Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) - [2011] FCA 419

FEDERAL COURT OF AUSTRALIA
Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419

Citation: Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419

Parties: THE SMART COMPANY PTY LTD ACN 061 975 344 (IN LIQUIDATION) v CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529, CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 and CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 007 824 231

File number: WAD 132 of 2004

Judge: LANDER J

Date of judgment: 29 April 2011

Catchwords: PRACTICE AND PROCEDURE – application under O 31A of the Federal Court Act 1979 (Cth) for summary judgment or alternatively under O 35A of the Federal Court Rules to dismiss or stay the proceedings in whole or in part – whether the applicant failed to prosecute the proceedings with due diligence – whether the applicant failed to comply with an order or orders of the Court – whether the applicant’s behaviour in the proceedings means the proceedings ought to be dismissed or stayed

Legislation:
Federal Court of Australia Act 1979 (Cth) s 31A, s 56, s 37N, s 37M, s 37P
Corporations Act 2001 (Cth) s 1335

Evidence Act 1995 (Cth)

Federal Court Rules O 35A r 2(1)(a), (f), O 35A r 3

Cases cited: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2011] FCA 35 cited
Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4 discussed
Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388 cited
Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253 cited
Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2006] FCA 428 cited
Dey v Victorian Railways Commissioners (1949) 78 CLR 62 not followed
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 not followed
Deckers Outdoor Corporation Inc v Farley (No 2) (2009) 176 FCR 33 approved
Dandaven v Hanbeth Holdings Pty Ltd [2008] FCA 955 approved

Date of last submissions: 2 August 2010

Place: Adelaide

Division: GENERAL DIVISION

Category: Catchwords

Number of paragraphs: 678

Counsel for the Applicant: Mrs M Shaw QC, Mr M Blue QC, Mr A Dal Cin and Mr J Neate

Solicitor for the Applicant: Lynch Meyer Solicitors
Commercial & General Law

Counsel for the Respondents: Mr S Doyle, Mr B Doyle

Solicitor for the Respondents: Kelly & Co Solicitors

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 132 of 2004

BETWEEN:
THE SMART COMPANY PTY LTD ACN 061 975 344 (IN LIQUIDATION)
Applicant

AND:
CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529
First Respondent

CLIPSAL INTEGRATED SYSTEMS PTY LTD
ACN 089 444 931
Second Respondent

CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD
ACN 007 824 231
Third Respondent

JUDGE:

LANDER J

DATE OF ORDER:

29 APRIL 2011

WHERE MADE:

ADELAIDE

THE COURT ORDERS THAT:
1.The applicant’s proceedings be dismissed.
2.The applicant pay the respondents’ costs of the proceedings.

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 Federal Law Search on the Court’s website.

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY

GENERAL DIVISION

WAD 132 of 2004

BETWEEN:
THE SMART COMPANY PTY LTD ACN 061 975 344 (IN LIQUIDATION)
Applicant

AND:
CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529
First Respondent

CLIPSAL INTEGRATED SYSTEMS PTY LTD
ACN 089 444 931
Second Respondent

CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD
ACN 007 824 231
Third Respondent

JUDGE:

LANDER J

DATE:

29 APRIL 2011

PLACE:

