FEDERAL COURT OF AUSTRALIA

Shepherd v Watt [2022] FCAFC 78

ORDERS

THE COURT ORDERS THAT:

1.    The applicants have leave to appeal from the judgment given on 20 May 2021 and the orders 1 to 4 made by his Honour on 20 May 2021.

2.    The draft notice of appeal (other than grounds 2, 3, 5 and 6) filed on 7 June 2021 stand as the appellants’ notice of appeal.

3.    The appeal be allowed.

4.    The following orders and declarations made by the primary judge be set aside:

(a)    orders 1 to 4 made on 20 May 2021;

(b)    the declarations and orders made on 23 July 2021; and

(c)    the declaration and orders made on 13 December 2021.

5.    The matter be referred to the National Operations Registrar for reallocation to a judge in the Commercial and Corporations National Practice Area.

6.    The respondents pay the appellants’ costs of and incidental to the application for leave to appeal and the appeal.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

INTRODUCTION

1    These reasons concern an application for leave to appeal and an appeal from orders of a judge of this Court made on 20 May 2021, giving effect to ex tempore reasons given on that date and subsequently published on 27 May 2021: Watt v Shepherd [2021] FCA 561.

2    The proceedings before the primary judge concerned a franchising dispute between the applicants and cross respondents in the primary proceedings (Watt parties), as franchisees, and the respondents and cross-claimants in the primary proceedings (Shepherd parties), as franchisors.

3    The orders made by the primary judge on 20 May 2021 relevantly included orders: dismissing an application made by the Shepherd parties filed on 14 May 2021; seeking leave to file an amended cross-claim and to extend the time for them to file their evidence; requiring the Shepherd parties to pay the Watt parties’ costs of the application; striking out the defence filed by the Shepherd parties; and dismissing the cross-claim (Orders).

4    The Shepherd parties broadly contend that in making the Orders the primary judge erred in three material respects:

(a)    in the exercise of his Honour’s discretion;

(b)    in the application of rule 5.23 of the Federal Court Rules 2011 (Cth) (FCR) in the absence of any application from the Watt parties; and

(c)    by failing to afford the Shepherd parties procedural fairness in connection with the striking out of their defence and dismissing the cross-claim.

5    The Shepherd parties submit that substantial injustice would result if leave to appeal were not granted and the Orders were not set aside.

6    For the reasons that follow we are satisfied that leave to appeal should be granted, but only in respect of the grounds addressed at the exercise of his Honour’s discretion, and the appeal should be allowed.

BACKGROUND FACTS

7    The following background facts as found by the primary judge are relevant to a resolution of the application for leave to appeal and the appeal. They are not in dispute.

8    On 13 June 2019, the Watt parties commenced the proceedings before the primary judge by filing an originating application and statement of claim.

9    On 5 September 2019, the Shepherd parties filed their defence.

10    On 26 September 2019, the Shepherd parties filed a notice of cross-claim and cross-claim.

11    On 21 February 2020, following an unsuccessful mediation, the primary judge made orders for the service of outlines of evidence, together with any documents on which they intended to rely by:

(a)    17 April 2020 for the Watt parties;

(b)    29 May 2020 for the Shepherd parties; and

(c)    19 June 2020 for any reply evidence.

12    The parties were not able to comply with the orders made on 21 February 2020, principally because of the impact of the COVID-19 pandemic.

13    On 25 June 2020, the primary judge made orders, by consent, extending the times for the service of outlines of evidence, together with any documents on which they intended to rely, to:

(a)    10 July 2020 for the Watt parties;

(b)    21 August 2020 for the Shepherd parties; and

(c)    18 September 2020 for any reply evidence.

14    Again, the parties were not able to comply with that timetable.

15    On 24 September 2020, the primary judge made orders, by consent, extending the times for the service of outlines of evidence, together with any documents on which they intended to rely, to:

(a)     2 October 2020 for the Watt parties;

(b)    11 December 2020 for the Shepherd parties;

(c)    29 January 2021 for any reply evidence;

and listed the proceedings for case management on 5 February 2021.

16    On 12 October 2020, the Watt parties served outlines of evidence from eight witnesses, in aggregate 60 pages, together with approximately 1400 pages of documents.

17    On 3 February 2021, the Watt parties notified the primary judge’s associate that the parties had agreed consent orders that provided for the Shepherd parties to have until 2 April 2021 to serve their evidence and for the parties to have until 4 June 2021 to serve their reply evidence. In response to this communication, the primary judge requested an explanation of the reason for the length of the extension for the Shepherd parties to serve their evidence.

18    On 4 February 2021, Logie-Smith Lanyon, the firm of solicitors who had been acting for the Shepherd parties since February 2020, responded in writing to the primary judge’s request stating that the delays in preparing the witness outlines were due to a “number of reasons” including that:

1.    Two key witnesses have been ill;

2.    There were issues with insurance cover that needed to be resolved (and now have been resolved); and

3.    We have engaged new counsel Callan O’Neill to act in the matter.

19    On 4 February 2021, on the basis of the explanation provided by Logie-Smith Lanyon, the primary judge made orders by consent extending the time for the Shepherd parties to serve their witness outlines and documents on which they intended to rely to 2 April 2021 (4 February 2021 orders) and that the matter be listed for case management on 18 June 2021.

20    On 27 April 2021, the Watt parties informed the primary judge’s associate that there had been a “slippage” in relation to the compliance by the Shepherd parties with the 4 February 2021 orders. In response to this communication, the primary judge directed that the matter be listed for a case management hearing on 7 May 2021.

21    On 7 May 2021, in the course of the case management hearing, the Shepherd parties foreshadowed for the first time that they wished to amend their cross-claim and sought orders that the amended cross-claim be filed by 18 June 2021. They also sought an order that the time for them to serve witness outlines and documents on which they intended to rely be further extended to 18 June 2021. In response to these requests, the primary judge made orders that “having regard to their previous defaults”, the Shepherd parties must file and serve any interlocutory application for leave to amend their cross-claim and to extend the time for service of their witness outlines and documents, together with submissions and evidence by 14 May 2021, the Watt parties respond by 18 May 2021 and the Shepherd parties serve any submissions in reply by 19 May 2021.

22    On 14 May 2021, the Shepherd parties emailed the Watt parties an affidavit of Michael Nurse (the solicitor from Logie-Smith Lanyon with carriage of the matter for the Shepherd parties) sworn on that day, together with written submissions and an interlocutory application (Interlocutory Application) seeking various orders, including orders that:

(a)    the time for the Shepherd parties to serve the witness outlines and “a bundle of documents to which those witnesses refer in their outlines” be extended to 28 May 2021 (Extension Order); and

(b)    the Shepherd parties have leave to file and serve an amended cross-claim by 17 May 2021 (Amendment Order).

23    Mr Nurse’s 14 May 2021 affidavit and the written submissions were principally, but not exclusively, directed at the Extension Order.

24    On 19 May 2021, Mr Nurse swore a second affidavit directed only at the Amendment Order. Copies of the proposed amended cross-claim and proposed amended notice of cross-claim were exhibited to the affidavit.

25    On 20 May 2021, the primary judge heard the Interlocutory Application, made the Orders and delivered an ex tempore judgment which was subsequently published on 27 May 2021.

26    In the period following 20 May 2021, the primary judge made the following further orders:

(a)    on 8 June 2021, vacating the case management hearing on 18 June 2021;

(b)    on 25 June 2021, granting leave to the parties to file and serve further submissions and evidence in relation to quantum, adjourning the hearing on quantum to 8 July 2021 and requiring the applicants to pay the respondents’ costs thrown away by reason of the adjournment;

(c)    on 9 July 2021, setting aside the orders pronounced orally on 8 July 2021 following delivery of the Court’s ex tempore reasons;

(d)    on 23 July 2021, declaring void the whole of the various contracts between the fourth respondent (Summit Pharmacy Group Pty Ltd) and various of the Watt parties; requiring that the third respondent (RX Holdings Pty Ltd) assign ownership of the website “bushchemist.com.au” to the first applicant (Espie Ian Watt) and place it in the position of registered owner of the business name “Bush Chemist”; ordering judgment against each of the Shepherd parties for damages to be assessed; granting leave to the parties to file and serve further submissions and evidence in relation to damages and appropriate relief; and reserving costs, and delivered reasons for making those orders and declarations (Watt v Shepherd (No 2) [2021] FCA 826);

(e)    on 7 September 2021, extending the time for the respondents to file and serve further submissions and evidence in relation to damages and appropriate relief, listing the matter for final hearing on 8 October 2021 and reserving costs;

(f)    on 8 October 2021, ordering that the parties file and serve draft relief orders with accompanying explanations of calculations, and any responses to the draft orders, listing the matter for hearing on 11 November 2021 and ordering that the applicants pay the respondents’ costs of 8 October 2021;

(g)    on 2 November 2021, noting that the respondents and Mr Whelan had made undertakings to the Court in relation to the confidentiality of the applicants’ MYOB files and information contained therein;

(h)    on 12 November 2021, extending the time for the respondents to file and serve any response to documents filed by the applicants pursuant to the orders made on 8 October 2021; requiring the applicants to file and serve submissions identifying damages sought and any response to those documents; ordering the respondents file and serve written submissions in reply; and listing the matter for hearing on 13 December 2021, and reserving costs; and

(i)    on 13 December 2021, the matter proceeded to a final hearing on damages and final relief and a declaration was made that any assignment to the third or fourth respondent of debts due to the second applicant was void ab initio. Orders were made for the respondents to make various payments to the applicants. Ex tempore reasons were delivered (Watt v Shepherd (No 3) [2021] FCA 1670).

EVIDENCE RELIED UPON BEFORE THE PRIMARY JUDGE

27    In his 14 May 2021 affidavit, Mr Nurse provided the following explanations for the failure of the Shepherd parties to comply with the 4 February 2021 orders and the steps that the Shepherd parties had taken to advance the preparation of their evidence.

28    First, in addition to being voluminous, the outlines and accompanying documents served by the Watt parties on 12 October 2021 described a “complex factual matrix, the precise relevance and admissibility of which to the pleaded case is challenging to unpick/comprehend”. As a result, significant consideration had been given by the Shepherd parties as to whether their outlines should be prepared in response to the outlines of the Watt parties or in response to the pleaded case and the cross-claim and ultimately the latter course was chosen.

29    Second, since 12 October 2021 a “number of related tasks” had been undertaken that “related to” the conduct of the proceedings by the Shepherd parties which “would not be appropriate to raise in a public forum, including matters which would be the subject of claims for legal professional privilege”.

30    Third, as disclosed in the February 2021 email, two key witnesses had been ill, there were issues with the insurance cover which had since been resolved and new counsel had been engaged.

