A & S Oayda Investments Pty Ltd & Ors v Burns Philp Trustee Co Ltd (in liq) & Ors [1997] FCA 844

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY NG 259 of 1994

BETWEEN: A. & S. OAYDA INVESTMENTS PTY LIMITED

First Applicant

CONTINENTAL SHIRTS HOLDING CO. PTY. LIMITED (RECEIVER AND MANAGER APPOINTED)

Second Applicant

CONTINENTAL SHIRTS MANUFACTURING CO. PTY. LIMITED (RECEIVER AND MANAGER APPOINTED)

(IN LIQUIDATION)

Third Applicant

ROBERT RAFEC OAYDA

Fourth Applicant

AND: BURNS PHILP TRUSTEE COMPANY LIMITED (IN LIQUIDATION)

First Respondent

JOHN WILLIAM MURPHY AND PETER BERNARD ALLEN

Second Respondent

MERCANTILE MUTUAL LIFE INSURANCE CO LIMITED

(ACN 009 957 176)

Third Respondent

MARTIN MADDEN

Fourth Respondent

GREGORY ROBERTSON

Fifth Respondent

JUDGE(S): EMMETT J

DATE: 22 AUGUST 1997

PLACE: SYDNEY

EX TEMORE REASONS FOR JUDGMENT HIS HONOUR: In 1994 a number of parties began proceedings in this court against various respondents, including Mercantile Mutual Life Insurance Co Limited ("Mercantile Mutual"), Martin Madden and Gregory Robertson. Also included as respondents were Estate Mortgage Managers Limited, Estate Mortgage Financial Services Limited and Burns Philp Trustee Company Limited. On 15 December 1994 Lockhart J ordered that a number of parties be removed as applicants and that a number of parties be removed as respondents. The result appears to be that the applicants, as the proceedings are presently constituted, are A & S Oayda Investments Pty Limited, Continental Shirts Holding Co Pty Limited, Continental Shirts Manufacturing Co. Pty. Limited and Robert Rafec Oayda. Robert Rafec Oayda is a bankrupt and his trustee in bankruptcy has indicated that he wishes to discontinue the proceedings on behalf of Mr Oayda. Lockhart J ordered that the statement of claim be struck out, ordered that A & S Oayda Investments Pty Limited and Mr Oayda provide security for the costs of Mercantile Mutual and Messrs Madden and Robertson ("the Receivers") who are receivers appointed by Mercantile to Continental Shirts Holding Co Pty Limited. His Honour also ordered that the proceedings be stayed until the security for the costs of Mercantile Mutual and the Receivers had been provided pursuant to the orders which he then made. Since then, nothing of any moment has occurred until Mercantile Mutual and the Receivers made application for the proceedings to be dismissed summarily. The basis for the application is, in effect, that the delay since that time is such as to warrant dismissal for want of prosecution. The application was also put in the alternative on the basis of a failure to comply with the orders of the Court. On one view, there are not any directions outstanding since the orders for the payment of costs and for the provision of security provided for no time for their compliance. Nevertheless it seems that no attempt has been made on behalf of the applicants to comply with the orders although I was informed that the circumstance which prompted the application was the court's general revision of its list to endeavour to prune proceedings that may well not be intended to be pursued. On the hearing of the application Mr Finch made it clear that it is the present intention of at least the first applicant and other persons associated with the first applicant to pursue the proceedings. The evidence before me indicates that the reason why the proceedings had not advanced any further was the impecuniosity of the applicants. Mr Finch also acknowledged that it would be some considerable time before there was any prospect of the applicants being in a position to continue the proceedings. Nevertheless, Mr Finch submitted that there was at least, on the material before me, a substantial question to be tried as to whether or not there is any liability on the part of Mercantile Mutual to the applicants and some other parties who are not at the moment parties to the proceedings. The cause of action is generally as follows. On 6 September 1988 a number of instruments were entered into between Continental Holdings Pty Limited and various companies associated with that company and Mr Oayda on the one hand and Burns Philp Trustee Company Limited on the other. The instruments related to loans to be made by Burns Philp Trustee Company Limited to Continental Holdings. The other companies were guarantors and gave securities over divers properties in support of the proposed loan. At some time after 6 September 1988 Burns Philp Trustee Company Limited assigned various parts of its interests in those loans and the securities to Mercantile Mutual. The thrust of the complaint made by the applicants is that representations were made by employees of Estate Mortgage which should be sheeted home to Burns Philp. The representations are in substance that, whereas the documentation made it clear that there was no obligation on the part of Burns Philp to make further advances in the future, Estate Mortgage would recommend to the Trustee to make further advances and "they will fund", it being understood, so it is said on behalf of the applicants, that the representation was that if Estate Mortgage made a recommendation to Burns Philp to make further advances Burns Philp would in fact make further advances. There is evidence that at about that time, that is 6 September 1988, an undertaking was given by Estate Mortgage Financial Services Limited that, subject to certain conditions being satisfied, Estate Mortgage would recommend to Burns Philp Trustee Company Limited that the amount of the advances certified pursuant to the provisions of the Deed of Loan be forthwith advanced to Continental. There is, however, no written assurance or undertaking that Burns Philp would make any further advance. The assertion is that, in reliance upon that representation, Continental refrained from making other arrangements for financing the project upon which it was embarking or intending to embark with the assistance of the finance then being provided. Subsequently, when the market changed, Burns Philp declined to make further advances and Continental was unable to obtain finance