IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 388 of 1995 BETWEEN: AIRBERG PTY LTD (ACN 051 085 495) FIRST Applicant MICHAEL DOUGLAS FAULKNER SECOND APPLICANT ANTONIETTA FAULKNER THIRD APPLICANT AND: CUT PRICE DELI PTY LTD (ACN 000 917 475); AND CUT PRICE DELI (AUSTRALIA) PTY LIMITED (ACN 010 913 103) first Respondents HARRY MALOVANY SECOND RESPONDENT ENZO SGAMBELLONE THIRD RESPONDENT FRANK RECHICHI FOURTH RESPONDENT JUDGE: LINDGREN J DATE: 28 AUGUST 1997 PLACE: SYDNEY REASONS FOR JUDGMENT (ex tempore) INTRODUCTION There is before the Court a motion brought by the applicants by amended notice of motion filed on 4 February 1997 in which they seek the following substantive orders: "1. that Order 2 of this Court dated 11 July, 1996 be extended to the date of the filing of this Motion. 2. that the Order 1 of this Court entered on 11 July, 1996 be set aside. 3. that pursuant to section 58(3) of the Bankruptcy Act, leave be granted to the Applicants to continue these proceedings against the Third and Fourth Respondents." On 4 February 1997, leave was granted to the applicants to continue the proceeding against the third and fourth respondents, who are both bankrupt. Accordingly, the third order sought in the motion is superfluous. However, there is also before the Court a motion brought by notice of motion filed on behalf of the third and fourth respondents on 18 February 1997 seeking an order that the order granting the applicants that leave be set aside. The evidence and the submissions in relation to the applicants' motion consists of a considerable volume of material. I have read it all, but the following reasons are necessarily by way of outline and are not as fully expressed as they might be if there were no other constraints. The orders that were made on 11 July 1996 were as follows: "1. Dismiss the application as against the second respondent [Mr Malovany]. 2. Grant liberty to the applicants to apply by motion within 14 days [that is, by 25 July 1996] for an order revoking order 1. 3. Grant leave to Andrew Bruce Thorpe to file a notice of ceasing to act as solicitor for the applicants pursuant to Order 45 rule 7 of the Federal Court Rules. 4. Direct Andrew Bruce Thorpe and the second respondent, Harry Malovany, to give notice to the applicants by certified mail of the making of the foregoing orders." Notwithstanding the presence of the word "entered" in par 2 of the applicants' notice of motion, the orders made on 11 July have never been entered pursuant to O 36 of the Federal Court Rules. Accordingly, the Court's power to set aside is that found in O 35 r 7(1) of the Rules rather than O 35 r 7(2). Order 1 of 11 July was made pursuant to O 10 r 7 which provides, relevantly, as follows: "7(1) Where a party fails to comply with an order of the Court directing that party to take a step in the proceeding, any other party may move the Court on notice- (a) if the party in default is an applicant - for an order that the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by him in the proceeding; (b) ...; (c) ...; (2)The Court may make an order of the kind mentioned in sub-rule (1) or any other order or may give such directions, and specify such consequences for non-compliance with the order, as the Court thinks just. ..." As will be noted below, the relevant failure of the applicants was a failure to give particulars. BACKGROUND FACTS First, I will give a short outline of the substantive application. The proceeding was commenced by the filing of the application on 31 May 1995. It was accompanied by a statement of claim. The second and third applicants, Mr and Mrs Faulkner, were, at relevant times, directors of, and shareholders in, the first applicant ("Airberg"). The second respondent describes himself as an employee of the first respondents, and more particularly as "the general manager of franchise developments for the First Respondents". The third and fourth respondents were, at relevant times, directors of the first respondents. The claim arises out of a franchise arrangement in relation to a business known as "Cut Price Deli Hornsby" which was conducted at shop L5A Northgate Shopping Centre, Hornsby ("the Business"). Mr Thorpe, solicitor, filed the application on behalf of the applicants. Snelgrove and Partners, solicitors, appeared for the respondents. The allegations in the statement of claim are to the effect that the applicants suffered loss as a result of conduct, which was at least misleading and deceptive, engaged in by the first respondents and participated in by the second, third and fourth respondents, which induced Airberg to become a franchisee in respect of the Business. The applicants claim to have suffered substantial losses as a result of the investment. An amended application and an amended statement of claim were filed on 7 July 1995. In August and September 1995, bulky affidavits were filed on behalf of the applicants. This suggests that at that stage that they intended to pursue their claim. On 29 September 