FEDERAL COURT OF AUSTRALIA Chrubasik v National Australia Bank (No 2) [2009] FCA 826 PROFESSOR DR. SIGRUN ADELINE CHRUBASIK and PROFESSOR DR. JOACHIM CHRUBASIK v NATIONAL AUSTRALIA BANK (ACN 004 044 937), COMMISSIONER OF TAXATION and DEPUTY COMMISSIONER OF TAXATION NSD 337 of 2008 GORDON J 31 JULY 2009 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY NSD 337 of 2008 GENERAL DIVISION BETWEEN: PROFESSOR DR. SIGRUN ADELINE CHRUBASIK First Applicant PROFESSOR DR. JOACHIM CHRUBASIK Second Applicant AND: NATIONAL AUSTRALIA BANK (ACN 004 044 937) First Respondent COMMISSIONER OF TAXATION Second Respondent DEPUTY COMMISSIONER OF TAXATION Third Respondent JUDGE: GORDON J DATE OF ORDER: 31 JULY 2009 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The Applicants' proceeding as against the First Respondent is dismissed. 2. The Applicants to pay the First Respondent's costs. 3. The First Respondent's costs be assessed in the gross sum of $22,000.00. 4. The costs of $22,000.00 that the Applicants are to pay are the costs of the First Respondent in the proceeding No (P)NSD 337 of 2008 up to and including 31 July 2009. 5. As against the Second and Third Respondents, the proceeding is dismissed and the Applicants are to pay the Second and Third Respondents' costs of the proceedings to be taxed in default of agreement. 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 VICTORIA DISTRICT REGISTRY NSD 337 of 2008 GENERAL DIVISION BETWEEN: PROFESSOR DR. SIGRUN ADELINE CHRUBASIK First Applicant PROFESSOR DR. JOACHIM CHRUBASIK Second Applicant AND: NATIONAL AUSTRALIA BANK (ACN 004 044 937) First Respondent COMMISSIONER OF TAXATION Second Respondent DEPUTY COMMISSIONER OF TAXATION Third Respondent JUDGE: GORDON J DATE: 31 JULY 2009 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 These reasons for decision concern two notices of motion: one brought by the First Respondent (the "NAB") and the other by the Second and Third Respondents (the "ATO"). Both motions relate to proceedings instituted by Professor Dr Sigrun Chrubasik and Professor Dr Joachim Chrubasik ("the Applicants") in 2008. 2 I will deal first with the notice of motion by the ATO. The ATO's Notice of Motion 3 By notice of motion dated 24 July 2009, the ATO seeks orders, pursuant to O 35A, r 3(1)(a) of the Federal Court Rules 1979 (Cth) ("the Rules"), that the Applicants' proceeding against them be dismissed and that the Applicants be ordered to pay their costs to be taxed in default of agreement. The history of these proceedings are set out in earlier reasons for decision in which I dealt with an application by the Applicants to adjourn this notice of motion: see Chrubasik v National Australia Bank [2009] FCA 825. 4 As I said, the notice of motion raises two questions. The first is whether or not the proceedings should be dismissed under O 35A, r 3(1)(a). The ATO's notice of motion is supported by an affidavit of Michael Jonathan Will affirmed on 27 July 2009 ("the Will Affidavit"). As I have explained in the earlier reasons for decision (see Chrubasik v National Australia Bank [2009] FCA 825 at [2] to [7]), the Applicants failed to comply with any of the orders made in May and June of 2008 and have taken no further step in the prosecution of the proceedings against the ATO. 5 In fact, as the earlier reasons for decision explain, the Applicants' solicitors informed the ATO's solicitors that the Applicants no longer wished to prosecute the proceedings against the ATO. That conversation is deposed to in the Will Affidavit. A copy of the Will Affidavit was served on the Applicants' solicitors in support of the notice of motion and, as Counsel for the ATO noted, that affidavit and the conversation it refers to was not challenged by the Applicants. That is not surprising because a copy of an amended statement of claim which was served on the NAB but not filed discloses no cause of action against the ATO. 6 That brings me to the discretion in O 35A, r 3. The principles are now well established. They were first set out by Wilcox and Gummow JJ in Lenijamar Pty Ltd v AGC (Advances) Limited (1990) 27 FCR 388 at 396 in the context of dealing with the previous Rule (being O 10, r 7): 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 cooperate 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 cooperate 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. 7 Two points follow from that passage. The first is that the power conferred by the Rule is discretionary. Secondly, the observations in Lenijamar Pty Ltd 27 FCR 388 apply with equal force to the discretion which the Court presently is required to exercise under O 35A, r 3(1): see, in particular, Welsh v Digilin Pty Ltd (2008) FCAFC 149 at [11] to [14]. 