Watt v Shepherd [2021] FCA 561

FEDERAL COURT OF AUSTRALIA

Watt v Shepherd [2021] FCA 561 File number: NSD 922 of 2019

Judgment of: RARES J

Date of judgment: 20 May 2021

Catchwords: PRACTICE AND PROCEDURE – default judgment under r 5.23 of Federal Court Rules 2011 – where respondents in default of Court orders – where respondents sought third extension of time to serve evidence and leave to amend cross-claim – where respondents' default and application for leave not properly explained – where amendments added new claims and new parties to cross-claim – where subject of amended claims known to respondents from inception of litigation – whether granting extension of time and leave to amend would delay hearing – whether respondents would suffer prejudice if extension and leave not granted– whether overarching purpose of Federal Court of Australia Act 1976 (Cth) s 37M would be achieved by granting extension and leave – case management principles considered – Held: not in the interests of justice to grant extension of time or leave to amend cross-claim – defence struck out; cross-claim dismissed; default judgment entered in favour of applicants.

Legislation: Federal Court of Australia Act 1976 (Cth) ss 37M, 37N, 37P Federal Court Rules 2011 rr 1.40, 5.23, 15.10

Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303 Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 R v Lawrence (Stephen) [1982] AC 510 Searson v Salmon [2014] FCA 748 Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (2016) 332 ALR 199 WGKS v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FCAFC 10 Yeo v Damos Earthmoving Pty Ltd; in the matter of Broadbeach Developments Pty Ltd (in liq) [2011] FCA 1129

Division: General Division

Registry: New South Wales

National Practice Area: Commercial and Corporations

Sub-area: Regulator and Consumer Protection

Number of paragraphs: 64

Date of hearing: 20 May 2021

Counsel for the Applicant: Mr R. Parsons

Solicitor for the Applicant: Bray Jackson & Co.

Counsel for the Respondent: Mr C. P. O'Neill

Solicitor for the Respondent: Logie Smith Lanyon Lawyers

ORDERS NSD 922 of 2019

BETWEEN: ESPIE IAN WATT First Applicant

MAZZAWATTIE PTY LTD ACN 096 943 476 AS TRUSTEE OF SMSUT Second Applicant

WATTABEAR PTY LTD ACN 148 915 262 (and others named in the Schedule) Third Applicant

AND: PHILLIP CHARLES SHEPHERD First Respondent

MARK ROBERT STEIDLE Second Respondent

RX HOLDINGS PTY LTD ACN 612 534 746 (and another named in the Schedule) Third Respondent

AND BETWEEN: PHILLIP CHARLES SHEPHERD (and others named in the Schedule) First Cross-Claimant

AND: ESPIE IAN WATT (and others named in the Schedule) First Cross-Respondent

order made by: RARES J DATE OF ORDER: 20 MAY 2021

THE COURT ORDERS THAT:

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. 5. The respondents' oral application for a stay of proceedings made on 20 May 2021 be refused. 6. The applicants file and serve written submissions, limited to 5 pages, identifying the bases on which they seek relief on their originating application, and any evidence in support, on or before 3 June 2021. 7. The respondents file and serve written submissions in reply, limited to 5 pages, and any evidence in reply on or before 17 June 2021. 8. The matter be stood over to 25 June 2021. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

RARES J: 1 This proceeding, concerning a dispute about franchising agreements between the applicants, as franchisees, and the respondents, commenced on 7 June 2019 when the applicants filed an originating application and statement of claim. The respondents filed their defence on 5 September 2019. 2 On 11 October 2019, by consent, I granted leave to the respondents to file a notice of cross-claim and statement of cross-claim that they had served on the applicants on 26 September 2019. For convenience, I will refer to the respondents/cross-claimants as the respondents since they are the same parties. I ordered the three cross-respondents (Espie Watt, Sylvia Watt and Mazzawattie Pty Ltd), who were only some of the applicants in the proceeding, to file and serve their defence to the cross-claim and I ordered the parties to participate in a mediation. 3 The mediation occurred and, subsequently, on 6 December 2019, I stood the matter over for case management to 7 February 2020, noting that the parties had settled the proceeding in principle and were drafting documents to give effect to that resolution. However, as events transpired, the parties were not able to agree on whatever issues were unresolved and on 7 February 2020, I stood the matter over to 21 February 2020 for case management. In the meantime, the respondents engaged new solicitors and on 6 February 2020 their present solicitors, Logie-Smith Lanyon, filed a notice of acting.

