FEDERAL COURT OF AUSTRALIA Sheiman Ultrasonic Research Foundation Pty Ltd v Novapharm Research (Australia) Pty Limited [2008] FCA 1902 INTELLECTUAL PROPERTY – application to dismiss proceedings - O 35A r 3(1)(a) of the Federal Court Rules – applicant in default - failure to prosecute with due diligence – failure to comply with Order of this Court – failure to provide security for costs – failure to frame intelligible case - application dismissed with costs Federal Court Rules (Cth) Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 Welsh v Digilin Pty Ltd [2008] FCAFC 149 Ugur v Human Rights Equal Opportunities Commissioner [2008] FCA 1461 Budd v Federal Privacy Commissioner [2005] FCA 1264 SHEIMAN ULTRASONIC RESEARCH FOUNDATION PTY LTD (ACN 067 053 516) and VLADIMIR SHEIMAN v NOVAPHARM RESERACH (AUSTRALIA) PTY LTD (ACN 003 0867 637), SABAN VENTURES PTY LIMITED (ACN 096 504 433), NANOSONICS LIMITED (ABN 11 095 076 896), MAURICE STANG, STEVEN KRITZLER, ALEX (ALEXEI) SAVA, SERGE JOUKOV, IAN ERNST and BALDWIN SHELSTON WATERS (NOW TRADING AS SHELSTON IP) NSD 2444 of 2007 TAMBERLIN J 17 DECEMBER 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2444 of 2007 BETWEEN: SHEIMAN ULTRASONIC RESEARCH FOUNDATION PTY LTD (ACN 067 053 516) First Applicant VLADIMIR SHEIMAN Second Applicant AND: NOVAPHARM RESEARCH (AUSTRALIA) PTY LIMITED (ACN 003 0867 637) First Respondent SABAN VENTURES PTY LIMITED (ACN 096 504 433) Second Respondent NANOSONICS LIMITED (ABN 11 095 076 896) Third Respondent MAURICE STANG Fourth Respondent STEVEN KRITZLER Fifth Respondent ALEX (ALEXEI) SAVA Sixth Respondent SERGE JOUKOV Seventh Respondent IAN ERNST Eighth Respondent BALDWIN SHELSTON WATERS (NOW TRADING AS SHELSTON IP) Ninth Respondent JUDGE: TAMBERLIN J DATE OF ORDER: 17 DECEMBER 2008 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The proceedings be dismissed. 2. The applicants are to pay the respondents' costs on an indemnity basis. 3. In the case of the first to eighth respondents the costs are fixed at $60,000 4. In the case of the ninth respondent the costs are fixed at $70,000. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2444 of 2007 BETWEEN: SHEIMAN ULTRASONIC RESEARCH FOUNDATION PTY LTD (ACN 067 053 516) First Applicant VLADIMIR SHEIMAN Second Applicant AND: NOVAPHARM RESEARCH (AUSTRALIA) PTY LIMITED (ACN 003 0867 637) First Respondent SABAN VENTURES PTY LIMITED (ACN 096 504 433) Second Respondent NANOSONICS LIMITED (ABN 11 095 076 896) Third Respondent MAURICE STANG Fourth Respondent STEVEN KRITZLER Fifth Respondent ALEX (ALEXEI) SAVA Sixth Respondent SERGE JOUKOV Seventh Respondent IAN ERNST Eighth Respondent BALDWIN SHELSTON WATERS (NOW TRADING AS SHELSTON IP) Ninth Respondent JUDGE: TAMBERLIN J DATE: 17 DECEMBER 2008 PLACE: SYDNEY REASONS FOR JUDGMENT 1 Before me are applications by the respondents to dismiss this proceeding with costs pursuant to O 35A r 3(1)(a) of the Federal Court Rules which relevantly provides that if an applicant is in default, the Court may order that proceedings be stayed or dismissed as to the whole or any part of the relief claimed. 2 A party is in default under O 35A r 2(1)(a); (f) if, inter alia, it fails to prosecute the proceeding with due diligence. 3 The first to eighth respondents filed a Notice of Motion on 14 November 2008, which was served on the applicants on 17 November. The Notice of Motion of the ninth respondent (Baldwin Shelston) was filed on 13 November 2008. background 4 The proceeding has a lengthy history which is as follows. On 14 December 2007 the applicants filed and served an Application and Statement of Claim, without any Certificate attesting to the allegation and the pleading having any proper basis. On 21 January 2008 the ninth respondent advised the then solicitors for the applicants that no Certificate had been filed and later requested that a Certificate be filed. Thereupon the previous solicitors advised that their instructions had been withdrawn and the present solicitors became the solicitors on the record. 5 On 19 February 2008 Baldwin Shelston, the ninth respondent, filed a Notice of Motion seeking summary dismissal and strike-out security for costs and costs on the Motion. On 4 March 2008 the first to sixth and the eighth respondents filed and served a Notice of Motion seeking summary dismissal of the proceeding or an Order striking out parts of the Statement of Claim. On or about 12 March 2008 the respondents were served with an Amended Statement of Claim, filed on 12 March 2008. Thereupon, on 26 March 2008, the first to eighth respondents filed and served an Amended Notice of Motion seeking summary dismissal or an Order striking out parts of the Amended Statement of Claim. 6 On 1 April 2008 the ninth respondent filed a similar Notice of Motion but also claimed Security for Costs. On or about 22 April 2008 the respondents were served with a Draft Further Amended Statement of Claim. The respondent's Motions were heard by me on 24 April 2008 and on that day the applicants sought to file a Further Amended Statement of Claim. The hearing on 21 November 2008 was conducted by reference to that Further Amended Statement of Claim. 