FEDERAL COURT OF AUSTRALIA

Transpacific Pty Ltd v Prudential Retirement Insurance and Annuity Company (No 2) [2011] FCA 1215

THE COURT ORDERS THAT:

1.    The hearing set down for 19-21, 24 and 25 October 2011 be vacated.

2.    The applicant, Transpacific Pty Ltd, pay the first respondent’s costs thrown away by vacation of the hearing on an indemnity basis.

3.    The first respondent be directed to provide the applicant with copies of all the applicant’s affidavits and such pleadings as are requested.

4.    The applicant to provide a list naming all witnesses upon whose evidence, including expert evidence, the applicant seeks to rely by 17 November 2011 after which date no variation to that list may be made.

5.    Should the applicant fail to provide the list in order 4 by 17 November 2011 the proceeding stands dismissed.

6.    All evidence, including expert evidence, of the applicant to be filed and served by 16 December after which time no further evidence may be filed by the applicant without the leave of the Court.

7.    Any evidence in reply to be filed and served by the first respondent by 31 January 2011.

8.    The proceeding be listed for hearing for five days commencing on a date to be advised by the Court.

9.    The injunctions made by order 1 on 14 February 2011, as varied on 9 June 2011, and order 5 of 14 February 2011 be dissolved.

10.    Order 9 be stayed for a period of 7 days from the date of these orders.

11.    Liberty to apply on 3 days’ notice.

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

REASONS FOR JUDGMENT

The present application

1        On 19 October 2011 I made orders in this proceeding and undertook to give reasons for those orders at a later date. These are my reasons.

2        On 17 March 2011 this proceeding was listed for final hearing for five days commencing on 19 October 2011. At a directions hearing on 5 October 2011, Mr Hansen, the solicitor for the applicant, Transpacific Pty Ltd (Transpacific) informed the Court that his firm, Harris & Company, was ceasing to act in the matter. He said that his only instructions were that Transpacific requests a short adjournment “till Monday or Tuesday next week” when it will inform the Court on a number of issues including its attitude to the hearing. Mr Hansen said he had been explicitly instructed that the hearing dates should be preserved “for the time being”. Mr Hansen indicated that there was some possibility that the matter could be resolved in the near future.

3        On 11 October Mr Patakas, solicitor, appeared for the applicant. Mr Patakas foreshadowed an application by Transpacific to vacate the hearing dates. He referred to difficulties in obtaining Transpacific’s files from Harris & Co and also said that Transpacific would need to put on further evidence in reply to the expert evidence of the first respondent, Prudential Retirement and Insurance Annuity Company (Prudential) on the issue of New York law. I ordered that any application for the vacation of the hearing dates be filed by 4 pm on 14 October 2011 and that any such application be listed for hearing on the first day of the trial being 19 October 2011.

4        By interlocutory application filed on 14 October, only five days before the scheduled commencement of the hearing, Transpacific sought orders that the hearing dates be vacated, that the matter be relisted for directions and that the costs of the application be costs in the cause. In accordance with my orders, the application was listed for hearing on 19 October 2011. On 19 October I heard the parties on Transpacific’s application to vacate the hearing scheduled to commence on that day and made a number of orders including that the hearing listed for five days, commencing on 19 October be vacated and that Transpacific pay Prudential’s costs thrown away as a result of the hearing being vacated on an indemnity basis.

The dispute

Default in payment

5        Through its subsidiary, HeavyLift Pty Ltd, Transpacific operates an air freight business specialising in freighting large and unique cargo. By agreement dated 29 September 2010, Transpacific entered into an agreement to purchase a Boeing 737-400 aircraft, registration number VH-JWL (the aircraft) from Wells Fargo Bank Northwest, National Association. It proposed to convert the aircraft from a passenger airline to a cargo carrier for use in its business.