ADELAIDE

REASONS FOR JUDGMENT

This is an application by the respondents pursuant to s 31A of the Federal Court of Australia Act 1979 (Cth), (“the Federal Court Act”) or alternatively pursuant to O 35A r 3 of the Federal Court Rules, that the proceedings be dismissed. Alternatively they seek an order that the proceedings be stayed. I shall refer in these reasons to the parties as they are described in the proceedings, notwithstanding that the application under consideration has been brought by the respondents.
Since that application was brought the applicant has made a number of applications related to the respondents’ application. The last was made by the liquidators of the applicant on 27 July 2010 and was the subject of evidence and submissions by the liquidators on 2 August 2010. These reasons also deal with and dispose of that application.
The respondents’ application was filed on 19 April 2010 and heard on 27 and 28 May 2010, when it was adjourned until 4 June 2010. At that time the trial was set down for hearing on 19 July 2010. On 27 May 2010 the trial was adjourned sine die pending the outcome of this application and other subsequent developments which are discussed below. On 4 June 2010 I reserved judgment on the respondents’ application. On 21 June 2010 the application was re-opened at the request of the respondents in order to file further evidence arising after the hearing. The applicant was given leave to put further submissions in relation to the application to dismiss the proceedings and the applicant’s liquidators put written submissions.
This is the third application of this type filed by the respondents. On 17 September 2009 the respondents filed a notice of motion to dismiss the proceedings if the applicant did not appoint a solicitor within 7 days. On 27 October 2009 a solicitor announced his appearance on behalf of the applicant and a notice of acting was filed on 5 November 2009.
On 4 November 2009 the respondents filed an amended notice of motion seeking to dismiss the proceedings or, in the alternative, to stay the proceedings. On 21 December 2009 that application was heard and on 23 December 2009 the notice of motion was dismissed and reasons were given on 15 January 2010: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4. Much of the history of the proceedings is set out in those reasons but for convenience and because of the events that have occurred since those reasons and for a better understanding of these reasons, the history will also be summarised again in these reasons.
The applicant was incorporated in Western Australia and was involved in the development of various technologies. It developed an electronic control system sold under the brand name “Jeeves” for installation in residential premises. The applicant’s products were distributed through the applicant’s wholly owned subsidiary Home Systems Plus Pty Ltd (HSP) and through various independent dealer networks.
The respondents in these proceedings Clipsal Australia Pty Ltd (CA), Clipsal Integrated Systems Pty Ltd (CIS) and Clipsal Technologies Australia Pty Ltd (CTA) were at all material times manufacturers, wholesalers and distributors of electrical products. All three entities were part of the Clipsal Group of companies and at various times had directors in common. CA was formerly known as Gerard Industries Pty Ltd, and CTA was formerly known as Gerard Industries (No 2) Pty Ltd. CA was a wholly owned subsidiary of CTA. CIS was a wholly owned subsidiary of CTA. CTA was a wholly owned subsidiary of Clipsal Australia Holdings Pty Ltd (CAH).
As at May 1995 the respondents had developed and released a product for electronic building automation lighting known as the Clipsal Bus, or C-Bus System. Bus Systems were at the time commonly used systems which enabled signals or data to be transmitted around a network from one device to another via wired or wireless transmission paths. They allowed for electronic control of buildings, such as control of heating, cooling and lighting.
The C-Bus system was able to send and receive on, off, and dim signals, and included a PC interface which could be installed by a technician.
By May 1995 the applicant had developed its own electronic building control and automation system compatible with Bus networks (the Smart System). The applicant claims the Smart System was capable of controlling devices in buildings to perform functions either on a schedule or upon the occurrence of multiple events or variables. The Smart System enabled devices on different bus networks to interact directly, and was capable of communicating simultaneously to a number of different bus systems using different computer language protocols. It had an end-user interface from which building control could be controlled by an untrained user, and was able to easily accommodate different interfaces. The Smart System was applicable to a number of building control systems, such as heating and cooling, audio visual systems, motion and smoke detection, data networking and security systems. It referred to all of the above functions as “Smart Functionalities”. The applicant’s definition of the Smart System and the Smart Functionalities is discussed later.
The applicant claims that the Clipsal’s C-Bus system was less sophisticated and had more limited functionality. For example, it could not make decisions based on multiple events or operate in accordance with a time clock. Therefore electronic functions could not be scheduled, only pre-programmed. The Smart System on the other hand was able to control a number of different functions, as opposed to the C-Bus System which could only enable on, off, and dim settings. The C-Bus System could not be integrated directly with other control systems, and could only be operated by a trained technician. Additionally, the C-Bus system was mainly for use in commercial settings, whereas the Smart System was capable of residential application.
The respondents deny that the functionality of its own C-Bus system was as limited as the applicant claims. They also deny the extent of the functionality which the applicant claims for its own system.
On 22 May 1995 the applicant and CA entered into a Collaboration Agreement to enable the direct connection of the Smart system to Clipsal’s C-Bus system. The applicant claimed that the integration of the Smart system and the C-Bus system gave the C-Bus “Smart Functionalities”. These are described in more detail below.
On or about 26 September 1996 the applicant, its subsidiary HSP, and CA, entered into a Heads of Agreement (HOA). From 7 September 1999 CIS performed CA’s obligations under the HOA. Under the HOA, the applicant and the respondents agreed to pool information for the development of certain products.
The scope of the products which were to be developed under the HOA, and the extent to which those products were in fact developed, is the subject of substantial disagreement between the parties.
The applicant claims that it owns the intellectual property for numerous products and systems developed by both parties or by the respondents only during the term of the HOA. It claims that licence fees are owed to by the respondent for the continuing sale and distribution of these products and systems.
