Re Australian Innovation Ltd

[1996] FCA 479

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY  No. VG 3756 of 1995

GENERAL DIVISION

RE :  AUSTRALIAN INNOVATION LIMITED and OTHERS

(ACN 002 679 469)

B E T W E E N :

KATHLEEN PETROVSKY & OTHERS  
  Applicants
A N D:

ALEXANDER PETROVSKY and OTHERS
  Respondents

COURT:         NORTHROP J

DATE: 10 MAY 1996

PLACE:         MELBOURNE

REASONS FOR JUDGMENT

There are two motions before the Court. The applicants are seeking an extension of time in which to comply with an order of the Court made on 25 March of this year. The respondents are seeking to have the proceeding dismissed, replying upon O 20 r 2 and O 10 r 7 of the Federal Court Rules.

A reference to the history of this proceeding shows a discouraging picture of what can only be described as unsatisfactory procedures involving documents filed in Court pursuant to an application which on any view involves great difficulties as has been
outlined by Mr Petrovsky in submissions made today. The proceeding needed skilled legal presentation in order to enable the Court to do justice according to law between the parties to it. This skilled legal presentation has not been given on the part of the applicants.

The application was commenced on 15 December 1995 involving a dispute between three of the shareholders of a company, Australian Innovation Limited, as to the management of that company. A record of the directions hearings which have been held in this proceeding and what occurred at those hearings illustrates the unsatisfactory nature of the formal documentation filed in Court. Eventually at a directions hearing held on 25 March 1996, following submissions, the parties agreed to consent orders being made. I stress the fact that these were consent orders in which the parties were all represented by a legal representative. Minutes of the consent orders as originally handed to the Court allowed certain times within which action was to be taken but the Court urged on the parties the need to have those times extended to allow further time for things to be done. This was accepted by the parties and incorporated in the order, but the order was still an order by consent. The fact that it was a consent order is of importance in a case where reliance is now being made on O 10 r 7 of the Federal Court Rules. The essence of the orders made, and it is a long order by consent, are that all the earlier proceedings should, in effect, be struck out in circumstances where one of the issues was whether there was a cause of action disclosed in the application, but that the applicants have leave to file and serve an amended application by a certain time.

The purpose of the orders made on 25 March 1995 was to enable the applicants to start again and to make claims showing a cause of action which could be heard by the Court. In these circumstances I refer to the relevant parts of the order. Order 2 referred to the fact that certain matters should be struck out, including the application dated 14 December 1996, the amended application dated 15 March 1996 and the amended statement of grounds dated 26 February 1996."
The Court then ordered, and I quote:

"3.       That the applicants be directed to file an Amended Application together with a Statement of Claim by 4.00 pm on 24 April 1996 together with any Affidavits upon which they wish to rely in this proceeding (such Affidavits are not to incorporate by reference any material from any of the said Affidavits struck out by paragraph 2 of these orders)."

There is also an order that any notice of motion of an interlocutory nature by any of the respondents will be filed and served by 4 pm on 30 April 1996 and made returnable on 10 May 1996. In that order the word "of" before "of any of the respondents" must be a typographical mistake and should be read as "by". There are also orders made that the proceedings against the fourth and fifth respondents be dismissed with costs. An existing injunction was discharged, and the directions hearing adjourned to today 10 May and orders were made for costs.

The applicants have not complied with the order 3 of that order. There has been no filing of any amended application together with an amended statement of claim. The applicants are seeking further time in which to comply with that order to 19 June 1996.
The essence of the grounds for the extension of time is that the husband of the first applicant who was the father of the third-applicant, died on 16 April, having suffered a stroke a few days earlier and that, as a result of this upset in the family, there has not been sufficient time to comply with the direction for the filling of the amended statement of claim and the amended application.

At the same time the evidence discloses that other activity was being undertaken by some of the applicants in relation to the company involved, Australian Innovation Limited, in relation to the calling of extraordinary general meetings of shareholders for the purposes of removing directors. Also it is quite clear that having regard to the work that had been done, there should have been ample time, before 16 April, for the applicants to have obtained material to allow the legal advisers of the applicants to file the amended application. It is interesting to note that in the original agreed terms of order that were to be made on 25 March order 3, being the order for the filing of an amended application, together with an amended statement of claim, had to be done by 4 pm on 10 April 1996, a time well before the sudden illness and death of the husband of the first applicant. The extra time was given at the suggestion of the Court. This illustrates the fact that the legal advisers of the applicants, on 25 March, expected that they would be in a position to comply with that order for the amended application and statement of claim by 10 April 1996. Nothing was done.