6        By deed of mortgage dated 22 January 2011 Transpacific as mortgagor entered into a mortgage with Prudential as mortgagee. The mortgage provided for regular payments of principal and interest. A payment required to be made on 20 January 2011, was not made by that date. By letter dated January 31, 2011 Prudential wrote to Mr Nicholas Leach, the principal of Transpacific and said:

Without limiting or restricting Prudential’s right to exercise at any time any right or remedy available to it, Prudential further advises you that, as a result of the occurrence and continuance of such an Event of Default

(a)    the overdue principal and interest on the capital Loan shall bear interest at the default rate … effective as of January 20, 2011, and

(b)    if, by February 7, 2011, Prudential does not receive payment of such overdue principal and interest at such default rate … or Prudential does not receive the fees of its advisors … then Prudential intends to exercise its rights and remedies….

Appointment of Receivers and Managers

7        Transpacific paid the amount of interest and principal referred to in Prudential’s letter of 31 January and claims that it was paid “before midnight on 7 February United States time”. Prudential contends that Transpacific’s payment was not received in the United States until 8 February 2011.

8        In a letter dated 7 February 2011 Prudential advised Mr Leach that as a result of Transpacific’s failure to make payment in accordance with the letter of 31 January it had accelerated the obligation to repay principal under the mortgage and demanded payment of all amounts owing to Prudential under the relevant documents including interest on those amounts. On 8 February 2011 Prudential appointed the second and third respondents as Receivers and Managers in respect of certain property of Transpacific “including but not limited to the Aircraft and all associated property (including all technical and maintenance records relating to the Aircraft)”.

9        Transpacific claims that Prudential’s actions are invalid; it asserts that Prudential was not entitled to depart from the undertaking given in its letter of 31 January and exercise its rights under the mortgage. On 10 February 2011 Transpacific filed an application in this Court seeking various orders including that the appointment of the second and third respondents as Receivers and Managers was invalid, that the acceleration notice was invalid and an order restraining the first respondent from taking any further steps to enforce the aircraft mortgage. In addition Transpacific sought orders requiring Prudential to consent to the operation of the aircraft by Nauru Aircraft Corporation (NAC).

Prudential’s refusal to consent to lease

10        The other aspect of the dispute relates to the use that Transpacific may make of the aircraft and the need to obtain Prudential’s consent. On 13 May 2011, by interlocutory application, Transpacific sought orders in respect of the control and operation of the aircraft to enable it to pursue its plans for the aircraft’s commercial use. Those plans involved a proposed lease to NAC which required the consent of Prudential.

11        Prudential refused to give its consent claiming that it needed more information from Transpacific before it was in a position to make a decision. The circumstances of that application which I dismissed on 9 June 2011 are set out in the reasons for judgment in Transpacific Pty Ltd v Prudential Retirement Insurance and Annuity Company [2011] FCA 630.

The injunction

12        On 14 February 2011 the Court, by consent and without admissions, imposed injunctions that restrained both parties from moving the aircraft from its current location at Old Brisbane International Airport. Prudential was restrained from taking any steps to deal with the aircraft, change any of its details on the CASA register of Australian aircraft or advertise it for sale. The injunction did not prevent having the aircraft certified and accepted for operation by CASA or it being maintained in accordance with the CASA approved system of maintenance.

13        The injunction was varied on 9 June 2011 so that it bound only the respondents. It was accepted that Transpacific’s right to move the aircraft was limited by the terms of the mortgage which, as described above, required Prudential’s approval.

Procedural history

14        The procedural history of this matter is not straightforward. The parties have been distracted in their preparation for trial by efforts to settle the dispute either directly between the parties or with the assistance of an independent mediator. These efforts may have been admirable but they were wholly unsuccessful. Orders made on 17 March 2011 provided for there to be a mediation by 30 April. On 28 June 2011 the Court noted that the parties had agreed to attend a mediation before the Hon. Trevor Morling QC on 15 July. During this period there were also informal settlement discussions which were unsuccessful.

