Over-representation, voluminous material and costs proportionality: Yara Australia Pty Ltd & Ors v Oswal [2013] VSCA 337

The matter of Yara Australia Pty Ltd & Ors v Oswal [2013] VSCA 337 was a unique step taken by the Court of Appeal, in which the Court of Appeal asked the parties to address the Court on the question of whether an unsuccessful leave to appeal application involved the breach by any party of its overarching obligations under the Civil Procedure Act 2010 (Vic) (the 'Act'). The concern of the Court of Appeal was whether, during a leave to appeal application, there was over-representation of a party by counsel and whether the material produced on the hearing of the application for leave to appeal was unnecessary or excessive.

That is, the Court of Appeal was concerned with whether the overarching obligation in s24 of the Act was breached, which provides as follows:

A person to whom the overarching obligations apply must use reasonable endeavours to ensure that legal costs and other costs incurred in connection with the civil proceeding are reasonable and proportionate to—
(a) the complexity or importance of the issues in dispute; and
(b) the amount in dispute.

The Court sought submissions under s29(2)(b) of the Act, which allows a court to make certain orders on its own motion in the event that it finds a person has contravened the overarching obligations in the Act.

Background and summary of findings

By way of summary, the Court of Appeal noted the following relevant facts:

• The leave to appeal application was from a decision by Whelan J to set aside orders of Efthim AsJ that the respondents provide security for costs of the applicants in the proceedings. 
• The amount of security for costs sought for each party was between $20,000 and $80,000.
• There were five senior counsel, six junior counsel and five firms of solicitors representing the parties. One group of parties had two senior counsel and one junior acting for them; another had two juniors; and another had senior and junior counsel.
• The Court was provided with six application folders comprising submissions, affidavit material, transcript and authorities running to over 2,700 pages. The affidavits filed by the applicants contained many unnecessary documents, many of which were not referred to in the submissions.

The Court of Appeal considered that because of the complexity and expense of the broader litigation, including the ongoing legal costs for preparing the litigation and a damages claim that could run to hundreds of millions of dollars, it was appropriate that each party be represented by the counsel that were engaged (at [39]). 

However, the Court of Appeal considered that the applicants breached the overarching obligation in s24 because of the filing of voluminous material (at [53]). The Court of Appeal summed up the mischief that the Act is seeking to address, as follows:

52 The Act’s objective is the reform of the culture of unnecessary expenditure on civil litigation. Parliament has intended that this reform can only be achieved by holding parties to account for undesirable civil litigation practices that are unfortunately too common. The court was burdened with excessive material. The applicants and the respondents were burdened with the costs of that material. There has been a breach of the overarching obligation to ensure the costs are reasonable and proportionate by including in the application books voluminous material that was extraneous or repetitious and excessive.

The end result in Yara was that the Court of Appeal took the contravention into account under s29 and made the following orders, on its own motion, amongst others:

• each applicant was ordered to pay the respondent's costs; 
• each applicant's solicitor was ordered to indemnify the applicant 50% of the respondent's costs incurred as a consequence of the excessive content of the application books; and 
• each applicant's solicitor was disallowed recovery from the applicant of 50% of the costs relating to the preparation of the application books and incidental costs.

s24 requirement for costs to be reasonable and proportionate

The discussion about s24 focused on the obligation of legal practitioners to ensure that costs are reasonable and proportionate. The Court of Appeal said that this overrides the legal practitioner's duty to the client such that the client's instructions would not relieve the legal practitioner of this overarching obligation (at [14] to [15]):

14 Each party and their solicitor and counsel have an obligation to comply with the overarching obligation. Whether any of them have breached that overarching obligation is to be determined by an objective evaluation of their conduct having regard to the issues and the amount in dispute in the proceeding. The legal practitioners’ duty is non-delegable. The obligation will override their duty to their client where the discharge of that duty would be inconsistent with the overarching obligation.[19] The legal practitioner will not be relieved of this overarching responsibility because of the instructions of their client.[20] 

15 Legal practitioners, whether solicitor or counsel, involved in the preparation of pleadings, affidavits or other materials that are to be used in the proceeding or who provide advice as to such matters, have individual responsibilities to comply with the overarching obligation. Both solicitor and counsel also have an overarching responsibility with respect to the extent and level of their client’s representation. Each must ensure that, having regard to the issues, the extent and level of representation proposed is reasonable and proportionate. Advice or instructions given or received by legal practitioners, and instructions given by the client may inform but will not be determinative of the question whether, viewed objectively, there has been a breach of the obligation.