7 On 28 May 2008 I made orders pursuant to the application for summary judgment by Baldwin Shelston and struck out the pleadings in relation to the conspiracy claim in the Trade Practice claim. I gave liberty to re-plead the case within 28 days. This leave was not taken up by the applicant. No further Draft Statement of Claim emerged until 20 November 2008, the day before the hearing of the present dismissal applications before me. 8 Also on 28 May 2008 I ordered that the applicants pay the costs of the strike-out application and the application for security for costs as thrown away by Amendments to the Statement of Claim and the Amended Statement of Claim. I also ordered that the applicant provide security for costs in the amount of $50,000 in respect of the first eight respondents and security in the amount of $50,000 in respect of Baldwin Shelston. I gave liberty to apply. 9 On 4 June 2008 Mr Hasson, solicitor for the applicants indicated that he was going to seek liberty to re-plead the case within 58 days but no such application was made. The matter was not re-pleaded. 10 No security has been provided to date and no satisfactory explanation or evidence has been given as to the reason why security for costs funding has not been provided. There is no evidence before me as to when and whether it is likely that any such security will be provided. 11 At the hearing on 21 November 2008, the first eight respondents indicated they no longer continue to press an application for summary dismissal, but pressed an application for security for costs against the first applicant. The ninth respondent pressed its application for summary judgment and strike out of parts of the Further Amended Statement of Claim. 12 When the matter came on before me for hearing Mr Hasson applied for an adjournment on the basis that his Counsel was otherwise engaged and that he had only been served with the documents on or about 17 November 2008. However, he filed no evidence in relation to the applications apart from tendering a letter. There was no cross-examination of the deponents to the respondents' affidavits, nor any evidence in response on behalf of the applicants in relation to the question of costs. 13 No reason has been provided as to why any Further Amended statement of Claim was not filed within 56 days from the Orders made on 28 May 2008. 14 The solicitors for the respondents wrote to the applicants' solicitors in June 2008 concerning the failure to provide security for costs and in the absence of any response filed a Notice seeking a Stay of Proceedings pending provision of security. As a result of subsequent correspondence, on 12 August 2008 the applicants' solicitors requested the first eight respondents consent to orders that the proceedings be stayed against the second applicant as well as the first applicant. The response of 19 August 2008 was that the fist eight respondents would be prepared to consent to Orders staying the second applicant's proceedings subject to the second applicant paying security for costs and that if the security had not been paid by 16 September 2008 the proceeding be dismissed. The letter was subject to a reservation of the respondents' right with respect to any strike-out application for want of prosecution. The prospect of a strike-out application was foreshadowed at that point. There was no response by the applicants' solicitors to the respondents' solicitors' letter of 19 August 2008. 15 On 8 October 2008 the applicants' solicitors wrote to the fist eight respondents' solicitors and informed them that the applicants had been unable to comply with the timetable set down in the Orders of 28 May 2008, and sought to re-list the matter on the first available date. In due course the matter was re-listed before me on 21 November 2008, in which time the respondents had taken out the applications to dismiss the proceedings with costs. The foreshadowed re-pleaded case was not indicated by the applicants' solicitors, as mentioned earlier, until the day before the hearing on 21 November 2008. 16 A draft document was handed to the parties by the applicants' solicitor on 20 November 2008 entitled "Second Further Amended Statement of Claim" (which is the fourth attempt to plead the matter). This document comprises 254 paragraphs and is some sixty-four pages in length. The extensive underlining of this so-called Amendment indicates the extent of the changes which comprise virtually the whole document. Among other matters it alleges conspiracy to defraud, intent to injure the applicants, fraud, bad faith, falsification of experimental results, dishonest conduct and aiding and abetting. These allegations were an integral part of the attempt by the applicants to formulate their case, and they are manifestly defective and do not comply with basic pleading requirements. They do not disclose any basis for any intelligible cause of action on their face. Many of the deficiencies were referred to in submissions before me by Senior Counsel for Baldwin Shelston, the ninth respondent. Legal principles 17 Counsel for the respondents referred to the principles set out in Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 at 396, where the Full Court said: the power given by this rule is conditional 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. 