Imaging Applications Pty Ltd v Sun Alliance Ausytralia Ltd

[1998] VSC 129

SUPREME COURT OF VICTORIA

CAUSES JURISDICTION

Not Restricted

No. 2119 of 1990

IMAGING APPLICATIONS PTY LTD BAMAT	Plaintiffs
PTY LTD AND MICHAEL IAN PETCH
v
SUN ALLIANCE AUSTRALIA LIMITED	Defendants
ALEXANDER STENHOUSE LIMITED AND LAW INSTITUTE OF VICTORIA

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MASTER:	Master Evans
WHERE HELD:	Melbourne
DATE OF HEARING:	30 June 1998, 29 October 1998
DATE OF JUDGMENT:	6 November 1998
MEDIA NEUTRAL CITATION:	[1998] VSC 129

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Practice and procedure - dismissal for want of prosecution - impecuniosity and personal misfortune as excuse for delay - security for costs - factors relevant to exercise of discretion.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiffs	Mr K. Howden	M. Petch
For the first Defendant	Mr J. Barnard QC	Norris Coates & Hearle
with Mr I. Arnold
For the second Defendant	Mr B. Griffin	Middletons Moore & Bevins
For the third Defendant	Mr A. Kelly	Herbert Geer & Rundle

MASTER:

THE PROCEEDING

1. In this proceeding the first plaintiff (“Imaging”) and one Petch, a solicitor, allege that each of them and the company (“Bamat”) are insured against certain perils with the first defendant (“the insurer”). In or about December 1986 or alternatively during the period from December 1986 to October 1987 personal property of a kind insured under the insurance policy was lost, destroyed or damaged in circumstances giving rise to a right in them to make claims under the policy for indemnity. The insurer has refused indemnity and denied that Imaging was ever covered by the policy or covered in respect of the losses and liabilities it claims to have incurred. Petch claims that he had an insurable interest in the business and property of the corporate plaintiffs as a major shareholder, secured creditor and otherwise.

2. The plaintiffs allege that the second defendant (“the broker”) effected the insurance cover, its variation to cover Imaging, and renewed it as an “insurance intermediary” acting as broker for the plaintiffs and Bamat and as agent for the insurer. They allege that if they or either of them are not insured for the losses each has sustained, they have suffered damage by reason of breach of duty owed to them (contractual or tortious), a breach of warranty and or negligent misrepresentations made by the broker.

3. The third defendant (“the Institute”) is alleged to have been a body regulating and representing the solicitors and promoting their interests. It and the broker in and from about mid-1986 formulated and designed a scheme of combined insurances known as the Law Institute Insurance Package and respectively negotiated and administered it (whatever that means). The Institute is alleged to have promoted and marketed the package to its members including Petch from about May 1986 and represented to the plaintiffs and Bamat that the package was a suitable means of procuring any purchasable insurance including insurance tailored and adapted to cover the plaintiffs’ and Bamat’s particular requirements. The insurance policy was taken out by the plaintiffs and Bamat “under the Package”.

4. By reason (inter alia) of these matters alleged it was under a duty to the plaintiffs and Bamat to exercise reasonable care, skill and diligence in making that representation . If the plaintiffs and Bamat are not entitled to be indemnified under the insurance policy to the full extent of their claims then the representation was false and made negligently.

   THE BACKGROUND

5. In a proceeding (“the Cullinan proceeding”) commenced in the Commercial List of this Court on 24 August 1987 by Petch, Imaging and Vikonix Ltd (“Vikonix”) it was alleged (inter alia) that in or about December 1986 the defendant (“Cullinan”) wrongfully removed from the possession of Imaging, property belonging to it or then in its custody. Cullinan and Petch were then directors of Imaging and Vikonix which were the vehicles for the operation of “a high technology enterprise in the field of computer based vision and imaging inspection” pursuant to an agreement made between Cullinan and Petch on 1 July 1985.