That is, if the client insists on senior counsel, or a number of counsel, in circumstances where it might not be reasonable because of the nature, complexity or quantum of the dispute, the legal practitioner is still on the hook despite those instructions.

s29 power to make orders on contravention of overarching obligations

The Court of Appeal also focused on s29, which gives the court power to sanction legal practitioners and parties for contravening their overarching obligations. The Court of Appeal noted that the power is broader and more flexible than that in R62.23 and the inherent jurisdiction of the Court, which are designed to compensate for negligence or incompetence ([18]).

The Court of Appeal said that s29 gives a degree of flexibility in sanctioning parties or legal practitioners because of a breach of the overarching obligations, and the sanctions are not just limited to incompetence or improper conduct, but failure to use reasonable endeavours to comply with the overarching obligations ([20]):

20 The Court’s powers under s 29 of the Act include the power to sanction legal practitioners and parties for a contravention of their obligations as the heading to Part 2.4 indicates.[30] In our view, these powers are intended to make all those involved in the conduct of litigation — parties and practitioners — accountable for the just, efficient, timely and cost effective resolution of disputes. Through them, Parliament has given the courts flexible means of distributing the cost burden upon and across those who fail to comply with their overarching obligations. A sanction which redistributes that burden may have the effect of compensating a party. It may take the form of a costs order against a practitioner, an order that requires the practitioner to share the burden of a costs order made against their client or an order which deprives the practitioner of costs to which they would otherwise be entitled. The Act is clearly designed to influence the culture of litigation through the imposition of sanctions on those who do not observe their obligations. Moreover, the power to sanction is not confined to cases of incompetence or improper conduct by a legal practitioner. Where there is a failure by the practitioner, whether solicitor or counsel, to use reasonable endeavours to comply with the overarching obligations, it will be no answer that the practitioner acted upon the explicit and informed instructions of the client. A sanction may be imposed where, contrary to s 13(3)(b), the legal practitioner acts on the instruction of his or her client in breach of the overarching obligations.

As such, the Court of Appeal regarded ss28 and 29 as giving the Court broad disciplinary powers which may be reflected in the costs orders made ([21]).

The Court of Appeal also noted that s29 has resulted in courts at first instance taking a more pro-active and innovative approach in achieving its objects, particularly because judicial officers must actively hold the parties to account ([24] and [26]):

26 The Act prescribes that parties to a civil proceeding are under a strict, positive duty to ensure that they comply with each of the overarching obligations and the court is obliged to enforce these duties. The statutory sanctions provide a valuable tool for improving case management, reducing waste and delay and enhancing the accessibility and proportionality of civil litigation. Judicial officers must actively hold the parties to account.

The Court of Appeal also noted the under-utilisation of these provisions by the courts on their own motion, and considered whether there was judicial disinclination to do this because of a fear that an inquiry about a potential breach might be time-consuming and require the introduction of additional material. The Court of Appeal noted that such fears cannot relieve judges of their responsibilities, and in any event a judge at first instance would not be expected to undertake a substantial inquiry particularly when most of what would be required is a brief submission on costs ([27]):

27 Yet as we have observed, sanctions imposed for a breach of any overarching provisions have been a rarity at first instance. When no party invites the court to determine whether there has been a breach of the Act, there may be a judicial disinclination to embark upon such an own-motion inquiry for fear that inquiry as to a potential breach may be time consuming and may require the introduction of material that was not before the court as part of the proceeding. Such fears cannot relieve judges of their responsibilities. But we would not wish it to be thought that a judicial officer at first instance must undertake a substantial inquiry when considering whether there has been a contravention of the Act. As the sanction for a breach will usually lie in an appropriate costs order, a judge may at the conclusion of the reasons for judgment immediately invite oral submissions as to why there should not be a finding that the Act was contravened. The judge may in a relatively brief way deal with that issue in providing succinct reasons for a finding that there has been a breach of the Act and how that finding affects the orders for costs that are to be pronounced. 

Summary

Yara is an important case because it has considered the core case management provisions in the Act. It has signalled that the purpose of s28 and 29 is both punitive and compensatory, and that parties and practitioners who do not act reasonably and who do not comply with their overarching obligations ought to beware, as a court may be obliged, because of circumstances that arise during a case, to undertake its own inquiry into whether or not there has been a breach of the Act.

Also, the Court of Appeal noted that legal practitioners cannot rely on their client's instructions as an excuse for a breach of their overarching obligations, and must ensure they also comply. This applies to both the seniority of counsel and number of lawyers engaged on the matter, and the volume and relevance of documentation before the Court. The legal practitioners remain on the hook for these matters despite the client's instructions.