The circumstances of the respondents' defaults 4 On 21 February 2020, I ordered a timetable for the service of outlines of evidence by, first, the applicants to occur by 17 April 2020 and, secondly, the respondents by 29 May 2020 and, thirdly, outlines in reply of each party by 19 June 2020. I also required each side to provide the other with the documents on which they wished to rely. 5 As is now well-known, the effects of the COVID-19 pandemic became felt by mid-March 2020 and, among other consequences, it became far more difficult than ordinarily for parties to comply with Court orders for the preparation and provision of evidence. 6 On 25 June 2020, the parties, by consent, obtained orders extending the times for the provision of their outlines of evidence under which the applicants and cross-respondents would provide theirs by 10 July 2020, the respondents by 21 August 2020 and each sides' outlines in reply would be provided by 18 September 2020. 7 That timetable was not able to be achieved and, by consent, on 24 September 2020, I ordered that the applicants and cross-respondents serve outlines by 2 October 2020, the respondents do so by 11 December 2020, and any outlines in reply by each side be given by 29 January 2021, together with any documents on which the parties wanted to rely. I listed the matter for case management on 5 February 2021. 8 On 12 October 2020, the applicant served their eight witnesses' outlines totalling about 60 pages and about 1400 pages of documents. 9 On 3 February 2021, the applicants' solicitors emailed my associate advising that the parties had agreed to further consent orders that envisaged that the respondents would have until 2 April 2021 to serve their outlines. The proposed consent orders also sought that the parties have until 4 June 2021 to serve outlines in reply. Later that day, I had my associate respond saying that I required an explanation of why the respondents required five (the email should have said four) more months than previously fixed to file their evidence. 10 Logie-Smith Lanyon, acting for the respondents, replied on 4 February 2021 saying that they had been delayed in the preparation of their witness outlines "due to a number of reasons" including: 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. 11 On the basis of that statement and the consent of the applicants, I made consent orders on 4 February 2021 as sought (the 4 February orders) and that the matter would come back for case management on 18 June 2021. Thus, the time for the respondents to serve their outlines of evidence of any witnesses on whom they wished to rely on and a bundle of documents to which those witnesses referred in their outlines was extended to 2 April 2021.

The respondents' default in complying with the 4 February 2021 orders 12 After the applicants' solicitors had notified my associate on 27 April 2021 that there had been a "slippage" in relation to the respondents' compliance with the timetable, I caused the matter to be relisted on 7 May 2021. 13 On 7 May 2021, the respondents foreshadowed for the first time that they wished to amend the cross-claim by 18 June 2021 to add additional claims and asked for an extension of time to serve their outlines and documents also to 18 June 2021. I expressed concern that the respondents had not put on any evidence or application for an extension of time in which to complete their obligations to serve outlines of the evidence of their proposed witnesses or amendments and said that I required them do so. I made orders, first, that, "having regard to their previous defaults", the respondents file and serve any interlocutory application to amend their cross-claim and to seek any extension of time in which to serve their outlines together with written submissions by 14 May 2021, secondly, the applicants and cross-respondents file and serve any evidence on which they wished to rely in opposition on or before 18 May 2021 and, thirdly, the respondents serve any submissions in reply on or before 19 May 2021. I fixed the hearing of any interlocutory application for today. 14 Both parties filed affidavits by the solicitors with carriage of the matter and submissions. On 14 May 2021 the respondents' solicitors sent an email (the 14 May 2021 email) to the solicitors for the applicants and cross-respondents attaching an affidavit of Michael Nurse made on 14 May 2021, submissions and an interlocutory application that sought orders including that: the respondents have leave to file and serve an amended cross-claim by 4:00pm on 17 May 2021; the respondents have an extension of time to 28 May 2021 in which to serve outlines of their lay evidence and the documents referred to in those outlines. 15 The 14 May 2021 email noted that the documents attached related only to the issue of the outlines of evidence and foreshadowed that the respondents intended to file a supplementary affidavit and submissions addressing the proposed amended cross-claim "as soon as practicable on 17 May 2021". 16 The applicants and cross-respondents oppose the grant of the extension of time to file the outlines of evidence and the application to amend the cross-claim and rely upon the default of the respondents.