In September 2001 administrators were appointed to the applicant. An administrator may be appointed to a company if the directors are of the opinion that the company is insolvent or likely to become insolvent: s 436A of the Corporations Act 2001 (Cth) (“the Corporations Act”). In December 2001 the applicant entered into a Deed of Company Arrangement pursuant to which a South Australian entity, Smart World Corporation Pty Ltd, purchased all of the applicant’s shares. On 28 July 2003 the administration of Smart terminated.
On 22 December 2003, CA, CIS and other entities within the Clipsal Group came under the majority ownership and effective control of Schneider Electric SA (Schneider), which was a competitor of the applicant. As a result, on 17 or 18 March 2004, the applicant terminated the HOA.
These proceedings have had an unfortunate history due mainly to the applicant’s inability to articulate its case with any precision or particularity; the applicant frequently changing solicitors; and the applicant’s failure to comply with directions in a timely fashion.
Previous judgments in relation to interlocutory applications have recounted the history of the proceedings: Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388; Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253; Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4. What follows is a summary of that history.
The applicant commenced the proceedings on 18 June 2004 in the West Australian District Registry by an application which was accompanied by a statement of claim. Solomon Brothers of Perth were the applicant’s solicitors.
The directors of the applicant were then Mr Sotirios Portellos and Mr Panagiotis Galanis.
On 9 July 2004 Lee J gave leave to the applicant to file an amended application and amended statement of claim by 30 July 2004. The documents were filed on 10 August 2004. On 20 August 2004, Lee J gave the applicant leave to file a further amended statement of claim, following receipt of a request for particulars by the respondents, by 15 September 2004. The further amended statement of claim was filed on 13 October 2004.
On 26 October 2004 the respondents sought an order that certain paragraphs of the statement of claim be struck out or, in the alternative, that the applicant give particulars. On 14 December 2004 Lee J ordered the applicant to file a second further amended statement of claim by 14 January 2005. That document was filed on 7 January 2005.
On their application of 26 October 2004 and 15 September 2004 the respondents also sought an order pursuant to s 56 of the Federal Court Act, or in the alternative s 1335 of the Corporations Act, that the applicant provide security for the respondents’ costs in the amount of $1,978,337.
On 14 January 2005 the applicant entered into a funding agreement with a litigation funder, IMF (Australia) Ltd (IMF) to meet the costs of the litigation. IMF provided a guarantee and an indemnity to the respondents in respect of any costs the applicant might be liable to pay to the respondents incurred between the date of the funding agreement and the date of termination of that agreement.
On 4 May 2005, the respondents’ application of 26 October 2004 was adjourned sine die.
On 20 May 2005, as a result of the respondents’ complaints and pursuant to a further grant of leave given by Lee J on 4 May 2005, the applicant filed its fifth version of the statement of claim which was the third further amended statement of claim.
On 31 October 2005 the respondents filed their defence and the first and second respondents filed a cross-claim. CA and CIS’ cross-claim is for an alleged advance paid by the respondents to the applicant which CA and CIS’ claim is repayable by the applicant and for damages for a failure by the applicant to pay licence fees. In dollar terms the cross-claim is relatively insignificant.
On 5 December 2005 Ms Dorothea Tomazos was appointed as a director of the applicant in addition to Mr Portellos and Mr Galanis.
On 23 January 2006 the respondents filed an amended defence and cross claim.
On 14 February 2006 IMF gave notice to the respondents that IMF would terminate the funding agreement on 21 February 2006.
On 17 February 2006 the respondents applied to have the proceedings transferred to the South Australian Registry.
On 23 February 2006 Solomon Brothers ceased to act for the applicant and on 27 February 2006 Gadens Lawyers Perth commenced acting for it.
The termination of the applicant’s funding agreement on 21 February 2006 led the respondents to reagitate their notice of motion filed on 26 October 2004 seeking security for costs.
The application to transfer the proceedings was opposed by the applicant but on 29 March 2006 Lee J made an order transferring the proceedings to the SA Registry: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2006] FCA 428. The respondents’ application for security for costs was adjourned sine die.
On 8 June 2006 and again on 17 July 2006 due to the applicant’s delay, directions were given in relation to the notice of motion seeking security for costs.
On 3 October 2006 orders were made by consent that the applicant provide $850,000 as security for the respondents’ costs in four separate tranches with the last payment to be made on 11 May 2007, and an order that the proceedings be stayed in the event of default if the security was not provided within the times prescribed in the order, such stay to continue so long as the default continued. The applicant complied with the orders.
At that time, an ASIC search carried out by the respondents indicated that shares in the applicant were held on trust for undisclosed beneficiaries by an entity known as Smart World Enterprises Pty Ltd. The applicant has always declined to disclose the identity of the beneficiary of the trust.
On 3 October 2006 Phillips Fox Lawyers were appointed to act for the applicant in place of Gadens Lawyers. On 9 October 2006 their authority was terminated and on 10 October 2006 Cowell Clarke were appointed as solicitors for the applicant.
On 8 November 2006 directions were made for a timetable for the filing of further pleadings and for the exchange of lists of documents.
On 19 January 2007 Mr Galanis resigned as a director of the applicant and Mr Simon Gerblich was appointed as a director.
On 1 February 2007 the applicant filed its reply to the amended defence and a defence to the cross-claim. This was a year after the respondents had filed the pleadings to which the reply and defence were directed. After two and a half years the pleadings were apparently closed.
On 26 March 2007 the orders in relation to discovery were varied so as to require the respondents to respond to the applicant’s list of categories and, if the parties were not able to agree on categories, to meet by 16 April 2007, to make discovery by 21 May 2007, and to give inspection by 4 June 2007.
The respondents were also directed to make any application they were to make to strike out the applicant’s reply and defence by 23 April 2007.
On 26 April 2007 the respondents filed a notice of motion to strike out certain parts of the applicant’s reply and certain parts of the defence to the respondents’ cross-claim. In the alternative the respondents sought further and better particulars.