Electronic briefs to counsel - Downie's step-by-step guide

I was reading a terrific post by Mark McKillop called 'A tale of a brief in 29 parts – tips for junior lawyers briefing counsel in the email age. Mark's post discusses what to put in a brief to counsel and why. He focuses on the provision of a hardcopy brief and perhaps an email to counsel, in urgent circumstances, of the key documents in the brief. I have experienced the horror of a brief emailed in 29 or so separate parts and it almost always results in loss of time and increased expense for the client, and it occasionally results in overlooked or omitted documents. That is, it should be avoided.

I agree with the comments Mark makes in his post; however, I am of the view that a properly organised electronic brief can be a lot more effective than a hardcopy brief, and can be delivered and updated a lot quicker.

So how is it done? Here's my step-by-step guide.

What equipment and software do you need?

In order to make life easier with electronic briefs from chambers or the office to the court room you need 6 things: a computer, a scanner, an iPad (or a like tablet device), Goodreader (iPad app, or an equivalent tablet PDF annotating app), Adobe Acrobat (PDF computer program) and a cloud based storage service, like Dropbox. Most of these (apart from a cloud service and Goodreader) are expensive. However they are cheap in the long run when you consider the time, paper and cost saved.

I say time, paper and cost saved because:

• instead of photocopying each page and paying for each page of paper, you scan one page and the resulting file is used by all working on the matter;
• instead of physically compiling each piece of paper into folders, all you do is drag and drop each electronic file (containing all pages referred to) into electronic folders; and
• instead of delivering large numbers of folders to multiple people, all you do is email the folders containing the files, or better yet send a link to the cloud service you are storing the brief in.

Step 1 - scanning the files and creating PDF documents

Let's start with the computer, the scanner and Adobe Acrobat, as this is the file creation process. First, ensure all of the documents relevant to the brief are PDF [portable document format] files, apart from any drafts that you want counsel to settle (which should be in Microsoft Word format - .doc/.docx).

Ensuring all files are in PDF can be done by saving Microsoft Word format documents (.doc/.docx) as PDF files (a function that Microsoft word supports with Adobe Acrobat), or (in most cases) by scanning all of the original documents in the instructor's possession using a scanner. It is often best to scan each individual document as a separate PDF file, although this isn't a golden rule since cumbersome files, such as affidavits and contracts, can be bookmarked (see further below).

Step 2 - renaming the scanned or saved PDF electronic files

Once you have all of the documents in PDF format, then you need to change the name of each of the scanned electronic files so they make sense. My system is to give them a reverse date order, followed by a description of the document that is in the file, so as to ensure that the files are date ordered (even though the computer is sorting by name). An example of this is as follows:

• 2013-09-20 SOC McGee
• 2013-10-01 Defence Meyer
• 2013-10-13 affidavit McGee
• 2013-10-20 affidavit Meyer
• 2013-10-21 submissions McGee
• 2013-10-22 supplementary submissions Meyer
• 2013-11-01 bundle of discovered documents Meyer
• 2013-11-10 submissions Meyer
• 2013-11-13 expert report O'Grady
• 2013-11-14 expert report Schleck
• 2013-11-14 court order

Because a computer sorts files by name (and therefore number) by default, a reverse date order will always be sorted chronologically; and chronological order is the key to ordering documents in a brief.

Step 3 - creating the electronic folders

So once you have scanned all of the documents and renamed the files, you have a group of electronic files in a folder, such as a generic 'scans' folder. The next process is to create electronic folders in the same way a brief might be structured physically. For instance, the following is an example folder structure for a brief (my descriptive notes for the purpose of this post are placed in [square brackets] next to the folder or subfolder name):

• McGee v Meyer brief [root folder]
• 1 Pleadings [subfolder]
• 2 Expert reports [subfolder]
• 3 Submissions [subfolder]
• 4 Affidavits [subfolder]
• 5 Witness statements [subfolder]
• 6 Plaintiff's discovery [subfolder]
• 7 Defendant's discovery [subfolder]
• 8 Court orders [subfolder]
• Index.docx

Further folders you might add include:

• 9 Transcript [subfolder]
• 10 Offers [subfolder]
• 11 Solicitor correspondence [subfolder]
• 12 Memoranda to counsel [subfolder]

Here's a picture of this basic file structure on my computer.

The file index.docx is an index of each document to be placed within each folder, for ease of reference.

I have numbered each folder in order to have them structured in the order I want them. Like reverse date ordering, because name sorting is the default, folders that are numbered will be sorted by the number that precedes the folder's descriptive name.