31    Fourth, Mr O’Neill of counsel had been briefed in February 2021, including for the purpose of assisting with interviewing witnesses, preparing draft witness statements and advising in the matter generally.

32    Fifth, in March 2021, Mr Nurse had assumed day to day responsibility for the conduct of the matter when it became apparent that the previous solicitor with daily responsibility for the matter had become heavily occupied in an unrelated Supreme Court proceeding.

33    Sixth, on 20 April 2021, three witness interviews were conducted by Mr O’Neill for the purpose of preparing outlines of evidence.

34    Seventh, the witness outlines continued to be progressed in the period leading up to the case management hearing on 7 May 2021 and as at the date of swearing the affidavit, 14 May 2021, the outlines were “in fact at a very advanced stage, and we are confident that we will be in a position to serve the outlines within the timeframes sought in the attached application [28 May 2021]”.

35    Eighth, on 12 May 2021 an interview was conducted with a further witness who was believed to be located in South Africa and a draft outline had been prepared.

36    Ninth, it only became apparent to Logie-Smith Lanyon in the course of the witness interviews conducted by Mr O’Neill on 20 April 2021 that the Shepherd parties had additional claims available to them that had not been considered by their previous legal representatives and had therefore not been included in the cross-claim filed on 15 October 2019.

37    Tenth, a draft amended cross-claim had been prepared, the Shepherd parties having provided expanded instructions regarding potential further claims that would require further consideration and advice. However, Mr Nurse believed, based on his present instructions, that the amended cross-claim could be finalised by the close of business on 17 May 2021.

38    Mr Nurse otherwise stated in his 14 May 2021 affidavit that the Shepherd parties refuted the claims made by the Watt parties, apologised for their delays in preparing their evidence and confirmed that they wished to be heard in relation to the merits of their defence and their cross-claim or amended cross-claim against the Watt parties.

39    In his affidavit sworn on 19 May 2021, Mr Nurse briefly outlined the nature of the new claims sought to be advanced in the amended cross-claim, confirmed that Logie-Smith Lanyon had only become aware of them in the course of the 20 April 2021 witness interviews and summarised the loss and damage that the Shepherd parties claimed they had suffered as a result of the new claims.

THE JUDGMENT OF THE PRIMARY JUDGE

40    The primary judge found that it was not in the interests of justice to grant the Shepherd parties an extension of time to serve their outlines of evidence, nor to grant them leave to file the amended cross-claim. His Honour considered that it was clear that the Shepherd parties were not prosecuting the proceeding in an appropriately diligent manner and there must come a point where a party’s default, unexplained as he considered it was in this case by any proper or adequate evidence, will attract the consequences contemplated by ss 37P(5) and (6) of the Federal Court of Australia Act 1976 (Cth) (FCA Act): J [60].

41    The primary judge’s conclusions were based on the following reasons.

42    First, the appointment of new counsel was not, of itself, necessarily sufficient to support an amendment, citing the decision of the Full Court in WGKS v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FCAFC 10 at [20] (Rares, Moshinksy and Stewart JJ): J [52].

43    Second, the evidence of Mr Nurse failed to give any substantive information about any activities that the Shepherd parties undertook between the receipt of the outlines of evidence from the Watt parties on 12 October 2020 and the interviews conducted by Mr O’Neill on 20 April 2021: J [52].

44    Third, the suggestion by Mr Nurse that there may have been relevance or admissibility issues with the material in the witness outlines of the Watt parties provided no basis for the delay in the Shepherd parties providing their outlines: J [54].

45    Fourth, the evidence of Mr Nurse in asserting that some “related tasks” affected the conduct of the proceedings by the Shepherd parties “which would not be appropriate to raise in a public forum” was opaque: J [54].

46    Fifth, the identity of the witnesses who had suffered illnesses, as asserted in the 4 February email, was not disclosed. Nor was the period of the alleged illnesses, the nature of the alleged insurance issues, when the issues were resolved nor their impact on the Shepherd parties’ conduct in the proceedings. Further, no explanation was provided as to why Mr O’Neill had not interviewed any witnesses prior to 20 April 2021: J [55].

47    Sixth, there was no substantive evidence as to what, if any, difficulties might have precluded the Shepherd parties from substantially progressing their outlines of evidence prior to February 2021: J [55].

48    Seventh, the Shepherd parties did nothing in April 2021 to bring the matter back to Court notwithstanding their default in complying with the 4 February 2021 orders: J [56].

49    Eighth, no explanation had been provided by the Shepherd parties as to why they had still not finalised or served the outlines of evidence, given that it was now a month after the interviews were conducted with Mr O’Neill, other than a reference to the fact that new claims had been raised in the course of those interviews. Mr O’Neill conceded that these matters were known to the Shepherd parties from at least the inception of the proceeding, however no explanation was provided as to why it took more than a year after the engagement of new solicitors for these matters come matters to come to light: J [56].

50    The primary judge concluded that the default by the Shepherd parties was egregious and unexplained and their conduct indicated an unwillingness to comply with the orders of the Court in a timely or appropriate way in order to achieve the overarching purpose contrary to their duty under s 37N of the FCA Act: J [58].

51    The primary judge stated:

59     I am comfortably satisfied that the respondents have had every proper opportunity in which to put their evidence on in a timely way and to advance their case. I reject the respondents’ argument that no further delay will be caused if they are allowed the extension of time and amendment that they seek. If I were to grant the amendment to the cross-claim, new parties would be brought into the proceeding who are not already joined. No doubt each of them will have their own defence and possible cross-claim to make, which will further protract and delay the proceeding from being heard. The extension of time that I granted at the beginning of this year again delayed the time at which this proceeding would be ready to be heard. The ability of parties to recall accurately what occurred in the past is obviously continuing to be impacted by the delays and, if the respondents are allowed to amend the cross-claim, they will expand the scope of the proceeding, albeit that I accept that some of it will be narrowed in relation in the Australia Capital Territory franchises.

60     There must come a point when a party's default, unexplained as it is in this case by any proper or adequate evidence, will attract the consequences that s 37P(5) and (6) contemplate. In my opinion, it is not in the interests of justice to grant, first, an extension of time in which the respondents can serve their outlines of evidence or, secondly, leave to amend the cross-claim. It is clear that the respondents are not prosecuting the proceeding in an appropriately diligent way.

61     For these reasons, I will order that the defence and cross-claim be struck out, and that the cross-claim be dismissed. I will also order that the interlocutory application filed on 14 May 2021 be dismissed. The parties should have an opportunity to address on whether or not, based on the case pleaded in the statement of claim and the absence of a defence, the applicants are entitled to any of the relief which they seek or to judgment and, if so, in what amount. I will order that the respondents pay the applicants and cross-respondents’ costs of the interlocutory application. I will reserve the costs of the proceeding.

52    The Shepherd parties seek leave to appeal from the Orders. The Orders were made by the primary judge at the conclusion of the hearing of the Interlocutory Application on 20 May 2021 in the following terms:

1.    The interlocutory application filed by the respondents on 14 May 2021 be dismissed.

2.    The respondents pay the applicants’ costs of defending the interlocutory application filed on 14 May 2021.

3.    The defence filed by the respondents on 5 September 2019 be struck out.

4.    The notice of cross-claim filed by the respondents on 15 October 2019 be dismissed.

RELEVANT PRINCIPLES

Leave to appeal

53    The decision of the primary judge was interlocutory in nature and therefore the Shepherd parties require leave to appeal: s 24(1A) of the FCA Act.

54    It is well established that two criteria that need to be addressed in an application for leave to appeal from an interlocutory judgment. First, whether the judgment was attended with sufficient doubt to warrant it being reconsidered by the Full Court and second, whether substantial injustice would result if leave were refused: Décor Corporation Pty Ltd and Another v Dart Industries Inc (1991) 33 FCR 397; [1991] FCA 84 at 398 (Décor) (Sheppard, Burchett and Heerey JJ).

55    The test created by the criteria is appropriate for the general run of cases but each case must be considered on its merits and the test should not be applied as if it were some hard and fast rule: Samsung Electronics Company Ltd v Apple Inc and Another (2011) 217 FCR 238; [2011] FCAFC 156 (Samsung) at [29] (Dowsett, Foster and Yates JJ), citing Décor at 398-400.

56    It is important to consider the practical operation or effect of the interlocutory order from which leave to appeal is sought. Leave should readily be given if the practical effect of the interlocutory order is to determine the proceeding or an important issue in the proceeding: Samsung at [33], citing Ex parte Bucknell (1936) 56 CLR 221; [1936] HCA 67 (Bucknell) at 225-6 (Latham CJ, Rich, Dixon, Evatt and McTiernnan JJ).

The principles on appeal

57    It is not sufficient for the purposes of an appeal from a discretionary judgment for this Court to conclude that it would have exercised the relevant discretion differently had it been in the position of the primary judge: House v The King (1936) 55 CLR 499; [1936] HCA 40 at 504-5 (Dixon, Evatt and McTiernan JJ).

58    Their Honours Dixon, Evatt and McTiernan JJ explained in House v The King at 505:

If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. Unlike courts of criminal appeal, this court has not been given a special or particular power to review sentences imposed upon convicted persons. Its authority to do so belongs to it only in virtue of its general appellate power. But even with respect to the particular jurisdiction conferred on courts of criminal appeal, limitations upon the manner in which it will be exercised have been formulated.

[Emphasis added.]

59    Subsequent decisions of the High Court have emphasised that there is a strong presumption in favour of the correctness of the decision appealed from in a discretionary judgment and the decision should be affirmed unless the appeal court is satisfied that it is clearly wrong: Samsung at [39], citing Australian Coal and Shale Employees’ Federation and Another v The Commonwealth and Others (1953) 94 CLR 621; [1953] HCA 25 (Australian Coal and Shale) at 627 (Kitto J) and Mallet v Mallet (1984) 156 CLR 605; [1984] HCA 21 (Mallet) at 634 (Wilson J).

60    The following statement by Kitto J in Australian Coal and Shale at 627 was described in Mallet at 634 by Wilson J as a succinct statement of the principle in House v The King:

… the true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. Again, the nature of the error may not be discoverable, but even so it is sufficient that the result is so unreasonable or plainly unjust that the appellate court may infer that there has been a failure properly to exercise the discretion which the law reposes in the court of first instance: House v The King.

[Footnote omitted and emphasis added.]

61    The restatement of the House v The King principle by Kitto J in Australian Coal and Shade expands the scope of the principle in that it uses the phrase “failing to give weight or sufficient weight to relevant considerations”, rather than the language employed by the plurality in House v The King of “he does not take into account some material consideration”.