18 Their Honours continued: The discretion...is unconfined, except for the condition of non-compliance with a direction... (T)wo 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. (Lenijamar (1990) 27 FCR at 396) 19 These principles have also been applied in Welsh v Digilin Pty Ltd [2008] FCAFC 149 at [12] and [13]; Ugur v Human Rights Equal Opportunities Commissioner [2008] FCA 1461 at [46]-[49]; and Budd v Federal Privacy Commissioner [2005] FCA 1264. Reasoning 20 When the matter came on for hearing Mr Hasson, solicitor, appeared for the applicants. He sought an adjournment on the basis that Counsel was not available and that Mr Sheiman was overseas and could not be contacted, and thus instructions could not be obtained. He said that efforts had been made to obtain funding for the security for costs from two providers. The first had not given any answer over a long period but kept asking for further material, and apparently nothing positive has been forthcoming. A second provider had been approached and Mr Hasson says that he is "hopeful" that some funds might be provided. He expects an answer within a month. However he neither filed nor gave any oral evidence or details to substantiate these assertions from the bar table. Nor did he attempt to cross-examine any of the deponents of the affidavits as to the history of the proceeding or the issue of costs. 21 Mr Hasson referred to the Second Further Amended Statement of Claim recently produced, but did not respond to any criticisms levelled as to the manifest deficiencies and inadequacies of that document. There was therefore no satisfactory explanation as to the failure to provide security nor was there any reason given for not previously filing a Further Statement of Claim pursuant to the order made on 28 May 2008, notwithstanding that he had previously indicated that a Statement of Claim would be filed within two months of that date. 22 It is now six months since those Orders were made on 28 May 2008. There is no evidence of any likely ability of the applicants to meet the Orders for security for costs or obtain financial assistance, or to frame an intelligible originating process. There is substantial evidence as to the costs, delay and expenses incurred by the respondents to these proceedings, which it now appears highly unlikely they will be ever able to recover. 23 Having regard to the long and unsatisfactory history of this matter, and bearing in mind the substantial costs incurred by the respondents to date, coupled with the absence of any proper pleadings, I am persuaded that there has been a failure to exercise due diligence in prosecuting the claim in accordance with the directions of the Court. There was a failure to prepare or furnish an Amended Statement of Claim until 20 November 2008 and on its face the document is manifestly deficient. I have looked at the Second Further Amended Statement of Claim, which is the fourth attempt to formulate a case on behalf of the applicants, and find that it is totally unsatisfactory and inefficient on basic pleading principles. No explanation has been proffered as to its provenance. It appears to be a total recasting of the case in a form which does not improve on the previous defects pointed out by the Court, together with a general inadequacy as to the formulation of any intelligible cause of action. 24 I am not persuaded that there is any real prospect of the applicant obtaining funding of the security ordered nor of the applicant having any financial backing to pursue his case. There has been a failure to provide any evidence as to steps taken to pursue this matter and no satisfactory explanation has been given for the adjournment sought. 25 In these circumstances I am persuaded that the applicants have failed to prosecute the matter with due diligence sufficient to justify dismissal. Accordingly, I propose to dismiss the proceeding. 26 As to the question of costs, in accordance with the accepted principles, I consider this is an appropriate case in which to award costs to the respondents of the proceedings subject to costs orders already made. I am also persuaded that indemnity costs are appropriate. Having regard to the manifest inadequacy of the Statement of Claim, after four failed attempts to frame an intelligible case, and having regard to the Affidavits filed by the respondents, I am persuaded that costs in an amount of $60,000 should be awarded to the first eight respondents and $70,000 in respect of the costs of the ninth respondent. 27 Therefore, in the exercise of my discretion under O 35A r 3, I dismiss this proceeding with costs. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin. Associate: Dated: 17 December 2008 Solicitor for the Applicants: Mr Hasson Counsel for the First, Second, Third, Fourth, Fifth, Sixth, Seventh and Eighth Respondents: Mr Ireland QC Mr Cooke Counsel for the Ninth Respondent: Ms Howard Mr Darke Date of Hearing: 21 November 2008 Date of Judgment: 17 December 2008