6. By order made by Fullagar J in that proceeding on 15 October 1987 Cullinan was required to deliver up to Imaging some of that property. Some of the property was returned to Imaging pursuant to the order. It is, inter alia, in respect of the property not returned that the plaintiffs’ claim an indemnity from the first defendant in this proceeding. Cullinan departed from the jurisdiction some time later and on 25 May 1988 Phillips J (as he then was) gave judgment against him, inter alia, for damages to be assessed. In May 1989 application was made to the court for certain declaratory and other relief consequent on the judgment. The application was refused but leave was given by Southwell J on 18 May 1989 to amend the statement of claim. It seems that no further attempts were made to proceed under the judgment. The whereabouts of Cullinan are still unknown.

   THE HISTORY OF THE PRESENT PROCEEDING

7. This proceeding was commenced by writ on 16 March 1990 in the Commercial List of this Court. After a flurry of interlocutory activity it was removed from that list on the application of the first defendant on 20 July 1990. Between that date and 10 June 1997 no step was taken in the proceeding. On that day Teague J made an order procured at the instigation of Petch saving the proceeding from the operation of R.34.05. None of the defendants objected to the making of that order.

8. On 11 November 1997 Teague J, in the presence of all the parties, made an order which was in terms which contemplated that the proceeding would go to trial. He had notified the parties almost one month beforehand of the orders he was proposing to make and sought their comments.

9. The order contained no provision which contemplated that any of the defendants would make an application to have the proceeding dismissed for want of prosecution, abuse of process or failure to comply with the order for further and better particulars. This is surprising to say the least given evidence from the bar table that the defendants or some of them foreshadowed that they would be making applications to have the proceeding dismissed for want of prosecution. Such a provision would have been desirable in order to ensure that any such application was prosecuted promptly and did not in the event of failure cause disruption to the scheme of directions designed to bring the proceeding to trial. With the wisdom of hindsight it can be seen that such a direction was necessary as the defendants took a leisurely approach to making such applications, the earliest being made more than six months later. An outcome which was not consistent with good case management principles.

10. Perhaps in recognition of the past want of prosecution it contained extraordinarily draconian orders designed to ensure that all parties ensured that the proceeding moved forward at least to the mediation stage and if mediation failed to produce a compromise that a Notice for Trial was filed by the plaintiffs or the defendants. By reason of a slip the orders stipulated 1997 deadlines, most of which had already been passed. Before the error had been detected the date for pre-trial directions hearing was barred by order made “on the papers” to 2 December 1997 (on 24 November 1997). Then, in partial recognition of the error, by an order made “on the papers” on 18 December 1997 that date was further varied to 8 December 1998 after the solicitors for the second defendant pointed it out. At some later stage it seems the enormity of the error was recognised and Teague J caused a replacement order to be created in the same terms as the 11 November 1997 order save for the substitution of 1998 for 1997 in paragraph 1 in each of the deadlines and for the variation of the date of the pre-trial directions hearing to 8 December. Although this order was made in purported exercise of the power to correct a slip (R.36.07) it was not expressed to be and could not be as it incorporated the later variation of the pre-trial directions date. It was, nevertheless, dated as made on 11 November 1997. The order as “amended” provided for completion of interlocutory steps by 25 September 1998, completion of mediation by 30 October 1998 and filing of Notice of Trial by 6 November 1998.

11. There has been no appeal from the order as varied. It was subsequently varied by Master Bruce on 6 February 1998 by an order made on the papers which substituted 1 December 1998 as the date for the pre-trial directions hearing.

12. After 11 November 1997 no step was taken by the plaintiffs to advance the proceeding towards trial before the insurer filed and served the summons in its application that is now before the court on 26 May 1998. At that date the plaintiffs still had ample time in which to complete any interlocutory steps in accordance with the order of Teague J of 11 November 1997 as varied.

13. By letter dated 3 December 1997 the insurer’s solicitors raised the question of whether Imaging was capable of meeting any order for costs made against it at trial. Petch did not respond to the letter. It was not until 28 April 1998 and later on 12 May 1998 that they investigated the question further by searches at the Australian Securities Commission.

14. The plaintiffs only “delinquency” since that date had been the failure to provide information sought in a letter from the broker’s solicitor dated 5 May 1998.

    THE APPLICATION

15. By separate applications each of the three defendants has sought an order that this proceeding be dismissed for want of prosecution. Each of the first two defendants have also sought to have the proceeding dismissed as an abuse of process for deliberate delay in its prosecution and for failure to provide further particulars of its statement of claim (the first defendant on the basis of a failure to comply with the order of Tadgell J made 29 June 1990 and the second defendant on the basis of a failure to respond to a request made on 5 May 1998).