62    In Rodgers v Rodgers (1964) 114 CLR 608; [1964] HCA 25, McTiernan, Taylor and Owen JJ described the restatement of the House v The King principle by Kitto J in Australian Coal and Shale as a “convenient summary” of the principles applicable in appeals from orders involving discretionary judgments, and quoted the passage in full (at 619). The restatement by Kitto J was also quoted in full and applied in Risk v Northern Territory (2007) 240 ALR 75; [2007] FCAFC 46 at [113] (French J, as his Honour then was, Finn and Sundberg JJ), Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137; [1987] FCA 504 at 147 (Davies, Lockhart and Neaves JJ), and Bomanite Pty Limited v Slatex Corp Aust Pty Limited (1991) 32 FCR 379; [1991] FCA 536 at 387 (Gummow J).

63    In Brisbane South Regional Health Authority v Taylor (1996) 186 CLR 541; [1996] HCA 25, McHugh J found (at 556) that the primary judge in that matter “did not fail to consider or fail to give sufficient weight to any matter he was required to consider” and that “his conclusion was not so ‘unreasonable or plainly unjust’” that an appellate court could infer that the primary judge had failed to properly exercise the discretion, citing Australian Coal and Shale at 627.

64    In Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar (2008) 237 CLR 66; [2008] HCA 4, Gummow ACJ, Kirby, Hayne and Heydon JJ said in response to the question of whether the primary judge had conducted the correct “balancing exercise” in the exercise of the Court’s discretion:

137     “Balancing exercise”? The orthodox approach to appellate intervention in relation to discretionary decisions requires the expression “balancing exercise” to be employed only with care.

138    The question is what the particular statute or rule of law conferring the discretion contemplates as relevant or irrelevant factors. If it mandates that particular weight be given to one factor, that mandate must be obeyed. But, in the absence of any such mandate, the question of what weight the relevant factors should be given or what balance should be struck among them is for the person on whom the discretion is conferred, provided no error of law is made, no error of fact is made, all material considerations are taken into account and no irrelevant considerations are taken into account, subject to the possibility of appellate intervention if there is a plain injustice suggesting the existence of one of the four errors just described even though its nature may not be discoverable, or if there is present what has come to be known as “Wednesbury unreasonableness”.

[Footnotes omitted.]

65    In Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (ACN 003 274 655) (2016) 340 ALR 25; [2016] FCAFC 181 (Jagot, Yates and Bromwich JJ), after noting that in Park Trent Properties Group Pty Ltd v Australian Securities Investments Commission (2016) 116 ACSR 473; [2016] NSWCA 298 Leeming JA (at [53]), with whom McColl and Gleeson JJA agreed, had observed that primary judge had provided elaborate reasons for the exercise of the relevant discretion, their Honours stated at [49]:

This is not to say that elaborate reasons are immune from appellate review. In the absence of specific error, the outcome reached either will or will not be one which was reasonably open. If not reasonably open, elaborate reasons will not protect the result from appellate intervention.

66    The Court then addressed the specific error and inferential error dimensions to the House v The King principle. Their Honours explained inferential error at [52]:

Alternatively, error may be inferred from a result that cannot have been arrived at without some kind of operative error. The influence of the reasons given for the result arrived at on this process will vary. Reasons are not to be ignored, but nor do they necessarily confine in a rigid or inflexible way the scope of the appellate inquiry. It may be legitimate to have regard to what was said and not said in order to identify how the asserted erroneous result was reached. But for error to be inferred from the result, the result must be one which was not open on the evidence or facts found or agreed.

67    In James v Australia and New Zealand Banking Group Limited [2022] FCAFC 18, the Full Court (Rares and Banks-Smith JJ, Murphy J in dissent) allowed in part an appeal from a decision of the primary judge refusing an application by the appellant on the first day of the trial of a creditor’s petition to expand further his amended grounds of opposition to the petition, call additional witnesses and adjourn the hearing for a period of about four to six weeks to provide the petitioning creditor with sufficient time to respond to the new evidence, and to permit a seven-day trial listed for hearing in the Supreme Court of New South Wales brought by a company owned by his mother to be determined.

68    After citing House v The King with approval, and noting that the primary judge had dealt with all the issues, Rares and Banks-Smith JJ found (at [39]) that the primary judge’s determinative reasoning appeared to have focused only on the adjournment application and her Honour did not consider:

the debtor’s alternate position that, if she were to act on the basis of granting the amendments and allowing the bank four to six weeks in which to put on evidence to meet them, it would have been possible to hear and determine the newly amended grounds before 11 August 2022 when the petition, as extended, would lapse.

69    Their Honours concluded at [41]:

Although her Honour was the docket judge and may have had limited availability to hear the petition if any adjournment were granted, it was still necessary to consider the argument that, as the bank’s evidence showed, it could meet the amended grounds and further evidence within four to six weeks, leaving about a year in which to hear and determine the petition proceeding. The primary judge’s failure to consider a substantive, distinct ground for allowing the amendment and consequent adjournment amounted to a failure to take into account a relevant consideration so that her Honour’s exercise of discretion miscarried: House 55 CLR at 505. Accordingly, the Full Court had to consider the exercise of the discretion afresh.

[Emphasis added.]

70    In the course of considering the exercise of the discretion afresh as to whether the amendments and necessary consequent adjournment should be allowed, Rares and Banks-Smith JJ had regard to the merits of the existing amended grounds of opposition, the debtor’s explanation for the failure to raise the new grounds earlier and the necessity to have regard to the justice of each case, stating:

45 There was a bona fide arguable ground already raised in the initial amended grounds of opposition to go behind the consent judgment. The new grounds sought to expand the reasons for going behind the consent judgment. As can be seen in the debtor’s conduct after the refusal of the amendment and adjournment applications, he, no doubt guided by his senior counsel, did not consider that, without the further amendments, those grounds could succeed. Importantly, the debtor’s explanation given for the failure to raise the new grounds earlier was that then counsel and the solicitor for the debtor had not thought of them previously.

46    As Keane CJ, Gilmour and Logan JJ said in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 187 FCR 261 at 275–276 [51]: “Aon [239 CLR 175] is not a one size fits all case”. The Court has to have regard to the justice of the case, as well as all of the circumstances relevant to case management in s 37M of the Federal Court Act.

47    Although the situation was finely balanced, the bona fide arguable nature of the proposed amendments and the relatively short adjournment that the bank required to meet the new case, in circumstances where there was still ample time for the petition to be heard and determined before it would lapse over one year later, persuaded us, in re-examining the discretion, to allow the amendments.

[Emphasis added.]

Practice and procedure discretionary principles

71    The Court has extensive powers to make directions about practice and procedure in a civil proceeding. Section 37P of the FCA Act provides:

37P Power of the Court to give directions about practice and procedure in a civil proceeding

(1)     This section applies in relation to a civil proceeding before the Court.

(2)    The Court or a Judge may give directions about the practice and procedure to be followed in relation to the proceeding, or any part of the proceeding.

(3)    Without limiting the generality of subsection (2), a direction may:

(a)    require things to be done; or

(b)    set time limits for the doing of anything, or the completion of any part of the proceeding; or

(c)    limit the number of witnesses who may be called to give evidence, or the number of documents that may be tendered in evidence; or

(d)    provide for submissions to be made in writing; or

(e)    limit the length of submissions (whether written or oral); or

(f)    waive or vary any provision of the Rules of Court in their application to the proceeding; or

(g)    revoke or vary an earlier direction.

(4)    In considering whether to give directions under subsection (2), the Court may also consider whether to make an order under subsection 53A(1).

(5)    If a party fails to comply with a direction given by the Court or a Judge under subsection (2), the Court or Judge may make such order or direction as the Court or Judge thinks appropriate.

(6)    In particular, the Court or Judge may do any of the following:

(a)    dismiss the proceeding in whole or in part;

(b)    strike out, amend or limit any part of a party’s claim or defence;

(c)    disallow or reject any evidence;

(d)    award costs against a party;

(e)    order that costs awarded against a party are to be assessed on an indemnity basis or otherwise.

(7)    Subsections (5) and (6) do not affect any power that the Court or a Judge has apart from those subsections to deal with a party’s failure to comply with a direction.

72    In Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175; [2009] HCA 27, Gummow, Hayne, Crennan, Kiefel and Bell JJ stated:

111    An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend.

    …

112    A party has the right to bring proceedings. Parties have choices as to what claims are to be made and how they are to be framed. But limits will be placed upon their ability to effect changes to their pleadings, particularly if litigation is advanced. That is why, in seeking the just resolution of the dispute, reference is made to parties having a sufficient opportunity to identify the issues they seek to agitate.

113    In the past it has been left largely to the parties to prepare for trial and to seek the court’s assistance as required. Those times are long gone. The allocation of power, between litigants and the courts arises from tradition and from principle and policy … It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings.

[Footnotes omitted.]

73    In Expense Reduction Analysts Group Pty Ltd and Others v Armstrong Strategic Management and Marketing Pty Limited and Others (2013) 250 CLR 303; [2013] HCA 46 (Expense Reduction) at [56]-[59], French CJ, Kiefel, Bell, Gageler and Keane JJ stated that provisions such as Pt VB have the evident intention and expectation that the Court will use the broad powers conferred in such provisions to facilitate the “overarching purpose” of the equivalent Civil Procedure Act 2005 (NSW). Their Honours stated:

56    … Parties continue to have the right to bring, pursue and defend proceedings in the Court, but the conduct of the proceedings is firmly in the hands of the Court. It is the duty of the parties and their lawyers to assist the Court in furthering the overriding purpose.

57    That purpose may require a more robust and proactive approach on the part of the courts … the powers of the court are not at large and are not to be exercised according to a judge’s individualistic idea of what is fair in a given circumstance. Rather, the dictates of justice referred to in s 58 require that in determining what directions or orders to make in the conduct of the proceedings, regard is to be had in the first place to how the overriding purpose of the CPA can be furthered, together with other relevant matters, including those referred to in s 58(2). The focus is upon facilitating a just, quick and cheap resolution of the real issues in the proceedings, although not at all costs. The terms of the CPA assume that its purpose, to a large extent, will coincide with the dictates of justice.

74    The nature of the explanation that a party might need to provide to the Court when seeking the exercise of a discretion was discussed in the following terms in the decision of the Full Court in Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (2016) 332 ALR 199; [2016] FCAFC 2, where Gilmour, Perram and Beach JJ stated:

[154]    Just what explanation is called for will necessarily depend upon the particular case. The explanation will be given by, or on behalf of, the moving party. Affidavit evidence may or may not be necessary. In Cement Australia, for example, as the explanation was that the error was one of judgment by senior counsel for the ACCC, a statement by him from the bar table, to which no objection was taken, was accepted by the Court as sufficient.

