FEDERAL COURT OF AUSTRALIA Intellec Development Group Pty Ltd v 3D Funtimes Ltd [2011] FCAFC 148 Citation: Intellec Development Group Pty Ltd v 3D Funtimes Ltd [2011] FCAFC 148 Appeal from: 3D Funtimes Limited v Intellec Development Group Pty Ltd (No 2) [2011] FCA 407 Parties: INTELLEC DEVELOPMENT GROUP PTY LTD (ACN 102 696 695) v 3D FUNTIMES LTD (ACN 118 965 932) File number: WAD 156 of 2011 Judges: STONE, COLLIER AND GILMOUR JJ Date of judgment: 22 November 2011 Catchwords: PRACTICE AND PROCEDURE – summary dismissal of appeal under s 25(2B)(ba) – appellant's failure to prosecute appeal – delay in prosecuting appeal causing serious prejudice to respondent – just determination of proceeding compromised by appellant's delay – likelihood of appeal succeeding not sufficient to warrant exposing respondent to the prejudice of further delay Legislation: Federal Court of Australia Act 1976 (Cth) ss 25(2B)(ba) and (bb), 37M Federal Court Rules r 36.74 – Federal Court Rules (former) O 52 r 38 Cases cited: 3D Funtimes Limited v Intellec Development Group Pty Ltd [2011] FCA 45 Intellec Development Group Pty Ltd v 3D Funtimes Ltd [2011] FCA 797 Shirreff v Beck Legal Pty Limited (No. 3) (2011) FCA 604 Van Reesema v Giameos (1979) 27 ALR 525 Date of hearing: 22 November 2011 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 18 Counsel for the Appellant: A Goldfinch Solicitor for the Appellant: Stables Scott Counsel for the Respondent: D Thompson Solicitor for the Respondent: David Thompson IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 156 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: INTELLEC DEVELOPMENT GROUP PTY LTD (ACN 102 696 695) Appellant AND: 3D FUNTIMES LTD (ACN 118 965 932) Respondent JUDGES: STONE, COLLIER AND GILMOUR JJ DATE OF ORDER: 22 NOVEMBER 2011 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The application filed by the respondent on 17 November 2011 be allowed. 2. The appeal be dismissed. 3. The appellant bear the respondent's costs of the application filed on 17 November 2011 and of the appeal. 4. The respondent is discharged from its undertakings given in respect of this proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 156 of 2011 ON APPEAL FROM THE FEDERAL COURT OF AUSTRALIA BETWEEN: INTELLEC DEVELOPMENT GROUP PTY LTD (ACN 102 696 695) Appellant AND: 3D FUNTIMES LTD (ACN 118 965 932) Respondent JUDGES: STONE, COLLIER AND GILMOUR JJ DATE: 22 NOVEMBER 2011 PLACE: PERTH REASONS FOR JUDGMENT 1 The Full Court has before it an application for summary dismissal of the appeal in this proceeding which has been scheduled for hearing today. That application was filed by the respondent, 3D Funtimes Limited (3D Funtimes) on 17 November 2011 and purports to rely on r 36.74 of the Federal Court Rules as the source of the Court's power. In fact, r 36.74 merely permits a party to apply for such an order. The source of the Court's jurisdiction is to be found in s 25(2B)(ba) and (bb) of the Federal Court of Australia Act 1976 (Cth). The authorities dealing with these provisions, as well as with O 52 r 38 of the former Federal Court Rules, are all relevant to the present issue. 2 As the respondent submits, the Court is also required to take into account s 37M of the Act. The Court is conscious of the fact that the power to dismiss an appeal summarily is not to be exercised lightly. This much is clear from the authorities: see, for instance, the decision of the Full Federal Court in Van Reesema v Giameos (1979) 27 ALR 525 at 533, where the Full Court held that the appellant's delay was inexcusable, that he had breached an undertaking to the court, that there was no reasonably arguable case for the appeal, and that further delay would increase prejudice to the respondent and any other creditors. 3 In Shirreff v Beck Legal Pty Limited (No. 3) [2011] FCA 604 Bromberg J also considered an application for summary dismissal of an appeal. His Honour said, at [23]-[24], that as well as causing the respondent to incur additional costs: Mr Shirreff's failure to abide by the orders of the Court has deprived Beck Legal of the opportunity to have the appeal heard and resolved as quickly and as expeditiously as possible, in a manner consistent with the interests of justice. It is necessary also that I take into account s 37M of the Federal Court Act. That provision requires that the Rules must be interpreted and applied, and any power conferred or duty imposed by the Rules be exercised or carried out in a way that best promotes the overarching purpose of the civil practice and procedure provisions - that is, "the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible". Case management considerations of the kind raised by s 37M of the Federal Court Act were referred to by the High Court in [Aon Risk Services Australia Limited v Australian National University (2009) 239 CLR 175], and beyond prejudice to a party to the proceeding, those considerations also go to waste of and inefficiency to Court resources, and the prejudice to other litigants before the Court, including by the failure of parties to properly prosecute their proceedings and the resultant loss of hearing days available to the Court. 4 The proceeding below was initiated by 3D Funtimes who sought damages and injunctions arising from alleged infringement of its patents and trademarks in relation to a toy known as "Noah's Ark Stacker Toy" as well as: Orders at common law for the delivery up to the Applicant of: 5.1 all dies and tooling; 5.2 all toys known as "Noah's Ark Stacker Toys"; and 5.3 all packaging for such toys, the property of the Applicant and in the possession or control of the Respondent. 