16. The first defendant also seeks to have it dismissed on each of the grounds set out in R.23.01 and both the first and second defendants seek the alternative relief that it be dismissed unless within seven days of the order (the further and better particulars are provided).

17. Each of the first and second defendants also seeks an order in the alternative that the first plaintiff provide security for costs.

18. The first defendant also seeks to have the plaintiffs amended statement of claim struck out pursuant to each of the grounds set out in R.23.02.

    RULING

1. The applications for dismissal of the proceeding

1. In the unusual circumstances arising when I began to deliver my reasons on 29 October 1998 and which have caused me to recast them at least insofar as they relate to these applications I will state them more briefly than I would otherwise have done. This is, in part, because on that occasion I delivered ex tempore reasons other than those I had prepared for dismissing the applications, which go to their merits. It also is done in recognition of the inevitability of an appeal by hearing de novo then foreshadowed which will render these reasons largely irrelevant.

2. That there has been inordinate delay in the prosecution of this proceeding is indisputable. To suggest that it was deliberate would be to ignore the explanation of it proffered by Petch. The focus of the argument before me was on whether or not this delay was excusable. The excuse proffered was an inextricably intertwined combination of the impecuniosity of the plaintiffs and the disablement of Petch consequent on it. The vortex of personal misfortune into which he has been sucked by reason of the circumstances giving rise to the claims against the defendants cannot be attributed solely or even principally to the refusal of the insurer to provide indemnity but that has no doubt been a contributory factor.

3. In Duncan v. Lowenthal [1969] VR 180 at 186 a strong Full Court of this Court considered evidence as to the impecuniosity of the plaintiffs as a relevant consideration in deciding whether the delay in prosecution of that case was excusable but decided after doing so that not all the delay was attributable to that impecuniosity. I note the doubts expressed by Beach J in Tsolakkis Nominess Pty Ltd v. Low and Duff (Developments) Ltd (unreported, 20 March 1998) and in County and Urban Real Estate v. Newcreast Mining Ltd (unreported, 13 March 1998) and those expressed by Emmett J in A and S Oayda Investments Pty Ltd v Burns Philp Trustees Company Ltd (in liq) (Federal Court unreported, 22 August 1997) as to whether it is a relevant consideration. I must, of course, follow the decision of the Full Court. The circumstances occasioning the impercuniosity will usually be a relevant consideration but there is nothing in the evidence to indicate that Petch has been the author of his own misfortune in a manner which ought disentitle him from relying on it as an excuse for the delay. It is indeed reasonable to conclude that if not the cause of the impecuniosity the refusal to indemnify (or in the case of the broker and the Institute) the absence of indemnity could be said to have at the least seriously aggravated it.

4. Although it is not possible to regard the question of Petch’s personal difficulties in isolation from his impercuniosity I am comforted by the consideration that Hayne J gave to such difficulties in Casuaria v De Kever (unreported, 21 November 1994) though in that case they were held not to offer an excuse for a substantial part of the delay. The remark made by Hayne J at p.17 of his reasons for decision must be seen as no more than an acknowledgement of those difficulties given that earlier conclusion.

5. One cannot separate Petch’s difficulties from those of Imaging. To suggest, as the defendants did that Fahnle, could have taken over the litigation is to ignore the realities of his circumstances and his lack of any substantial interest in the outcome of it.

6. Being satisfied that the delay though inordinate was excusable I need go no further. Lest I am wrong in my conclusions I should briefly comment on matters which are relevant to the exercise of the court’s discretion if the delay should properly be regarded as inexcusable.