The evidence on the interlocutory application 17 Mr Nurse made two affidavits, the first on 14 May 2021 and the second at about 5:00pm on 19 May 2021. His first affidavit was directed to the extension of time to file the outlines of evidence, and the second to support the amendment to cross-claim, the draft of which was attached to his affidavit of 19 May 2021. 18 In his affidavit of 14 May 2021, Mr Nurse said that he had taken carriage of the matter from another partner in his firm at an unspecified date in March 2021 because it had become apparent that Simon Francis, the previous partner with carriage of the matter, would be heavily occupied in an unrelated Supreme Court proceeding. He said that his firm had been instructed in February 2020, when it replaced the previous solicitors for the respondents, shortly before the impact of the COVID-19 pandemic. I infer that some time was necessary for the new solicitors to familiarise themselves with the matter, and as Mr Nurse explained, his firm was based in Melbourne and that city was particularly affected by COVID-19 restrictions that applied to a far greater degree than in some other parts of Australia, including Sydney, due to subsequent outbreaks of the disease in Victoria. 19 Mr Nurse referred to the previous orders and noted that when the applicants had served their outlines of evidence by 12 October 2020 they did so about six months after the original orders of 21 February 2020 required. But, as he acknowledged, he made no criticism of that delay due to the disruptions caused by the pandemic and related restrictions. He said that the applicants had served eight outlines in total, and the documents referred to in those outlines were in excess of 1400 pages. I would infer that those documents included a number of substantial contractual documents that were likely to be bulky. 20 He said that the applicants' outlines described a complex factual matrix. He asserted that there were issues about relevance and admissibility of facts in the outlines so far as they might correspond with the case. He said: In the circumstances, significant consideration was given as to whether it would assist the Court to address the matters raised in the Applicants' Outlines, or for the Respondents to prepare their statements essentially in isolation from the Applicants' Outlines, in response to the Applicants' pleaded case, and the Respondents' counterclaim. Ultimately the later course was adopted. During the same period of time, a number of related tasks that were being attended related to the Respondents' conduct of the proceeding, which would not be appropriate to raise in a public forum, including matters which would be the subject of claims for legal professional privilege. 21 Mr Nurse quoted the email that Mr Francis had sent to my associate on 4 February 2021 (see [10] above), but he gave no evidence about who the two key witnesses were who were sick, or for what period, what was the relevance of, or what issues there were with, insurance cover, for what period either cause delayed matters or affected the progress of the claim, or what, if any, work had been done in preparing the outlines. 22 Mr Nurse then asserted that "in summary, until February 2021, it was not possible to substantially progress the required outlines of evidence". I am unable to understand from what he had said why that was correct. Mr Nurse noted that counsel for the respondents, Callan O'Neill, had been briefed "in about February 2021" for the purpose of assisting with necessary interviews of witnesses, preparation of draft witness statements and to advise on matters generally. Mr Nurse then referred to the difficulties that had occurred with Mr Francis, and the need for Mr Nurse to replace him. 23 Stuart McDougall, the solicitor for the applicants and cross-respondents, made an affidavit on 17 May 2021 which set out the correspondence between the solicitors, including his attempts, in his email of 6 April 2021 to Mr Francis (I infer that he was not aware then that Mr Nurse had replaced Mr Francis) seeking an explanation of the respondents' non-compliance with their obligation to serve their witness outlines and documents on or before 2 April 2021. 24 On 7 April 2021, an associate in Logie-Smith Lanyon, Kylie Trinh, replied to Mr McDougall, copying in Mr Nurse and Mr Francis. She asserted that "it should not be controversial that your clients' evidence in this matter is both substantial and complex" and that "it should not be surprising" that considerable time was needed to prepare the respondents' responses. She asserted that, notwithstanding the delay, "we are preparing our clients' witness outlines as expediently as possible," and that, subject to any unforeseen obstacles, they aimed to be in a position to serve them by no later than the next case management hearing that had been fixed on 18 June 2021. 25 Mr McDougall responded later on 7 April 2021, noting that the Court was unlikely to be satisfied with the receipt of consent orders that, without more, sought such an extension of time. He said that his side did not wish to be seen as "presumptuous or blasé" in connection with the previous directions and extensions to time limits. He foreshadowed that the Court would be unlikely to be sympathetic to the explanation provided in Ms Trinh's email, and that the applicants were unable to endorse their explanation. He urged that, in view of the slippage, the better course was for the respondents to relist the matter and identify the problems to the Court. 26 Mr Nurse said that on 15 April 2021, Mr McDougall sent a follow-up email because he had received no reply. Mr Nurse's affidavit of 14 May 2021 picked up the story from that point. 27 On 20 April 2021, Mr O'Neill interviewed Phillip Shepherd, the first respondent and Mark Steidle, the second respondent, and a Mr Peterson, for the purpose of preparing their outlines of evidence. Mr Nurse said there had been correspondence between the parties' solicitors and that, while he agreed with Mr McDougall's suggestion that the respondents relist the matter: However, at the time we had hoped to be further advanced with the respondents' outlines of evidence before seeking the matter be relisted, so that we would be better able to demonstrate the respondents' progress towards the finalisation of the outlines of evidence. 