Step 4 - sorting the electronic files into folders

Once you have the files renamed, you then sort them into the electronic folder according to their description. As such, the above documents get sorted as follows:

• McGee v Meyer brief [root folder]
• 1 Pleadings [subfolder]
• 2013-09-20 SOC McGee [file]
• 2013-10-01 Defence Meyer [file]
• 2 Expert reports [subfolder]
• 2013-11-13 expert report O'Grady [file]
• 2013-11-14 expert report Schleck [file]
• 3 Submissions [subfolder]
• 2013-10-21 submissions McGee [file]
• 2013-10-22 supplementary submissions Jones [file]
• 2013-11-10 submissions Meyer [file]
• 4 Affidavits [subfolder]
• 2013-10-13 affidavit McGee [file]
• 2013-10-20 affidavit Meyer [file]
• 5 Witness statements [subfolder]
• 6 Plaintiff's discovery [subfolder]
• 2013-11-01 bundle of discovered documents McGee [file]
• 7 Defendant's discovery [subfolder]
• 2013-11-01 bundle of discovered documents Meyer [file]
• 8 Court orders [subfolder]
• 2013-11-14 court order [file]
• Index.docx [file]

Step 5 - create an index

In order to work out where each document is located in each folder, it is best to create an index. This is basically the same as any hardcopy brief index, except it is modified for electronic folders. An index may be created by using Microsoft Word to create a table based index, with the following column names:

• folder number
• folder name
• filename
• document description

Always free to add more fields such as:

• author
• provenance
• relevant
• privileged
• issue
• document note

The more fields you add, the easier it is for counsel to understand what documents counsel is dealing with and what his or her instructor thinks about each document. This can be done in Microsoft Excel also, which makes it more convenient to convert the index into a database. I won't discuss databases in this post other than to say that they are a convenient way of keeping track of documents.

Step 6 - make all of the files searchable

The next step is to OCR [optical character recognition] all of the electronic PDF files so that they have recognised text and are therefore searchable. Scanned PDF files are usually saved as an image, rather than as text, and as such each PDF file needs to have its image converted into text for the text to be recognisable. Saved Microsoft Word documents will almost always be OCR'd. 

OCR'ing (that is, converting a PDF from image to text) is useful for, amongst other things, annotating the subject document, drafting affidavits, preparing submissions, and searching for relevant issues. For instance, where an electronic brief has, say, 2000 pages, if each page is in searchable PDF format then locating particular words or a particular phrase is easy. Also, by using a sophisticated search program such as Foxtrot Pro, specific strings and combinations of words can be searched for. Further, text may be readily copied and pasted from searchable PDF documents into affidavits and submissions.

A program such as Adobe Acrobat will allow you to OCR PDF files. I am informed by my colleagues that there are free programs available which allow you to convert an imaged PDF into a text recognised PDF. However, I find that Adobe Acrobat is ideal as you can run batch OCR'ing on folders so as to convert multiple files at the one time, and then use the same program to manipulate the file with bookmarks and annotations (more on these below).

Step 7 - create electronic bookmarks

Once each file is OCR'd, go through each document on your screen and bookmark each document within the file. For instance, if within the brief there is an affidavit with exhibits, you might want to bookmark the files as follows:

• Page 1 of the affidavit - bookmark as 'affidavit McGee'.
• Exhibit PM-1, which is a contract dated 12 May 2011 - bookmark as 'PM-1 contract 12 May 2011'.
• Exhibit PM-2, which is a letter from McGee to Meyer dated 13 May 2011 - bookmark as 'PM-2 letter McGee 13 May 2011'.
• Exhibit PM-3, which is a caveat dated 20 May 2011 - bookmark as 'PM-3 caveat 20 May 2011'.
• And so on.

Generally it's okay to be less fussy about the way that electronic bookmarks are named (unlike files) because they are ordered based on their placement in the document. It is more important to ensure that they are sufficiently described so as to understand what the bookmark refers to.

Here's an example of a bookmarked document, opened in Adobe Acrobat.

The bookmarks are on the left hand side, and I created them using Adobe Acrobat. In Court I like to read and refer to the electronic version rather than the paper version of a document because I find it a lot easier to navigate the electronic bookmarks than physical tabs and post-it notes.

Step 8 - deliver the brief by sharing on a cloud service, like Dropbox

At this stage the files are named, bookmarked and sorted into organised and named folders. Once the memorandum to counsel is drafted and in PDF format, the electronic brief is ready to be delivered!