15        A major concern for Transpacific has been that without Prudential’s consent to the lease of the aircraft it has been exposed to significant outgoings and expenses in relation to the aircraft but unable to use it to generate income. This prompted its unsuccessful challenge to Prudential’s failure to consent to a lease to NAC in June 2011. On 9 September 2011 Transpacific tried again to apply for similar relief in relation to Prudential’s withholding of consent. The application came before the Duty Judge, Jacobson J. His Honour refused the application for short service as in his opinion the interlocutory relief sought was the same as that refused in June.

16        The significant financial implications for Transpacific of the grounding of the aircraft were such that an early date for hearing was set. On 14 February 2011, the matter was listed for hearing over two days commencing on 4 April 2011. On 17 March that listing was vacated, in part because the parties could not be prepared by that date but also because it was agreed that a five day hearing was required. Accordingly, as mentioned above, the proceeding was relisted for five days commencing on 19 October 2011.

17        On 14 February 2011 orders for filing evidence and other pre-trial steps were made. Transpacific was ordered to file and serve any additional affidavits, including expert reports by 3 March 2011. Prudential was ordered to provide its evidence by 17 March.

18        On 17 March when the April hearing dates were vacated the dates for filing of evidence were extended to 24 March for Transpacific and 14 April for Prudential. Transpacific filed a number of affidavits between 1 April and 25 May 2011. On 27 June, with the consent of the parties, I made orders in chambers including that the time for the filing of Transpacific’s evidence be extended to 28 July 2011. Despite these extensions Transpacific was still unable to meet the timetable for filing its evidence.

19        Although Prudential generally consented to the extensions of time for Transpacific to put on its evidence, it was at the same time pressing for the evidence to be provided so that it could assess the evidence it needed in reply. In particular at directions hearings it expressed concern that the trial dates should not be again vacated. On its side Transpacific continued to express optimism that it might be able either to raise funds to pay out the mortgage and thus discontinue the proceeding or resolve the issue of consent so that the aircraft could be used to generate revenue.

20        At the end of August yet another extension was sought. On 30 August, following a long discussion with Transpacific’s solicitor as to when its evidence might be ready, the time was again extended, this time to 8 September. The order provided that after that date Transpacific could file no further evidence without the leave of the Court.

21        At that time there was concern because of the imminence of the hearing. However, it was necessary to allow Prudential time to file its evidence. I raised with Mr Newlinds, senior counsel for Prudential, the possibility of his client being given 4 weeks but observed “that would bring you to 5 October, which is getting perilously close”. Mr Newlinds agreed and suggested that Prudential be directed to try and do it within 3 weeks which would be to 29 September 2011. At the same time Mr Newlinds raised the issue of expert evidence about a question of New York law. Prudential had pleaded that the proper law of the contract is New York law and advised that Prudential would be likely to put on an expert as to New York law. This was in the context as to the discussion as to whether the expert would appear by video link connection with the United States. Mr Newlinds said, “I’m simply raising it because our learned friends may need to scramble on that issue”. Mr Hansen, for Transpacific, admitted that he was aware of that issue and that it had “been squarely on the table” since the beginning of the proceedings.

22        On 29 September 2011 there was another directions hearing at which time Mr Newlinds foreshadowed Prudential making an application to have the evidence of US witnesses taken by videolink. He said that such an application would be made within the next week. Mr Hansen said that there was a real prospect that the mortgagee would be paid out in full and that the matter could possibly settle and he would know if this was possible within the next 7 days.

23        It was agreed that the proceeding would come back for mention on 5 October to deal with any interlocutory application by Prudential to set aside notices to produce served on them by Transpacific, to address the issue of witnesses and to hear Mr Hansen on the prospect of Transpacific repaying the loan to Prudential. It was on 5 October that, as mentioned above, Mr Hansen advised the Court that his firm was ceasing to act for Transpacific. What followed on 11 October is described at [2] above.