28 Mr Nurse noted that Mr McDougall had prompted the need for a response on 15 April 2021, but gave none. On 22 April 2021, Mr McDougall sent a further follow-up email noting his emails of 7 and 15 April 2021 had not elicited a reply. 29 Later on 22 April 2021, Ms Trinh responded in an email saying, among other things, that, "We are conscious of the need to relist the matter, and we will take steps to do so". She then said that Mr McDougall should redirect any future correspondence regarding the matter to Mr Nurse, to another solicitor, as well as to herself. 30 On 27 April 2021, Mr McDougall responded, saying that the respondents still had not taken any step to relist the matter and, at the same time, he emailed my associate advising of the need to have the matter relisted. 31 Mr Nurse said that his side had "continued to progress with the outlines leading up to 7 May 2021, and we continue to work on them". He asserted that the outlines were at a very advanced stage, and was confident that his firm would be in a position to serve them within the timeframes sought in the interlocutory application, that is, by 28 May 2021. He said that an interview had been conducted on 12 May 2021 with Russell Beattie, whom he believed to be residing in South Africa, and a draft outline had been prepared for Mr Beattie. Mr Nurse's affidavit was bereft of any explanation as to why it had taken so long to speak to Mr Beattie, or what the difficulties, if any, were in preparing or finalising the outlines before today. 32 Mr Nurse asserted that he had been instructed by the respondents that they refuted the applicants' allegations in the proceedings. He annexed a draft franchise disclosure document with a date of preparation of 18 July 2017, although the footer suggests the document was prepared on 21 July 2017, being a document on which the respondents relied that sought to satisfy the requirements of the Franchising Code of Conduct about franchising agreements that were made with some of the applicants and cross-respondents in 2016 (cf: Master Education Services Pty Ltd v Ketchell (2008) 236 CLR 101 at 117–118 [38]–[41] per Gummow A-CJ, Kirby, Hayne, Crennan and Kiefel JJ). Mr Nurse also said that his clients contended that the applicants were highly sophisticated in business and had boasted about the complexity of their business structure. Mr Nurse said that the respondents denied that they had promised a number of matters alleged in the statement of claim, being subject of representations on which the applicants allegedly relied. Mr Nurse also asserted that his clients had suffered loss or damage because the applicants had refused or failed to perform their obligations in respect of the relevant franchises. Mr Nurse said that: Notwithstanding our office conducting a considerable review of the documents filed in the proceedings since being engaged as the respondents' new legal representative in February 2020, it was only during the course of interviews conducted by Mr O'Neill with Messrs Shepherd, Steidle and Peterson that we became aware of the respondents having available to them additional claims which their previous legal representatives had not considered. As such, these additional claims were therefore not pleaded in their cross-claim filed in the proceeding on 15 October 2019. 33 He said that Mr O'Neill had prepared a draft amended cross-claim which his clients wished to seek leave to file and that he anticipated that this draft could be provided by 17 May 2021. He said that his clients had instructed him to apologise to the Court for their delay in the proceeding and for failing to comply with the Court's orders and that, to the extent his firm had exacerbated any delays, it also apologised to both the Court and the applicants. He asserted that the respondents' witness outlines would be ready "shortly" and that, without seeking to excuse their delay, reiterated their apology. He noted that the proceeding was yet to be listed for trial and that it was: …a money claim in respect of which the said delay is unlikely to result in prejudice to the Applicants which could be remedied ultimately by awards of interests and/or costs, should the Applicants be successful in their claims or the Respondents unsuccessful in their defence and cross-claims. 34 Late on 19 May 2021, Mr Nurse served a further affidavit that reiterated that his firm had become aware, during the course of interviews on 20 April 2021 that Mr O'Neill had conducted with Mr Shepherd, Mr Steidle and Mr Peterson, of further claims that they now wished to raise in the amended cross-claim. He asserted that the new claims were not insignificant and related to breaches by the applicants as well as both existing and proposed cross-respondents who were franchisees or guarantors of obligations under the franchise agreements that had caused the franchisor, being the fourth respondent and cross-claimant, Summit Pharmacy Group Pty Ltd, loss and damage. The amended cross-claim proposed to add: to the existing three cross-respondents who were also applicants, four more of the applicants, a new corporate franchisee and two individuals who were guarantors; claims that Mr Watt had engaged in, first, breaches of fiduciary duties that he allegedly owed to Summit and the third respondent, RX Holdings Pty Limited, a related company and, secondly, conduct that amounted to interfering in contractual relations between Summit and the franchisees, each of which caused Summit loss and damage. 35 As counsel for the respondents pointed out, the amended cross-claim also proposes to abandon claims against a number franchisees in the Australian Capital Territory but otherwise contains the expansions which Mr Nurse summarised in his second affidavit.