So how do you deliver it?

The chances are that a folder containing 50+ files will exceed the maximum size allowed for delivery via email. If the brief is small enough, it is possible to send it via email; however there are disadvantages with sending via email which you do not have with a cloud service such as Dropbox. The main benefit of a cloud service over email is that the instructor's folder structure and counsel's folder structure, if shared by a cloud service, will be synchronised and contain consistent content on an ongoing basis (assuming both instructor and counsel are online, either via Wi-Fi, or a wireless network). Email only sends the folders and files in the state they were in at the date they were sent, so any updates to the folder and files by one party after the email delivering the brief is sent will not be synchronised and updated on the other party's computer. Updates via synchronisation are especially important where court documents are being produced at a rate of knots, or discovery/instructions are being drip-fed.

Dropbox and cloud services are, in essence, private hard drives stored externally to your computer and accessible online. As such, if you subscribe to a cloud service you will have a folder on your computer which allows you to drag and drop content into that cloud service. To place the electronic brief into a cloud service, all you need to do is drag and drop the root folder into the cloud service, and this will create a copy of the brief externally to your computer in the cloud.

Once this is done, most if not all cloud services allow you to 'share' the folders in the cloud by sending a link of that folder to whomever you want to share it with. Otherwise (subject to the specific terms of service of the cloud service you subscribe to) the content in the cloud is only accessible by you via a password. Those that you share the folder with may include counsel, the client and other solicitors in the firm, as long as they all subscribe to the same cloud service. Once the link is sent by email, counsel opens it up and the brief is with counsel in counsel's cloud service and on counsel's computer for counsel to read, amend and add to as he or she wishes.

Side issue - confidentiality and legal professional privilege in the cloud

Some lawyers query whether a cloud service is sufficiently secure to store documents that might be confidential and/or privileged. It is up to the instructor and counsel to determine whether the particular cloud service is secure enough by reading its terms of use. Click here for the Dropbox terms of service. Consent to use a cloud service could be obtained by including a written consent in the costs agreement between the instructor and client, and between counsel and the instructor.

If there is a particularly sensitive document in the brief, then this doesn't have to be placed in the cloud, but instead could be sent via email. That is, there will be a solution to the issue of confidentiality and it ought not stand in the way of briefing and sharing documents electronically. In saying this I do speak from the point of view of a commercial practitioner. Most if not all of the documents I have in a particular matter, other than documents that are subject to legal professional privilege, would be common between the parties. In any event, privileged documents can be separated into a specific subfolder in the electronic brief, or sent via email instead.

Step 9 - portability, including using the brief in court

A great outcome of this process is that counsel and the instructor have the electronic brief available for use on an iPad by using GoodReader, alternatively Documents by Readdle. I use Goodreader because I am used to it, and it has great functionality. I previously posted a review on Goodreader - click here to read it.

Goodreader, like Adobe Acrobat on a computer, allows the user to go through folders, read documents (particularly PDF documents), and annotate those documents as counsel pleases. The annotation functionality is similar to hardcopy annotation - you can put notes on each page, highlight sections, and bookmark each page. The original PDF document doesn't have to be adulterated since Goodreader asks the user whether the user wishes to create a copy document for annotation.

Once the folder is on the cloud, counsel can connect to the cloud service and 'synchronise' the folder in Goodreader. What that means is that the brief is downloaded to counsel's iPad and, whenever a document is updated and synchronised by counsel or by the instructor on their computers or on their iPads, the brief is updated on all users' iPads and computers. Goodreader doesn't automatically synchronise - one has to select to synchronise for this to occur. This is convenient to avoid corrupted files and synchronisation errors where, for instance, one user is reading a file while another user is editing or updating it.

Here's an image of the above electronic brief synchronised to Goodreader on my iPad.

So that's about it. This is how I prefer my briefs to be and it is a process I often undertake to convert my hardcopy briefs into electronic briefs. 

That doesn't mean I don't like hardcopy. I just prefer the convenience of electronic briefs, particularly when I sit at the bar table in front of a Judge and look at what comprises my brief. At that point I'm either staring at an iPad with a perfectly organised folder of annotated and sorted documents which I can move through with ease, or I'm staring at a huge pile of 5 or so lever arch folders which have post it notes in them and highlights throughout. 

Which would you prefer?

