will do. It must be a document made in good faith and which can fairly be entitled 'particulars'. It must not be illusory; that is the word used by Mr. Bankes in argument in Davey v. Bentinck, [1893] 1 Q.B. 185 at 186. That is the test, in my judgment, and not, as the plaintiff contends, whether each demand for particulars has been substantially met. Applying that test, I think there has been no default.

From these authorities it emerges that what was required to comply with the relevant part of the order of 28 February 1980 was an affidavit of documents sworn by the plaintiff in proper form. The affidavit delivered was not such an affidavit because of the lack of a proper final paragraph, a lack which cannot be made good by implication or by arguments of construction.

The form of description of the cheque butts should, in my opinion, be treated as a defect in content and not in form. As Lord Devlin indicated, if an affidavit proper in form was shown to be in point of content perjured or illusory or for any reason a sham, it would be treated as insufficient, as in the Liberia Case, supra, but the defect in relation to the cheque butts does not come within this class.[8]

37 I accept that the law on this subject is correctly stated by Lush J and will apply it.

38 Of course, where the document provided in response to a self-executing order complies in form but contains some defects of substance, the Court retains the power to make further orders for the supply of the information necessary to correct the inadequacy of the document which has been provided.[9]

39 In summary, the cases establish the following propositions. First, the terms of a self-executing order should state with precision the act to be done in order to comply with the order. Second, where the act specified in the self-executing order involves the provision of information within a specified time, a document filed within that time and which constitutes a good faith attempt to provide that information will comply with the order. Third, where the self-executing order has been complied with but the information supplied is in fact deficient in some way, the Court retains the power to make further orders for the supply of the information. Fourth, where a self-executing order has not been complied with, the Court will vary or set aside the self-executing order where, in all the circumstances, it would be unjust to deprive the party adversely affected of the right to a trial on the merits of the proceeding.

III. EXERCISE OF DISCRETION

40 It was submitted on behalf of the plaintiffs that the information exhibited to the affidavits sworn by Mr Gadzhis did not satisfy the "threshold issue" of establishing compliance with paragraph 1 of the self-executing order. By this submission, the plaintiffs' counsel should be taken to have submitted that Mr Gadzhis' defence would have been automatically struck out even if his recent affidavits, and supporting documentation, had been filed within the time specified in the self-executing order. I do not accept this submission. In my view, having regard to the nature of the self-executing order, it should be construed as a "time order", in the sense discussed in Reiss v Woolf,[10] which discussion was approved by Lush J in the above quoted passage from Freeman v Rabinov.[11] If the self-executing order were to be construed as requiring an affidavit which in both form and substance sets out a full and complete list and reconciliation of the matters stated, it would contain within it the seeds of "a genuine conflict of opinion which could only be resolved by further adjudication."[12] Accordingly, an affidavit made in good faith which can fairly be described as a list and reconciliation as ordered, will comply with the self-executing order.

41 I accept that there are material respects in which the lists and reconciliations provided by Mr Gadzhis are incomplete and contain conflicting information. However, on balance, I find that the affidavits and supporting documentation constitute a good faith attempt to list and reconcile the relevant information and documents. In reaching this conclusion, I have given consideration to the likely causes of the delay and inability of Mr Gadzhis to provide all of the information which he was ordered to provide. Based on the evidence as a whole, I infer that the delay and inability has most likely been caused by incompetence on the part of his lawyers, and poor record keeping, and not by a deliberate attempt to withhold information from the plaintiffs and the Court. Accordingly, I will approach the exercise of my discretion on this basis.

42 In my view, the discretion should be exercised favourably to Mr Gadzhis. The prejudice to him of allowing the self-executing order to stand, with the effect that his defence will remain struck out and he will be deprived of the opportunity to defend himself at a trial, is obvious and substantial. On the other hand, the documents exhibited to Mr Gadzhis' affidavits have provided the plaintiffs with a great deal of the information which the self-executing orders were designed to elicit. Further, the Court retains the power, which will be exercised, to order that the balance of the information be provided. In these circumstances, it would be unjust if Mr Gadzhis was deprived of an opportunity to present his case at trial.

43 In reaching my conclusion, I have also taken into account the fact that Mr Gadzhis is not the only defendant. Russo Pellicano Carlei, the firm which received the $250,000, has also been joined as a defendant. Further, Lamana Group Pty Ltd, which received the $250,000 from Russo Pellicano Carlei at the direction of Mr Gadzhis, has been joined as a defendant. These defendants have been deprived of the opportunity of a trial of the issues in the proceeding whilst the disputes concerning the self-executing order have occupied the Court and the parties. It is unfair to them to have serious allegations hanging over their heads for any longer period. If the self-executing order were to stand, and Mr Gadzhis' defence to remain struck out, there will probably be considerable further delay in fixing this matter for trial. This may result from further applications by Mr Gadzhis to set aside the self-executing order, or from an appeal brought by him against the making of the self-executing order or the refusal to set it aside.

44 In all the circumstances, I will exercise my discretion to set aside the self-executing order. However, as I have said, I will order that Mr Gadzhis provide the material information which appears to be lacking from the lists and reconciliations exhibited to his affidavits. In the meantime, I will make directions designed to ensure that this proceeding can be fixed for trial at the earliest available opportunity.

[1] Williams Civil Procedure Victoria, [I 24.02.35]; Reiss v Woolf [1952] 2 QB 557, 559; Broers v Foster [1981] FCA 111; (1981) 36 ALR 605, 612-14; Freeman v Rabinov [1981] VicRp 52; [1981] VR 539, 545; Household Finance Services Ltd v Braybrook [1991] VicRp 95; [1991] 2 VR 577, 584.

[2] Freeman v Rabinov [1981] VicRp 52; [1981] VR 539.

[3] Ibid, 548-50.

[4] [1983] VicRp 91; [1983] 2 VR 311.

[5] Ibid, 316.

[6] Ibid.

[7] [1981] VicRp 52; [1981] VR 539.

[8] Ibid, 545-6. See also Broers v Forster [1981] FCA 111; (1981) 36 ALR 605, 612-8.

[9] Broers v Forster [1981] FCA 111; (1981) 36 ALR 605, 614.

[10] [1952] 2 QB 557, 559.

[11] [1981] VicRp 52; [1981] VR 539, 545-6.

[12] Reiss v Woolf [1952] 2 QB 557, 559.

Court (General Civil Procedure) Rules 2005

At a glance

Court

Decision date

Before

Source

Judgment (22 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (1)