1995, Snelgrove and Partners filed a notice of ceasing to act for the respondents. Since that time, they have not had legal representation in the proceeding. It appears that over a period from September 1995 to about March 1996, not a great deal happened in the proceeding on either side. On 27 March 1996 the applicants filed a notice of motion for summary judgment. It named only Mr Malovany as respondent to the motion. At that stage, perhaps the applicants had given up on the bankrupt Messrs Sgambellone and Rechichi. According to the evidence, Messrs Sgambellone and Rechichi had entered into voluntary bankruptcy on 17 November 1995 and 24 November 1995 respectively. In response to the motion for summary judgment, Mr Malovany filed a lengthy handwritten defence and a lengthy handwritten affidavit, both on 24 April 1996. This led, in due course, to the applicants' not pursuing their motion. The seeking of summary judgment having come to nought, it became the applicants' turn to have difficulty with their solicitor. Apparently there was a dispute over payment of fees required by Mr Thorpe. There was a long outstanding issue in relation to provision of particulars by the applicants. Notwithstanding directions that the applicants supply particulars in response to a request which had been formulated on behalf of the respondents by their former solicitors, Snelgrove and Partners, the applicants failed to do so. On 8 July 1996 Mr Malovany filed a notice of motion seeking dismissal. (He had previously filed a document to that end on 5 July 1996, however it was in incorrect form.) This was returnable on 11 July. It was that motion that led to my making of the orders on 11 July to which I have referred. On 10 August, the applicants themselves (not through a solicitor) filed a notice of motion seeking orders, the intention of which was to overcome the orders of 11 July. On 8 August, Mr Thorpe filed a notice of ceasing to act, pursuant to the leave which he had been granted on 11 July. On 30 October, the applicants filed a further notice of motion. On 6 November, Ms Orsini, the present solicitor for the applicants, filed a notice of change of solicitor. She has represented the applicants since that time. Mr Malovany has continued to be unrepresented, as, for that matter, have Messrs Sgambellone and Rechichi. On 18 November Ms Orsini filed in Court an amended notice of motion and affidavit in support. I do not think it necessary to refer to the content of the various notices of motion that have been filed by or on behalf of the applicants, because when I indicate the conclusion to which I have come in relation to the most recent one filed on 4 February 1997, the result on the others will be clear and I will invite the parties to prepare short minutes of the orders to be made disposing of all of them. It is necessary now to concentrate on the position on and about 11 July 1996, but before doing so, I should make one thing clear: I am not dealing with the merits of the applicants' claim. That claim may or may not have merit. This is not a final hearing. It could hardly be suggested that there is not an arguable case which, ordinarily, the applicants would be entitled to have go forward to a trial. The threshold is a low one and what I have just said indicates no view whatsoever as to the merit of the applicants' claim. It indicates only that the claim is not so obviously hopeless that the applicants should be denied even a right to have it heard. What were the relevant events leading up to the making of the orders on 11 July? On 5 September 1995, a direction was made that the applicants supply further and better particulars of their claim by 4 pm on 6 September. They were not supplied. On 12 December the proceeding was stood over to 14 February 1996. It was noted that the applicants were to inform the Court on that date whether they wished to proceed. On 14 February, the applicants were granted leave to file a notice of motion for summary judgment against the three individual respondents. That motion was made returnable on 13 March. On that date, the applicants were represented and Mr Malovany appeared. I digress to note that a difficulty that can occur in a case where a party is not legally represented is that there tends to be no communication between the two sides prior to their arriving at the court-room. One expects that where there are legal representatives on both sides, there will be prior contact between them and some foreknowledge of what is and is not likely to be in issue at court. One of the unfortunate features of the present case is that it has had to be stood over many times because one side or the other has found out for the first time only upon arriving at a directions hearing, the stance being taken by the other side. But I continue. On 27 March Mr Sullivan QC appeared for the applicants on their motion for summary judgment, instructed by Mr Thorpe. At that time the applicants appeared to be making an effort to bring matters to a speedy conclusion