[155]    It must be borne in mind that the explanation required is that of the moving party, not merely their solicitor or counsel. The client may very well know of matters relevant to the explanation for delay which are not known by the lawyers.

[156]    Evidence as to the explanation for delay will often be given by an applicant’s solicitor from their own knowledge but that may, in some cases, not be sufficient.

75    The discretion conferred by rule 5.23 of the FCR is unconfined save that a party must be in default: Professional Administration Service Centres Pty Ltd (ACN 109 055 049) v Commissioner of Taxation (2012) 295 ALR 52; [2012] FCAFC 180 (PASC) at [35] (Edmonds and McKerracher JJ).

76    In PASC, their Honours referred (at [37]) to the following statement by Wilcox and Gummow JJ in Lenijamar Pty Ltd and Others v AGC (Advances) Limited (1990) 27 FCR 388; [1990] FCA 745 (Lenijamar) at 395-6:

It is to be noted that the power given by this rule [Order 10.7, now rule 5.23 of the Federal Court Rules] is conditioned on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court’s judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule. There is no requirement of “inordinate and inexcusable delay” on the part of the applicant or the applicant’s lawyers, although any such delay is likely to be a significant matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant. And it must be remembered that, in almost every case, delay adversely affects the quality of the trial and is an additional burden on the parties.

77    As observed by Edmonds and McKerracher JJ in PASC (at [38]), however, Wilcox and Gummow JJ then immediately went on to state (at 396):

The observations which we have just made about the scope of O 10, r 7 are not intended to convey the impression that any failure to comply with a procedural direction will appropriately result in the dismissal of the proceeding. On the contrary, the rules must be administered sensibly and with an appreciation both of the fact that some delays are unavoidable, and unpredictable, by even the most conscientious parties and their lawyers, and of the likely serious consequences to an applicant of staying or dismissing a claim; compare the approach taken to non-compliance with time limitations in respect of appeals in Van Reesema v Giameos (1979) 27 ALR 525. We would not wish our observations to cause respondents to apply for dismissal of proceedings simply because there has been a non-compliance with a direction by the applicant, even though it does not cause or indicate a continuing problem in preparing the matter for an early trial.

APPEAL GROUNDS

78    Given the decisive impact of the orders made by the primary judge on the determination of the proceeding, it is convenient to address the issue of whether leave to appeal should be granted concurrently with the question of whether any of the appeal grounds have been established.

79    The draft notice of appeal contains the following proposed grounds of appeal (Proposed Grounds):

Dismissal of the Interlocutory Application

1.    In relation to Orders 1 and 2 made by the Primary Judge, the exercise of the Primary Judge’s discretion miscarried in the sense discussed in House v R (1936) 55 CLR 499 and in particular by the description of any default as “egregious and unexplained”: Primary Judgment at [58].

2.    In relation to Order 1 made by the Primary Judge, the Primary Judge erred in law in relation to the application of rule 5.23 of the Federal Court Rules in the absence of any application from the respondents to the appeal and in the face of the appellant’s application for an extension of time to file evidence.

3.    In relation to Order 2 made by the Primary Judge, the Primary Judge erred in law in relation to the application of rule 5.23 of the Federal Court Rules in the absence of any application from the respondents to the appeal.

Strike out of the defence and cross-claim without notice

4.    In relation to Orders 3 and 4 made by the Primary Judge, the exercise of the Primary Judge’s discretion miscarried in the sense discussed in House v R (1936) 55 CLR 499.

5.    In relation to Orders 3 and 4 made by the Primary Judge, the Primary Judge erred in law in relation to the application of rule 5.23 of the Federal Court Rules in the absence of any application from the respondents to the appeal.

6.    In relation to Orders 3 and 4 made by the Primary Judge, the Primary Judge failed to accord the appellants procedural fairness in respect of the striking out of their defence and cross-claim, which was not the subject of any application from the respondents nor an application previously foreshadowed by the Court.

80    It is convenient to address the Proposed Grounds with respect to the dismissal of the interlocutory application separately from the Proposed Grounds with respect to the striking out of the defence and dismissal of the cross-claim.

DISMISSAL OF THE INTERLOCUTORY APPLICATION

Submissions

81    The Shepherd parties contend that the primary judge’s discretion miscarried in the sense necessary to fall within House v The King in five respects:

(a)    a failure to consider appropriately the effect of each decision upon the just resolution of the proceeding;

(b)    an incorrect characterisation of the explanations provided by the Shepherd parties (including in the context of the earlier grant of time);

(c)    an incorrect characterisation of the effect of delay on the determination of the proceeding by drawing analogies to criminal law in which no six year limitation period applies;

(d)    the utilisation of rule 5.23 of the FCR in the absence of any application by the Watt parties; and

(e)    a failure to accord procedural fairness to the Shepherd parties with respect to the proposed entry of default judgment.

82    Proposed Grounds 2 and 3 in the draft notice of appeal address the refusal of the Extension Application and the Amendment Order by the primary judge, rather than the orders made by the primary judge striking out the defence and cross claim pursuant to rule 5.23 of the FCR, which are addressed in proposed grounds 4, 5 and 6. They are accordingly misconceived insofar as they allege a failure to afford procedural fairness to the Shepherd parties in the decision to dismiss the Interlocutory Application. Leave to advance those Proposed Grounds on appeal is refused. In relation to ground 1, the Shepherd parties advance two principal contentions in support of their challenge to the exercise of the discretion by the primary judge to dismiss the Interlocutory Application and not make the Extension Order and the Amendment Order.

83    First, the Shepherd parties contend that the grave and one-sided consequence to them of not being given an extension to serve their evidence far outweighed the case management principles that purportedly supported the exercise of the discretion. They submit that the effect of not extending time was that they would be shut out from advancing any evidence in support of their defence or cross claim at any hearing. They point to their consent to a guillotine order to serve their evidence, the absence of a hearing date or any application for default judgment by the Watt parties, the explanations provided by Mr Nurse for the delays in the service of their evidence and the steps that have been taken to progress the preparation of the outlines of evidence.

84    The Shepherd parties submit that what was being sought in the Interlocutory Application was an extension of the timetable for the service of their evidence by two months to 28 May 2021 (the 4 February 2021 orders stipulated 2 April 2021) and a month of that time had already elapsed so that “in reality all that was being sought was a four-week extension”. We interpolate that by the time of the hearing of the Interlocutory Application on 20 May 2021, the extension sought was in effect only eight days.

85    The Shepherd parties also submit that the inference drawn by the primary judge at J [57] that the respondents were “not really actively progressing their defence and cross-claim or seeking to advance the serious issues that their existing pleadings agitated” and the characterisation of the default by the Shepherd parties at J [58] as “egregious and unexplained” did not accord with the explanations provided by Mr Nurse for the delays in the preparation of their evidence.

86    Second, the Shepherd parties submit that the discretion with respect to leave to amend the cross-claim should have been considered separately to the extension of time to serve evidence, but in any event the primary judge, by his finding that the delay in bringing the amendment application as “unexplained”, had incorrectly characterised the delay and his Honour’s reliance on that finding was an error in the exercise of his discretion. They point to the explanations offered by Mr Nurse with respect to the difficulty in obtaining instructions, client illness and the problems encountered by Logie-Smith Lanyon by reason of the COVID-19 pandemic and insurance matters, and the absence of a hearing date.

87    They also submit that the primary attack on the explanations offered for the delay in seeking to amend the cross-claim was misdirected in circumstances in which the amendments “largely sought to regularise the guarantee claims so as to advance claims for the primary debts” and the amendments to some degree even narrowed the issues by removing the claims with respect to pharmacies in the Australian Capital Territory.

88    The Watt parties submit in answer to the first respect in which it was alleged that the primary judge’s discretion miscarried, that the effect of the dismissal of the Interlocutory Application upon the resolution of the proceeding was plain and obviously considered by the primary judge at J [36] and [38]. They submit that the real complaint advanced by the Shepherd parties is that the primary judge failed to give sufficient weight to the prejudice that the Shepherd parties claimed they would suffer if the Interlocutory Application was dismissed.

89    In answer to the second respect in which it is alleged that the primary judge’s discretion miscarried (set out in [81(c)] above), the Watt parties refer to the summary by the primary judge at J [17]-[35] of the evidence of Mr Nurse and submit that it is not clear how that evidence has been mischaracterised. The Watt parties submit that the Shepherd parties appear to be suggesting that any further explanation than that provided by Mr Nurse in his affidavits was unnecessary and therefore its absence was an irrelevant or extraneous matter improperly relied upon by the primary judge in exercising his discretion. They submit that the relevance of evidence of steps taken in an attempt to comply with previous directions and circumstances preventing compliance or bring forward amendments earlier is plain, and having regard to “the sparsity” of the explanations provided by Mr Nurse it was properly open to the primary judge to reach the conclusions and draw the inferences at J [52]-[60].

90    In answer to the third respect in which it was alleged that the primary judge’s discretion miscarried, the Watt parties submit that the alleged erroneous reliance on criminal law considerations simply cannot be reconciled with his Honour’s analysis at J [49]-[50].

91    The Watt parties also submit that to the extent that the Shepherd parties might seek to rely on the earlier delays in the Watt parties serving their evidence, the absence of a hearing date and the general impact of the COVID-19 pandemic, each was raised in the course of the hearing of the Interlocutory Application and expressly considered by the primary judge in the exercise of his discretion, as is evident from J [5], [18], [36] and [47].

92    Further, and in any event, the Watt parties submit that the Shepherd parties have not established that substantial injustice would result if leave to appeal were not granted. At best, they submit, the material adduced by the Shepherd parties “points to little more than a theoretical possibility of injustice if leave were not granted and that is insufficient to warrant a grant of appeal”.

Consideration

Introduction

93    The orders of the primary judge made on 20 May 2021 as explained by the ex tempore reasons given that day (and published in corrected form on 27 May 2021) were interlocutory, concerned matters of practice and procedure and involved the exercise of a discretion conferred on the Court under ss 37P(5) and (6) of the FCA Act and rule 5.23 (and, in part, recourse to rule 1.40) of the FCR.

94    The exercise of the discretion conferred under s 37P had the effect of dismissing the Interlocutory Application by which the Shepherd parties sought the Extension Order, extending until 28 May 2021 the date for service on the Watt parties of outlines of evidence of witnesses (together with a bundle of relevant documents) to be relied upon by the Shepherd parties in both defending the claims of the Watt parties in the principal proceeding and prosecuting their cross-claim against the Watt parties arising out of the franchising and related transactions at the heart of the principal proceeding.