8 That brings me to the application of those principles to the facts. First, the Applicants have failed to comply with any order of the Court. Secondly, the Applicants have failed to prosecute this matter with any diligence, let alone due diligence. Thirdly, by the Applicants' conduct (or lack of it), the proceeding was either dismissed or stayed although I accept that the orders made in June 2008 created some confusion as to whether the proceeding was stayed or dismissed. Fourthly, and most importantly, not only have the Applicants made no endeavour to prosecute the action against the ATO, but have expressly informed the ATO's solicitors by no later than August 2008 that they no longer intend to do so (as set out in the Will Affidavit which has not been contradicted by the Applicants). In those circumstances, it is appropriate that the proceedings against the ATO in their current form are dismissed and that costs should follow the event. The Applicants should be ordered to pay the ATO's costs to be taxed in default of agreement. The NAB's Notice of Motion 9 I will now address the notice of motion filed by the NAB. As I said in the earlier reasons for decision (Chrubasik v National Australia Bank [2009] FCA 825), this notice of motion was dated 24 July 2009 and sought orders in the following terms (subject to one minor amendment for which I granted leave): 1. Pursuant to Order 35A rule 3(1)(a) of [the Rules], the Applicants' proceeding as against the [NAB] be dismissed. 2. The Applicants pay the [NAB's] costs of the proceeding no. (P)NSD337/2008, including the costs of and incidental to this motion and all costs reserved. 3. Pursuant to Order 62 rule 4(2)(c) of [the Rules], the [NAB's] costs be assessed in the gross sum of $24,000. 4. Alternatively, the [NAB's] costs be fixed in the sum of $24,000. 5. A declaration that the costs referred to in paragraphs 2 to 4 are the costs of the [NAB] in defending the proceeding no. (P)NSD337/2008 up to and including mediation. 10 This application is in similar terms to the application sought by the ATO and I adopt the principles which governed that application: see [6] and [7] above. The history of this proceeding in relation to the NAB is outlined in Chrubasik v National Australia Bank [2009] FCA 825 at [2] to [8]. 11 That brings me to the application of those principles to the facts. The position is not dissimilar to that of the ATO: see [3] to [8] above. In the case of the NAB, the Applicants have failed to comply with any order of the Court or with the Rules. The Applicants have failed to plead their claim in an appropriate form, most relevantly by failing to identify a cause of action which is able to be prosecuted. I note in passing that an amended claim was served on the NAB but not filed, but for present purposes, even if it was filed, I remain of the view that an identifiable cause of action had not been outlined or pursued by the Applicants against the NAB. 12 Secondly, the Applicants have failed to prosecute this action in any form, whether by way of informal or formal steps, and, more importantly, no explanation has been proffered by the Applicants' solicitors that would justify or seek to even explain why that is so. In other words, no explanation has been proffered as to why it is that the Applicants have been unable to prosecute any portion of these proceedings, whether in their current form or in some other proposed form. 13 The question which arises is notwithstanding that there has been non-compliance consistent with O 35A, r 3(1)(a), whether or not there are other facts and matters which would justify or which would obviate the need for an order that the proceedings be dismissed against the NAB. In my view, there is no such justification. As Counsel for the NAB submitted, the delay in this present case is a delay which of itself is not only unexplained but may lead to prejudice. Not only is there prejudice having regard to the history of the proceedings in terms of the substantive matters, namely that the proceeding concerns events now some years past and causes of action which, on their face, have some substantive difficulty, but moreover the NAB has in its favour a bank guarantee which expires on 18 August 2009 and which, in the absence of some determination of the current application, would most likely be lost. 14 In those circumstances, it is appropriate that there be an order that the proceeding be dismissed. As is now well known the Federal Court actively manages its cases. Applicants who file in this Court are required to prosecute their applications with due diligence. In the absence of any explicable reason why they are unable to do so, proceedings which Applicants fail to prosecute with any diligence should stand dismissed. 