5 By notice of motion dated 16 December 2010, 3D Funtimes claimed summary judgment for the delivery up by the appellant (Intellec) of the tooling and the toys and the packing. The notice of motion was listed for hearing on 31 January 2011. Intellec did not appear on that date. In its absence, Siopis J made orders that Intellec deliver up to 3D Funtimes the "tooling and other plant and equipment", the subject of certain invoices constituting the dies, plant and equipment for the manufacture of toys (Tooling), but dismissed the application for summary judgment in respect of the applicant's claim for delivering up the packaging and toys: 3D Funtimes Limited v Intellec Development Group Pty Ltd [2011] FCA 45. 6 Justice Siopis, in making this order, was conscious that summary judgment should be given with great caution; however, he observed that as Intellec had chosen not to file any evidence, the evidence of the 3D Funtimes was not contradicted. His Honour held that Intellec had no reasonable prospect of successfully defending the claims made against it. 7 The orders made by Siopis J on 31 January were not entered, and by Notice of Motion dated 11 February, Intellec sought to have his Honour set aside those orders. The subject of the present appeal is his Honour's judgment on that application which was delivered on 21 April 2011: 3D Funtimes Limited v Intellec Development Group Pty Ltd [2011] FCA 45. Justice Siopis did not accept the explanation given by Mr McHutchison, a director of Intellec that he had not attended the hearing on 31 January because he was unaware that it was scheduled for that day. His Honour said, at [12] – [15]: At the directions hearing on 22 December 2010, there were three orders made which called for action by the respondent, in relation to the applicant's application for summary judgment. First, an order that the respondent file and serve any affidavits in opposition to the applicant's application for summary judgment, by 4:00 pm on 14 January 2011. Secondly, an order that the respondent file and serve any submissions opposing the application for summary judgment by 4:00 pm on 27 January 2011; and, thirdly, an order that the application for summary judgment be heard at 10.15 am on 31 January 2011. I also made orders that the respondent file and serve its defence and any cross-claim by 4:00 pm on 21 January 2011. The respondent failed to comply with any of the orders. I do not accept that Mr McHutchison failed to attend the hearing because he mistakenly believed that 31 January 2011 was the date on which he was to file his submissions. Nor do I accept that he was under any misapprehension as to the date of the hearing. 8 On 30 May 2011, Barker J granted Intellec leave to appeal from the judgment of 21 April 2011: Intellec Development Group Pty Ltd v 3D Funtimes Ltd [2011] FCA 797. Justice Barker noted at [6] of his reasons that: His Honour was unimpressed with suggestions that Mr McHutchison, the officer of Intellec, did not know that the summary judgment objection had been listed for hearing on 31 January 2011, and having read his Honour's reasons I can see why he would have been unimpressed with the arguments put forward on behalf of Intellec. Justice Barker continued at [7]: However, his Honour essentially put all of that to one side in order to determine whether there was a good defence to the claims in respect of which the summary judgment had been entered, and whether any injustice would flow to Intellec if it were not to be set aside. In the end, his Honour took a view of the facts that led him to form the view that even if, as Intellec contended, there were invoices remaining unpaid by 3D in respect of tooling done by Intellec, 3D was entitled to an equitable set-off in respect of other moneys paid by 3D on behalf of Intellec during a period in which the two companies were in merger discussions. It is this issue that raises itself in the present application in relation to the question of substantial injustice and the defence that might be run if an appeal were to be successful. 9 Following leave granted by Barker J, the notice of appeal was filed on 3 June 2011. On 27 June 2011, the registry notified the parties that the appeal callover would be held on 20 July. On 14 July, the respondent's solicitor phoned the appellant's solicitor making inquiries about the draft appeal book index which it had expected to have been provided by that date. On the same day the appellant's solicitor faxed a draft appeal book index to the respondent's solicitor. That draft was approved by the respondent's solicitor on 15 July 2011. As scheduled, callover was held on 20 July 2011 and was attended by the parties' solicitors. From that date, however, the evidence shows that nothing was done on the appeal until November. In fact, in oral submissions, counsel for Intellec conceded that this was the case. 10 On 17 August 2011, the appeal was listed for hearing on 22 November. Notification of the listing to the solicitors for 3D Funtimes also included the relevant practice notes which, it is reasonable to assume, were also received by the appellant. On 9 September 2011, Intellec's solicitors filed a notice of ceasing to act. This was copied and faxed to the solicitors for 3D Funtimes on 12 September 2011. From that period, or at least from 16 September, the former solicitors for Intellec notified the solicitors for 3D Funtimes that although they were no longer appearing for Intellec on the appeal, they were acting for it in settlement negotiations. There is evidence before the Court of 'without prejudice' communications between the parties following this communication and it appears that the settlement negotiations were carried out but were unsuccessful. 