FEDERAL COURT OF AUSTRALIA Kyocera Mita Australia Pty Ltd v Mitronics Corporation Pty Ltd [2004] FCA 305 KYOCERA MITA AUSTRALIA PTY LTD v MITRONICS CORPORATION PTY LTD & ORS V 605 OF 2002 STONE J 16 MARCH 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY V 605 OF 2002 BETWEEN: KYOCERA MITA AUSTRALIA PTY LTD APPLICANT/FIRST CROSS-RESPONDENT AND: MITRONICS CORPORATION PTY LTD FIRST RESPONDENT KYOCERA CORPORATION SECOND RESPONDENT KYOCERA MITA CORPORATION THIRD RESPONDENT MITRONICS CORPORATION PTY LIMITED CROSS CLAIMANT MITA COPIERS AUSTRALIA PTY LIMITED (IN LIQUIDATION SECOND CROSS-RESPONDENT JUDGE: STONE J DATE OF ORDER: 16 MARCH 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Paragraphs 6 to 10 inclusive of the Amended Cross-Claim filed on 9 January 2004 be struck out. 2. Paragraphs 20 to 25 inclusive of the Amended Cross-Claim filed on 9 January 2004 be struck out. 3. The Cross-Claimant bear the costs of the Applicant on the Notice of Motion including reserved costs. 4. The Cross-Claimant has leave to file a Further Amended Cross-Claim within 21 days. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY V 605 OF 2002 BETWEEN: KYOCERA MITA AUSTRALIA PTY LTD APPLICANT/FIRST CROSS-RESPONDENT AND: MITRONICS CORPORATION PTY LTD FIRST RESPONDENT KYOCERA CORPORATION SECOND RESPONDENT KYOCERA MITA CORPORATION THIRD RESPONDENT MITRONICS CORPORATION PTY LIMITED CROSS-CLAIMANT MITA COPIERS AUSTRALIA PTY LIMITED (IN LIQUIDATION) SECOND CROSS-RESPONDENT JUDGE: STONE J DATE: 16 MARCH 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me a notice of motion in which Kyocera Mita Australia Pty Ltd, the applicant and first cross-respondent in this proceeding ('Kyocera'), seeks orders striking out certain paragraphs of the amended cross claim filed by the first respondent, Mitronics Corporation Pty Ltd ('Mitronics'), on 9 January 2004. Those paragraphs are paragraphs 6 to 10 inclusive and paragraphs 20 to 25 inclusive. In both cases it is claimed that the paragraphs disclose no reasonable cause of action, have a tendency to cause prejudice, embarrassment or delay in the proceeding and are an abuse of the processes of the Court. Kyocera also seeks the costs of the motion and has submitted that those costs should be ordered on a solicitor-client or indemnity basis. 2 I can deal very briefly with the substance of the claims made in the notice of motion. Paragraphs 6 to 10 concern an agreement between Mitronics and Mita Copiers Australia Pty Limited ('Mita') appointing Mitronics as a dealer and representative for Mita. It is alleged in the cross claim that the rights and obligations under the Mita Agreement have been assigned to Kyocera and that certain consequences flow from the assignment of the obligations. 3 As a matter of law neither the allegation that there was an assignment of obligations nor the subsequent claims in paragraphs 6 to 10 of liability for breach of those obligations on that basis can be sustained. There is no doubt that those paragraphs should be struck out and counsel for the respondent conceded as much. 4 Paragraphs 20 to 25 of the amended cross claim are a confused amalgam of trade practices and torts claims. The impression they create is that the drafter of these pleadings was under the impression that breach of a duty of care in making representations is an element in establishing contraventions of the Trade Practices Act (Cth) 1974. If that is what was meant then, as a matter of law, the pleading is seriously misconceived. Irrespective of that issue, however, paragraphs 20 to 25 do not meet the fundamental rule of pleading, that is, they do not disclose a cause of action; they do not set out the material facts which give rise to the cause of action. The principle is fundamental because the object of pleadings is to enable the other party, in this case Kyocera, to understand the nature of the claim that is being made against it. This would not be possible on any interpretation of paragraphs 20 to 25 and those paragraphs must also be struck out. 5 That brings me to the question of costs. As Kyocera has succeeded in its strike out application, in the normal course costs would fall on Mitronics as respondent to the notice of motion. As previously indicated, however, Kyocera seeks indemnity costs on two bases. First it points to the complete untenability of the challenged paragraphs and secondly, to the fact that some considerable time ago this issue was brought to the notice of Mitronics but no attempt was made to remedy the problem. 6 The transcript of a directions hearing held before a Registrar in the Victorian District Registry of the Federal Court supports the claim that the problems in paragraphs 6 to 10 of the pleadings were brought to the attention of the cross claimants as early as May 2003. It is clear from that transcript that at that time Mr Panna, counsel for Kyocera, who appeared before me today, explained in considerable detail the difficulties inherent in a claim that the burden of contractual obligations had been assigned. 