New South Wales Supreme Court CITATION : International Advisor Systems Pty Ltd v XYYX Pty Ltd & Anor (No 3) [2008] NSWSC 430 HEARING DATE(S) : 1 April 2008 JURISDICTION : Equity Division Expedition List JUDGMENT OF : Brereton J EX TEMPORE JUDGMENT DATE : 1 April 2008 DECISION : Time to file cross-claim extended. Cross-claim to be determined after other issues. CATCHWORDS : PROCEDURE – cross-claims – leave to institute after judgment in principal proceeding – relevant considerations. LEGISLATION CITED : (NSW) Uniform Civil Procedure Rules, r 9.1 CATEGORY : Procedural and other rulings Accom Finance Pty Limited v Kowalczuk [2006] NSWSC 730 CASES CITED : International Advisor Systems Pty Ltd v XYYX Pty Ltd & Anor [2008] NSWSC 2 International Advisor Systems Pty Ltd v XYYX Pty Ltd & Anor (Costs) [2008] NSWSC 312 Seltsam Pty Limited v Energy Australia (1999) 17 NSWCCR 720 International Advisor Systems Pty Limited (plaintiff/first cross-defendant) XYYX Pty Limited (first defendant/cross-claimant) PARTIES : Xin Yong (second defendant/cross-claimant) Jonamill Pty Limited (second cross-defendant) Ren Zhou Lawyers (third cross-defendant) FILE NUMBER(S) : SC 2607/07 Mr M S Zammit (plaintiff/first cross-defendant) COUNSEL : Mr MD Broun OAM QC (defendants/cross-claimants) Mr M J Dawson (third cross-defendant) Baybridge Lawyers (plaintiff/first cross-defendant) SOLICITORS : Zelden Solicitors (defendants/cross-claimants) Mason Sier Turnbull Lawyers (second cross-defendant) Thomson Playford (third cross-defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EXPEDITION LIST BRERETON J Tuesday, 1 April 2008 2607/07 International Adviser Systems Pty Ltd ATF the Torrisi Family Trust v XYYX Pty Ltd & 1 Or JUDGMENT (ex tempore) 1 HIS HONOUR: I gave judgment in the principal proceedings on 31 January 2008 [International Advisor Systems Pty Ltd v XYYX Pty Ltd & Anor [2008] NSWSC 2], in which I declared that in breach of the contract between the plaintiff International Adviser Systems Pty Limited as vendor, the first defendant XYYX Pty Limited as purchaser, and the second defendant Xin Yong as guarantor, XYYX had failed to complete the contract in accordance with its terms. I gave judgment for the plaintiff against the first and second defendants for damages which the plaintiff had suffered by reason of that breach, such damages to be assessed, and directed that until further order, the assessment proceed before me. I dismissed XYYX and Xin Yong's first cross-claim – which was, in effect, to have the contract avoided – and ordered that they pay the plaintiff's costs, and ordered that the second cross-claim, which they brought against the franchisor Jonamill Pty Limited also be dismissed with costs, which I subsequently ordered be assessed on an indemnity basis [International Advisor Systems Pty Ltd v XYYX Pty Ltd & Anor (Costs) [2008] NSWSC 312]. 2 By Notice of Motion filed on 25 March 2008, the first defendant XYYX Pty Ltd and the second defendant Xin Yong seek an extension of time in which to file a (third) cross-claim against their former solicitor Ren Zhou, who has acted for them in these proceedings until recently, including during the hearing and up to judgment in the principal proceedings. 3 Notwithstanding that, on 27 November 2007, Ren Zhou had notified Xin Yong that he had received advice from counsel – a copy of which was provided – to the effect that Xin Yong may have a potential claim against Ren Zhou in respect of which he should seek independent legal advice, Xin Yong, only now, seeks to prosecute any such claim. He wishes to do so by cross-claim in the instant proceedings. 4 There is no difficulty with extending time in which a cross-claim might be brought, notwithstanding that judgment has been given in the principal proceedings [see Accom Finance Pty Limited v Kowalczuk [2006] NSWSC 730 and Seltsam Pty Limited v Energy Australia (1999) 17 NSWCCR 720]. Nonetheless, as Mr M J Dawson, for Ren Zhou, rightly points out, that power must be exercised judicially and with caution, and in such a way as to ensure that no prejudice is suffered by the potential cross-defendant as a result of his late joinder. 5 In the proposed third cross-claim, although the draft cross-claim is not felicitously pleaded at present, it would appear that the crux of the allegation will be that Ren Zhou gave inappropriate or inadequate advice prior to XYYX entering into the franchise contract, and that if the appropriate advice had been given, no contract would have been made and XYYX would not have become exposed to legal liability, the amount of which will be quantified by the award of damages against it pursuant to the assessment to take place in these proceedings. 