11 As no new solicitors for Intellec had been appointed, on 8 November 2011, the solicitors for 3D Funtimes wrote directly to Intellec. No address for service had been provided however the letter was mailed and faxed to the last address known to the solicitors. The letter asked Intellec to advise what was happening with respect to the progress of the appeal, whether new solicitors had been appointed, and when might the appeal books be expected. On 17 November 2011, a notice of appearance advising that Intellec's former solicitors were again acting was filed along with appeal books and submissions for Intellec. On the same date the solicitors for 3D Funtimes filed the Application to Dismiss the Appeal which is the subject of these reasons. 12 The history of the delay we have recounted shows that 3D Funtimes was given a mere two, at the most three, business days to prepare for this appeal. This is a very significant reduction of the time which a respondent might normally expect to prepare its appeal. It was submitted, and it seems to us that it must follow, that the preparation by the respondent for the appeal has been significantly compromised by that delay. In its submissions, counsel for Intellec persistently made the point that it had remedied its default by filing the appeal books and submissions on 17 November. It should be made quite clear that filing material days, and in the case of the submissions even weeks, after the due date does not remedy any disadvantage to the respondent occasioned by that delay. 13 It should also be noted that neither party sought an adjournment of the appeal. It is true that in his oral submissions counsel for Intellec observed that if there were prejudice to the appellant, then the appropriate remedy was the adjournment of the appeal however no application for any such adjournment was made. In any event, Mr Thompson, who appeared for 3D Funtimes, submitted that an adjournment of the appeal would further aggravate the disadvantage suffered, and prejudice suffered, by his clients. In our view, Intellec has not satisfactorily explained its delay, nor has it succeeded in satisfying the Court that the prejudice claimed by the respondent has been other than extensive. This is not, however, sufficient for the Court to make the orders sought by the respondent. It is necessary also to consider the question of whether the appeal, were it to proceed, would have a reasonable likelihood of success or a reasonably arguable case. 14 On this matter, counsel for the appellant was asked to point very specifically to those aspects of the judgment which it was submitted were in error and which would be the subject of appeal. Counsel drew our attention to [38] of his Honour's reasons. Paragraph 38 says: Accordingly, even if all the invoices issued by the respondent (including the invoice for the manufacture of the toys) which are disputed by the applicant, were to be accorded full credit, the total amount that would be owing by the applicant to the respondent would be less than the amount owing by the respondent to the applicant by way of repayment of the advances. In my view, an equitable set-off would operate in those circumstances. 15 As to the matter contained in that paragraph, in written submissions prepared for the applicant on the appeal it was contended that the loan transaction, that is, the advances made to the appellant, and the tooling claims, were separate. The submission being that there would be no equitable set-off in those circumstances. In the course of argument, counsel for the appellant conceded, however, that there was a close connection between the two. That concession was properly made. 16 Despite that concession, counsel continued to press his criticism of [38]; however, those criticisms amounted to generalised observations unsupported by evidence. They were not sufficient to satisfy us that the appeal stood any reasonable likelihood of success. Although Barker J found that there was an arguable case, that was a finding made for the purpose of determining whether leave to appeal should be given. It is not a finding that the appeal has any real likelihood of success. 17 In the present circumstances the prejudice to the respondent self-evidently denies it the opportunity to answer as comprehensively as it might wish, the arguable point made by Intellec. The respondent is in the position where it has been deprived of the time required to make such a response. We are satisfied that, in those circumstances, it is in the interests of justice and in accordance with the mandate of s 37M of the Act that the application made by the respondent should be allowed. 18 The orders of the Court are, therefore: (1) That the application filed by the respondent on 17 November 2011 be allowed. (2) The appeal be dismissed. (3) The appellant bear the respondent's costs of that application and of the appeal. (4) The respondent is discharged from its undertakings given in respect of this proceeding. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Stone, Collier and Gilmour. Associate: Dated: 25 November 2011