Refusal to comply with disclosure orders resulted in default order: Federal Court

In the recent Federal Court case of Heng V and Li v. Wang, Justice Gray considered an appeal by Heng V and Mr Lee from a Federal Magistrates Court decision in which the defence was struck out and the matter was dealt with on an undefended basis.

The case concerned the effect of rules 13.03A and 13.03B of the Federal Magistrates Court Rules.

The appeals result from a judgment given as a result of default in compliance with orders made by the Federal Magistrates Court as to disclosure. Following repeated failure by the appellants to comply with orders requiring them to make disclosure of documents (including demanding $3000 before allowing inspection to occur), the Federal Magistrate ordered that the defence of Mr Lee and his company be struck out. On the following day, the matter proceeded on an undefended basis, and the federal magistrate gave judgment against Mr Lee and his company.

Mr Lee and his company contended that the Federal Magistrate should not have placed them in a position in which they are subject to a judgment for a substantial sum of money, without having had the opportunity to have the issues in the proceeding tried. The appeals raise questions of principle relating to the application of sanctions, such as refusing to allow a party to defend a proceeding, consequent upon default by that party in compliance with orders of the court.

Justice Gray stated:

I invited counsel for the appellants to indicate on what wrong principle
the federal magistrate had acted, what extraneous or irrelevant matters he had
allowed to guide or affect him, what mistakes of fact he had made, or what
material consideration he had failed to take into account. Counsel for the
appellants contended that the federal magistrate had failed to give sufficient
weight to the fact that Mr Lee was not fluent in English and did not have the
benefit of an interpreter, to the fact that the appellants were without legal
representation, and to the fact that Mr Lee’s father was seriously ill in China.
Counsel for the appellants also contended that the federal magistrate had acted
upon a wrong principle, by failing to apply the correct principle. The correct
principle advanced was that a party should not be made to suffer a judgment for
a large sum of money without being entitled to a trial and judgment on all of
the issues in a proceeding to which that person is a party.

Justice Gray responded by dismissing the appeal:

(This case) is a case of repeated refusals, not merely failures, to
comply with orders of the court requiring the appellants to make discovery of
documents and to allow Ms Wang’s solicitor to inspect their discovered
documents. Mr Lee had persisted with a demand for payment as a pre-condition for
providing inspection of documents, despite advice from his own solicitor that
this was not a course open to him. Even in the face of deadlines specified by
the federal magistrate for the performance of obligations under earlier orders,
Mr Lee proposed leisurely timetables for the performance of those obligations
and a further adjournment of the trial, which had already been adjourned once.
The circumstances in which the appellants had ceased to be represented by their
solicitor were never revealed, making it more difficult for them to rely on lack
of representation as a factor justifying the adjournment of the trial. It is
significant that, despite the lack of representation and Mr Lee’s difficulty
with English, the two affidavits of 7 and 9 April demonstrated to the federal
magistrate that Mr Lee had access to someone who was sufficiently fluent in
English, and had sufficient understanding of the court processes, to produce
affidavits in something close to the proper form. It would have been open to the
federal magistrate to reach the conclusion that Mr Lee was attempting to
postpone an inevitable judgment against the appellants on Ms Wang’s claim, and
that the need to visit his father in China was raised as part of such an
attempt. The fact that the federal magistrate was kinder to Mr Lee than he
needed to be, by not making such a finding, should not lead to a successful
appeal from the exercise of the federal magistrate’s discretion.

If the powers given by rules of court to give judgment against a
defaulting party were never to be exercised, because of a supposed principle
that judgment for a large sum of money should not be given without a trial, the
grants of express powers by rules would be hollow. Case-management would be
deprived of its only real sanction against a party who, while resisting a claim
for a substantial sum of money, defaults persistently in complying with orders
of a Court. The framers of rr 13.03A and 13.03B of the Federal
Magistrates Court Rules cannot have intended that those rules
should be subject to such a principle that would enable a party against whom a
substantial monetary claim is made to defend that claim by failing persistently
to take steps necessary to bring the claim on for trial. … There is
no injustice in judgment for a large sum of money against Heng V and Mr Lee,
having regard to Mr Lee’s apparent determination not to comply with repeated
orders requiring him to produce for inspection all of the appellants’
discoverable documents.