The application to vacate the hearing dates in October 2011

24        Transpacific’s application to vacate the October hearing dates was supported by an affidavit sworn on 17 October 2011 by its new solicitor, Evangelos Patakas. Mr Patakas was retained to act for Transpacific on 10 October 2011. He described the difficulties he had in familiarising himself with the case and with obtaining instructions. He deposed that Mr Nicholas Leach, a director of Transpacific had been in the United States attempting to raise finance for the company and had been delayed in returning to Sydney because his flights were cancelled or rescheduled as a result of industrial problems. He also described difficulties he experienced in obtaining Transpacific’s files from its former solicitor.

25        In his affidavit of 17 October Mr Patakas indicated that, in his opinion it might be necessary to bring proceedings in the Supreme Court of New South Wales for orders under s 728 of the Legal Profession Act 2004 (NSW) in order to obtain the files.

26        Mr Patakas deposed that having reviewed affidavits filed by Prudential he considered that it was necessary for Transpacific to file both lay and expert evidence in reply, in particular in relation to Prudential’s expert evidence about relevant New York law. Mr Patakas gave details of his efforts to retain US experts and the likely timeframe within which the evidence could be expected to be available. He also referred to the difficulty of retaining counsel to appear at the hearing.

27        In his affidavit and also in his oral submission Mr Patakas said that he was not sufficiently apprised of the details of the case to allow him to represent Transpacific if the hearing was not vacated. If the hearing was to proceed as scheduled he would have to terminate his retainer in which case Mr Leach would seek leave to appear for the company personally.

28        It was not in dispute that Mr Patakas had been retained by Transpacific only from 10 October 2011. Given the short time he had been involved in the matter and his evidence as to the difficulty he has had in obtaining the files from Transpacific’s former solicitor it is no reflection on Mr Patakas that he was not in a position to proceed with the hearing on 19 October. Although the legal issues may not be complex the procedural history is confusing. Attempting to unravel that history would not have been helped by the fact that Mr Leach did not return to Australia from overseas until 17 October.

29        Although the difficulties confronting Mr Patakas may be accepted it is nevertheless the case that since March the matter has been listed as described above, there has been extension after extension to the timetable. The imminence of the hearing has been mentioned in directions hearings on a number of occasions, in particular on 30 August 2011. It was the reason a guillotine order was imposed in relation to Transpacific’s evidence: see [20] above.

30        In referring to Transpacific’s need to put on expert evidence in relation to New York law, Mr Patakas submitted that Prudential’s evidence on this issue was evidence in chief and that Transpacific was entitled to have time to reply to that evidence. Prudential’s evidence on the point was contained in an affidavit sworn on 4 October 2011 of Clayton P Gillette who is the Max E Greenberg Professor of Contract Law at New York University School of Law. That affidavit was served on Transpacific on 6 October 2011 and filed on 7 October. As the orders made on 30 August required Prudential’s evidence to be filed and served by 29 September the evidence was about a week late. Mr Patakas complained that this factor should be taken into account in weighing the impact of Transpacific’s failures to meet deadlines however while the formal filing of the affidavit was late, I accept Mr Newlinds assurance that scanned copies of the affidavit were provided to the solicitors for Transpacific well before the deadline.

31        Clearly the evidence of Professor Gillette is of critical importance. Both Mr Patakas and Mr Newlinds expressed the view that unless his evidence was contradicted then the inevitable result would be that Transpacific would be unable to prove its case. This was not news to Transpacific. As can be seen from the account of the directions hearing on 30 August 2011 the notion that evidence on New York law would be required did not come as a surprise to Transpacific’s solicitor. In fact Mr Hansen admitted that he had been aware of this issue from the outset of the proceeding.

32        Despite this, it appears from the submissions made by Mr Patakas that, as at 19 October, quite apart from the difficulties occasioned by the change of solicitors, no relevant expert has been retained and counsel have not been briefed. It appears that an expert has been identified however it is necessary for possible conflicts of interest to be ruled out before the gentleman can be formally retained. While Mr Patakas has been in contact with US lawyers he has been advised that there will be some delay, in part occasioned by the imminence of the Thanksgiving Day celebrations (24 November) and the need for Mr Patakas to be fully conversant with the issues so that he can brief the expert.

