FEDERAL COURT OF AUSTRALIA PRACTICE AND PROCEDURE – application to dismiss proceedings for non-compliance with orders – self-executing orders – costs thrown away – indemnity basis. Federal Court Rules O 10 r 7, O 62 Re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320 Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 Fisher v Rural Adjustment and Finance Corporation of Western Australia (1995) 57 FCR 1 Sali v SPC Limited (1993) 67 ALJR 841 State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225 Fairplay Newspaper and Printing Works Pty Ltd v Currico Nominees Pty Ltd (unreported, Federal Court, Carr J, 22 May 1998) Flemington Properties Pty Ltd v Raine and Horne Commercial Pty Ltd (unreported, Federal Court, Lehane J, 11 February 1998) Bates v Omareef Pty Ltd (unreported, Federal Court, Emmett J, 28 October 1997) Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 DAVID CHARLES ROBINSON v AWARE INDUSTRIES LIMITED & ORS VG 221 OF 1996 WEINBERG J MELBOURNE 1 OCTOBER 1998 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 221 of 1996 BETWEEN: DAVID CHARLES ROBINSON Applicant AND: AWARE INDUSTRIES LIMITED First Respondent CHRISTOPHER AVERY Second Respondent PETER McCLOSKEY Third Respondent JAMES JOHNStON Fourth Respondent WILLIAM STIRLING Fifth Respondent ALLAN BOUNaDER Sixth Respondent JUDGE: WEINBERG J DATE OF ORDER: 1 october 1998 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The notice of motion filed on behalf of the respondents on 31 August 1998 be dismissed. 2. The dates fixed for the trial of this application be vacated and the application fixed for trial to commence on 28 April 1999. 3. The applicant pay the respondents' costs incurred by reason of the need to vacate the dates previously fixed for trial, such costs to be assessed on an indemnity basis and paid on or before 22 October 1998. 4. The applicant pay the respondents' costs of the notice of motion filed on behalf of the respondents on 31 August 1998, such costs to be assessed on a party and party basis and paid on or before 22 October 1998. 5. The applicant give further discovery confined to documents not hitherto discovered on or before 4 November 1998. 6. The applicant make available for inspection all documents the subject of such further discovery (other than those to which there is objection to production) on or before 11 November 1998. 7. The applicant file and serve any report of any expert accountant upon which the applicant proposes to rely in the trial on or before 26 February 1999. 8. The applicant file and serve a list of proposed witnesses and an outline of the evidence which it is anticipated that each such witness will give on or before 26 March 1999. 9. The applicant in consultation with the respondents compile an indexed and paginated Court Book containing current pleadings and particulars, outlines of witness statements, and copies of documents that the parties will seek to tender at the trial, such Court Book to be filed no later than seven (7) days prior to the date now fixed for trial. 10. The parties file and exchange chronologies no later than seven (7) days prior to the date now fixed for trial. 11. The parties file and exchange outlines of argument setting out contentions of fact and law no later than seven (7) days prior to the date now fixed for trial. 12. In the event that the applicant fails to comply with any of orders 2 to 7 inclusive, the application stand dismissed, with costs. 13. There be liberty to apply. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG 221 of 1996 BETWEEN: DAVID CHARLES ROBINSON Applicant AND: AWARE INDUSTRIES LIMITED First Respondent CHRISTOPHER AVERY Second Respondent PETER McCLOSKEY Third Respondent JAMES JOHNStON Fourth Respondent WILLIAM STIRLING Fifth Respondent ALLAN BOUNaDER Sixth Respondent JUDGE: WEINBERG J DATE: 1 october 1998 PLACE: MELBOURNE REASONS FOR DECISION On each of 2 and 9 September 1998 I dealt with an application brought by the respondents. That application was brought by a notice of motion dated 31 August 1998. The notice of motion sought to have this proceeding dismissed pursuant to O 10 r 7 of the Federal Court Rules 1979 ("the Rules"). The basis of the application was that the applicant in the principal proceeding, David Charles Robinson, had failed to comply with certain orders made by a Registrar on 5 August 1998. Those orders were designed to ensure that the trial which had been fixed to commence on 7 September 1998 from as far back as 6 May 1998, and which was anticipated to run for approximately seven days, could commence on the scheduled date. When the motion came before me on 2 September, the applicant foreshadowed an application to vacate the date fixed for the commencement of the trial. After hearing certain evidence, I adjourned to 9 September the further hearing of the respondents' notice of motion, as well as the applicant's application for an adjournment. I indicated on 2 September that I was disposed to dismiss the notice of motion, and to grant the adjournment, but that I would hear the parties on the matter of costs thrown away. I indicated also that I would set a new timetable with which the applicant should comply, or face dismissal of his application by self-executing orders. On 9 September I made orders dismissing the respondents' notice of motion, and adjourning the trial until 28 April 1999. I also made the self-executing orders to which I had earlier adverted. These applied to the applicant alone. If breached, they will lead to his application standing dismissed. I ordered the applicant to pay the respondents' costs thrown away by reason of the adjournment on an indemnity basis. I stated that I would provide my reasons for having made these orders at a later date. These are my reasons. The principal proceeding is one which arises out of the purchase by the applicant of a business from the first respondent. The applicant claims that various misrepresentations were made to him by the second to the sixth respondents, and that he relied upon these misrepresentations in electing to purchase the business. The proceeding was instituted on 22 April 1996. It is therefore a matter which has been before the Court for a very long time. The orders of the Registrar with which the applicant did not comply were orders of the type which are typically made to ensure that a case is ready for trial on the date upon which it is fixed to commence. They included orders requiring by 24 August 1998 the filing and service of a list of proposed witnesses, together with an outline of the evidence which it was proposed that each witness would give, the preparation by 31 August 1998 of an indexed and paginated Court Book, the exchange of chronologies, and the filing and exchange of outlines of argument setting out contentions of fact and law. There had been a history in 1997 of the applicant having failed to comply with orders requiring him to give further and better particulars of his alleged loss. It emerged also during the course of the hearing before me that the applicant had not given discovery to the respondents of a number of documents relevant to that alleged loss. I shall return to the question of discovery shortly. The respondents complied fully with the orders of the Registrar. They filed and served upon the applicant their list of proposed witnesses, and outlines of their evidence. They brought their notice of motion seeking to have the application dismissed only when it became totally clear, by 31 August 1998, that the applicant had not complied with any of his obligations pursuant to the orders of the Registrar. The possibility that the applicant would seek an adjournment of the trial did not emerge until 31 August 1998. It was raised informally in a telephone conversation between Mr Michael Klotz, a solicitor who foreshadowed in that conversation that he might, if put in funds by the applicant, represent him in the trial of this matter, and Mr Phillip Williams, the solicitor who has had the carriage of the matter for the respondents throughout. The applicant had been represented previously throughout these proceedings by other solicitors. He is an undischarged bankrupt. He has been bankrupt twice previously. By reason of an arrangement which he reached with the Official Trustee in Bankruptcy, his cause of action against the respondents which had passed to the Trustee upon his bankruptcy was assigned back to him pursuant to s 135 of the Bankruptcy Act 1966. That assignment permitted the applicant to continue this litigation – see generally Re Nguyen; ex parte Official Trustee in Bankruptcy (1992) 35 FCR 320 at 325-6. The costs of his solicitors were, at one time, being met by the applicant's family and friends. It seems, however, that these sources of funding were no longer available to the applicant as the trial approached. On 20 August 1998, his former solicitors save notice to the applicant of their intention to file and serve a notice of change of solicitor. Such notification is required pursuant to O 45 r 7 of the Rules, and must be given not less than seven days prior to filing and serving such notice of change. Notice of change was in fact filed on 31 August 1998. It appears that the applicant's former solicitors withdrew from the proceedings because they had not been paid their fees and disbursements. They asserted a lien over the file relating to the proceeding, and continue to maintain that lien. The applicant gave evidence before me on 2 September that he had not complied with the orders made by the Registrar on 5 August 1998 because his former solicitors had declined to continue acting for him without further fees being paid. He stated that he expected to be in a position to put his new solicitor, Mr Klotz, in funds after his son returned from overseas and sold certain food processing machinery and other equipment which his son had purchased some months earlier. The purchase price had been approximately $10,000.00. The applicant maintained, however, that the proceeds of the sale of that machinery and other equipment were likely to be in the vicinity of $100,000.00. The explanation proffered by the applicant for this remarkable increase in value was that the machinery had been purchased on terms that it be removed from its former location, and that that location be cleaned and restored to its original condition. The restoration was a major enterprise and would be very costly. The applicant also stated that he believed that the sale would take place in about one month's time. In cross-examination the applicant conceded that he had in his custody or control a large number of documents which bore upon the losses brought about, as he claimed, by the conduct of the respondents. He acknowledged that he had not given discovery of those documents. He stated that they had come to his notice only after he had sworn an affidavit verifying a list of discoverable documents. He did not explain his failure to comply with his obligation to give continuing discovery. As I am to be the trial judge in this matter, it is not appropriate that I express any firm views about the applicant's evidence. It is sufficient to say that, by his own admission, the applicant conceded that there were important documents in his custody or control which, though they had been specifically and repeatedly requested, had not been discovered to the respondents. The Notice of Motion Order 10 r 7 of the Rules provides 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) if the party in default is a respondent – for judgment or an order against him; or (c) for an order that the step in the proceeding be taken with the time limited in that order. (2) The Court may make an order of the kind as 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. (3) This rule does not limit the powers of the Court to punish for contempt." In Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 the Full Court of the Federal Court observed at 395-396 per Wilcox and Gummow JJ: "It is to be noted that the power given by this rule is conditioned on one circumstance only: the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the Court's judgment as to whether or not the applicant genuinely wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule. There is no requirement of "inordinate and inexcusable delay" on the part of the applicant or the applicant's lawyers, although any such delay is likely to be a significant matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant. And it must be remembered that, in almost every case, delay adversely affects the quality of the trail and is an additional burden upon the parties." Their Honours went on to say at 396: "The observations which we have just made about the scope of O 10 r 7 are not intended to convey the impression that any failure to comply with a procedural direction will appropriately result in the dismissal of the proceeding. On the contrary, the rules must be administered sensibly and with an appreciation both of the fact that some delays are unavoidable, and unpredictable, by even the most conscientious parties and their lawyers, and of the likely serious consequences to an applicant of staying or dismissing a claim; …We would not wish our observations to cause respondents to apply for dismissal of proceedings simply because there has been a non-compliance with the direction by the applicant, even though it does not cause or indicate a continuing problem in preparing the matter for an early trial. The discretion conferred by O 10 r 7 is unconfined, except for the condition of non-compliance with a direction. As it is impossible to foresee all of the circumstances under which the rule might be sought to be used, it is undesirable to make any exhaustive statement of the circumstances under which the power granted by the rule will appropriately be exercised. We will not attempt to do so. But two situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases – whatever the applicant's state of mind or resources – in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent. Although the history of the matter will always be relevant, it is more likely to be decisive in the first of these two situations. Even though the most recent non-compliance may be minor, the cumulative effect of an applicant's defaults may be such as to satisfy the judge that the applicant is either subjectively unwilling to co-operate or, for some reason, is unable to do so. Such a conclusion would not readily be reached; but, where it was, fairness to the respondent would normally require the summary dismissal of the proceeding. In the second of the two situations we postulate, a significant continuing default, it does not really matter whether there have been earlier omissions to comply with the Court's directions. Ex hypothesi the default is continuing and is imposing an unacceptable burden on the respondent. But the continuance of the non-compliance is of the essence of this situation." These passages were cited with approval by the Full Court of the Federal Court in Fisher v Rural Adjustment and Finance Corporation of Western Australia (1995) 57 FCR 1 at 18-19. The Full Court there also dealt with the principles governing the making of springing or guillotine orders in circumstances where there has been default in complying with the orders of the Court. Though there is substantial evidence of non-compliance by the applicant with orders of the Court including, in particular, his failure to give proper and complete discovery of documents bearing upon the question of his alleged loss, I do not believe that it can be said that this evidence is of itself sufficient to demonstrate an inability or unwillingness to cooperate with the Court and with the respondents in having the matter ready for trial. It can, however, fairly be said that the applicant's non-compliance is continuing, and that it has occasioned unnecessary delay, expense and other prejudice to the respondents. The fact that the solicitors previously retained by the applicant had determined that they would not perform any further work on his behalf without payment is no real answer to the applicant's failure to comply with orders of the Court. He must have been aware, some weeks at least prior to the date fixed for the hearing of this matter, that because their fees had not been paid his former solicitors were not taking steps to comply with the orders of 5 August 1998. He did nothing to inform the respondents that his solicitors proposed to withdraw from the case even when notified of that fact on or about 20 August 1998. It was not until eleven days later, on 31 August 1998, that any intimation of this kind was given to the solicitors for the respondents, and it was foreshadowed for the first time that the matter might have to be adjourned. By that date it was clear that not only had the applicant failed to comply with the orders made by the Registrar – his newly appointed solicitors and newly retained counsel obviously were not in a position to proceed with the trial on the appointed date. In Sali v SPC Limited (1993) 67 ALJR 841 the High Court held that the refusal by the Full Court of the Supreme Court of Victoria to grant an adjournment had not resulted in a miscarriage of justice when the adjournment was sought on the basis of inability to obtain the services of particular senior counsel. Their Honours Brennan, Deane and McHugh JJ noted that in determining whether to grant an adjournment, the judge of a busy court was entitled to consider the effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the Court, as well as the interests of the parties. That decision suggested that a Court should be resolute in refusing an adjournment where there was no proper justification for its being granted. The mere fact that costs could be awarded against the party seeking the adjournment was not of itself a sufficient justification for granting it. In State of Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 the High Court allowed an appeal in circumstances where there had been an application to amend a defence made before a trial date had been set in circumstances where that application was not likely to raise any new complex questions of fact. The trial judge had refused leave to amend on the basis that the amendments might jeopardise the as yet unfixed hearing dates. The Full Court of the Federal Court, by majority, dismissed the appeal from the trial judge's refusal to grant leave to amend. The majority invoked principles of case management, and efficiency, in support of their decision. The High Court, however, allowed the appeal, noting that principles of case management, and efficiency, were relevant considerations, but should not have been allowed to prevail over the injustice of preventing the defendants from raising an arguable defence. There seems little doubt that O 10 r 7 confers upon the Court a broad discretion to deal with non-compliance with orders made at directions hearings. The problem, as has been noted, is to balance the desirability of letting the party in default present his or her case against the desirability of encouraging compliance with the Court's directions. Sub-rule 7(2) of O 10 is drawn so as to enable a range of sanctions to be applied including those which are less drastic than dismissal. Having regard to the observations of the High Court in JL Holdings Pty Ltd (supra), I do not think that the point has yet been reached in the present proceedings where the applicant should be deprived of his opportunity to present his case simply because he has failed to comply with the orders relating to the giving of further and better particulars, discovery, and the exchange of witness names and outlines of evidence. The extreme step of dismissing an application pursuant to O 10 r 7 seems to me to require either a more substantial history of non-compliance than has been established, or greater prejudice to the respondents than is presently demonstrated. To some degree such prejudice as the respondents have suffered can be overcome by the making of appropriate orders as to costs. Moreover, there can be some assurance that the applicant will, in future, comply in a timely manner with the orders which I propose to make by making those orders self-executing. The respondents' notice of motion must therefore be dismissed. The application to adjourn the trial It was common ground between the parties that given the applicant's failure to comply with the orders of 5 August 1998, and given the fact that his new solicitors and counsel had only just been retained, it would be inappropriate and unfair to him, as well as to the respondents, to require this trial to proceed on 7 September 1998. The only possible course is to vacate the existing trial date, and to fix the trial for the next available date. That date is 28 April 1999. Costs thrown away The respondents submitted that the applicant should pay the costs thrown away by reason of the need to vacate the trial date, and that those costs should be paid on an indemnity basis. The applicant conceded that he must pay the respondents' costs thrown away. He submitted, however, that in accordance with the ordinary rules, those costs should be assessed on a party and party basis. The principles under which a Court may order costs on an indemnity basis are generally taken to have been stated accurately by Sheppard J in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. There his Honour noted that the jurisdiction of the Court to award costs is provided for in s 43 of the Federal Court of Australia Act 1976. He noted further that detailed provisions in relation to costs are made in O 62 of the Rules. His Honour referred to O 62 rr 12 and 19 of that order, and noted that the costs for which those rules provide are costs on a party and party basis. He then explained the divergence between costs incurred and costs recovered on a party and party taxation. At 230-232 his Honour summarised the principles which had been held to permit the Court to depart from its normal practice of making an order which has the effect of providing for taxation on a party and party basis. One of the main principles identified by his Honour was that an award of costs on an indemnity basis "may be made only in a special case, where the circumstances justify departure from the ordinary principle". His Honour stated at 233: "The circumstances of the case must be such as to warrant the Court in departing from the usual course. … there should be some special or unusual feature in the case to justify the Court in departing from the ordinary practice." His Honour then continued: "…it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud …evidence of particular misconduct that causes loss of time to the Court and to other parties … the fact that the proceedings were commenced or continued for some ulterior motive … or in wilful disregard of known facts or clearly established law … the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions … an imprudent refusal of an offer to compromise … and award of costs on an indemnity basis against a contemnor ." (emphasis added) The principles formulated by his Honour have been applied at first instance by a number of judges of this Court. See for example Fairplay Newspaper and Printing Works Pty Ltd v Currico Nominees Pty Ltd (unreported, Federal Court, per Carr J, 22 May 1998); Flemington Properties Pty Ltd v Raine and Horne Commercial Pty Ltd (unreported, Federal Court, per Lehane J, 11 February 1998) and Bates v Omareef Pty Ltd (unreported, Federal Court, per Emmett J, 28 October 1997). More importantly, those principles have been approved by the Full Court of the Federal Court in Re Wilcox; ex parte Venture Industries Pty Ltd (No 2) (1996) 72 FCR 151 at 153 per Black CJ and at 156 per Cooper and Merkel JJ. Though Sheppard J did not purport in Colgate-Palmolive to lay down in any exhaustive manner the circumstances in which indemnity costs could be ordered, his Honour's reference to "misconduct that causes loss of time to the Court and to other parties" seems to me to be an apt description of the conduct of the applicant in the present case. Certainly the applicant's conduct is "deserving of criticism", to use the language of Carr J in Fairplay (supra). He knew, from 6 May 1998, when this matter was fixed for trial, that it was scheduled to commence on 7 September 1998. He knew, therefore, that he was required to ensure that he was in a position to present his case on that date. The evidence before me suggests that he did nothing of any consequence thereafter to ensure that the trial could commence on the date fixed. Moreover, he ignored the imperatives of proper and timely preparation for trial. The orders made by the Registrar on 5 August 1998 were clear and unambiguous. They were intended to insure that each party knew prior to the commencement of the trial the substance of the case which he or it had to meet. The applicant must have been aware for some considerable time prior to 24 August 1998, the date by which he had been required to provide outlines of witness statements, that this would not be done. He took no steps to cause that fact to be communicated to the respondents. He made no effort to communicate to the respondents in a timely manner the fact that he might not be in a position to commence this trial on the date fixed for hearing. Had it not been for the informal intimation given over the telephone by Mr Klotz to Mr Williams on 31 August 1998 that an application to vacate the trial date might be made the respondents would, in all likelihood, have continued their preparation for trial, ignorant of what was to come. Once it became clear to the applicant that he would not be in a position to comply with the orders of the Registrar, and that his solicitors proposed to withdraw from any further involvement in the proceedings, it was incumbent upon him to convey that state of affairs to the respondents at least, if not to the Court as well. A casual disregard of the rights of others should not be tolerated. It is unacceptable to raise such matters for the first time on the morning of the date fixed for the commencement of what may ultimately prove to be a lengthy trial. When one adds to this the applicant's acknowledged failure to give discovery of a number of documents which may prove to be of critical importance (which failure might itself have required the trial to be adjourned), it is not difficult to characterise his conduct as being "particular misconduct that causes loss of time to the Court and to other parties" in the sense in which that expression was used by Sheppard J in Colgate-Palmolive (supra). In what I find to be the special or unusual circumstances of this case I am satisfied that it is just to depart from the ordinary practice of awarding costs on a party and party basis. It is appropriate that the applicant pay the respondents' costs thrown away by reason of his belated application to adjourn this trial, and that they be paid on an indemnity basis. I certify that this and the preceding ten (10) pages are a true copy of the Reasons for Decision herein of the Honourable Justice Weinberg Associate: Dated: Counsel for the Applicant: Mr J R Dixon Solicitor for the Applicant: Mr M D Klotz Counsel for the Respondents: Mr P Lacava Solicitor for the Respondents: Dick & Williams Date of Hearing: 2 and 9 September 1998 Date of Decision: 1 October 1998