The respondents submissions 36 The respondents argued that without the proposed outlines of their four witnesses, they would not have an opportunity to be heard in the proceeding. They referred to the overarching purpose in s 37M of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act) and the fact that there was no hearing date. They contended that the grant of any extension of time would be unlikely to elongate the anticipated trial or unduly hinder its timely preparation. They referred to the discretion that the Court has in respect of time, having regard to case management principles. They called in aid the fact that the matter is complex and that it had it taken the applicants considerable time, with delays, to finalise their outlines of evidence, and that they had required extensions to do so. The respondents submitted that if the extension to the serve their outlines were not granted, they would suffer obvious prejudice and that justice would miscarry. They accepted that their delay was unacceptable, but argued that consequence could be remedied, in part, by an order for interest on any judgment. They reiterated the apologies that had been proffered in Mr Nurse's affidavit. 37 The respondents also filed submissions in support of being granted leave to amend their cross-claim. They said that case management principles were relevant, and referred again to s 37M. They asserted that the Court's general approach was to grant leave to amend, unless a proposed amendment was futile and that all amendments necessary to identify the real questions of controversy between the parties to be decided ought to be allowed. They contended that each of the amendments sought were "self-evidently" available, because they arose from the same factual matrix as the claims already in issue in the proceeding. The respondents submitted that, while parties would be added to the cross-claim, including the three parties who would be new to the proceeding, their involvement would not elongate the anticipated trial or unduly hinder its time in preparation. They argued that the amounts in issue would need some forensic analysis, in terms of calculation, and what was due on what side or the other. 38 During the course of oral argument, the respondents emphasised the prejudice that would be suffered by them were they prevented from being able to rely on first, any evidence that their witnesses could give, and secondly, the amendments that they wished to make to the cross-claim. Counsel said, and I accept, that he would make all efforts to ensure that the proposed time, of 28 May 2021, for finalising his client's outlines would be met. He suggested that the appropriate order was not, as I raised in the course of argument, entry of default judgment for the applicants and cross-respondents under r 5.23 of the Federal Court Rules 2011, but rather an extension of time, coupled with a guillotine order, and an order setting the matter down for trial. Further, the respondents argued that the amendments would remove a not insignificant section of their case relating to the franchises in the Australian Capital Territory. They contended that the amendments were necessary to join franchisees as cross-respondents who were already in the proceeding as applicants, together with the one new franchisee, and two principals who were guarantors, because their joinder related to the proof of their claims under the guarantees. That was because, in order to recover against the guarantors, the respondents would have to establish the liability of the principal debtor, in accordance with Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245. The respondents submitted that their new claims were arguable and properly pleaded, and that justice required that they be able to be ventilated in the proceeding. 39 In response to my concerns that Mr Nurse's affidavits had failed to give any real explanation of what his clients had done to comply with the previous orders to provide outlines of evidence, other than beginning that process in the first meeting with Mr O'Neill on 20 April 2021, almost three weeks after the expiry of last extension of time to 2 April 2021 had expired, the respondents sought to have a further adjournment, in order to provide a fuller or proper explanation of what had occurred, as well as why they had not raised the obvious claims that were now sought to be added in the amended cross-claim given that the amendments sought recovery of various very large sums of money for further loss or damage. They argued that the statement of claim made a number of very serious allegations against them, including claims that affected their integrity, and that they wanted to defend against them with evidence and explanations.