from an alternative source. The result is that it was unable to complete the project, the securities were enforced and Continental suffered significant loss, as did the guarantors upon whom calls were made under their guarantees. Clearly there will be difficulties for the applicants in maintaining such a cause of action even against Burns Philp. It is said on behalf of the applicants that Mercantile Mutual, having taken an assignment of the loans and the securities, must be taken to have received those interests subject to any equities which would be binding upon Burns Philp. Reliance was placed on the observations made by Mason J in Clyne v the Deputy Commissioner of Taxation (1981) 150 CLR 1 at 20. Notwithstanding that I perceive that there could well be factual difficulties for the applicants, I am disposed to conclude on the material before me that there is at least an arguable case such that I would not at present be disposed to dismiss the proceedings peremptorily simply because there is no good cause of action disclosed. Nevertheless there is the question of the delay of in excess of 2˝ years which has occurred since the last attempt to plead the case was struck out without there being any further attempt to pursue the proceedings. A respondent is entitled to apply to have an action dismissed either because of the applicant's failure to comply with the rules or directions or under the rules themselves for want of prosecution or under the court's inherent jurisdiction. I would be disposed to accept statements of principle made by Bryson J in John William Holloway v John Allen Witham, Supreme Court of New South Wales, 11 July 1997, unreported, that it must be demonstrated that: 1) there has been inordinate delay; 2) that the inordinate delay is inexcusable and in that regard until a credible excuse is made out the natural inference is that an inordinate delay is inexcusable; and 3) that the defendants are likely to be seriously prejudiced by the delay. In the circumstances, it seems to me that the delay since Lockhart J last dealt with the matter is inordinate. The only excused proffered is impecuniosity. That excuse is credible, but I query whether it is in fact an excuse for the delay. It has not been suggested by counsel for Mercantile Mutual that there is any specific prejudice occasioned by the delay, such as the loss of evidence or the loss of recollection of witnesses, although that must be a prejudice which would be suffered in circumstances where a question will arise as to what was said and what was understood by parties in conversations conducted some nine years ago. There is of course the general prejudice for any defendant or respondent having hanging over its head or their heads a substantial claim. There is a difference between the position of a corporate defendant and individual defendants. The individual defendants in this case are, however, receivers of a company. I would be disposed to draw the inference that they are entitled to an indemnity from Mercantile Mutual and therefore they do not have the personal inconvenience of having a claim outstanding against them personally. There is no suggestion that Mercantile Mutual would not be good for the indemnity which I assume exists. In those circumstances, while there is no doubt prejudice to the respondents by the continued existence of these proceedings, I am inclined to think that on the state of the material I have seen at the moment it is not yet serious to the extent that it would justify summary dismissal. Nevertheless, it is sufficient for me to conclude that if I am not disposed to dismiss the proceedings at this stage, it would only be on the basis of very stringent terms. The conclusion which I have reached is that I should give the applicants one last chance to satisfy the court that it is appropriate that they be permitted to pursue these proceedings. I have in mind a regime whereby I would make an order as asked by Mr Jackman and by Ms Johnson on behalf of the Receivers that the proceedings be dismissed and that the applicants in the proceedings pay the applicants in the motions' costs of the motion. However, I propose to stay the first order up to and including 12 September 1997. I propose to order that that stay be extended until further order on the following terms and conditions: 1) that the order for the payment of costs made by Lockhart J be satisfied on or before 4 September 1997; 2) that there be provided to the Registrar in a manner satisfactory to the Registrar, in a sum about which I will hear argument from the parties in a moment, sufficient to cover the Receiver's costs of the proceedings before Lockhart J and Mercantile Mutual's and the Receiver's costs of these applications, that security to be provided on or before 4 September 1997; 3) that there be filed and served no later than 5 September 1997 an affidavit deposing to the financial position of A & S Oayda Investments Pty Ltd, Pyoja Pty Ltd, Continental Holdings Pty Ltd and Solstat Pty Ltd. The affidavit will also be required to set out particulars of the beneficial owners of the issued share capital of all of the companies which I have just specified, indicating whether any individuals who are members of Mr Oayda's family have any beneficial interest ultimately in the shares of those companies. I indicate that I would only be disposed to extend the stay so long as I am satisfied that those companies and any individuals shown to have an interest in their share capital, commit themselves to be responsible for the respondent's costs if the proceedings are to continue. I also propose to direct that the applicants serve on the respondents on or before 5 September 1997 a minute of a proposed amended statement of claim; I then propose to stand the proceedings over for further directions on 12 September 1997 with a view to seeing whether the stay is to be extended because the conditions had been satisfied and to consider what further directions should be given for the further conduct of the proceedings if they are still on foot at that stage. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett