IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SG 7074 of 1998 IN THE MATTER OF DONKA GORCILOV BETWEEN: peter ivan macks as trustee for the bankrupt estate of donka gorcilov Applicant AND: ekena pty ltd First Respondent macquarie investment management limited Second Respondent JUDGE: MANSFIELD J DATE: 4 august 1998 PLACE: ADELAIDE REASONS FOR DECISION HIS HONOUR: I will deal separately with the two applications before me today. The first application is in effect an application for judgment, including declaratory and other relief, against the first respondent Ekena Pty Ltd ("Ekena") for failing to file a defence in accordance with the Federal Court Rules ("the Rules") or in accordance with the timetable that was set by the Court. The application is brought on the basis of the material referred to in the affidavit of Brendon Charles Roberts sworn on 24 July 1998. The history of the proceedings is a relatively short but quite intense one. Proceedings were first commenced on 2 April 1998 when an order in the nature of a Mareva order was made. There was subsequently a series of attendances at which the applicant and Ekena addressed the question of the terms of that order and its possible variation. On 11 May 1998, I made orders for the matter to proceed on pleadings, and set a timetable for the filing and service of pleadings. A statement of claim was to be filed and served by 20 May 1998, and a defence by 3 June 1998. The statement of claim was in fact filed and delivered on 26 May 1998. In the meantime, there was before the Court an application to vary the Mareva order and authorise the release of funds held in a bank account at the Macquarie bank to Ekena for the purpose of it continuing to conduct the proceedings on its behalf. That application was the focus of the parties' attention for some time, and judgment was given and orders were made refusing that application on 22 June 1998. At that time I extended the time for Ekena to file and serve its defence to 10 July 1998. Although solicitors for the applicant had in the meantime, by correspondence of 27 May 1998, 9 June 1998 and 10 June 1998 sought to insist upon Ekena adhering to the previously fixed timetable for the filing and serving of its defence, in the circumstances I do not think that I should construe the elapse of time between 3 June 1998 and 10 July 1998 adversely to Ekena. I do not consider that period as a relevant material delay, given that the time for filing and serving its defence was extended to 10 July 1998. The defence in any event was not filed and served by 10 July 1998, notwithstanding further correspondence from solicitors for the applicant dated 22 June 1998, 14 July 1998, 17 July 1998 and 20 July 1998, insisting upon the filing of the defence within that time, and subsequently giving notice of intention to apply for judgment in default of defence in the absence of such a defence. On 4 August 1998 a defence was filed. There is, therefore, a delay between 10 July 1998 and 4 August 1998 in the filing of the defence. I do not think that that delay is satisfactorily explained. There was a period of time from 25 June 1998 until 4 August 1998 when Ekena was acting for itself. That itself is not an explanation for the delay. It now has solicitors again on the record acting for it. One should be careful not to apply the Rules in a way which works injustice to any party, but in particular to an unrepresented party, or to draw inferences adverse to a party, and in particular an unrepresented party, too readily. However, there should nevertheless be an explanation for the delay. I note the submission put on behalf of Ekena that the explanation for the delay is its lack of funds. That was a matter which was addressed by me in the reasons for judgment and in the decision given on 22 June 1998. That decision was subsequently the subject of an application for leave to appeal, which was dismissed by von Doussa J on 13 July 1998. Ekena demonstrated an ability to look after its own interests while unrepresented by issuing an application and supporting affidavit in support of the application for leave to appeal from my decision. It was instituted by notice of motion on 1 July 1998. Subsequently, on or about 17 July 1998, Ekena also served upon solicitors for the applicant a detailed and apparently competently drawn request for further and better particulars of the statement of claim. In addressing this application, therefore, I am not of the view that Ekena has proffered any satisfactory explanation for the delay or that, in the circumstances, there is material which indicates that during the period of delay it has been unable to address the question of filing and serving a defence in accordance with the Rules due to being unrepresented. Notwithstanding that question, there are other considerations relevant to the application. The length of the delay is relatively short, albeit a significant period, having regard to the fact that the matter is listed for hearing on 19 August 1998. Nevertheless it is a short period, and in fact a defence has now been filed and delivered. It would be a significant step, in my view, to now enter judgment in default of defence in the face of that document having been so filed and delivered. Furthermore, I am aware that, as my earlier reasons indicated, the nature of the defence has been known in a general way to the applicant at least from a relatively short time after the proceedings were first instituted and at least from about the middle of May 1998. By that time affidavits had been filed and served in this proceeding