Consideration 40 Relevantly, s 37M of the Federal Court Act provides that the overarching purpose of the civil practice and procedure provisions in the Rules and the Act is to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. That includes the objectives of the just determination of all proceedings before the Court, the efficient use of the judicial and administrative resources available for the purposes of the Court, the efficient disposal of the Court's overall workload and of all proceedings in a timely manner, and the resolution of disputes at a cost proportional to the importance or the complexity of the matters in dispute. 41 Correspondingly, s 37N creates a duty on each of the parties and their lawyers to conduct proceedings in a way consistent with the overarching purpose. Accordingly, s 37P(5) and (6) provide that, if a party fails to comply with a direction given by the Court about matters of practice and procedure, the Court may make such other order or directions as it thinks appropriate, including dismissing the proceeding in whole or part, striking out any part of a party's claim or defence, disallowing or rejecting evidence, and ordering costs. 42 Although the dictionary to the Rules defines an "applicant" as meaning a party other than a cross-claimant claiming relief, r 15.10 provides that, to the extent applicable and not inconsistent with Pt 15, the parties have to conduct a cross-claim in the same way as the principal proceeding, and that the Rules apply to a cross-claimant in the same way as they apply to the principal proceeding. Thus, for the purposes of giving effect to r 15.10, a cross-claimant is to be treated as an applicant and a cross-respondent as a respondent. In addition, r 1.40 provides that the Court, at any stage of the proceedings, can exercise a power mentioned in the Rules on its own initiative, or on the application of a party. 43 Rule 5.23 deals with orders that can be made on default of a party and provides: 5.23 Orders on default (1) If an applicant is in default, a respondent may apply to the Court for an order that: (a) a step in the proceeding be taken within a specified time; or (b) the proceeding be stayed or dismissed for the whole or any part of the relief claimed by the applicant: (i) immediately; or (ii) on conditions specified in the order. (2) If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for a debt or liquidated damages—an order giving judgment against the respondent for: (i) the debt or liquidated damages; and (ii) if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim or an alternative accompanying document referred to in rule 8.05, or if the Court has ordered that the proceeding continue on pleadings—an order giving judgment against the respondent for the relief claimed in the statement of claim or alternative accompanying document to which the Court is satisfied that the applicant is entitled; or (d) an order giving judgment against the respondent for damages to be assessed, or any other order; or (e) an order mentioned in paragraph (b), (c) or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order. Note 1: The Court may make any order that the Court considers appropriate in the interests of justice—see rule 1.32. Note 2: An order or judgment under this Division may be set aside or varied. 44 In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at 214–218 [100]–[114], Gummow, Hayne, Crennan, Kiefel and Bell JJ discussed the principles upon which courts should deal with applications to amend in accordance with statutory requirements such as are now found in Pt VB of the Federal Court Act. They said that the objectives such as those in Pt VB do not require that every application for amendment should be refused simply because it involves the waste of some costs or some degree of delay as, inevitably, it will. But, they said, factors such as the nature and importance of an amendment to the party have to be weighed against the consequences of the grant, and that, in respect of r 21, which is an analogue of s 37M (239 CLR at 215 [102]–[103]): There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. (emphasis added) 45 Their Honours said (239 CLR at 217 [111]–[113]): 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. 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. 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 (House v The King (1936) 55 CLR 499 at 505 per Dixon, Evatt and McTiernan JJ). It is recognised by the courts that the resolution of disputes serves the public as a whole, not merely the parties to the proceedings. (emphasis added) 46 What their Honours said in relation to applications to amend is also applicable to other aspects of case management and exercises of discretion in dealing with matters of practice and procedure. In Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303 at 323–324 [56]–[59] French CJ, Kiefel, Bell, Gageler and Keane JJ held 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 relevantly, here, as specified in s 37M. They said (Expense Reduction 250 CLR at 323 [56]–[57]): 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. 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. (emphasis added) 47 An important factor in Aon 239 CLR 175 was the need to abandon the trial date were the amendment granted. That consideration does not apply here. Nonetheless, as Expense Reduction 250 CLR 303 showed, the overarching purpose has a general relevance to the exercise of discretions in case management. 48 In Tamaya Resources Ltd (in liq) v Deloitte Touche Tohmatsu (2016) 332 ALR 199 at 226 [154]–[156], Gilmour, Perram and Beach JJ discussed the nature of the explanation that a party may need to give to the Court when seeking the exercise of a discretion. They said: 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. 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. 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. (emphasis added) 49 Importantly, as Lord Halisham of St Marylebone LC said in R v Lawrence (Stephen) [1982] AC 510 at 517B: Where there is delay, the whole quality of justice deteriorates. Our system depends on the recollection of witnesses conveyed to a jury by oral testimony. As the months pass, this recollection necessarily dims… 50 While his Lordship spoke in relation to a criminal trial on indictment, his speech is no less apposite in civil litigation, albeit that ordinarily there is a six-year limitation period. In the usual course of a proceeding, the Court and the parties to it will act with some promptitude to progress the matter to a final hearing that will determine the dispute. The criterion of a just resolution of the dispute in s 37M involves having regard to whether or not a party has had sufficient opportunity to do so. 51 The power to give default judgment under r 5.23 is discretionary. The Court needs to be satisfied that each element of the relevant civil wrong is properly and discretely pleaded in the statement of claim: Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [24]. Importantly, r 5.23 does not require proof of the claim by evidence but requires only that, on the face of the statement of claim, there is a claim for the relief sought and that the claim falls within the Court's jurisdiction. I explained the principles in Searson v Salmon [2014] FCA 748 at [6]–[9] (and see too Yeo v Damos Earthmoving Pty Ltd; in the matter of Broadbeach Developments Pty Ltd (in liq) [2011] FCA 1129 at [9] per Gordon J) as follow: A plaintiff or applicant who seeks relief in proceedings started by an originating application supported by a statement of claim is entitled upon a default by a defendant or respondent, under r 5.23, to seek judgment