The respondents’ notice of motion of 26 April 2007 led in due course to the applicant on 12 June 2007 seeking leave to amend the third further statement of claim. In the meantime, further directions were given in relation to discovery.
On 8 May 2007 the parties were ordered to make discovery by 28 June 2007 and give inspection by 5 July 2007. Directions were also given in relation to the respondents’ notice of motion of 26 April 2007, and that notice of motion was listed for hearing on 12 July 2007.
On 10 May 2007 the applicant and respondents filed lists of categories for discovery of documents by the applicant and the respondents, identifying the categories which had been agreed and not agreed.
In the respondents’ categories for discovery which were not agreed, the applicant requested documentation relating to:
4.The Sale and Purchase Agreement by which Schneider acquired Clipsal (“the Schneider Transaction”) with all due diligence reports relating thereto.
5.Documents recording or relating to claims made by Clipsal with respect to Smart Products (including legal advice received by Clipsal) in the context of:
a.        The Harvey Norman dispute;
b.        The voluntary administration process;
c.        The IHG separation litigation (SC of WA 142of 2002); and
d.        The Schneider Transaction
On 12 June 2007 the applicant filed a notice of motion seeking leave to amend its third further amended statement of claim.
On 28 June 2007 the applicant lodged its proposed fourth further amended statement of claim (FFASOC).
On 12 July 2007 after hearing the parties the following orders were made:
1.The applicant lodge and serve the applicant’s proposed fourth further amended statement of claim within 28 days.
2. The hearing of the applicant’s notice of motion dated 12 June 2007 to amend its further amended statement of claim be adjourned to 9.30am on 4 September 2007.
3. The applicant pay the respondent’s costs of the applicant’s notice of motion dated 12 June 2007.
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The issue of categories of discovery was put aside pending the application to amend.
On 16 August 2007 an order was made by consent that the applicant be granted an extension of time to lodge its proposed FFASOC from 9 August 2007 to 27 August 2007. The hearing of the application was adjourned from 4 September 2007 to 20 September 2007.
On 29 August 2007 the applicant provided the parties and the Court with the proposed FFASOC.
On 14 September 2007 the respondents filed their objections to the proposed FFASOC.
On 19 September 2007 the applicant filed a notice of motion seeking an adjournment of the hearing on 20 September 2007 of the applicant’s own notice of motion filed on 12 June 2007 to amend the applicant’s statement of claim.
On 20 September 2007, because of the applicant’s continuing default in addressing the proposed FFASOC the applicant’s notice of motion of 12 June 2007 was dismissed. On the same day the applicant made a further oral application for leave to file a further amended statement of claim. The following orders were made:
1. The applicant’s notice of motion of 12 June 2007 be dismissed.
2.The applicant pay the respondents’ costs of and incidental to the notice of motion.
3.The respondents’ oral application for an order that the costs be paid forthwith be reserved.
4.The respondents’ notice of motion of 26 April 2007 be adjourned until Wednesday, 7 November 2007 at 9.30am for mention.
---
6.The applicant’s oral application for leave to file a further amended statement of claim be adjourned to the same date and time for hearing.
As a consequence of the oral application mentioned in paragraph 6, the following directions were made:
8.The applicant lodge with the Court and deliver to the respondents any further proposed amended statement of claim by Wednesday, 10 October 2007.
9.The respondents advise any objections to the proposed amended statement of claim by Monday, 29 October 2007.
10.The applicant respond to any notice of objection by Friday, 2 November 2007.
In October 2007 the applicant lodged a Change to Company Details Changes to (Members) Share Holdings which showed that the applicant was now wholly owned by Enterprise Global Resources Pty Ltd (EGR) on trust for undisclosed beneficiaries. Mr Portellos was the sole shareholder and director of EGR.
On 9 October 2007 the applicant’s then solicitors wrote to the Court advising that a notice of motion seeking leave to amend the applicant’s third further amended statement of claim together with an affidavit annexing a copy of the proposed FFASOC would be filed and served by 19 October 2007.
The applicant’s solicitors’ were advised by the Court that the existing orders which required the applicant to lodge any proposed amended statement of claim rather than file and serve that document with the Court.
On 19 October 2007 the applicant’s solicitors again wrote to the Court advising that the proposed FFASOC would not be ready until the following week.
On 24 October 2007 the applicant lodged the proposed FFASOC. The applicant had not complied with the directions given on 20 September 2007.
Some six months had passed since the respondents had applied to strike out the applicant’s reply and defence to cross-claim. More than four months had passed since the applicant had applied to amend its statement of claim.
On 31 October 2007 the applicant advised the Court that the parties had agreed that the respondents should provide any objections to the proposed FFASOC by Monday, 5 November 2007, and that directions only be given on 7 November 2007, rather than the hearing of the oral application to amend the statement of claim.
As requested by the parties directions were made on 7 November 2007 in relation to the respondents’ objections to the proposed FFASOC and for the applicant to reply to those objections by the filing of any further proposed FFASOC by 12 November 2007.
On 13 November 2007 the applicant’s solicitors lodged a revised proposed FFASOC. However, the respondents again identified objections to that document and, as a result, on 22 November 2007 the applicant forwarded yet another proposed FFASOC in substitution for the document lodged on 13 November 2007.
The hearing of the applicant’s application to file and serve the FFASOC was set for 27 November 2007 but, because of the applicant’s lateness in the provision of the further document, that hearing could not proceed. On that day further directions were made relating to the provision by the applicant of the applicant’s proposed FFASOC and the matter was listed for further hearing on 20 February 2008.
On 18 February 2008 Clelands Lawyers commenced acting for the applicant in place of Cowell Clarke.
On 20 February 2008 the applicant was given leave to file the then version of the FFASOC subject to providing further particulars. Between 12 July 2007 and 20 February 2008 when the order giving leave was made, six versions of that statement of claim had been proposed and considered by the Court.
On 7 March 2008 the applicant filed its FFASOC.
On 3 July 2008 reasons were published for ordering the applicant to pay the costs of its application for leave to file the FFASOC: Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388.
On 5 September 2008 the respondents filed their amended defence and the first and second respondents’ cross claim.
On 16 September 2008, the following orders were made by consent:
1.The applicant file and serve any reply to the defence to the fourth further amended statement of claim on or before 12 November 2008.
2.The cross-respondent file and serve any amended defence to the amended cross-claim on or before 12 November 2008.
3. The directions hearing listed for 17 September 2008 be vacated.
The applicant did not comply with paragraphs 1 and 2 of the order.
On 3 October 2008 Mr Portellos and Mr Gerblich resigned as Directors of the applicant, leaving Ms Tomazos as the applicant’s sole director.
On 13 November 2008 the applicant sought an extension of time in which to file its reply and defence until 4 December 2008.
Mr Britten-Jones, who then appeared for the applicant, explained that his client had not been able to provide its solicitors with complete instructions. He sought an indulgence for the filing of the reply and the defence to the cross claim on the grounds that the solicitors had not been provided with all the necessary material, but that the documents were underway.
Mr Sam Doyle who appeared for the respondents said that the respondents would not object to a modest extension of time for the filing of the pleadings if it meant that the pleadings would be appropriately drafted rather than needing to be amended.
The extension of time sought was granted, but the applicant was warned that it “ought to understand … that the directions of this court are not optional”. The applicant was told that the Court’s directions must be complied with.
At the hearing of 13 November 2008 the contents of the FFASOC and the way in which the applicant’s case was pleaded was raised by Mr Sam Doyle who appeared for the respondents. For an understanding of that submission the FFASOC must be analysed.
In the FFASOC the applicant pleads that it is entitled to licence fees for all the products it defines as “Smart Products” which were developed during the term of the HOA by the applicant or the respondents or both. The applicant claims that it is entitled to licence fees for the Smart Products, both during the term of the HOA and since the HOA was terminated.
It is pleaded that the Smart Products are those products which were developed for building control and automation with the “Smart Functionalites”.
Smart Functionalities are defined in paragraph 15 as products capable of:
15.1 controlling devices in a building to perform functions;
15.1.1 on a schedule; and/or
15.1.2 on the occurrence of multiple events, variables and/or parameters;
15.2 causing devices on different Bus Networks to interact directly;
15.3 controlling and/or scheduling building control and automation functions by an end-user via a keypad;
15.4 communicating simultaneously on multiple Bus Networks using multiple protocols; and
15.5 accommodating additional interfaces without requiring a redesign of the Smart system.
The applicant identifies two broad categories of Smart Products that contain the Smart Functionalities as defined in paragraph 15 of the FFASOC: Improved Products and Unilateral Products.
Eight products are identified as being Improved Products, and they include controllers, keypads, a telephone support option and a C-Bus interface. They are products which the applicant pleaded were developed by the applicant and CA pursuant to the joint collaborative enterprise, and constitute improvements of, and modifications to, the Smart controller and system.
Unilateral Products are those which the applicant claims CA developed or procured at various times during the term of the HOA without the applicant’s knowledge or consent.
Unilateral Products are defined as:
78.1 products for building control and automation with Smart Functionalities;
78.2products for building control and automation that when (and only when) combined with other products had (together with the products with which was combined) Smart Functionalities; and
78.3a combination of products (including products referred to at paragraph 60.5) sold as part of a system for building control and automation whereby each product within the system was endowed with Smart Functionalities;
In paragraph 60.5 it is pleaded that the Smart Products include:
60.5 any product which was not of itself developed for building control and automation and did not of itself have the Smart Functionalities but which:
60.5.1 was capable of being incorporated into a combination of products for building control and automation;
60.5.2 when so combined, had Smart Functionalities; and
60.5.3 was sold in such a combination.
The unilateral products are identified in paragraph 79 and, more particularly, identified in Schedule C of the statement of claim. There are over 600 products in Schedule C.
In paragraph 78 of the FFASOC it is pleaded a product may be a Smart Product either because it has all 5 of the Smart Functionalities referred to in paragraph 15 of the FFASOC, or because it has those functionalities when combined with other products, or because it may be attached to a system which has those functionalities.
The 600 products referred to in Schedule C are not well particularised. Schedule C does not identify in which of the three categories mentioned in the last paragraph a particular Smart Product lies. It does not identify whether a product is a Smart Product because it alone has the Smart Functionalities, or because it has those functionalities when combined with other products, or because it may attached to a system with Smart Functionalities.
Schedule C does not identify how a product fits within one of those 3 categories of Unilateral Product. It does not, for example, identify if a product has two of the five functionalities on its own, but obtains the other three when combined with another product on the list which has two or more of the functionalities.
It does not detail how each of the products relate to each other.
The applicant claims that CA was obliged to pay to the applicant licence fees at the rate set out in the HOA in respect of all sales and sub-licensing revenues received after termination in respect of the unilateral products and the improved products. The applicant claims that CA has breached the HOA by failing to pay the licence fees.
It also claims that CA’s development of the unilateral products meant that CA breached a fiduciary duty owed by it to the applicant. It claims that CIS knowingly assisted CA in breach of that fiduciary duty. It further claims that CA holds the intellectual property which has been developed on trust for the applicant. It claims that CA has wrongfully applied for and obtained trademarks.
The applicant claims that CA contravened s 52 of the Trade Practices Act 1974 (Cth) (Trade Practices Act) by engaging in misleading and deceptive conduct. It complains that the CIS and CTA were knowingly concerned in those contraventions. The applicant’s claim for damages will be addressed separately.
The respondents’ case is that the definition of Smart Products asserted by the applicant does not appear in the HOA, and cannot be constructed from its terms. The respondents assert that even if the Smart Products were capable of being adequately identified by the FFASOC, the products as defined were not the subject of the HOA.