and apparently took the view that Mr Malovany had no defence. In fact he had not filed a defence and had not filed affidavits answering the applicants' affidavits. I directed that he file his defence and affidavits and they were filed. He was unrepresented and prepared them himself. No doubt it was the filing of the defence and his affidavit which led to the view being taken by those advising the applicants that there was no point in their pursuing any further the motion for summary judgment against Mr Malovany. On 10 May I directed that the matter be stood over to 7 June to be reviewed and the applicants consented to an order dismissing their motion for summary judgment. Importantly, on 10 May I also ordered that the applicants supply the outstanding particulars by 24 May. They did not do so. The matter was again before the Court on 7 June when I was informed that the particulars had still not been supplied. I extended the time for their supply to 4 July and stood over the proceeding to 5 July. On 5 July, I was informed that the applicants had still not supplied the particulars. I should note that Mr Malovany was attending Court on these various occasions, and, as I understood it, was travelling some distance (from Nowra) for that fruitless purpose. I was also told that the solicitor for the applicants was having difficulty in getting instructions. The foregoing gives the complexion of events on 5 July. On that date I granted Mr Malovany leave to file on that day a notice of motion returnable on 11 July seeking summary dismissal. He filed a document to that end on 5 July. His notice of motion was filed in correct form on 8 July. It was, however, returnable on 11 July. I presume that he served the documents on Mr Thorpe's office on 5 and 8 July respectively. When the matter came before the Court on 11 July, Mr Lyndon, a solicitor of Mr Thorpe's office, appeared for the applicants as respondents to Mr Malovany's motion for summary dismissal. Mr Malovany appeared for himself. Mr Lyndon was not in a position to consent to or to oppose the making of an order dismissing his clients' application. I made the orders set out earlier. They speak for themselves. Order 10 r 7 of the Federal Court Rules gave power to make the orders, the applicants having failed to comply with the order for supply of particulars. It is, perhaps, what happened immediately after 11 July that assumes importance for present purposes. It will be recalled that I directed that Mr Malovany and Mr Thorpe give notice to the applicants of the making of the orders. The applicants were located in Western Australia. Apparently Mr Malovany wrote to them on 15 July. The evidence from Mr Faulkner is that he received Mr Malovany's letter on 17 July. The evidence also suggests that Mr Faulkner may not have clearly understood that the 14 day period was due to expire on 25 July. In any event, he had eight days from 17 July in which to take advantage of the leave which I had reserved for the applicants' benefit. The notification from Mr Thorpe was apparently not received by Mr Faulkner until 23 July, that is, only two days before expiry of the 14 day period on 25 July. On 26 July, that is, one day after the expiry of that period, Mr Faulkner wrote to the New South Wales District Registry of the Court. The letter was received on 31 July. The Registry properly advised Mr Faulkner that if he wished to apply for an order setting aside the dismissal, he should do so by filing a notice of motion and affidavit in support. He did file a notice of motion, but not until 7 August. It should be understood that Mr Faulkner was now taking steps in the proceeding, as Mr Malovany had been for some time, without the benefit of legal representation or advice. In sum, Mr Faulkner was one day late in the sense of taking some sort of step to communicate his intention, although he was thirteen days late in terms of the filing of a notice of motion. Ms Orsini, solicitor, who came to represent the applicants in place of Mr Thorpe, has been assiduous in her attempt to have the orders of 11 July 1996 set aside, but she encountered difficulty for a considerable period in effecting service on Mr Malovany. Of course, Mr Malovany was not obliged to keep an address for service on the Court record, since, so far as he was concerned, the proceeding had been dismissed on 11 July and no motion had been brought within the 14 day period for an order setting aside the dismissal. I merely mention this matter to give some explanation of the delay. Another cause of delay is that the hearing of the motion has occupied various sessions of time extending over a further considerable period, as the parties' estimates of hearing time have not been adhered to. The submissions of the respective parties, which I have found helpful, have been voluminous. The applicants' submissions in chief occupy 25 pages, Mr Malovany's submissions occupy 45 pages, and the applicants' submissions in reply occupy 21 pages. That leaves to one side submissions