7. That prejudice may be occasioned to the first and second defendants by reasons of the effect of the effluxion of time on the memories of persons who might be able to assist the broker and therefore the insurer in explaining the ambit of the insurance cover negotiated on behalf of the plaintiffs with the broker may be accepted. The insurer and the broker are, understandably, coy in revealing what they know about these negotiations. To do so may reveal that they were given sufficient particulars of these negotiations prior to drawing their defences to justify those defences and also provide a useful aide memoire to the persons providing the instructions. It should be observed that it is not said by those defendants that they do not have statements from the persons who conducted those negotiations on behalf of the broker and the insurer. The broker’s insurer does say that an account manager has not been fully proofed and four relevant witnesses have not been proofed at all. This is surprising given the exigencies of the Commercial List but accepting that it is so it is still difficult to assess the significance of this as evidence of prejudice except so far as the account manager is concerned as the roles of the other four witnesses in the negotiation (if any) is not explained. As far as the account manager is concerned it is plain that there exists an aide memoire if not a full proof.

8. The insurer also relies on the fact that it has lost its underwriting file in relation to the alleged contract of insurance. This would suggest that indeed there was some insurance of the kind alleged. Why else would the loss of the underwriting file be significant? The insurer did not provide any indication of when the loss of the file was detected or what it might be expected to contain. This is surprising given that the insurer’s property claims manager can make a positive assertion as to the date on which the notice of claim was given. Without more, little weight can be given to this as evidence of prejudice.

9. It was also asserted on behalf of the insurer that there would be insuperable difficulties at this remove in time in assessing the intrinsic worth of some of the computer products the subject of the claim. This remained an assertion without evidence to substantiate it.

10. Insofar as the third defendant is concerned the case turns largely upon a consideration of the written word insofar as liability is concerned. Any prejudice it may suffer is confined to being exposed to the uncertainties of substantial litigation for an inordinate period. This it has in common with the other defendants. All defendants are substantial organisations and no strangers to litigation.

11. In these circumstances it is not easy to measure “the unfairness of the delay and its effect on the defendants as measured by the prejudice to them” (per Hayne J in Casuaria, supra, at p.17).

12. It is easier perhaps to measure the unfairness to the plaintiffs if their claims are dismissed. For Petch dismissal would mean financial ruin, the waste of an enormous amount of time, money and emotional resources invested in the litigation and in all probability despair.

13. He had put the defendants (or at least the insurer and the broker) on notice that he was unwell and unable to resource the prosecution of the litigation in October 1997 when he sought extensions of the deadlines proposed by Teague J. Having dangled the sword of Damocles over his head at the hearing before Teague J they then waited an unconscionable time before severing the thread. There was no point in him taking any step to prosecute the litigation during that period by reason of the uncertainty created by the defendants. The delay in making the applications displayed a callous indifference to Petch’s circumstances revealed to them in October 1997 and were calculated to delay and disrupt the finalisation of interlocutory steps and the preparation of the proceeding for mediation in the event that the application failed. To an extent the conduct of the solicitors for the insurer and the broker in sending the letters of 3 December 1997 and 5 May 1998 respectively, was disingenuous and was calculated if not intended to instil in Petch the hope if not belief that both were contemplating the proceeding going to trial.

14. On a consideration of all these circumstances I have concluded it would not be unfair to allow the proceeding to go to trial. The applications to dismiss for want of prosecution are dismissed.

15. Since the orders of 11 November 1997 and until this application was commenced the insurer has not sought compliance by the plaintiffs with the order of Tadgell J for the provision of further and better particulars.

16. Even after the application was commenced the solicitor refused to advise Petch as to the deficiencies in the further particulars provided in response to the order of Tadgell J. This circumstances alone would, in any event, warrant the refusal of the application for a draconian order dismissing the proceeding.

17. I have not overlooked the circumstances deposed to in the affidavit of David Hamilton Letcher sworn 19 July 1990 in support of the application to have the proceeding removed from the Commercial List for failure to properly comply with the order of Tadgell J. Notwithstanding those circumstances the reasonable course for the firstnamed defendant’s solicitor to adopt would have been to reiterate the criticisms made of the particulars almost eight years earlier. Petch could be forgiven for concluding, in the circumstances, including the failure to seek from Teague J any orders regarding particulars or as to the making of an application for them and the subsequent inaction of the insurer’s solicitors, that the old complaints about the particulars were not being pressed.

1. At the hearing before me the particulars provided were subjected to extensive analysis and criticism, some of it warranted. Rather than engage in an exhaustive review and evaluation of that criticism which inevitably must have taken the plaintiffs by surprise I propose to permit the plaintiffs to file and serve such further and better particulars as they are advised by a specified date. A failure to recognise and remedy any deficiencies by that date may then warrant a more draconian response from the court. The application will be otherwise dismissed.