generally, which indicated that Ekena's position was that the funds available to it, which the applicant alleges to have been funds of the bankrupt Donka Gorcilov, were in fact funds advanced by way of loan from other members of the Gorcilov family. Oral evidence to that effect was also given in the course of the application to discharge the Mareva injunction. It is not a case, therefore, where the delay in filing the defence has meant that the applicant has had no real idea what the defence is, or has been unable to commence addressing that potential defence. No other ground of prejudice to the applicant by the delay in filing of the defence has been advanced. The consequences of the delay are not presently suggested to impact adversely upon the ability of the applicant to have the trial commence on 19 August 1998, as it is now fixed, or to prepare for or to proceed with the trial at that time. I do not discern any other consequences of the delay of sufficient moment to warrant specific consideration at this point, and I do not think counsel for the applicant suggested that there were any. Finally, I have had regard to the question of injustice or consequences to Ekena. There are two points of view relevant to the proceeding: the applicant's, as spelled out in the affidavit evidence to which reference has been made in my earlier reason; and Ekena's, as spelled out in its affidavit evidence and oral evidence referred to in my earlier reasons and briefly mentioned above. There are obviously real issues to be determined between the parties. In those circumstances it would work a real injustice to Ekena if judgment in default of defence was to be entered. That might be a necessary or unavoidable consequence if there were, on the other hand, significant prejudice to the applicant by the delay. At present I am not satisfied that there is such prejudice. Accordingly, notwithstanding that the delay is not satisfactorily explained, in my view I should decline to enter judgment in default of defence on the present application. Counsel for Ekena raised the point that the application was incompetent. It was first made orally. It is now supported by a notice of motion issued on 3 August 1998. Pursuant to O 19 r 3 of the Rules, such a notice of motion should give three days' notice of the hearing of the application unless the Court otherwise orders. I do so otherwise order. In my view it is appropriate for that notice of motion to have been called on and dealt with today. I do so because the affidavit of Mr Roberts of 24 July 1998 indicated the intention to make the application and the basis of it, and indicated that the application was being brought pursuant to the leave previously given to bring on such an application before the Court. I do so also because, as the correspondence to which I have referred makes plain, Ekena was at least since 14 July 1998 aware that an application for default judgment would be brought, and subsequent correspondence on 17 and 20 July 1998 reconfirmed that such an application was being brought, and the affidavit of 24 July 1998 made the grounds of that application plain. When the matter came on before the Court on 31 July 98, Mr Tomaras, the director of Ekena, sought an adjournment and it was made plain to him at that time that the application then before the Court, and adjourned to yesterday and then to today, was for judgment in default of defence. In my view ample opportunity and notice was given to Ekena of the proposed application. To the extent that it is necessary to do so to regularise the situation, I therefore order that the time for filing and service of the notice of motion of 3 August 1998 be abridged to today and that the applicant, if it be necessary, have leave to proceed on that notice of motion based upon the affidavit of 24 July 1998. However, for the reasons which I have given, I decline to make the orders sought on that notice of motion. In my view, given the default in the filing and service of the defence in the circumstances I have outlined above, the costs of that notice of motion should be ordered to be paid by Ekena to the applicant, but I will give counsel for Ekena an opportunity to make submissions on that before formally ruling on that question. [Argument ensued] I order that Ekena pay to the applicant its costs of and incidental to the notice of motion of 3 August 1998, including costs of the affidavit of Mr Roberts sworn on 24 July 1998. The second application before the Court is the application by the applicant for costs in relation to the oral application of Ekena to vary the Mareva order, which was the subject of the decision given on 22 June 1998. On that date, I dismissed Ekena's application for an order varying the Mareva order first made on 2 April 1998 and reserved the question of costs to 31 July 1998. In ample time prior to that date, solicitors for the applicant, by affidavit of Brendon Charles Roberts sworn on 9 July 1998, gave to Ekena notice of the applicant's intention then to seek orders for costs in respect of that application, that those costs should be taxed on an indemnity basis, and that those costs should be payable forthwith. Counsel for Ekena has objected to the Court entertaining those applications on the grounds that they are incompetent without a notice of motion having been issued. I reject that application. When judgment was given on the oral application on 22 June 1998, the costs of that application were reserved to 31 July 1998. On 31 July 1998, when Ekena was aware of the costs orders which were then being sought, Mr Tomaras appeared for