95    The outlines of evidence (and related documents) consisted of the evidence of Mr Shepherd, Mr Steidle and Mr Peterson (taken on and from 20 April 2021) and the evidence of Mr Beattie (taken on and from 12 May 2021).

96    The dismissal of the Interlocutory Application also had the effect of dismissing the application of the Shepherd parties for leave to amend by 4.00 pm, 17 May 2021, their cross-claim so as to: join as cross-respondents to the cross-claim, four parties who were already among the Watt party applicants (of which there were nine in all, the four proposed additional cross-respondents within that group being Mrs Peacock, Mr McCallum and companies called Asbet Pty Ltd and Wattabear Pty Ltd); join a new corporate franchisee, Riverina Pharmaceuticals Pty Ltd (said to be in breach of an obligation to pay particular amounts due under a franchise agreement); join two individuals, Mr Sergi and Mr Murray as guarantors of particular franchise agreements; add additional claims; and abandon the claims at [88] to [117] of the cross-claim concerning claims against a group described as the “ACT franchisees”. We will return to elements of the principal proceeding later in these reasons.

97    The exercise of the discretion to dismiss the Interlocutory Application and thus dismiss the applications of the Shepherd parties for an extension until 28 May 2021 to serve their outlines of evidence and for leave to amend the cross-claim as described, also had the immediate effect of engaging a further exercise of discretion by the primary judge on the footing that since the Shepherd parties had failed to serve their outlines of evidence as required by earlier programming orders (with no proper explanation in the primary judge’s view for the failure), and as the extension to 28 May 2021 to do so had been refused, the defence to the claims of the Watt parties was to be struck out and so too the cross-claim of the Shepherd parties against the Watt parties (in the unamended form as leave to amend had been refused).

98    Apart from dismissing the extension and leave to amend applications and striking out the defence and the cross-claim of the Shepherd parties, the primary judge also refused an application made that day for a stay of each of those orders.

99    At [26] of these reasons, we describe the events that occurred after the making of the Orders, including entry of judgment against each of the Shepherd parties on 23 July 2021 for damages to be assessed (Order 3), among other orders including declaratory orders (Order 1) and programming orders (Orders 4 and 5) for the subsequent damages hearing.

100    In striking out the defence and dismissing the notice of cross-claim of the Shepherd parties (having dismissed their interlocutory application (Order 1)), the primary judge exercised a power conferred by s 37P(5) to make such order as his Honour thought “appropriate”. The primary judge exercised the particular power conferred under s 37(6)(a) and (b).

101    The primary judge at [43] also quoted the whole of rule 5.23 of the FCR, which addresses the topic of orders made on the default of a party. That rule contemplates that if a respondent is in default, an applicant may apply for one of the orders at rule 5.23(2)(a)-(e) including judgment for damages to be assessed (rule 5.23(2)(d)) or an order giving judgment for the relief claimed in the statement of claim (rule 5.23(2)(c)).

102    When making the Orders on 20 May 2021, the primary judge made no orders under rule 5.23 although his Honour did make orders giving the parties an opportunity to each put on submissions (and later be heard) as to whether or not, in the absence of the struck-out defence of the Shepherd parties, the Watt parties were entitled to any of the relief claimed in the statement of claim, or judgment for an amount.

103    Plainly, the primary judge was anticipating making an order under rule 5.23(2)(c) or (d) of the FCR. There is no suggestion that the Watt parties sought or urged the primary judge to act under rule 5.23(2) to make any order under the rule (whether rule 5.23(2)(c) or (d) or otherwise). The proposal to act under rule 5.23(2) came from the primary judge in the course of the hearing. The primary judge at [42] of his Honour’s reasons regarded himself as entitled to act under any rule in the FCR on his “own initiative” by reason of rule 1.40 of the FCR. Some orders were made on 23 July 2021 with further programming orders on 7 September 2021, 8 October 2021, 2 November 2021 and 12 November 2021 and a hearing as to damages and final relief held on 13 December 2021: see [26] of these reasons.

104    Thus, the effect of the Orders as the expression of the exercise of the discretion was to bring about finality in a real and practical sense in the proceedings: adverse and final for the Shepherd parties; remedial for the Watt parties.

105    That being so, we note the observations of the Court (Latham CJ, Rich, Dixon, Evatt and McTiernan JJ) in Bucknell at 225 that if the interlocutory order “has the practical effect of finally determining the rights of the parties, though it is interlocutory in form, a prima facie case exists for granting leave to appeal”. See also Décor at 400 (Sheppard, Burchett and Heerey JJ); Samsung at [30] (Dowsett, Foster and Yates JJ).

106    Their Honours in Bucknell were writing at a time (1936) well prior to the intervention by the Commonwealth Parliament and the Parliaments of the States and Territories in enacting purpose specific case management provisions relating to civil proceedings before courts directed to a statutory “overarching purpose”. Those provisions confer a statutory discretionary power to make orders (giving expression to the recited purpose of the provisions) which, when exercised, might have the effect of finally determining the rights of parties and in respect of which a prima facie case otherwise exists for granting leave to appeal.

107    The question of whether the appeal court can be satisfied that such a decision is attended by sufficient doubt to warrant reconsideration and whether substantial injustice would result from the decision (and orders) if leave were refused supposing the decision to be wrong, is conditioned by the manner of the exercise of the power in the context of the subject matter, scope and purpose of the statutory provisions conferring the power on the court in the management of civil proceedings, and the factors those provisions conferring the discretion contemplate as relevant or irrelevant factors.

108    The source of the power exercised by the primary judge was a discretion to make “such order or direction” as the primary judge thought “appropriate”, the Shepherd parties having failed to serve their outlines of evidence by 2 April 2021 in accordance with the direction of the Court made on 4 February 2021 (Order 1): s 37P(5). In particular, s 37P(6) confers a power (as a particular aspect of the s 37P(5) conferral) to disallow or reject any evidence; to strike out a party’s defence; and to dismiss a proceeding in whole or part: see [71] of these reasons setting out the text of s 37P. A part of the proceeding before the primary judge was the proceeding by the Shepherd parties by cross-claim.

109    Section 37P of the FCA Act applies in relation to a civil proceeding before the Court which “must” be conducted by the parties to the proceeding in a way consistent with the “overarching purpose” (s 37N(1)) of the “civil practice and procedure provisions” (as defined at s 37M(4)). A party’s lawyer in conducting a civil proceeding must “take account of the duty” imposed on the party by s 37N(1) and “assist” the party to comply with the duty: s 37N(2).

110    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law; and to facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible: s 37M(1)(a) and (b). Importantly, both of the factors at (a) and (b) of s 37M(1) are governed by the notion of the extent to which they facilitate the just resolution of disputes. Not surprisingly, a core element of the s 37M(1) overarching purpose is to facilitate the “just resolution” of disputes (according to the two factors) as each exercise of power conferred by the civil practice and procedure provisions (including s 37P) is an exercise of the judicial power of the Commonwealth, the aim of which is to quell controversies between citizens (corporate or otherwise) according to law and do justice between the parties.

111    The overarching purpose includes the five “objectives” at s 37M(2), the first of which is “the just determination of all proceedings before the Court”. The second and third objectives are concerned with the efficient use of judicial and administrative resources and the efficient disposal of the Court’s caseload. The fourth objective is the timely disposal of proceedings, and the fifth objective is the resolution of disputes at a cost proportionate to the importance and complexity of the matters in controversy.

112    Section 37M(3) provides that the civil practice and procedure provisions must be construed and applied, and any power conferred or duty imposed by them must be exercised or carried out, in the way that best promotes the overarching purpose.

113    As to the overarching purpose, s 37M(1), (2) and (3) are in these terms:

37M    The overarching purpose of civil practice and procedure provisions

(1)    The overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes:

(a)    according to law; and

(b)    as quickly, in inexpensively and efficiently as possible.

(2)    Without limiting the generality of subsection (1), the overarching purposes includes the following objectives:

(a)    the just determination of all proceedings before the Court;

(b)    the efficient use of the judicial and administrative resources available for the purposes of the Court;

(c)    the efficient disposal of the Court’s overall caseload;

(d)    the disposal of all proceedings in a timely manner;

(e)    the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.

(3)    The civil practice and procedure provisions must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.

The pleaded case

114    The Watt parties commenced the proceeding on 13 June 2019. There are nine applicants. The principal applicant among them, Mr Watt, is a pharmacist who had established, by 21 April 2016, nine retail pharmacy stores in New South Wales and stores in the Australian Capital Territory (Watt Group). Another applicant, Mazzawattie Pty Ltd (Mazzawattie), as trustee of a unit trust (SMSUT) conducted the head office operations of the Watt Group.

115    The applicants’ contentions as pleaded are as follows.

116    On or about 21 April 2016, Mr Shepherd and Mr Steidle proposed to Mr Watt the purchase by interests related to them of the head office operations of the Watt Group; that a particular franchising structure be established with an entity established as franchisor (ultimately, Summit Pharmacy Group Pty Ltd (SPG)) and each pharmacy becoming a franchisee; that certain monies be paid by the Shepherd interests (first Shepherd finance representation); and other representations at [31(i)-(ix)] of the statement of claim (SOC).

117    On 22 April 2016, Mr Shepherd made six further representations involving significant representations as to finance described as the second, third and fourth Shepherd finance representations: SOC [31(i)-(vi)]. Some were representations as to future matters. Further representations are pleaded at [33]-[34] of the SOC. The representations are said to be misleading.

118    Mr Steidle made representations on 4 July 2016 that RX Holdings Pty Ltd (RXH) would do certain things; that the value of the franchisor entity, SPG, would be between $900m and $1.2bn within five years; and seven other representations as to significant financial matters involving steps taken or being taken or to be taken by RXH (Steidle representations): SOC [42.1]-[42.9]. Mr Shepherd, Mr Steidle and Mr Beattie controlled RXH and by 22 November 2016, it held all the issued shares in SPG. Some of the Steidle representations were as to future matters.

119    Each one was misleading: SOC [45].

120    Four of them were false: SOC [46].

121    Further representations were made by Mr Shepherd: SOC [47]-[48].

122    On 1 March 2017, Mr Shepherd made four further representations to Mr Watt concerning matters of profits to be derived, fee reductions and the financial capacity of RXH as to certain matters: SOC [51(i)-(iv)].

123    In making the pleaded Shepherd representations, Mr Shepherd intended certain things: SOC [52(i)-(v)]. Each representation made by Mr Shepherd was misleading. In making the Steidle representations, Mr Steidle intended certain things: SOC [53(i)-(v)]. Each representation was misleading.