2. The broker’s application for dismissal based upon the failure of the plaintiffs to respond to its request for further particulars dated 5 May 1998 is a pale imitation of the insurer’s application and smacks of opportunism. It was not long before the insurer’s solicitors filed its summons that the need for such particulars was first perceived or so it seems. In any event to characterise the letter of 5 May 1998 as a request for further particulars is to misrepresent its character. If a party seeks particulars it should do so in unequivocal terms. This the broker’s solicitor failed to do. I do not propose to make any order for particulars in favour of the broker in these circumstances.

3. The insurer’s applications in relation to the statement of claim and under O 23 relate to the deficiencies in particulars and fall to be determined by the outcome of the applications based on the failure to provide particulars. They will be dismissed.

   THE SECURITY FOR COSTS APPLICATION

4. It is, fortunately, unnecessary to examine in detail the finances of Imaging. It is conceded that it would be unable to meet any order for costs made in favour of the defendants at trial. It is clear from the evidence before the court that Petch, the owner of the four issued shares in Imaging, is unable to provide security on its behalf if it were ordered. Vikonix Ltd owns two of the four issued shares in Imaging and is the obvious source of funding of security. Evidence as to its finances is scant. As a result of an injection of finance by two investors, Ellbar Properties Pty Ltd and Lynmar Shipping Pty Ltd (“the Investors”) in 1987 and 1988 it was first able to keep afloat in those years, 1987-1989. That debt is secured by the fixed and floating charge over its assets and undertaking. I am prepared to infer from Petch’s evidence as to his inability to obtain finance to pursue this proceeding, in spite of his desperate efforts (which nearly caused a breakdown in his marriage), this proceeding, that Vikonix did not and does not have the means to finance it now and could not provide security on behalf of Imaging if it were ordered. The remaining share is owned by Cullinan whose whereabouts are unknown. It was suggested that it was incumbent on Imaging to satisfy the court that the investors were also unable to fund an order for security. There is no evidence to suggest that the investors were other than entities which had dealt at arms length with Imaging Vikonix, Petch and the Trustee of his family trust in providing finance. It is absurd to suggest that Imaging could or should procure evidence from them to demonstrate their inability to provide security for it in order that the proceeding which might enure for their benefit but over the conduct of which they could exercise no control could proceed. For these reasons I must conclude that to order that Imaging provide security would stultify the proceeding by it.

5. I am satisfied that the proceeding was brought bona fide and has some prospects of success. In this regard I need go no further than to point to the broker’s confirmation of cover dated 17 March 1987 which refers to Petch, Bamat and Imaging as the insured and is consistent with the plaintiffs’ case as pleaded and as outlined in the principal affidavit in opposition of Petch (paragraph 70) and that of Armin Fahnle (paragraph 12). The evidence is not such as to enable me to conclude that Imaging would not be able to demonstrate any loss.

6. The court will of course order security even though a bona fide claim would thereby be stultified but it will not allow the power to order security to be invoked by a party seeking only to achieve that end. I think that is open to conclude that by invoking a number of different bases for dismissal of the proceeding only after it had been revived the first and second defendants have demonstrated that that is their intention. It is perhaps unnecessary to express a conclusion on the point as there are other grounds for refusing the applications.

7. The proceeding was commenced in March 1990. Substantial costs were incurred by the first plaintiff until the time it was removed from the Commercial List. It was incumbent on the first and second defendants to act promptly to seek security. Manifestly they did not do so. The need for expedition in making such an application is exacerbated by the speed with which such proceedings are dealt with in the interlocutory stages in that List and the rapid escalation of costs inherent in that accelerated process. The first plaintiff ought not, at this late stage, after incurring substantial costs be exposed to such an application.

8. Even if I were to accede to the applications and the proceeding by Imaging was stultified most, if not all, of the issues to be canvassed in that proceeding would still have to be determined as between Petch and the first and secondnamed defendants in the continuing proceeding. That is reason enough to refuse an order for security as a matter of discretion.

9. For those reasons the applications for security for costs will be dismissed.

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