Ekena but said he was unable to address the issue, and asked for the matter to be adjourned. It was adjourned to 3 August 1998 and then to 4 August 1998 for argument. It is still part of the process of resolving the oral application of Ekena and does not separately need a notice of motion. I turn to address the merits of the application. It has not been contended that it would be an improper exercise of the Court's discretion to order that Ekena should pay the costs of that application. That would be the normal order following such an application having been made and having been unsuccessful. It is an application which is discrete from the issues which will fall to be determined in the principal proceedings. The Court has power to make an order for indemnity costs. The judgment of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225, in particular at 228, is commonly referred to with approval as setting out the circumstances in which the Court may make an order for indemnity costs, and I have had regard to those reasons. It is ultimately, as his Honour said at 234, a matter for the particular facts and circumstances of the case in question as to whether those facts and circumstances warrant the making of an order for payment of costs, other than on the normal party and party basis. It is necessary to address whether in the particular circumstances there were some special or unusual features of the case which warrant that step. The material relied upon by the applicant, as set out in Mr Roberts' affidavit of 9 July 1998, relates largely to the way in which that application was pursued and to the history of that matter prior to that time. That is a matter of record. Ekena raised on a number of occasions the prospect of having such an application made to the Court. On 2 April 1998, when I ruled that I would entertain the application based upon an affidavit of Mr Tomaras only if he were made available for cross-examination, Ekena elected then not to proceed with the application, and similarly, on 4 May 1998, and again, ultimately, on 11 May 1998 it sought but did not pursue on those occasions the application to vary the Mareva order. In anticipation of such an application, it then being foreshadowed, on 4 May 1998 I directed that any such application be supported by affidavit material and I set a timetable for those affidavits to be filed. Certain affidavits were filed, albeit not strictly within the timetable set out, but ultimately they were not relied upon. On 14 May 1998, an oral application was made for variation of the Mareva order, and it was sought to be advanced through oral evidence. Over the opposition of the applicant, I permitted that course to be followed, because I perceived it may produce, in Ekena's circumstances, an opportunity for resolution of the question in a way which for some reason or another it had not perceived that it was able to do by the filing and serving of affidavits. That application then proceeded on a number of hearing days. As the reasons for judgment indicate, the application was unsuccessful for two reasons: partly because I was not satisfied that all of the assets of Ekena were known to the applicant and, as well, that Ekena may have some assets available to it which it had not accounted for in evidence adequately to support its ongoing conduct of the defence of this matter, without recourse to the money in the Macquarie account. Although Ekena led significant evidence as to the moneys available to it from time to time and as to their application, at the end of the day there was an unaccounted for shortfall - in the scheme of things, not a large shortfall, but a not insignificant sum of money - which was not able to be accounted for entirely by the expenditure items identified. In respect of the expenditure items identified, again a not insubstantial sum which was not shown to have been applied in a way which made those funds irrecoverable to Ekena. Secondly, I reached that view because the real issue between the parties is whether the funds which first went into Ekena, and which were used to buy a taxi licence, were funds of the bankrupt or were moneys advanced by other persons related to the bankrupt by way of loan, unrelated to the funds of the bankrupt. Consequently, in a real sense, the issue was between those alleged borrowers on the one hand protecting the claim that they had made loans, as was asserted on behalf of Ekena, and the alleged advance or application of funds of the bankrupt, as was asserted by the trustee. I was not satisfied that those persons who had advanced funds to Ekena at that time, or indeed those persons who had on Ekena's own evidence demonstrated a preparedness during 1998 to advance funds to it, were not in a position to, or not prepared to, advance further funds to Ekena to conduct its defence. There was no evidence adduced, other than from Mrs Milosevski, from those persons who Ekena indicated had advanced funds to it, either during 1997 or 1998, as to their then asset position or as to their preparedness or capacity to advance further funds to Ekena. That primary and important question was therefore not fully addressed by Ekena on its application. It is significant that the applicant, in correspondence, had indicated to Ekena a desire to obtain such a full accounting in correspondence prior to and during the course of that hearing. That correspondence is quite extensive, covering the period from 7 April 1998 to 13 May 1998. The fact that Ekena chose to proceed with its application in the manner in which it did - that is, by oral evidence - necessitating