124    On 21 November 2016, Mr Shepherd made six further representations to Mr Watt: SOC [60].

125    In reliance on all of the pleaded representations, Mr Watt entered into a sequence of significant transactions to establish SPG as the franchisor and put in place all of the transactional elements of the proposal put to him by Mr Shepherd and Mr Steidle: SOC [67.1]-[67.18].

126    The respondents failed “to deliver” on the representations: SOC [75].

127    Mr Watt requested the respondents to “co-operate in dismantling the franchising structure and re-instate the status quo”: SOC [76]. The respondents declined to do so: SOC [77].

128    The Watt parties assert breaches of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) established under the provisions of the Competition and Consumer Act 2010 (Cth) (CCA): unconscionable conduct; and misleading conduct in contravention of ss 18, 21 and 22 of the Australian Consumer Law, located in Schedule 2 of the CCA.

129    They claim damages and other relief.

130    Thus, it can be seen that the SOC pleads a wide range of detailed factual matters across 117 paragraphs engaging a period from 21 April 2016 to March 2017 and then a period from 27 June 2017 to January 2018. No doubt, there is much evidence that places the pleaded representations in the context of oral negotiations, letters, emails and a raft of draft and final documents. The factual and forensic analysis of these claims would normally require an examination of the entire pleaded franchising structure, the documents and the pleaded transactions and the many pleaded representations including:

(a)    the first, second, third and fourth Shepherd finance representations;

(b)    the first and second Shepherd growth representations;

(c)    the Shepherd head office value representation;

(d)    the para 34 Shepherd representation;

(e)    the Steidle value representation;

(f)    the Steidle $65 million representation;

(g)    the Steidle 550 growth representation;

(h)    the Steidle sign-on team representation;

(i)    the Steidle $200 million;

(j)    the Steidle USD$250 million representation;

(k)    the Steidle $325 million convertible notes representation;

(l)    the Steidle $45 million to $65 million representation;

(m)    the Shepherd benefit representation;

(n)    the Shepherd cash flow representation;

(o)    the Shepherd profit representation;

(p)    the Shepherd first fees representation;

(q)    the Shepherd second fees representation;

(r)    the Shepherd capacity representation; and

(s)    the six Shepherd catalyst representations.

131    The Shepherd parties contest the pleaded claims and deny the causes of action asserted against them and the related claimed relief.

132    Apart from these matters pleaded by the Watt parties, the Shepherd parties (SPG and RXH) filed a cross-claim against three of the Watt party applicants (Mr Watt, Mrs Watt and Mazzawattie).

133    They plead the express terms of an Asset Transfer Agreement (ATA): [9(a)-(j)]; the steps taken by Mr Watt on 10 July 2016 to perform the relevant terms of that agreement: [11(a)-(c)]; the terms of a Share Subscription Agreement (SSA) of 10 July 2016; the steps taken by RXH on 1 June 2016 and steps taken by SPG between 1 June 2017 and May 2018. They plead breaches of the ATA.

134    They plead entry on 21 March 2017 by Mazzawattie, RXH and SPG into a Trade Receivables Agreement (TRA); the terms of it; steps taken under it from 20 March 2017 and 28 June 2017; and Mazzawattie’s failure to account to SPG as required under the TRA concerning the collection of trade debts. As to these matters, the Shepherd parties claim $4.5m or equitable compensation.

135    They also plead an Asset Agreement of 18 June 2018 between SPG and Mazzawattie; the relevant express terms; SPG’s performance of it; Mazzawattie’s breaches of obligations to pay amounts and to take steps under it. They claim, in respect of these matters, $315,143.31 and specific performance of particular obligations.

136    They plead the Franchise Agreements of 17 December 2016 between SPG and the nine NSW pharmacies; the relevant express terms ([43(a)-(g)]) including the obligation to pay for services provided by SPG, and the obligations of the “Guarantor” of the obligations of the franchisee in each case; the provision of services by SPG to each pharmacy and the fee invoices issued to each pharmacy franchisee and the resultant amount owing: [45]-[80]; a total amount of $1,110,006.64.

137    They plead that Mr Watt, as guarantor of six the NSW pharmacy franchisees, failed to pay the amounts due and SPG seeks judgment for the relevant amount. A similar claim is made against Mrs Watt as guarantor of three NSW pharmacy franchisees. Judgment is sought against her. By the statement of cross-claim as originally filed, similar claims are made by SPG in respect of the seven ACT pharmacies: [84]-[117].

The proposed amendments to the cross claim

138    By that part of the Interlocutory Application concerned with leave to amend the statement of cross-claim in the form of the proposed amended statement of cross-claim prepared and settled for the Shepherd parties by Mr O’Neill of counsel (a document before the primary judge on 20 May 2021 as Annexure MAN-1 to the affidavit of Mr Nurse filed on 19 May 2021 at 5.09 pm), the Shepherd parties sought to join four of the existing Watt party applicants as cross-respondents as necessary parties to the claims against four of the nine NSW franchisees already fully pleaded: Mrs Peacock concerning the “Russell Street Pharmacy”; Mr McCallum, concerning the “Tumbarumba Pharmacy”; Asbet concerning the “Judges Pharmacy”; and Wattabear concerning the “Cootamundra Pharmacy”.

139    They also sought to plead breaches by Mr Murray, Mr Sergi and Mrs Peacock of obligations as guarantors of particular franchisees.

140    They also sought to add a breach of contract claim at [80A] and [80B] although those paragraphs are simply conclusionary as to the existing pleading at [44]-[80].

141    They sought to add a claim against Mr Watt of contended breaches of duty arising under ss 180, 181 and 183 of the Corporations Act 2001 (Cth) as a director of SPG and RXH, and breaches of fiduciary obligations arising otherwise.

142    They plead conduct from at least December 2016 concerning Mr Watt’s role in relation to four NSW franchisees and his role as a guarantor of six of them giving rise to losses suffered by SPG and RXH: six heads of damage are pleaded. They plead conduct of Mr Watt of interfering in the contractual relations between SPG/RXH, on the one hand and particular franchisees, on the other. The pleaded loss is $214,999.68. They also plead loss suffered by SPG by reason of Mr Watt’s conduct as earlier described, in relation to financial assistance of $500,000 provided by SPG on 15 May 2018. The consequential claim is $712,691.50. They claim other losses suffered by SPG due to Mr Watt’s pleaded conduct amounting to $177,573.

143    They also plead other losses suffered by SPG due to Mr Watt’s pleaded conduct (particularly the contractual interference claim) which deprived SPG of the exercise of options to extend the initial term of each of the Franchise Agreements for two new terms of five years each. That claim is framed as a loss of expected profits over the new Terms 2 and 3 of the agreements. That loss is said to be: Term 2, $4,320,000; Term 3, $5,355,000.

144    Apart from all of these claims, the Shepherd parties claim losses suffered from May 2018 as a result of suppliers ceasing to pay rebates to SPG or RXH and paying them instead to persons (unknown) but at the direction of Mr Watt in breach of the duties earlier described owed by him to SPG and RXH. The lost rebates are not quantified in the amended statement of cross-claim.

145    Finally, the proposed amended statement of cross-claim abandons all of the paragraphs pleading the claims (in similar form to the claims concerning the NSW franchisees) in relation to the seven ACT pharmacy franchisees.

146    The claims the Shepherd parties sought to agitate by the unamended statement of claim are significant and so too are the claims they sought to make by leave by the proposed amendments (some of which are entirely new and others of which join parties necessary to the cross-claims as earlier framed). The Shepherd parties submit that they believe the claims to be “good” (both original and those sought to be raised by leave) and they emphasise that the statement of cross-claim had been put in its final proposed form by counsel and was before the primary judge late on 19 May 2021. They also emphasise that as at 20 May 2021, no trial date had been allocated.

Leave to appeal

147    It is convenient to address Proposed Grounds 1 and 4 together.

148    There is little discussion by the primary judge as to the nature and content of the cross-claim of the Shepherd parties and the amendments the Shepherd parties sought to raise by leave: see the brief references at J [32], [34], [35] and the last four sentences of [56].

149    That may well be due to the circumstance that the primary judge had been case managing the litigation and was entirely familiar with it and felt no need to explain the burden of the potential orders in the particular context of the rights and remedies agitated or to be agitated in the proceeding. However, the proposed amended statement of cross-claim had only been filed after 5.00 pm on the day before the hearing.

150    We take the view that in exercising a discretion under the civil practice and procedure provisions (s 37M(4)), which has the effect of bringing about the effective finality of the proceedings in the circumstances of a failure of a party to comply with a direction or order of the Court, the primary judge ought not only take into account the circumstances of the failure, explanations given and whether the party and its advisers have complied with the obligations arising under s 37N(1) and s 37N(2) respectively, but also clearly take into account the subject matter, scope and content of the claims and any cross-claims effectively brought to finality by the exercise of the discretion, and whether the exercise of the discretion in the manner contemplated brings about the “just resolution of the dispute”.

151    The character of the proceeding, its complexity, scope and scale and proposals to amend the framing of issues to be quelled by an exercise of judicial power in the proceeding would usually compel some reflection for weighing in the balance the bundle of rights and interests in issue in the proceeding overall affected by the proposed orders. That process of weighing would involve considering the detail of the rights and issues in question and the consequences of effectively extinguishing the defences and cross-claims of, in this case, the Shepherd parties and the rights and interests they sought to agitate in the controversy. That is to say, the prejudice likely to be suffered if the orders were made.

152    The amended pleading settled by counsel had not been before the primary judge previously and the ex tempore reasons themselves do not reflect a discussion of (or any detailed consideration of) the complexity of the proceedings which would in every practical sense be brought to an end by the orders made that day, as explained by the ex tempore reasons pronounced that day.

153    We have already noted the chronology of events from the commencement of the proceedings by the Watt parties on 13 June 2019 to the orders made on 20 May 2021 (and beyond): see [8] to [26] of these reasons.

154    The following additional aspects of the chronology ought to be noted here.

155    The proceeding was commenced by an originating application and the SOC pleading the matters already noted. In order to formulate the SOC addressing all of the elements of the transactions and each one of the many pleaded representations mentioned earlier, considerable time and effort must have been dedicated by the Watt parties, solicitors and counsel to gathering the relevant instructions, considering the documents and drafting and finalising the pleaded case. Even with the advantage of that preparation, the Watt parties who had been directed on 21 February 2020 to serve outlines of evidence together with any documents upon which they intended to rely by 17 April 2020 (55 days later) were not able to do so until 12 October 2020, seven months and 21 days later (essentially eight months later). Orders were made on 25 June 2020 adjusting the date for service by the Watt parties of their material until 10 July 2020 and then further orders were made on 24 September 2020 again adjusting the date to 2 October 2020. Those various orders were made with the consent and support of the Shepherd parties. Ultimately, on 12 October 2020, the Watt parties served outlines of evidence of eight witnesses and 1,400 pages of documents.