15 That brings me to the question of costs. This is an unusual application. As I have said, there is a bank guarantee drawn on the Credit Suisse in Switzerland in favour of the NAB in the sum of AUD$75,000 which is due to expire on 18 August 2009 and is governed by Swiss law. Affidavit material has been filed (and not challenged), which noted that the Applicants do not reside in Australia and own no property in Australia. It is unsurprising then that the NAB seeks access to that bank guarantee for the purposes of recovering some of the costs it has incurred in defending these proceedings. 16 I accept the submission of Counsel for the NAB that in the limited time available it is unlikely that a bill of costs in taxable form could be taxed, although a draft bill has been prepared and filed with the Court. The application for a fixed costs sum is made under O 62, r 4 of the Rules. That rule provides: (1) Subject to this Order, where by or under these Rules or any order of the Court costs are to be paid to any person, that person shall be entitled to his taxed costs. (2) Where the Court orders that costs be paid to any person, the Court may further order that as to the whole or any part of the costs specified in the order, instead of taxed costs, that person shall be entitled to: (a) a proportion specified in the order of the taxed costs; or (b) the taxed costs from or up to a stage of the proceedings specified in the order; or (c) a gross sum specified in the order; or (d) a sum in respect of costs to be ascertained in such manner as the Court may direct. (3) The Court may make an order under subrule (2) at any time, whether or not an order that costs be paid to a person has previously been made or entered. 17 The sum sought by the NAB by way of a fixed sum or gross sum is $24,000. That sum has been calculated by the preparation of a draft bill by Penelope Jane Van den Berg, a costs consultant, who assessed the NAB's bill in taxable form claiming an amount of $29,331.70. 18 In the affidavit in support of that amount, Ms Van den Berg's evidence was that: If a registrar assessed the detailed bill or it was taxed – I estimate that on assessment or taxation between $22,000 and $25,000 of that amount could be allowed. In my opinion, $24,000 would be a reasonable sum to allow to the [NAB] on a gross sum costs order. 19 Two questions arise: first, the power to order a gross sum of costs and secondly the determination of the appropriate amount. In relation to the first issue, it was uncontested that the Court has power under O 62, r 4 to fix a gross sum by way of an order of costs. In relation to the second issue, in addition to the affidavit of Ms Van den Berg, Counsel for the NAB relied upon an affidavit sworn by Ms Cameron, a partner of Mallesons Stephen Jaques, who has principal conduct of the proceeding on behalf of the NAB. Her evidence disclosed that the costs incurred by the NAB to date, including work in progress and the costs of this motion, are in the vicinity of some $63,783.12. As a result, Counsel for NAB submitted that an award of costs in the sum of $24,000, comprising some 38% of the costs actually incurred, was in the circumstances reasonable. Indeed, Counsel for the NAB submitted that it was a low figure. 20 In my view, the NAB is entitled to its costs of the proceeding up to and including the cost of this motion (noting that the Court has power under O 62, r 4, to fix a gross sum for costs). In the circumstances, I would assess that gross sum in the sum of $22,000. I note two issues regarding these costs. First, it is the lowest figure identified by the costs consultant and in my view, in the absence of a detailed assessment of that bill, the Applicants are entitled to the benefit of that position. Secondly, I will make an order in the following terms for the benefit of the bank guarantee: 1. That the costs of $22,000 that the Applicants are to pay to the National Australia Bank, being the first respondent, are the costs of the first respondent in defending proceeding number (P) NSD 337 of 2008 up to and including the costs of today, being 31 July 2009. 2. That the orders be authenticated forthwith in accordance with O 36, rule 7(1). I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon. Associate: Dated: 31 July 2009 Counsel for the Applicants: D. Fitzgibbon Solicitor for the Applicants: Waters Timms Solicitors Counsel for the First Respondent: D.C. Morgan Solicitor for the First Respondent: Mallesons Stephen Jaques Counsel for the Second and Third Respondents: S.J. Moloney Solicitor for the Second and Third Respondents: DLA Phillips Fox Date of Hearing: 31 July 2009 Date of Judgment: 31 July 2009