The respondents’ case is that the scope of the HOA was far more limited. The respondents plead that the HOA covered a discrete project known as the re-design project which covered a small number of products.
The respondents say that they agreed to advance up to $1 million in royalties, most of which was advanced. They say that the royalties advanced were never recouped by sales. The respondents also filed a cross claim for those royalties advanced and not materialised.
On 13 November 2008 Mr Doyle argued that the applicant’s inability to particularise its claim meant that there were no boundaries to the discovery process. He said that the discovery process would put the parties, but especially the respondents, to extraordinary expense. He estimated that discovery would involve tens of thousands of documents and could cost the respondents millions of dollars.
Mr Doyle sought an order that the matter be referred to mediation prior to the respondents embarking upon the discovery process. He also raised for the first time the possibility of the applicant delivering expert reports before the discovery process in order to limit the cost of discovery. Mr Doyle’s request that the matter be referred to mediation was opposed by the applicant at least until the parties made discovery. The respondents said that their application to refer the matter to mediation was in order to make the potentially unmanageable discovery process unnecessary.
During the hearing the following exchange regarding the respondents’ application for mediation took place:
HIS HONOUR: Has any list of documents been given by any party?
MR BRITTEN-JONES: Categories of documents, your Honour, have been put forward by each of the parties. There has been consultation between the parties by which the majority – I think I can say the majority of those categories were agreed. That was, of course, based on the old pleading. But I think that the same formula, in a sense, could apply to the extended claim with respect to products. The idea was not to have every single document with respect to the development of every product. It was only to have some final versions of documents with respect to products and – so there has been some attempts made there, and we’d hope that that process could occur so that informed mediation could take place.
HIS HONOUR: I assume, in a case such as this, the discovery process is going to be very expensive.
MR BRITTEN-JONES: Yes, and ---
HIS HONOUR: It’s one reason to have mediation before discovery.
MR BRITTEN-JONES: Well, I think your Honour recognised – well, probably at least 12 months ago, now, when we were talking about this issue of discovery and categories of documents – that it would be best to proceed by way of categories and that is certainly the case.
HIS HONOUR: But it – no, the point I’m making now is not so much how the discovery process will go forward, but it might be better to have mediation in advance of the discovery, because the cost of the discovery is often a useful leverage in settling the matter.
MR BRITTEN-JONES: Yes. I think – with respect, I agree to the concept. The only issue there is whether or not there is a little bit more work with respect to discovery, in the sense of just finishing off the job that had been begun a year ago, could actually ---
…
HIS HONOUR: But your client won’t be making anything like the discovery the respondent will be making.
MR BRITTEN-JONES: No, that’s true.
HIS HONOUR: The real cost of discovery is on the respondents’ part.
MR BRITTEN-JONES: Yes, yes. If we could limit the discovery that is to be made by the respondent, I accept that it would certainly have to be limited discovery.
There followed an exchange with Mr Doyle:
MR DOYLE: Your Honour’s apprehension that this might be an expensive exercise is entirely correct. Indeed, it’s going to be an enormously expensive exercise and we’re talking in the order, I would expect, tens of thousands of documents from my understanding, not just hundreds or thousands of documents.
HIS HONOUR: Some of them archived?
MR DOYLE: I expect so. I don’t have that level of knowledge, but I know it would be an enormous undertaking, and what was embarked upon last occasion was some categories in relation to a claim that, at that stage, was in relation to about 30-odd products. We’re now dealing with a claim that’s 20 fold that size. If it’s not an impossible burden, it’s certainly an enormous burden, and we are concerned not to incur that expense if there is any prospect of resolving the matter before that is done. So we – well, my client is keen to pursue mediation if – well, either if my opponent’s client would agree or if your Honour were prepared to impose mediation upon the parties.
My client wouldn’t have any objection, I don’t expect, if it was a case of, “Look, here’s, you know, a few dozen or even a few hundred documents we’d like to see before the mediation comes on.” We couldn’t have any difficulty with that if that was going to shed light on the merits of the matter, but even first of all determining the categories is going to be a process in itself, and we’d like to have a short attendance before your Honour to propose some more innovative or different approaches to discovery in this case with a view to trying to make that process manageable. But even just a category-based approach, even if they were fairly narrow categories in relation to 630-odd products, it’s just an enormous exercise that will take many months, and I don’t know what the dollars are, but they’ll be enormous.
So we’re very keen to pursue the possibility of mediation before embarking on that process. And part of the reason for that, as well, is what we intend proposing to your Honour is considering the prospect of experts’ reports from the plaintiffs coming before discovery here, and whilst we’ve responded to a pleading that is at the very general level of 630-odd products, 12-odd functionalities and any permutation or combination is potentially a breach, that that is just an unmanageable case in terms of providing discovery, but also attempting to answer it, we would have thought an expert’s report that says, “Well, here really are the key functionalities that we say involve breaches and they’re found in these respects in these particular products.”
The case just inevitably has to be narrowed at some point, and it would seem that that would happen through experts. I expect the answer will be, “Well, we need to see some of the documents before we can finalise that process.” My client would understand and expect that this is not going to be a one expert report, that’s the end of the matter, you can’t put a supplementary one. But we would have thought understanding the number for plaintiffs (sic) of the applicant’s case through its expert reports, then having an informed and focused process of discovery after that with ample opportunity for the applicant to supplement their expert reports in light of material that comes out of discovery would be an appropriate regime in this case.
I reached the tentative view that the parties should be ordered to mediate and said to Mr Britten-Jones that if the applicant instead wanted full discovery prior to mediation it might have to provide security for the millions of dollars the respondents estimated it would cost.