156    As the primary judge notes at [19] of his reasons, the solicitor for the Shepherd parties made no criticism of the almost eight months’ delay brought about by disruptions to the Watt parties caused by the COVID-19 pandemic and related restrictions and difficulties.

157    The order of 24 September 2020 also provided for the service by the Shepherd parties of their outlines of evidence and documents by 11 December 2020, a period of 60 days (almost nine weeks, but not eight months), from the date of service on 12 October 2020 by the Watt parties of their material. The Shepherd parties could not meet that 60 day requirement and the parties agreed a consent order on 3 February 2021 extending the time until 2 April 2021. The primary judge required an explanation for the extension until 2 April 2021. The solicitors for the Shepherd parties responded to the chambers of the primary judge advising that a number of factors (reasons) had made the extension of time necessary including that the two key witnesses had been ill and insurance issues (the extent of coverage) needed to be resolved (and had been resolved).

158    On 4 February 2021, the primary judge made orders extending the time for the Shepherd parties to serve outlines of evidence and documents until 2 April 2021.

159    The extension of time under the order of 4 February 2021 would provide the Shepherd parties with additional time, calculated from 11 December 2021, of three months and three weeks until 2 April 2021, and taking into account the period from the date of service of the material of the Watt parties on 12 October 2020, the total time available to the Shepherd parties was five months and three weeks.

160    By the time of the making of the order on 4 February 2021, both sets of parties, by consent, were content with the way in which the proceeding had evolved, no doubt with the parties and their solicitors taking into account the difficulties of dealing with complex factual matters in a period of social anxiety and threats to health, and the difficulties of conducting the litigation and gathering instructions in an orthodox way brought about by the pandemic and other factors. such as the illness of witnesses and insurance issues. The primary judge had expressed concern about the extension to 2 April 2021, but, in light of the submissions of the Shepherd parties and recognising the consent of the Watt parties to the proposed extension, the primary judge made the orders of 4 February 2021 extending the time available to the Shepherd parties to 2 April 2021.

161    The present issue began when the Watt parties advised the primary judge on 27 April 2021 of non-compliance by the Shepherd parties with the order of 4 February 2021, described by the Watt parties as “slippage” in compliance with the order. The primary judge listed the matter for case management on 7 May 2021 and directed the Shepherd parties to file an interlocutory application by 14 May 2021 seeking an extension of time for the outlines (to 28 May 2021) and leave to amend (by 17 May 2021). Programming orders were made for a hearing of the application on 20 May 2021. The Interlocutory Application was supported by the affidavits of Mr Nurse filed on 14 May 2021 and 19 May 2021. We have noted the content of those affidavits: see [27]-[39] of these reasons.

162    On 20 May 2021, the primary judge was confronted with a number of possible ways in which to exercise the discretion conferred by ss 37P(5) and (6), his Honour finding for the purposes of the exercise of the discretion that the Shepherd parties had failed “to conduct the proceeding in a way consistent with the overarching purpose” as required by s 37N(1) and that the solicitors had failed to properly “take account” of that duty and had failed to “assist” the party to comply with it: s 37N(2)(a) and (b).

163    A number of possibilities arose in relation to the exercise of the discretion including these possibilities:

(a)    extend the time by eight days to Friday, 28 May 2021 to enable the Shepherd parties to serve their outlines of evidence and documents, with a guillotine order (as suggested by the Shepherd parties) that their defence be struck out if they failed to comply with the extension order, or without a guillotine order, coupled in either case with an order listing the matter for Monday, 31 May 2021 for review so as to supervise the consequences of non-performance of the extension order should that occur (listed for case management no doubt at the cost of the Shepherd parties having sought the indulgence);

(b)    make the above order and grant leave to amend in terms of the proposed draft amended statement of cross-claim settled by counsel as put before the Court and the parties;

(c)    grant the extension to 28 May 2021 and refuse leave to amend; or

(d)    refuse the extension application; refuse leave to amend as proposed or at all; strike out the defence and the notice of cross-claim of the Shepherd parties; dismiss the interlocutory application; make procedural directions to determine the terms of the judgment and orders to be entered and made in the proceeding in reliance on rules 5.23 and 1.40 of the FCR.

164    The primary judge exercised the discretion to bring about effective finality in the proceeding and the rights and interests of the parties by exercising the discretion in the manner described in the last of these options.

165    The question for the Full Court, of course, is not one of whether, standing in the position of the primary judge, the Full Court would have exercised the discretion differently according to one of the other possibilities described above (or other possible orders), but whether the decision of the primary judge is attended with sufficient doubt to warrant its reconsideration on appeal and whether substantial injustice would result if leave were refused. Because the orders of the primary judge have the practical effect or practical operation of finally determining the whole of the proceeding and thus the rights and interests of the parties, a prima facie case exists for granting leave to appeal. As the Full Court observed in Samsung at [33] citing Bucknell at 225-7: “Leave should readily be granted if, as a practical matter, the interlocutory order has the effect of determining the whole of the proceeding or an important issue in the proceeding” (emphasis added).

166    The question of whether the orders bring about effective finality of the proceedings goes to both questions of “sufficient doubt” and “substantial injustice”.

167    In exercising the discretion to bring about effective finality in the proceeding by making the orders of 20 May 2021, the primary judge had particular regard to the failure of the Shepherd parties to discharge the s 37N(1) duty to conduct the proceeding in a way consistent with the overarching purpose. In Expense Reduction, the Court (French CJ, Kiefel, Bell, Gageler and Keane JJ) considered provisions of the Civil Procedure Act 2005 (NSW) (CPA) and provisions of the Uniform Civil Procedure Rules (UCPR) which are in substantially the same terms as ss 37M, 37N and 37P of the FCA Act. At [51], the Court recognised that speed and efficiency, in the sense of minimum delay and expense, “are essential to a just resolution of proceedings” and that the achievement of a “just but timely and cost-effective resolution of a dispute” has effects upon the parties, the Court and other litigants, and that in making interlocutory decisions, the Court must have regard to the “wider objects of the administration of justice”.

168    The CPA is a little different in its terms in some respects. Section 58(1)(b) provides that, although the Court has power under s 61(1) of the CPA to make such order or direction “as it thinks fit” and power under s 61(2) to make such orders “as it considers appropriate” in the conduct of the proceeding, any orders made under the discretionary powers conferred by the CPA must be in accordance with the “dictates of justice” and the matters to be taken into account in deciding where the dictates of justice lie, include “the degree of injustice that would be suffered by the respective parties as a consequence of any order or direction made in the process of case management”: Expense Reduction at [54], quoting s 58(2) of the CPA.

169    In Expense Reduction, the Court observed (at [56]) (in terms equally applicable to ss 37M, 37N and 37P of the FCA Act) that the “evident intention and expectation” of the CPA is that the Court use the broad powers to facilitate the “overriding purpose” (or in the case of ss 37M, 37N and 37P, the “overarching purpose”). At [57], the Court observed that the overarching purpose “may require a more robust and proactive approach” on the part of courts.

170    The Court was not there concerned with the entry of final judgment in favour of a party, and clearly did not have orders of that kind in mind, as the Court (at [57]) immediately added, after the observations concerning a need for courts to be more robust and adopt a proactive approach, the further observation that “unduly technical and costly disputes about non-essential issues are clearly to be avoided” (by an exercise of the powers so conferred) and observed that the “powers” are “not at large” but governed in the case of the CPA by the “dictates of justice”. The Court observed (at [57]) that in exercising the discretionary powers (analogous to the FCA Act powers) “regard is to be had in the first place to how to how the overriding purpose of the CPA can be furthered [in exercising the powers], together with other relevant matters including those referred to in s 58(2) [the “dictates of justice” and the matters quoted at [74] of these reasons]” (emphasis added). In many respects, the matters comprehended by the “dictates of justice” and the conceptions quoted at [74] of these reasons are comprehended by s 37M(1) and (2) of the FCA Act.

171    In exercising the discretionary powers in ss 37P(5) and (6), it is necessary to undertake a balancing exercise in which consideration is to be given to how the overarching purpose of s 37M can be furthered, together with other relevant considerations such as enabling the “just determination of all proceedings before the Court” as one of the recited “objectives” of the overarching purpose (s 37M(2)(a)) of facilitating the “just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible” (s 37M(1)(a) and (b)), by, for example, avoiding unduly technical and costly disputes about non-essential issues. That balance involves an assessment of the consequences of making (or not) the proposed orders for each of the parties.

172    In this case, however, there was no or no sufficient assessment of the consequences of making (or not) making the proposed orders on either the Watt or the Shepherd parties. In short, this is the principal reason why we respectfully conclude that the exercise of the discretion, in this case, miscarried.

173    The balancing exercise that needed to be undertaken involved assessing the prejudice to the Shepherd parties in the context of the subject matter, content and complexity of the proceedings should the application for an extension to Friday, 28 May 2021 and the application to amend the statement of cross-claim be refused, on the one hand, and the prejudice to the Watt parties should either or both orders have been made, on the other hand.

174    In assessing where the balance lies, the primary judge was required to keep in mind that the focus of the overarching purpose, the recited objectives and powers conferred in order to “best promote the overarching purpose” (s 37M(3)), are directed to facilitating the just resolution of the issues in the proceeding, according to law quickly, inexpensively and efficiently, of which there are many, rather than a conferral of power for the purpose of, in effect, disciplining a party by imposing final relief in the proceedings because that party has failed to comply with a direction or order of the Court or has failed to discharge the duty imposed under s 37N(1).

175    We do not, by these observations, underestimate the gravity of the concerns held by the primary judge about the conduct of the Shepherd parties that so significantly informed his Honour’s exercise of the powers in the way he did, as expressed in his reasons at [22] and [52]-[60].

176    The consequences contemplated by ss 37P(5) and (6) are that if a party fails to comply with a direction given by the Court about the practice and procedure to be followed in any part of a proceeding (see also, s 37P(2)), the discretionary power to make such order as the Court or a judge “thinks appropriate” is engaged. The discretion thus engaged is not at large and must be exercised according to settled principle recognising that the focus of the powers conferred by s 37P (taken in conjunction with the statutory framework created by ss 37M, 37N and 37P) is to identify how the overarching purpose can be furthered in facilitating a just, but quick and cheap, resolution of the real issues in the proceeding having regard to the subject matter, content and complexity of the proceeding, which is not confined to exercising the powers to bring the proceeding and the rights and interests of the parties to effective finality as, in effect, a punitive consequence of a failure to comply with orders and a failure to discharge the duty cast upon a party by s 37N(1) of the FCA Act.