Abuse of process: Putt v Perfect Builders Pty Ltd [2013] VSC 600

The matter of Putt v Perfect Builders Pty Ltd [2013] VSC 600 was a proceeding before Kyrou J in the Supreme Court of Victoria in which the plaintiffs were claiming return of a deposit pursuant to a terminated contract. In a prior proceeding before Williams J, the plaintiffs alleged termination under the terms of the contract and sought  return of the deposit under the summary procedure in s49 Property Law Act 1958 (Vic), and the proceeding before Kyrou J sought return of the deposit pursuant to the terms of the contract.

The defendant sought summary judgment under s63 Civil Procedure Act 2010 (Vic) and R23.03 VSC Rules, and otherwise to strike the matter out under VSC Rule 23.01, alleging an abuse of process.

The matter was permanently stayed, and the discussion of the principles of what is an abuse of process, set out by Kyrou J, follow:

13 In State Bank of New South Wales Ltd v Stenhouse Ltd,[4] Giles CJ stated that the ‘guiding considerations’ in determining whether re-litigation of an issue in a subsequent proceeding constitutes an abuse of process are ‘oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice’.[5] His Honour listed the following non-exhaustive factors to which regard may be had:

(a) the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or an ultimate issue;(b) the opportunity available and taken to fully litigate the issue;
(c) the terms and finality of the finding as to the issue;
(d) the identity between the relevant issues in the two proceedings;
(e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; all part of—
(f) the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and
(g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.^[6]

14 The factors listed in the above passage provide a convenient framework for a consideration of whether this proceeding constitutes an abuse of process.

His Honour considered that (by way of summary):

• The issue of compliance with the contract and the issue of return of the deposit, being the ultimate issue, were of central importance to this proceeding and the earlier proceeding.
• The plaintiff had ample opportunity to fully litigate the ultimate issue in the earlier proceeding.
• In the earlier proceeding, Williams J found that the plaintiffs were not entitled to a refund of the deposit under the relevant provision of the contract, and this was not appealed nor varied.
• The same substantive relief was sought in both proceedings.
• The plaintiffs did not seek to rely on fresh evidence, but instead sought to rely on evidence that they previously had in their possession but consciously decided to not adduce at the earlier proceeding.
• If the plaintiffs are permitted to re-litigate the defendant would be at risk of an adverse decision, and the principal of finality undermined.
• The prejudice to the plaintiffs, caused mainly by the forensic decisions they made in the earlier proceeding, is outweighed by the strong public interest in finality in litigation.

In ordering that the proceeding be permanently stayed, His Honour said:

25 The power to permanently stay a proceeding as an abuse of process is to be exercised sparingly and upon examination of the relevant circumstances of the particular case.[11] In the present case, a consideration of all the circumstances and an overall balancing of justice as between the parties overwhelmingly supports the conclusion that this proceeding constitutes an abuse of process that is serious enough to warrant an order that the proceeding be permanently stayed.

His Honour considered the application of res judicata and issue estoppel, but did not consider it necessary to reach a final view of the matter. 

The nuts and bolts of the PPSA considered: Maiden v QES [2013] NSWSC 852

The only Australian case to date to comprehensively consider the Personal Properties Security Act 2009 (Cth), particularly PPSA leases, transitional security interests and priorities is In the matter of Maiden Civil (P&E) Pty Ltd; Richard Albarran and Blair Alexander Pleash as receivers and managers of Maiden Civil (P&E) Pty Ltd & Ors v Queensland Excavation Services Pty Ltd & Ors [2013] NSWSC 852 (‘Maiden v QES’). This was a priority dispute before Brereton J of the New South Wales Supreme Court.

This matter concerned a lessee (Maiden) of 3 Caterpillar construction vehicles (the ‘Caterpillars’). The lessee granted a charge over his property, including the Caterpillars. The charge was given by the lessee to the chargee (Fast) pursuant to a General Security Deed. By reason of the operation of the PPSA, the lessor (QES) of the Caterpillars had a security interest (ss12, 13) but did not perfect that interest by registration (s21). However, the chargee registered the charge as a security interest on the PPSR. The lessee defaulted and the chargee appointed receivers and managers over the assets. The lessee went into liquidation one month after the appointment of receivers and managers. The chargee asserted priority over the Caterpillars. Brereton J found for the chargee and not the lessor.

First, Brereton J held that the lease from QES to Maiden was a PPS lease (s13), and thus a security interest (s12(3)(c)), because:

• the lessee retained continuous possession of the Caterpillars for more than one year (ss 13(1)(b) and 13(1)(d); 
• the Caterpillars are goods described by serial numbers and were in the lessee’s possession for more than 90 days (ss 13(1)(e)(ii) and (iii)); 
• The income from hiring the Caterpillars was QES’s only income and thus it was not established that QES was not regularly engaged in the business of leasing goods (s13(2)). 