6 In such a case, the measure of the exposure to legal liability in the primary proceedings will be at least the starting point for the assessment of damages, if any, in the proposed professional negligence proceedings against Ren Zhou, but it will be far from the end point because, assuming that liability were established, questions would still arise – for example, as to mitigation of damages and contributory negligence – which may impact on any ultimate award of damages in the proposed professional negligence proceedings. That said, there is a significant common starting point, namely, the quantification of the present defendant's exposure to liability as a result of Ren Zhou's alleged breach of duty. 7 It may well be that if the professional negligence case were left to be brought in separate proceedings, Ren Zhou would not be entitled to question the quantification of damages as found in the substantive proceedings, at least as the starting point from which questions of mitigation and contributory negligence might nonetheless bear. But the circumstance that, if the assessment of damages were ultimately to be resolved on a consensual basis, it might be open to Ren Zhou to question the bona fides of any such settlement, tends to suggest that it is undesirable to leave that issue to be addressed in circumstances where Ren Zhou would not be bound by the relevant finding. I do not suggest for a moment that that would involve Ren Zhou being bound in the sense that the damages awarded against the defendants would be the same as the damages against Ren Zhou, but were he to become a cross-defendant in the current proceedings, he would be bound by findings of fact as to the amount of the liability to which the defendants have become exposed. 8 Otherwise, it seems to me, his position can be protected by ordering that the third cross-claim be determined separately and after the other issues in the proceedings. That would leave for consideration, following the assessment of the plaintiff's damages against XYYX, the question of any application for a stay of the judgment which would then take effect in favour of the plaintiff against the defendants. 9 There are, it seems to me, strong considerations that favour the consolidation of all matters in the one proceeding. Although I accept that there may well be significant issues in the professional negligence case that would not arise in the assessment of damages in the substantive proceedings, there is, nonetheless, an overlap, and there would be some saving of time and costs for the parties and for the Court if they were addressed in the one proceeding. There would also be the circumstance that the proceedings can be heard by a judge already familiar with the facts, which may facilitate the abbreviation of time in some respects. There is also the concern that if - and it remains a very significant "if" - the defendants are entitled to succeed against Ren Zhou, then while justice for the plaintiffs requires that its case proceeds to final determination as soon as practicable, nonetheless justice to the defendants requires that their cross-claim be heard as soon as practicable, so that their position is not rendered irretrievable by the plaintiff's judgment before they can have their cross-claim heard. In my view, rather than leaving the defendants to prosecute a claim for damages in the District Court, a far more expeditious result is likely to be obtained by retaining the matter in this Court. 10 In those circumstances, I propose to make the following orders: (1) Pursuant to Uniform Civil Procedure Rules , r 9.1, extend time for the defendants to file a third cross-claim against Ren Zhou to 8 April 2008. (2) Order that, save as provided by the following order, the third cross-claim be determined separately and after the other issues in the proceedings. (3) Order that evidence on the assessment of damages in the substantive proceedings be evidence in the third cross-claim. (4) Order that the defendants pay the third cross-defendant's costs of the motion filed 14 March 2008. (5) Extend time for service of the defendants' affidavit evidence on the assessment of damages to 30 April 2008. 11 The proceedings remain adjourned for further directions on Friday 2 May 2008, on which occasion any directions in connection with the professional negligence claim can also be made. Until then, it can proceed in accordance with the rules. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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