177    We respectfully consider that the difficulty in the present case is that notwithstanding the matters emphasised by the primary judge and the characterisation of the conduct adopted by the primary judge, the steps taken by the Shepherd parties assisted by Mr O’Neill of counsel ultimately resulted (albeit after a period of delay) in a position on 20 May 2021 where the outlines were then eight days away from completion and service, and the amendments were then in final form (emerging as they often do in commercial litigation out of the intensity of the preparation of the outlines by counsel and counsel’s focus upon the then state of the pleadings in the proceeding and whether other matters needed to be properly raised, pleaded and agitated).

178    What follows is that, at that point, the primary judge, in our respectful opinion, was required to examine the consequences for the Shepherd parties in refusing them an opportunity to put on their evidence, assert their defences to the various (and many) claims of the Watt parties and to agitate the cross-claims they sought to assert in the context of the rights and interests in controversy in the proceeding. That evaluative process would also have engaged an assessment, in the context of the complexity of the proceeding, of the precise consequences for the Watt parties should the primary judge grant the extension and the amendments. The Shepherd parties and their solicitor had both offered their apology to the Court, trial dates had not been allocated and the Shepherd parties were willing to accept a guillotine order striking out their defence should the 28 May 2021 deadline not be then met.

179    In our respectful opinion, that evaluative balancing exercise, fully taking into account the subject matter of the proceeding and the truly “determinative” consequences for the Shepherd parties, is not properly reflected in his Honour’s reasons in explaining the basis for the exercise of the discretion.

180    At [59], the primary judge found that if he were to grant the extension of time to 28 May 2021 and the proposed amendments, there would be further delay in the proceeding being heard, beyond the delay already occasioned by the extension on 4 February 2021 to 2 April 2021. That, in part, would be due to new parties being joined to the cross-claim beyond those already joined (which must be a reference to Riverina, Mr Sergi and Mr Murray) with each new party likely to have their own defence to plead and possibly cross-claims to be made. The primary judge considered that the additional delay would also impact upon the capacity of the parties to recall the relevant events, and the expansion in the cross-claim by the proposed amendments would compound that problem.

181    But the fact remains that at 20 May 2021, the extension sought was for a further eight days and the extension beyond the due date set on 4 February 2021 of 2 April 2021 amounted to an additional period, in all, of about eight weeks. The exercise of the discretion, in taking into account the matters of concern to the primary judge just mentioned, ought also to have taken into account other possible orders such as allocating a trial date later in the year, setting expedited programming orders working back from the trial dates, together with a number of dates allocated for case management hearings in order to supervise the progression of the matter. If trial dates could not be allocated, expedited programming orders might nevertheless have been considered coupled with the allocation of dates for supervisory case management hearings of the proceeding.

182    In other words, we respectfully consider that the concerns about additional delay ought also to have been addressed by mechanisms other than the dismissal of the interlocutory application bringing about practical finality in the proceeding by the orders as made in the exercise of the primary judge’s discretion.

183    Accordingly, we are satisfied that the decision of the primary judge is attended by sufficient doubt to warrant its reconsideration on appeal and we are also satisfied that the effective finality in the rights and interests of the parties brought about by the orders gives rise to substantial injustice in the event that leave to appeal is refused.

184    Thus, leave to appeal is to be granted with respect to Proposed Grounds 1 and 4.

185    We now turn to address Proposed Grounds 2, 3, 5 and 6. They can be addressed briefly.

186    As to Proposed Grounds 2, 3 and 5 we accept that no application was made by the Watt parties for the making of orders pursuant to rule 5.23 of the FCR as submitted by the Shepherd parties. It is clear, however, that the primary judge also relied on ss 37P(5) and (6) to make Orders 3 and 4. On the assumption that the primary judge had not erred in making Order 1, contrary to the findings that we have made above, given the extent of the non-compliance by the Shepherd parties with the directions to serve their evidence, we are satisfied that s 37P(5) and (6) provided the primary judge with the power to make Orders 3 and 4 of his own motion independently of any application by the Watt parties.

187    Proposed Grounds 2, 3 and 5 have insufficient prospects of success to justify leave to appeal. Leave to appeal on these grounds is refused.

188    As to Proposed Ground 6, we do not accept that the primary judge failed to afford procedural fairness to the Shepherd parties prior to making Orders 3 and 4 striking out the defence and dismissing the cross-claim.

189    The Shepherd parties were at all relevant times represented by competent and experienced solicitors and counsel.

190    The Shepherd parties were expressly put on notice by the primary judge at the case management hearing on 7 May 2021 that his Honour required an explanation for their failure to comply with earlier orders for the provision of their evidence and that he would need to be persuaded by evidence to allow any further extension of time for the Shepherd parties to serve their evidence. The matter was adjourned at the conclusion of the case management hearing to permit the Shepherd parties to file an interlocutory application and affidavit evidence in support of the relief that they sought. No application was made for further time to prepare the application and supporting evidence.

191    At the hearing of the Interlocutory Application on 20 May 2021, the Shepherd parties moved on the application and read the supporting affidavits of Mr Nurse. The primary judge made clear to counsel for the Shepherd parties that he was considering the entry of default judgment against the Shepherd parties and invited counsel to address him on why he should not to do so. Counsel for the Shepherd parties made submissions in response to the primary judge’s invitation. It was not suggested by the Shepherd parties that they had been given insufficient time to make submissions or adduce further evidence to address why the primary judge should not make orders dismissing the defence and cross-claim.

192    Proposed Ground 6 has insufficient prospects of success to justify leave to appeal. Leave to appeal on this ground is refused.

Re-exercising the discretion

193    We have concluded that in re-exercising the discretion, Order 1 should be set aside and the proceeding should be remitted to a docket judge other than the primary judge for the purpose of making case management orders establishing a timetable for the service of the evidence of the Shepherd parties and the filing of an amended cross-claim. We have reached that conclusion for the following principal reasons.

194    First, the impact of granting the Extension Order on the timely, efficient and cost-effective resolution of the proceedings would have been insignificant. Neither the primary judge nor the Watt parties pointed to any material prejudice. Conversely the prejudice to the Shepherd parties of not being permitted to rely on any evidence was manifest and immediate and led to the striking out of the defence, dismissal of the cross-claim and summary judgment against them.

195    Second, the impact on the timely, efficient and cost-effective resolution of the proceedings of granting leave to rely on the amended cross-claim, in particular the addition of new parties as cross respondents, needs to weighed against the following matters:

(a)    the efficiency of addressing all related claims in a single proceeding;

(b)    the absence of a hearing date;

(c)    the explanation on oath that the solicitors for the Shepherd parties had not previously identified the new claims until the witness conferences with counsel in April 2021;

(d)    the absence of any suggestion that the existing cross-claim did not raise bona fide claims; and

(e)    the amendments sought to expand the existing grounds in the cross-claim, including adding necessary additional parties and otherwise narrow the scope of the cross-claim.

196    Third, the evidence of Mr Nurse demonstrated that the Shepherd parties were taking substantive and material steps to progress the filing of an amended cross-claim and to address their failure to comply with previous orders to serve their evidence. There had been significant delays in serving evidence, but experienced counsel had since been briefed, witness interviews had been conducted and draft outlines had been prepared that would be finalised within eight days, a substantive defence and cross-claim had been served and a draft amended cross-claim had been finalised and was before the Court.

197    Fourth, substantive explanations had been provided by Mr Nurse for the delays in serving the evidence and the preparation of the proposed amendments to the cross-claim. We accept that further amplification of those explanations may well have been of assistance to the Court, but a broad explanation of the largely self-evident challenges created by the COVID-19 pandemic, particularly given the Melbourne location of the instructing solicitors, difficulties with insurers, witness illnesses and the need to replace the solicitor with day to day conduct of the matter, could not be dismissed peremptorily. It is also important to take account of understandable concerns about the potential waiver of legal professional privilege if more comprehensive explanations were provided, particularly with respect to the position that an insurer may have taken with respect to the proceeding and advice given by counsel as to the need for the preparation of an amended cross-claim.

198    Fifth, it is not uncommon that on counsel being briefed in a matter, particularly following interviews with material witnesses, additional issues and further evidence are identified that might be required in order to ensure that all relevant matters are addressed in a single proceeding. The impact of any amendments to pleadings on the timely, efficient and cost-effective resolution of the proceeding needs to be weighed against the timely, efficient and cost-effective benefits of resolving all interrelated issues in a single proceeding rather than multiple proceedings. In this case, that consideration weighs in favour of permitting the filing of the amended cross-claim, given the overlap in the factual basis for the claims against the proposed three new cross respondents and the claims that were already advanced against the Watt parties as guarantors.

199    Sixth, in circumstances in which there had already been substantial delays in both parties filing their evidence, previous extensions had been agreed by consent, steps were being taken to finalise their evidence, explanations albeit of a general nature had been provided for the delays and the matter had not been fixed for hearing we consider that the availability of alternative case management approaches to address delay, such as a guillotine order for the service of evidence as proffered by the Shepherd parties, or requiring further explanations for the delays with appropriate costs consequences weigh heavily against a dismissal of the Interlocutory Application.

200    We are therefore satisfied that Order 1 should be set aside, together with Order 2, the consequential costs order.

STRIKING OUT THE DEFENCE AND DISMISSING THE CROSS-CLAIM

201    The analysis and conclusions above, with respect to the alleged miscarriage of the discretion by the primary judge in making Order 1, apply equally to Orders 3 and 4 because the basis on which Orders 3 and 4 were made striking out the defence and dismissing the cross-claim falls away if Order 1 is set aside and the relief sought in the Interlocutory Application is granted by a re-exercise of the discretion.

DISPOSITION

202    The Court will grant leave to the Shepherd parties to appeal the orders made by the primary judge on 20 May 2021 but only in respect of Proposed Grounds 1 and 4. The appeal will be allowed.

203    The subsequent orders and declarations made by the primary judge on 23 July 2021 together with the orders and declaration made by the primary judge at the conclusion of the hearing on 13 December 2021 will be set aside, as the basis for making those orders and declarations necessarily falls away given the setting aside of Orders 1 to 4 made on 20 May 2021.

204    The matter will be referred to the National Operations Registrar for reallocation to a judge in the Commercial and Corporations National Practice Area.

205    The Shepherd parties’ costs of the application for leave to appeal and the appeal are to be paid by the Watt parties.

Associate:

Dated:    13 May 2022

SCHEDULE OF PARTIES