Second, Brereton J considered s19(5) which provides:

(5) For the purposes of paragraph (2)(a), a grantor has rights in goods that are leased or bailed to the grantor under a PPS lease, consigned to the grantor, or sold to the grantor under a conditional sale agreement (including an agreement to sell subject to retention of title) when the grantor obtains possession of the goods.

His Honour reviewed the New Zealand and Canadian authorities on the cognate provision in those jurisdictions and held that a lessee under a PPS lease had proprietary, and not just possessory, rights in the Caterpillars to which a security interest could attach (at [26]).His Honour cited the seminal New Zealand PPSA case of Graham v Portacom New Zealand Ltd [2004] 2 NZLR 528, [28] in which Rodney Hansen J held ‘[a]s against the lessee's secured creditors, the lessee has rights of ownership in the goods sufficient to permit a secured creditor to acquire rights in priority to those of the lessor’ and ‘ostensible ownership - in the radical sense of bare possession or control of the collateral - has effectively replaced derivative title for the purposes of determining the scope of the secured debtor's estate at the priority level.’

His Honour also held that the General Security Deed was a ‘security agreement’ within the meaning of the PPSA and thus created a ‘security interest’ as the agreement created an interest in personal property that secured payment or performance of an obligation (s12(1)) (at [33], [34]). Because the funds were advanced, the security interest attached to the collateral and was enforceable against the lessee (s19), and the security interest was enforceable against third parties (particularly QES) because:

• it was attached to the collateral (s20(1)(a)); 
• the security interest ‘covered the collateral’ because: 
• the General Security Agreement was a security agreement evidenced in writing signed by the lessee as grantor (s20(2)(a)(i)); 
• it contained a description of the particular collateral (s20(2)(b)(i)); and
• it contained a statement that a security interest is taken in all of the lessee’s present and after acquired property (s20(2)(b)(ii)). 

Because the General Security Deed was registered and was enforceable against the grantor and third parties it was perfected (s21) (at  [39], [40]). As such, without more, the lessor’s interest was subordinated to the chargee’s interest by operation of s55(3) PPSA which provides ‘a perfected security interest in collateral has priority over an unperfected security interest in the same collateral’ (at [41]). His Honour also noted that the PPSA lease was arguably also vulnerable because it was not written, which is a prerequisite for it to be enforceable against third parties (s20(2)) and thus perfected (s21(1)(b)(ii)) (at [41]).

The lessor argued that although its interest was not registered, it was perfected as a ‘transitional security interest’ (ss 308, 322), and was afforded priority for a period up to 24 months after the commencement of the PPSA by reason of it being a ‘temporarily perfected’ security interest (ss 320, 322). However, Brereton J noted that the exception to the perfection of a transitional security interest set out in the regulations was a security interest registrable on a transitional register (being a register maintained under a law of the Commonwealth, a State or a Territory from which data was provided to and accepted by the PPS Registrar), and the Northern Territory, in which the Caterpillars was used, had such a register (at [50] – [55]). Further, the Caterpillars were registrable on that register, and therefore the security interest was not perfected as a transitional security interest. QES submitted that there was a Queensland register that was exclusively applicable; however, this submission was rejected by Brereton J noting that the relevant provision was not engaged by the facts of the case (at  [58] – [65]).

QES submitted that the lease of the Caterpillars was terminated for repudiation and the lessee, and thus the chargee, no longer had a right to possession. Referring to s267(2), Brereton J noted that immediately before the commencement of the winding up or voluntary administration of the grantor, an unperfected security interest held by a secured party vested in the grantor (at [70] – [72]). The consequence of this was that on the commencement of the administration or winding up of the lessee, the lessor’s unperfected security interests in the Caterpillars vested in the lessee, and thus was extinguished (at [72]).

Further, His Honour held that a PPS lease gives possessory and proprietary rights in the collateral to the lessee, and therefore a lessee may grant security interests in the collateral sufficient to defeat the lessor’s interests (at [73]):

The Canadian and New Zealand cases already mentioned demonstrate that a PPS lessee on taking possession of the collateral acquires not only a possessory right but also proprietary rights to the extent that it can grant security interests to third parties, so that the lessor's interest if unregistered is vulnerable to being defeated by security interests so granted to such third parties. The PPSA treats the lessee under a PPS lease as the grantor of a security interest with rights in the collateral, and the lessor as a secured party, because it sees the transaction as, in substance, a security transaction, though in form it is a lease. As the cases mentioned show, it recognises that the lessee may validly and effectively grant security interests in the collateral to third parties, that can take priority of the lessor's unperfected interest, because the lessee is regarded for that purpose as having rights in the collateral

QES further submitted that the PPSA does not grant rights beyond that which the grantor has because of the operation of s112(1), which provides:

In exercising rights and remedies provided by this Chapter, a secured party may deal with collateral only to the same extent as the grantor would be entitled to so deal with the collateral.