based on the statement of claim without needing to rely on evidence supporting that claim. The Court may give judgment in the party's favour provided that the pleading, on its face, makes that claim and the claim falls within the jurisdiction of the Court: Australian Competition and Consumer Commission v dataline.net.au Pty Ltd (2006) 236 ALR 665 at 677-678 [45] per Kiefel J; Yeo v Damos Earthmoving Pty Ltd; in the matter of Beachwood Developments Pty Ltd (in liq) [2011] FCA 1129 at [9] per Gordon J; Sanko Steamship Co Ltd v Australia Gloria Energy Group Pty Ltd [2012] FCA 798 at [6] per myself. However, as Kiefel J noted in Dataline 236 ALR at 678-679 [49]-[51], the Court could permit the applicant to lead some evidence in relation to the relief sought. That is because r 5.23 operates on the premise that the defaulting party has admitted the facts of the claims as pleaded and the Court then considers whether those facts establish an entitlement to the relief claimed. Her Honour held that the analogue of the rule required that the face of the statement of claim must show a right to some form of relief (236 ALR at 679-680 [53]). Kiefel J held that the matters alleged in the statement of claim must permit the conclusion that some relief may be granted, even if its grant were subject to other considerations. Such a conclusion is at least possible in cases where a declaration and an injunction are sought. An applicant may establish some right or legal interest or legal conclusion capable of resolving a controversy that might properly be expressed in the form of a declaration or establish the infringement of a right or a standard set by a statute. Subject to considerations that might weigh against the grant of relief of those kinds, the applicant may be said to have an "entitlement". It does not have to be absolute for the purposes of the rule, which is discretionary in nature in any event. Her Honour suggested that, in an appropriate case, such as one brought by a regulator in respect of protecting the public interest, the court might make a qualified declaration, notwithstanding the traditional restraint exercised by courts in making binding declarations without having held a contested hearing of the disputed facts (236 ALR at 680-681 [54]-[59]). She suggested that, in a default judgment context, such declarations might be prefaced by a statement (236 ALR at 681 [59]): "Upon admissions which [the respondent in question] is taken to have made, consequent upon non-compliance with orders of the court." Moreover, the mere fact that new counsel has found a new point is not, of itself, necessarily sufficient to support an amendment: WGKS v Minister for Immigration, Citizenship, Migrant Services and Multicultural Affairs [2021] FCAFC 10 at [20], per Rares, Moshinksy and Stewart JJ. 52 In my opinion, Mr Nurse's evidence fails to give any substantive information about the activities that the respondents undertook between receiving the applicants' outlines of evidence on 12 October 2020 until Mr O'Neill conducted interviews on 20 April 2021, over six months later. This is particularly significant in light of the fact that, on 3 February 2021, I had required the respondents explain why they needed a total of what (if granted) would be six months from receipt of the applicants' outlines to 2 April 2021. 53 Mr Nurse's evidence is, of course, not the evidence of his clients. The current cross-claim seeks judgment for over $4.5 million. There is no evidence that his clients were doing anything at all to seek promptly, let alone diligently, to progress to resolution their claims for millions of dollars. 54 Mr Nurse's suggestion that there may have been relevance or admissibility issues with matters set out in the applicants' outlines of evidence provides no basis for the delay in the respondents providing their own outlines. Mr Nurse's evidence was opaque in asserting that some "related tasks" affected the respondents' conduct of the proceedings "which would not be appropriate to raise in a public forum". 55 Moreover, there is no explanation of which witnesses suffered any illness, as asserted in Mr Francis' email of 4 February 2021, over what period the illnesses occurred, and when the witnesses were again ready to participate in the preparation of their evidence. Nor is there any evidence about what issues there were with insurance cover and when they were resolved, and how those issues may have impacted on the respondents' conduct of the proceedings to date. The email acknowledged that Mr O'Neill had been engaged, but there is no explanation as to why he was not involved in interviewing witnesses prior to 20 April 2021, nearly three weeks after the outlines were due to be served. I do not accept Mr Nurse's evidence that, until February 2021, "it was not possible to substantially progress the required outlines of evidence". There is just no substantive evidence as to what, if any, the difficulties were, how long they persisted and when they were resolved. Moreover, his evidence fails to give any proper explanation as to what happened in the meantime. 56 Likewise, the respondents did nothing in April 2021 to bring the matter back to the Court to enable orders to be made when Mr McDougall sought, over the course of about three weeks, to urge that sensible course upon the respondents. On the evidence that the respondents have chosen to give, all that happened was that, on 20 April 2021, they caused Mr O'Neill to be able to confer with three witnesses apparently for the first time. Again, there is no further explanation as to why matters could not have been progressed since then, why those witnesses' outlines have been not been finalised or served (now one month later), other than a reference to the fact that, during the interviews on 20 April 2021, they had raised new claims. Those new claims were based on the respondents seeking to recover loss or damage under the guarantees and for further alleged breaches by Mr Watt of his duties as a director of Summit and RX Holdings. In effect, the new allegations are that Mr Watt, in breach of those directors' duties, caused the group of pharmacies that he had negotiated to bring into the franchising arrangements, to leave the respondents' franchising operations, inducing them to breach their contracts. As counsel for the respondents properly conceded, those matters all would have been known to the respondents from, at least, the inception of the litigation. That being the case, some explanation was called for as to why the previous solicitors did not raise that claim and why it had taken until over a year after the engagement of Logie-Smith Lanyon for these matters to come to light. 57 The inference presented on the evidence (or its absence) is 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, including claims for the recovery of over $4.5 million. Any party who seeks genuinely to recover millions of dollars, even with the dramatic effects of the pandemic that the whole community has experienced over 2020, is not likely to sit on their hands for the length of time that has expired here without some reason or explanation. 58 In my opinion, the respondents' default is egregious and unexplained. Their conduct indicates an unwillingness to comply with the Court's orders in a timely or appropriate way so as to achieve the overarching purpose, as was their duty under s 37N of the Federal Court Act. Having required an explanation for the default on 3 February 2021, I received one in the email of 4 February 2021 as the basis for making consent orders that gave the respondents the extension they sought to 2 April 2021. 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.