On 2 December 2008 Clelands Lawyers wrote to the respondents’ solicitors requesting further discovery for the purposes of the proposed mediation. The solicitors requested:
1. All documents held by the Defendants concerning the due diligence conducted by the Schneider Group in relation to the sale and purchase of the Clipsal Group in 2003, including:
a.Reports by Norman Waterhouse, Allens Arthur Robinson, PriceWaterhouseCoopers (“PWC”) and Allen Gledhill of Singapore, as well as the data room disclosure letter and accompanying list of documents (our client does not seek copies of all documents, merely the list of documents at this stage) in relation to the due diligence conducted in relation to the following transactions:
i. The acquisition of 100% of the Clipsal Australia Business (and its operations in South Africa, India and New Zealand), together with worldwide ownership of the Clipsal brand name, from the founding Gerard family and their 52% partner, a listed Singapore company, Clipsal Industries (Holdings) Limited (since renamed CIH Limited);
ii.Entry into a 50-50 JV with CIH Limited, which operated a similar Clipsal business in Asia, Greater China, and the Middle East pursuant to a long-term exclusive right to use the Clipsal name in these regions; and
iii. An off-market sale of Schneider Electric’s 18.7% shareholding in CIH Limited.
b.        Sale and purchase agreements in relation to the above transactions.
2.        All financial returns and the accompanying financial statements lodged with the Deputy Commissioner of Taxation or any other taxation authority by members of the Clipsal Group in the period 1 July 1995 to 30 June 2004;
3.        Financial information from the Schneider Group in relation to sales of its T-Bis and other automation and building control ranges since 1 January 2004 to present; and
4.        Copies of the minutes of meetings, and product direction documents, of the Clipsal Group’s International Steering Committee from 1 July 1995 to present.
On 4 December 2008 the respondents replied, maintaining the same paragraph numbering of the applicant’s letter:
1. We act for Clipsal Australia Pty Ltd, Clipsal Integrated Systems Pty Ltd and Clipsal Technologies Australia Pty and not for the Schneider Group. We do not expect that our clients will have any documents in their possession, custody or control responsive to your request in this paragraph. Alternatively, to the extend that any such documents might be in the possession of our clients’ former solicitors, Norman Waterhouse, they are likely to be, so far as relevant (if at all), privileged from production. We consider it highly unlikely that any of the documents requested are relevant to any issues arising on the pleadings and therefore invite your client to explain how they might be so that we can obtain our clients’ instructions with respect to your request.
2.In relation to your request in paragraph 2, you will be aware that the pleadings define the Clipsal Group of companies as comprising a broader group of companies than those for whom we act, and against whom your client claims in these proceedings. We fail to see how the provision of the financial information requested could be relevant to issues arising on the pleadings. Further, any “financial returns and accompanying financial statements” are likely to show only gross income, revenue, expenses and the taxable income for each entity. We consider that the documents requested will not be probative of any issues in dispute. We again invite your client to explain how they might be relevant or otherwise discoverable.
3. As set out above, we do not act for the Schneider Group and your request therefore relates to documents concerning sales by a third party. In any event, we are instructed that our client has no financial information from the Schneider Group, either in relation to an item or product called “T-Bis”, or at all.
4.We are instructed that our client, as presently advised, has no knowledge of any body that exists, or has existed, called the “Clipsal Group’s International Steering Committee” or “International Steering Committee”. Further, it is not aware of any documents called “product direction documents”, nor can it discern the relevance of such documents if they did exist. Please properly identify and clarify the existence of this committee, the nature of the documents requested and indicate, with reference to the Fourth Further Amended Statement of Claim, how your client considers such documentation to be relevant to issues arising on the pleadings.
On 4 December 2008 the applicant filed its reply and defence to the cross-claim. The date for filing those documents had been extended on 13 November 2008 until 4 December. The pleadings closed more than four years after the proceedings had commenced. The pleadings have not been amended since that time.
On 5 December 2008 the applicant’s request for discovery was addressed.
It is necessary to have some understanding of how the applicant has put its case on damages having regard to the case pleaded in the FFASOC. The applicant has pleaded its entitlement to damages by reference to the various causes of action upon which it relies:
BREACH OF THE HOA AND DAMAGE
Licence fees on Original and Improved Products
87.      Smart is entitled to licence fees on:
87.1     all sales made of; and
87.2     all sub-licensing revenues derived in respect of;
all Original and Improved Products:
87.3during the term of the HOA, pursuant to the term of the HOA pleaded at paragraph 62.2;
87.4after termination of the HOA, pursuant to the term of the HOA pleaded at paragraph 85 or alternatively pursuant to the licence pleaded at paragraph 86.
88.      In breach of its obligations, Clipsal failed to:
88.1pay the advance payment of $300,000.00 in or before December 1998 in breach of clause 9.7.2.2 of the HOA;
88.2account to and pay to Smart the licence fees due on sales of Original and Improved Products or sub-license revenues derived in respect thereof during the term of the HOA;
Particulars
88.2.1Clipsal was obliged to pay licence fees based on the formula and defined terms in clause 9.1 of the HOA, namely in effect a percentage of the difference between its Net Selling Price and its Supply Price (as defined in clause 3.1.17 of the HOA);
88.2.2Clipsal instead calculated and paid licence fees based only on the purported Supply Price for all Clipsal sales within the Specified Territories and at a fixed one third rather than at the varying proportions required by clause 9.1 of the HOA;
88.2.3Smart did not and does not know the amount of Clipsal’s Net Selling Price, Total Manufactured Costs, Supply Price, purchase prices or selling costs;
88.3account to or pay to Smart any licence fees in respect of sales of Improved Products and sub-licensing revenues derived after termination of the HOA.
89.      In the premises:
89.1Smart is entitled to an account by Clipsal of all profits from sales and consideration for sub-licensing rights in respect of the Improved Products;
89.2Smart is entitled to an order for payment of the licence fees found due;
89.3alternatively, Smart has suffered loss and damage in the amount of the said licence fees not paid by Clipsal.
Licence Fees on Unilateral Products
90.      …
91.      Smart is entitled to licence fees on:
91.1     all sales made of; and
91.2     all sub-licensing revenues derived in respect of;
all Unilateral Products:
91.3during the term of the HOA, pursuant to the terms of the HOA pleaded at paragraph 62.5;
91.4after termination of the HOA, pursuant to the term pleaded at paragraph 85 or alternatively pursuant to the licence pleaded at paragraph 86.
92.      In breach of their obligations, Clipsal have failed to:
92.1account to and pay Smart any licence fees due on sales of Unilateral Products or sub-licensing revenues derived in respect thereof during the term
92.2account to or pay Smart any licence fees in respect of sales of Unilateral Products or sub-licensing revenues derived in respect thereof after termination of the HOA.