33        Prudential submitted that the adjournment should not be granted and that the delay envisaged by Transpacific would be significantly to the prejudice of Prudential. In relation to prejudice, Prudential referred to the affidavit of Angus Mackay, a professional senior aircraft appraiser. In his affidavit of 18 October 2011, Mr Mackay gave an estimate of the present value of the aircraft which is the subject of the dispute between the parties and of its likely value in the next 6-24 months.

34        Mr Patakas objected to the admission of Mr Mackay’s affidavit into evidence on a number of bases. The most telling of his objections was that the opinion was unsubstantiated by reference to facts and therefore could be accorded no weight. Examples of unsubstantiated statements included a comment that the valuation of the aircraft was based in part on Mr Mackay’s “understanding of the present maintenance status” of the aircraft without any indication of the basis of the understanding.

35        In relation to the aircraft’s future value Mr Mackay asserted that “in the next 6-24 months Qantas and Malaysian Airlines are expected to place an estimated 50 737-400 passenger aircraft on the global market” and that this would have a significant effect on the value of the aircraft in question. For this reason Mr Mackay’s estimate of the future value of the aircraft was considerably less than its present value.

36        I admitted Mr Mackay’s evidence over the objections of Mr Patakas and said that I would take into account his submissions in attributing weight to the evidence. On further consideration I find that Mr Mackay’s evidence is so lacking in substantiation that the weight I can attach to it is negligible.

37        Ultimately, Prudential’s objection to the adjournment was that Transpacific had had ample time to prepare its case and that its need for further time was attributable to choices it had made as to how to conduct its case rather than to unexpected issues arising, the change of solicitors or the lack of funds. In particular it submitted that:

    already considerable latitude had been extended to the applicant which had taken over seven months to serve its evidence;

    while complaining that lack of funds had affected its ability to prepare for the hearing the applicant had expended copious legal resources on disputing the issue of Prudential’s right to refuse consent to the lease to NAC;

    when Mr Hansen appeared for the last time on 5 October, he had advised the Court that Transpacific wished to preserve the hearing date yet only days later it appears that Transpacific is far from ready to proceed;

    the assurance that if the adjournment were granted preparation of the matter would proceed expeditiously is inconsistent with the assertion that lack of funds has been a major limiting factor to date;

    Transpacific’s failure to prepare the case for hearing can be attributed in large part to its failure to focus on the fundamental issue of the validity of the appointment of the Receivers and Managers and to it being diverted by the secondary consideration of the consent to lease; and

    Prudential would be considerably prejudiced by delay in the hearing as, the terms of the injunction prevent it from selling the aircraft and minimising its loss.

38        At the hearing Mr Patakas said that he was confident that Transpacific could be fully prepared for the hearing in 2012 and that he was looking for dates towards the end of February. It was submitted by Prudential that, given the history of the matter, the Court can have no confidence in this assurance. Unless the Court is of the opinion, at least on the balance of probabilities, that Transpacific will be in a position to argue its case if the requested adjournment is granted then there can be no utility in the adjournment and no benefit to offset any prejudice occasioned by the adjournment.

Principles relevant to the exercise of the Court’s discretion

39        The Court has considerable discretion in matters of civil practice and procedure. There are, however, well established principles relevant to its exercise. Those principles find expression in ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth) and in the decisions of the High Court in Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175 and the Full Federal Court in Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) 273 ALR 147. The “overarching purpose of the civil practice and procedure provisions” to which the above sections refer may only recently have found statutory embodiment however they reflect the long established principles of case management in this Court.

40        Consistent with that overarching purpose to facilitate the just resolution of disputes, “according to law” and “as quickly, inexpensively and efficiently as possible” the Court must consider the following objectives listed in s 37M:

(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.

41        Prudential submits that proper pursuit of these objectives “may lead to the applicant appearing unrepresented and not given the opportunity to delay the hearing to try and lead evidence it wishes to lead, even if that evidence is important”. In support of this submission Prudential cited two cases: Mediterranean Olives Financial Pty Ltd v Loaders Traders Pty Ltd (Subject to Deed of Company Arrangement) (No 1) [2011] FCA 177 and Shirreff v Beck Legal Pty Ltd (No 2) [2011] FCA 603. Each of those cases presented situations that had little or nothing in common with the present proceeding and for that reason do not provide useful guidance here.