In all the circumstances the Court is not satisfied on the material before it that there is any reason why the time for compliance with order 3 of the orders of 25 March
1996 should be extended.

The question then arises as to what should be done in relation to the respondents motion to have the proceedings dismissed. Apparently the first request on behalf of the applicant for an extension of time was not made until 23 April, when it was made clear that there would be no agreement to any extension of time.

The motion for the extension of time was not served until 7 May. It was within time as far as the rules were concerned, O 19, but at the same time it is remarkable that there were no steps taken earlier to seek such an extension of time. There has been no attempt even since then to prepare an amended application and an amended statement of claim which would indicate what was the formal claim being made against the respondents. It was not until yesterday that the respondents notified the solicitors for the applicant that they would be including in their motion a claim that the application and proceedings be dismissed under O 10, r 7. This does not allow the time prescribed by O 19 for the notice of a motion but in all the circumstances, having regard to the history of this matter, this is a case where the Court should abridge the time for service of that motion until yesterday.

Order 10, r 7 provides, for relevant purposes:

"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;"

The relevant part, O 20, r 2, provides:

"2. (1)Where in any proceeding it appears to the Court that in relation to the proceeding generally ...

(a)no reasonable cause of action is disclosed; ...

the Court may order that the proceeding be stayed or dismissed generally....".

Under O 10, r 7, once there has been proof of the non-compliance with an order, the power of the Court to dismiss the proceeding is unfettered. Here the order of the Court is quite explicit in relation to the filing of an amended application and an amended statement of claim. There is no satisfactory reason given to the Court why that order was not complied with.  Having regard to the history of this litigation I see no reason why the Court should not exercise the power conferred by O 10, r 7 to dismiss the proceeding.

This is done in circumstances where, if this proceeding is dismissed, there is nothing to stop the applicants or any of them from commencing proceedings in this Court or in a Supreme Court seeking appropriate relief in an appropriate form and supported by appropriate documentation to have their claims determined according to law. It was argued by Mr Petrovsky that costs are an important factor. The Court is aware of that matter but at the same time costs are relevant, both to applicants and respondents.

In a case like this, having regard to the history and what has occurred, I repeat again; I see no reason why the Court should not make an order under O 10, r 7. As far as O 20, r 2 is concerned, the position is similar. At the present time there is no document before the Court disclosing any cause of action that is being claimed by the applicants. There is nothing to show the grounds upon which any cause of action is based. The applicants already have obtained the benefit of a second chance. They obtained leave to serve a fresh application and statement of claim. They have not complied with that requirement. They were granted an indulgence by the Court to enable them to correct their errors. They have not done so. This has resulted in there being no reasonable cause of action being disclosed to the Court in any formal document and in those circumstances the Court is satisfied that the respondents have made out a case under O 20, r 2 to have the proceeding dismissed.

Accordingly, on the respondents' motion the Court orders that the proceedings herein be dismissed.

Counsel for the respondents has submitted that the Court should order the applicants to pay the respondent's costs of the proceeding which have not been covered by previous orders for costs on an indemnity basis, that is between solicitor and client. The normal practice is for an order for costs to be taxed on a party and party basis. Counsel refer to what was said by Sheppard J in Colgate Palmolive Company and Another v Cussons Pty Limited (1993) 118 ALR 246 where, in considering whether to make an order for indemnity costs, his Honour stated a number of special matters which could be
of relevance.  Counsel referred to two of those special matters as being evidence of particular misconduct that causes loss of time to the Court and the other parties and the making of allegations that ought never to have been made or the undue prolongation of a case by groundless contentions.

I have already referred to the history of this matter but in my opinion there has been no evidence to support the view that there should be an order for costs on a solicitor and client basis. There may well have been ineptitude on the part of various people on behalf of the applicants but that of itself does not justify, in my opinion, on the facts of this case, the making of a special order as to costs. I accept, for present purposes, that the claims being made by the applicants are at least, to them, thought to be genuine, but the method by which they are seeking to have those claims formulated in Court proceedings leaves a lot to be desired.

In those circumstances I see no reason why the applicants should be required to pay the extra costs. I say nothing about the power of the Court to order costs against a non-party. In the circumstances the Court will order that the applicants pay the respondents' costs of the proceedings.

Orders accordingly.

ATTACHMENT

Counsel for the Applicant:       N/A - Applicant appeared in   person

Solicitors for the Applicant:        N/A - Applicant appeared in   person

Counsel for the 1st, 2nd, 3rd        
and 6th Respondents:             Mr D. Maclean

Solicitors for the 1st, 2nd, 3rd 
and 6th Respondents:             Russell Kennedy

Date of Hearing:                 10 May 1996