7 It is also clear from that transcript that Kyocera was also put on notice that the appropriate way to pursue its objections to the pleadings was by notice of motion. The Registrar declined to hear any argument in relation to the cross claim because no motions were before him and he made this point several times. I draw no adverse inference from the fact that a notice of motion dealing with this issue was not filed until 20 February 2004 other than to note that this indicates that neither party regarded the matter as urgent. The progress of the matter before it was transferred to the New South Wales District Registry of the Court shows that there was much activity before the Registrar and it is not necessary for me to deal with the details of that activity. It may well be that other issues were of greater urgency for the parties. 8 Mr Panna drew my attention to comments in decided cases as to the circumstances in which indemnity costs might be ordered. In particular, he referred to the comment of Woodward J in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401 where his Honour said: 'I believe that it is appropriate to consider awarding "solicitor and client" or "indemnity" costs, whenever it appears that an action has been commenced or continued in circumstances where the applicant, properly advised, should have known that he had no chance of success. In such cases the action must be presumed to have been commenced or continued for some ulterior motive, or because of some wilful disregard of the known facts or the clearly established law. Such cases are, fortunately, rare. But when they occur, the court will need to consider how it should exercise its unfettered discretion.' 9 Similarly, Mr Panna referred to comments of Sheppard J in Colgate Palmolive Co v Cussons Pty Ltd (1993) 118 ALR 248, in particular, comments at 257. When the comments in those authorities are read in context it seems to me that the Court in both cases was considering something more than incompetence, profound though it may be. However, I see nothing in the case before me to suggest that there was any ulterior motive or wilful disregard either of the known facts or the clearly established law. Rather, incompetence exacerbated by delay seems more likely to be the case. 10 Therefore I am not satisfied that the award of indemnity costs is appropriate. I am concerned however, that in the face of such manifest incompetence (and I refer particularly to the ignorance of fundamental legal principle so clearly demonstrated in paragraphs 6 to 10) that it may well be inappropriate and unfair that a litigant rather than his or her solicitor should be responsible for the costs. 11 There is ample precedent in this Court in such cases for ordering that the solicitors for the relevant party be personally responsible for the costs. However, I have decided against this course largely on the basis that the costs incurred in pursuing it would probably be disproportionate in the context of the comparatively minor costs of a notice of motion. I therefore propose to order costs to be paid by the cross claimant on the usual party-party basis. However, those responsible for the drafting of the cross claim would do well to consider whether it would be commensurate with their duty to their client for them voluntarily to assume liability for those costs. 12 There is one other matter and that relates to costs reserved in relation to a directions hearing on the notice of motion before me on 25 February 2004. At that time, Mr Panna appeared for Kyocera and was ready to argue the matter. Unfortunately Mr Panna did not have a registered copy of the notice of motion which had been clearly stamped 'for directions only'. In the circumstances, it was not appropriate to hear the motion on that day. Mr Panna admitted that, had he realised that the motion was listed only for directions, he would have sought leave to appear from Melbourne by video link. In the circumstances I have considered the cross claimant's submission that I should exclude the expenses incurred in bringing Mr Panna from Melbourne on 25 February 2004 from the costs order to be made against Mitronics. I have, however, decided not to adopt that course. 13 Given that the problems with the pleadings were drawn to the attention of Mitronics many, many months before the notice of motion, had they been properly considered the concessions that have been made today in relation to the pleadings might well have been made at that stage. A party is entitled to have its counsel attend even a directions hearing and in the circumstances I see no reason to make any special provision in respect of counsel's appearance on that date. 14 Accordingly, I propose to order that paragraphs 6 to 10 inclusive and 20 to 25 inclusive of the amended cross claim filed on 9 January 2004 be struck out and that the cross claimant pay the costs of the applicant on the notice of motion including reserved costs. I shall also give the cross claimants leave to file an amended cross claim within 21 days of today's date. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Stone. Associate: Dated: 25 March 2004 Counsel for the Applicant/First Cross Respondent: Mr A Panna Solicitor for the Applicant: Stephens Lawyers & Consultants Counsel for the First Respondent: Mr B Burke Solicitor for the First Respondent: Hicksons Date of Hearing: 16 March 2004 Date of Judgment: 16 March 2004