a considerably more prolonged hearing time than would otherwise have been the case, and in the face of the Court's order that the affidavits be filed in anticipation of the matter proceeding by affidavit, meant inevitably that greater costs were incurred by the applicant in resisting the application than otherwise would have been the case. In my view, the way in which the matter proceeded, in the light of the matters referred to above, does indicate special or unusual features sufficient to warrant the Court making an order for indemnity costs. I therefore order that Ekena pay to the applicant his costs of an incidental to the oral application made by Ekena on 22 April 1998 and of attendances on 4 May 1998 and 11 May 1998 and to its oral application first made on 14 May 1998 to vary the Mareva order by authorising the release to Ekena of funds from the Macquarie account on an indemnity basis. The other aspect of this application is that those costs be ordered to be paid forthwith under O 62 r 3. That rule is an enabling rule, but it is apparent from the authorities that such an order should only be made in circumstances where the demands of justice require a departure from the general rule. The decision of O'Loughlin J in Australian Flight Test Services Pty Ltd v the Minister for Industry, Science and Technology and Ors (26 April 1996, unreported) indicates that one possible consideration relevant to the exercise of the discretion to make an order under O 62 r 3 is that the issue is a discrete issue not to be the subject of primary determination when the principal issues between the parties are resolved. Such is the nature of the issue which was before the Court on the oral application now under consideration. On the other hand, as counsel for Ekena has indicated, both from my reasons for decision on 22 June 1998, but perhaps more forcefully in the reasons for decision of von Doussa J given on 13 July 1998 when his Honour declined leave to appeal from my decision, a material consideration is that the limited funds available in the Macquarie account should not be dissipated, as they are likely to be, were the variation to the Mareva order granted as sought. Counsel urged that the same consideration should be applied to the applicant as was applied to Ekena. I am mindful that it was Ekena that chose to proceed in that manner and at that time. If the proceeding by the applicant is successful he will be entitled to his costs and will establish that the assets of Ekena, including those represented in the Macquarie account, will be assets of the bankrupt. In that event there will be no disadvantage to Ekena by the order which is now sought. If he is unsuccessful in the proceeding, but has a successful order for costs, as he now has, and has executed that order for costs, he will be in no better position qua Ekena than any other creditor of Ekena, and if he chooses to execute any order for costs at the present time, it will not give him a priority per se over any other creditor of Ekena in the event that Ekena needs to apply the funds available to it later on as between its various creditors. I do not see, therefore, that there is the force which counsel for Ekena raised in the point referred to. One consideration which the Courts generally have regarded as important in an application under O 62 r 3 is that a successful party obtaining an order for costs should not be put out of enforcement of that order for costs for a long period. That is not a consideration here. The matter is listed for trial on 19 August 1998 and, so far as I can determine, will proceed then to hearing and to determination in a relatively short period of time. I do not think by refusing the order that the applicant will therefore be put out of an entitlement to costs in a way which causes significant injustice to him. Ultimately, it seems to me that the application made by the applicant is really founded upon the way in which Ekena conducted the application to vary the Mareva injunction. I have dealt with those considerations in relation to the application for and the making of an order for indemnity costs. In the light of the considerations to which I have referred, however, I am not satisfied that there is a sufficient demand of justice, bearing in mind the proximity of the trial, to depart from the general rule that the costs ordered on interlocutory proceedings should not be able to be recovered until the matter is concluded, or until some further order. At present, therefore, I decline to make that order. If the trial does not proceed on the date fixed, I give to the applicant leave to renew that application at that time, and for that limited purpose. I accordingly further adjourn consideration of the costs of the application for the oral variation of the Mareva order for that limited purpose. In my view a fair order as to costs, bearing in mind that the applicant has been partly successful and partly unsuccessful, is that the applicant should have costs of the affidavit of Brendon Charles Roberts of 9 July 1998, and the attendances to the extent to which they related to the issue of costs on 31 July 1998 and 3 August 1998, and that there should be no order as to the costs of today concerning the application for costs. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield. Associate: Dated: Counsel for the Applicant: Ms S Maharaj with her Mr B Roberts Solicitors for the Applicant: Kelly & Co Counsel for the Respondents: Mr A Ardalich Solicitors for the Respondents: Wakefields Date of Hearing: 4 August 1998 Date of Decision: 4 August 1998