The QES argument went that because Maiden was a lessee under a lease that had been since terminated, Fast, which took no interest greater than the lessee, could not deal with the Caterpillars. That is, QES was saying nemo dat quod non habet (no one can give what he does not have). Brereton J said that s112 should be interpreted in a manner consistent with the approach taken to title and priorities in the PPSA, which is contrary to the nemo dat rule which QES was arguing for.

Brereton J held that the purpose of s112 is to confirm that limitations and restrictions imposed by law on a grantor's ability to deal with collateral apply also to the secured party in enforcement action under Chapter 4 (at  [78]). For instance, requirements that a license not be assigned without the consent of the licensor, or pre-conditions to the grantor dealing with the collateral. Further, Brereton J considered that Chapter 4 was concerned with remedies under that chapter and not remedies exercised pursuant to a security agreement. In support of this His Honour referred to s18(1) which provides that ‘a security agreement is effective according to its terms, and s110 which provides that the PPSA does not derogate from the rights and remedies of the secured party. Finally, Brereton J noted that Chapter 4 does not apply to property while there is a receiver and manager (s116).

Because Brereton J's reasons were so comprehensive and because this is the first Australian case to comprehensively consider the PPSA, QES v Maiden is likely to play a guiding role in the construction and application of the PPSA to security interests in priority disputes.

Reasonable apprehension of bias: MSI Developments Pty Ltd & Ors v National Australia Bank (Ruling No 1) [2013] VSC 551

The matter of MSI Developments Pty Ltd & Ors v National Australia Bank (Ruling No 1) [2013] VSC 551 was an application for Almond J to disqualify himself from a proceedings as His Honour was said to:

• have shares in the defendant, the National Australia Bank ('NAB'), through his superannuation fund; and
• have acted as a barrister for the NAB when His Honour was at the Bar.

In dismissing the application, His Honour set out the principles for disqualification for bias. These are as follows:

4 In Livesey v New South Wales Bar Association,[1] the High Court set out the relevant principle as follows:

a judge should not sit to hear a case if in all the circumstances the parties or the public might entertain a reasonable apprehension that he might not bring an impartial and unprejudiced mind to the resolution of the question involved in it.^[2]

5 In Ebner v Official Trustee in Bankruptcy,[3] the court described the principle and its application as follows:

the governing principle is that...a judge is disqualified if a fair-minded lay observer might reasonably apprehend that the judge might not bring an impartial mind to the resolution of the question the judge is required to decide (citations omitted)...
Its application requires two steps. First, it requires the identification of what it is said might lead a judge (or juror) to decide a case other than on its legal and factual merits. The second step is no less important. There must be an articulation of the logical connection between the matter and the feared deviation from the course of deciding the case on its merits. The bare assertion that a judge (or juror) has an “interest” in litigation, or an interest in a party to it, will be of no assistance until the nature of the interest, and the asserted connection with the possibility of departure from impartial decision making, is articulated. Only then can the reasonableness of the asserted apprehension of bias be assessed.
...
Similarly, the bare identification of an “association” will not suffice to answer the relevant question.^[4]

6 The test is objective and the hypothetical fair minded lay observer is not assumed to have a detailed knowledge of the law, or of the character and ability of a particular judge.[5]

His Honour noted:

• when at the bar His Honour acted for NAB every two or three years and never had a general retainer; 
• he did not recognise any names on the list of employees of the NAB who were to be called as witnesses in the proceeding; and
• when dealing with the banks as counsel his dealings were primarily with solicitors acting for the bank.

In considering the 'fair-minded lay observer' His Honour said

13 In my view, a fair-minded lay observer would appreciate the following. First, that barristers who practice in commercial law are likely to have, from time to time, acted for banks. Secondly, that the nature of such associations in the practice of commercial law do not necessarily lead to associations which would divert a judge (who has previously acted as counsel for a bank) from deciding a case involving such a party on its merits. In the present circumstances, my view is that a fair-minded lay observer with a general understanding of the way barristers carry out their work would not reasonably apprehend that a judge might bring a partial or prejudiced mind to the resolution of the questions in this proceeding, including the assessment of matters such as the credit of bank witnesses.