which have been made by Messrs Sgambellone and Rechichi, who in substance, however, adopt Mr Malovany's submissions. REASONING Whether I should aside the order of 11 July 1996 is, of course, a question of discretion. I must take into account all of the competing considerations. Several matters favour a setting aside. One is that the affidavit evidence explains the difficulty which existed between Mr Faulkner and his solicitor in the period leading down to 11 July. According to Mr Faulkner's affidavit evidence, he did not receive advance notice of Mr Thorpe's intention to apply for leave to file a notice of ceasing to act and he did not, himself, receive advance notice of Mr Malovany's notice of motion for summary dismissal. Of course, I emphasise that it was not necessary for Mr Malovany to serve that notice on the applicants personally since, at the time, they were represented by a solicitor on the record and Mr Malovany was entitled to serve that solicitor. However, this does not mean that the fact that the applicants were not themselves aware of the intention of either Mr Thorpe or Mr Malovany until after the event, is not a consideration to be taken into account in favour of the applicants on the present motion. In substance though not in form, the applicants' interests were not, for whatever reason, being represented on and immediately before 11 July 1996. Another matter which favours the applicants is that the evidence shows that considerable time and effort had gone into preparing the matter for final hearing prior to the events of mid-1996. There is evidence that the applicants had incurred some $30,000 to $40,000 in legal fees. The legal work done on their behalf would prove to be wasted if the applicants are not allowed to pursue their case. On the other hand, a matter which has caused me some misgiving is the question of the explanation for the applicants' failure to file a notice of motion by 25 July 1996. Mr Faulkner's explanation is, in summary, that he did not appreciate the finality of the time limit fixed in order 2. It will be recalled that the first he knew of the order was on 17 July and apparently he did not become aware of the full terms of them until he heard from Mr Thorpe on 23 July. I think, that all things considered, it would be draconian for the applicants to be shut out, having regard to all the further evidence that is now before the Court. In the result, I propose to order first, that order 1 made by the Court on 11 July 1996 be set aside and, secondly, that the applicants pay Mr Malovany's expenses on his motion for summary dismissal and on the applicants' motion for the order setting aside. The latter is a common result of the concession being granted, that is, it is a common price of a setting aside. Thirdly, I propose to make an order dismissing the motion brought by the third and fourth respondents by notice of motion filed on 18 February 1997, for my reasons for not accepting Mr Malovany's submissions, which the third and fourth respondents adopted. [There was discussion in which Ms Orsini indicated that she would not make submissions against the making of the order for payment of expenses.] The other motions on the Court file appear to have been subsumed in the more recent ones. It seems to me that all motions should be disposed of in one way or another, and I will leave it to the parties to identify them and prepare the appropriate orders to be made in relation to them. This case obviously has already cost everyone much money and it has already been, no doubt, the source of much anxiety. Why it should have to go ahead, I am not sure. I have the impression that Mr and Mrs Faulkner and Airberg are not wealthy. Messrs Sgambellone and Rechichi are bankrupt. I have the impression that Mr Malovany is not wealthy. I wonder what, at the end of the day, is going to be achieved by what promises to be a fairly lengthy hearing involving cost and trouble for the parties. I have in mind the possibility of a mediation. That may be wishful thinking. Although the Federal Court of Australia Act 1976 (Cth) has been recently amended so that a Judge has power to order a mediation even without consent (subs 53A(1A)), I would not make an order referring the matter to mediation by an officer of the Court before hearing the parties on the question. It may well be that if an officer of the Court were to act as mediator, some way of avoiding a hearing could be found. I suggest that the parties discuss the desirability of mediation. [There followed discussion as to a convenient time for the making of orders.] CONCLUSION I stand the matter over to 9.30 am tomorrow morning for the making of orders. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren Associate: Dated: 11 September 1997 Solicitor for the Applicants: Ms J Orsini The second, third and fourth respondents appeared in person. Date of Hearing: 4, 19 February 1997, 18 March 1997, 5 June 1997 Last written submission received: 21 August 1997 Date of Judgment: 28 August 1997