Application for a stay 62 Immediately following the conclusion of my ex tempore reasons, the respondents applied for a stay of any further steps in the proceeding until they have had the opportunity to seek leave to appeal, and progress any appeal were leave granted, on the ground that further costs would be wasted in them dealing with issues as to what relief the applicants are entitled to on the uncontested allegations in the statement of claim and how I should deal with costs of the proceeding overall. 63 In my opinion, the efficient and appropriate course is to complete this proceeding, now that it has been effectively simplified into working out what relief the applicants are entitled to on the uncontested statement of claim and the originating application, including costs. That will allow all issues to be dealt with in any application for leave to appeal. 64 I also should note that I have not determined the proceeding on the merits and no issue of estoppel or res judicata will arise as a result of the entry of default judgment or the strike out of the defence and cross-claim. I certify that the preceding sixty-four (64) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Rares.

Associate: Dated: 27 May 2021

SCHEDULE OF PARTIES NSD 922 of 2019 Applicants Fourth Applicant: SYLVIA WATT Fifth Applicant: GLEN MCCALLUM Sixth Applicant: KERRIE PEACOCK Seventh Applicant: ASBET PTY LTD ACN 003 317 404 Eighth Applicant: BURROUGHS PTY LTD ACN 613 528 028 Ninth Applicant: HERMIDALE HOLDINGS PTY LTD ACN 151 952 939IMITED Respondents Fourth Respondent: SUMMIT PHARMACY GROUP PTY LTD ACN 152 166 660 Cross-Claimants Second Cross-Claimant: SUMMIT PHARMACY GROUP PTY LTD ACN 152 166 660 Third Cross-Claimant: RX HOLDINGS PTY LTD ACN 612 534 746 Cross-Respondents Second Cross-Respondent SYLVIA WATT Third Cross-Respondent MAZZAWATTIE PTY LTD ACN 096 943 476 AS TRUSTEE OF SMSUT