42        The objectives listed in s 37M are stated at such a high level of generality that, while the decided cases may give some guidance, ultimately each case must be decided on its unique facts. In oral submissions both sides accepted that if the commencement of the hearing were not adjourned then it would inevitably follow that Transpacific would be unable to make its case. The evidence of Professor Gillette would be unchallenged and on his view of New York law it would follow that Prudential was within its rights to appoint the Receivers and Managers. There may be situations in which accepting the inevitability of such an outcome is the only way to avoid unacceptable prejudice to the other party. I do not accept that this is such a situation.

43        Prudential came to Court on 19 October ready to answer the case that had been listed for hearing since March. If the hearing is postponed for any length of time, at the very least, Prudential, through its legal advisors will need to work up the case again to its present level. Transpacific will have additional evidence, and with new advisors, perhaps new or differently nuanced analyses of its position. All this involves additional costs. The more significant prejudice to Prudential would be that it is unable to recoup its debt by selling the aircraft in which it has a security interest.

44        I accept that the injustice and inconvenience consequent on allowing a late application for adjournment cannot always be remedied by an order for costs. This is more particularly the case where, as here, the applicant, Transpacific, has admitted that it has severe financial problems. In this case, however, it is not necessary to rely solely on a costs order. Although, as mortgagee, Prudential has security for the amount advanced to Transpacific it is restrained from exercising rights it may have over that security by the injunction. Were the injunction to be lifted it would be free to decide to sell the aircraft and recoup the amounts owed by Transpacific. Of course, in doing so Prudential would take on itself the risk of the Court finding in due course that it was not entitled to sell the aircraft and ordering relief in favour of Transpacific in respect of the unauthorised sale. In dissolving the injunction the Court would not be expressing any opinion on the central issue in this proceeding, namely whether Prudential was entitled to appoint the Receivers and Managers.

45        If the adjournment were not permitted and, as both parties seem to accept, its application was unsuccessful, Transpacific would have lost any opportunity to recover the aircraft and implement its business plans. It would also lose any opportunity to recover its costs and seek compensation from Prudential. If, however, the hearing is adjourned on terms that the injunction is dissolved, then even assuming that the aircraft is sold, Transpacific will still have the opportunity to vindicate any other rights it may have including the present claim for economic loss and, perhaps, a claim in conversion and for consequent damages. There is nothing to suggest that Prudential would not be able to meet any monetary award. On balance this seems to me to be a fairer resolution of the present dilemma than proceeding with the hearing. Of course an order vacating the hearing date and dissolving the injunction would need to be coupled with strict orders for the preparation of the hearing to ensure as far as possible that it would be ready for hearing at the earliest date possible in the new year.

Costs

46        Prudential made an application for its costs thrown away by the vacation of the hearing dates to be paid on an indemnity basis. Mr Newlinds submitted that notwithstanding the strong arguments that could be made against vacating the hearing the Court was granting an indulgence to Transpacific. Furthermore he pointed out that the costs thrown away were part of the prejudice to Prudential and the only way to remedy this was by a costs order more closely approximating the costs incurred.

47        Although the award of costs is pre-eminently a matter within the Court’s discretion costs are usually awarded on a party to party basis. Nevertheless in my view there are aspects of Transpacific’s application that warrants indemnity costs in this case. Transpacific’s preparation for hearing on dates that were settled seven months in advance was within its control. The inference that it was diverted from the central issue in the proceeding by Prudential’s refusal to consent to the lease to NAC is inescapable. Transpacific persisted in this approach despite persistently falling behind the timetable set by the Court but with which it had agreed. In the circumstances indemnity costs limited to those thrown away by vacating the hearing is not unreasonable.

Associate:

Dated:    26 October 2011