93.      In the premises:
93.1Smart is entitled to an account by Clipsal of all profits on sales and consideration for sub-licensing rights in respect of the Unilateral Products;
93.2Smart is entitled to an order for payment of the licence fees found due;
93.3alternatively, Smart has suffered loss and damage in the amount of the said licence fees not paid by Clipsal.
94.In the alternative, in the event that on the proper construction of the HOA the Unilateral Products are not Smart Products, by reason of their conduct pleaded in paragraph 78, Clipsal are in breach of the following terms of the HOA:
94.1     the terms pleaded at paragraphs 56 and 57;
94.2     the terms pleaded at paragraphs 62.5 to 62.8;
94.3     the term pleaded at paragraph 62.11;
94.4     alternatively each of the implied terms pleaded at paragraph 66.
95.By reason of the matters pleaded at paragraph 94, Smart has suffered loss or damage.
Particulars of loss or damage
95.1     Smart has lost licence fees on:
95.1.1 the sale of the Unilateral Products;
95.1.2sub-licensing revenues derived in respect of the Unilateral Products;
which Smart would have received if those products had been Smart Products;
95.2     Alternatively Smart has lost:
95.2.1profits from its own manufacture and/or sale of Smart Products;
95.2.2licence fees from third parties for the manufacture and/or sale of Smart Products;
95.2.3profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
Minimum Sales
96.In breach of clause 7.2 of the HOA, Clipsal failed to achieve the minimum sales of JV00 required by clause 7.2.
Particulars
See Schedule D attached
97.By reason of the breach, Smart has suffered loss and damage as set out in the particulars to paragraph 96.
CONTRAVENTION OF FIDUCIARY DUTIES
98.By their conduct pleaded at paragraphs 78 and 79, Clipsal breached the Clipsal Fiduciary Duty.
99.…
100.By reason of the matters pleaded at paragraph 98 or alternatively paragraph 99:
100.1CA and CIS are required to account to Smart for all profits derived by them from Unilateral products;
Particulars
Particulars will be provided after discovery and experts reports.
100.2CA and CIS have procured a benefit by way of ownership of the IP and UP Intellectual Property and hold those benefits on constructive trust for Smart;
100.3Smart has suffered loss and damage.
Particulars of loss or damage
100.3.1 Smart has lost licence fees on:
100.3.1.1.the sale of the Unilateral Products which Smart would have received if those products had been Smart Products;
100.3.1.2.sub-licensing revenues derived in respect of the Unilateral Products;
100.3.2 Alternatively Smart has lost:
100.3.2.1.profits from its own manufacture and/or sale of Smart Products;
100.3.2.2.licence fees from third parties for the manufacture and/or sale of Smart Products;
100.3.2.3.profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
INTELLECTUAL PROPERTY CLAIMS
In respect of this cause of action damages are not sought but the application seeks rectification under the Trade Marks Act 1993 (Cth) and the Designs Act 1996 (Cth) or the Designs Act 2008 (Cth).
TRADE PRACTICES ACT CONTRAVENTION
112.By reason of Clipsal’s conduct pleaded at paragraph 110, Smart suffered loss and damage.
Particulars
Smart has lost:
A. profits from its own manufacture and/or sale of Smart Products;
B.licence fees from third parties for the manufacture and/or sale of Smart Products;
C.profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
…
117.By reason of the matters pleaded in paragraph 116, Smart has suffered loss and damage.
Particulars
117.1 Smart has lost:
A.profits from its own manufacture and/or sale of Smart Products;
B.licence fees from third parties for the manufacture and/or sale of Smart Products;
C.profits from developing, expanding, manufacturing and selling Smart Products.
No further particulars of damage are given in the FFASOC and none to the Court’s knowledge have been given.
The applicant has at various times, in evidence and from the bar table, estimated its damages as being in the realm of $4 billion, $2 billion or at least several hundred million dollars. Indeed, an expert report of the applicant written by Mr Alexander Reade (which report was ultimately ruled inadmissible) calculated the applicant’s losses at $3,988,819,150.10.
Notwithstanding it is no part of the applicant’s pleading, the applicant puts its damages claim on the following assumptions.
On 22 December 2003 Schneider acquired Clipsal’s electrical wiring devices and installation systems business (EWDIS) which the applicant has asserted without any proof includes that part of the respondents’ C-Bus business. The applicant has claimed that it is entitled to prove its damages by reference to the price paid by Schneider for the EWDIS business.
The applicant has continued to maintain that its damages may be measured by the price paid by Schneider for EWDIS even though no reference to the EWDIS business is made in the FFASOC, and even though the respondents assert that the totality of the products in the statement of claim comprise much less than 5% of the EWDIS business.
Mr Britten-Jones said that the applicant requested discovery of the documents relating to the transaction by which Schneider acquired the EWDIS business.
On 5 December 2008 when asked how that transaction would bear upon the applicant’s claim, Mr Britten-Jones said:
MR BRITTEN-JONES: It’s actually not something that would be relevant to the – necessarily to the pleadings but it is something that’s relevant to the quantification, an easy quantification, of the value of my client’s claim. In other words, if my client has a claim over all of the intellectual property and products associated with the home automation arm of Clipsal and that was, in effect, valued and sold as at 2003 pursuant to that Schneider transaction, then that will give my client some idea without the need to trek through the process of applying a formula to sales of smart products, which is the other way of doing it, without the need to do that, it would give my client some idea of the quantification of its claim. So it really goes to the quantification of the claim.
Mr Doyle addressed Clelands’ letter of 2 December 2008 which sought discovery of the due diligence report conducted by Schneider in relation to the sale and purchase of the Clipsal Group and Mr Britten-Jones’ request for those and other documents. He said that the request for those documents was not relevant to any issue raised on the pleadings. However, his instructing solicitors had written seeking further information in an endeavour to understand how the documents might be relevant.
The question of the applicant’s request for mediation was considered and an order was made referring the proceedings to mediation and the Honourable John von Doussa QC was appointed mediator. The mediation was to take place in mid March 2009.
On 18 December 2008 Mr Simon Gerblich was reappointed as a director of the applicant, and Mr Dean Clift was newly appointed as a director.
On 4 March 2009 the applicant wrote to the respondents requesting the further discovery which it had sought on 2 December 2008 for the purpose of the mediation.
On 4 March 2009 the respondents replied:
As your request for documents as set out in your letter dated 2 December 2009 is far broader than is required by your client for the purposes of calculation of quantum in this matter, our client declines to provide the documents as requested,
No further request was made by the applicant prior to mediation.
The mediation was conducted on 17 March 2009 but failed.
On 26 March 2009 the respondents sought to relist their application for security for costs on the basis that the applicant’s inability to articulate its claim meant it should provide further security.
On the same day the respondents wrote to the applicant inviting it to agree to a regime in which the experts’ reports were to be filed prior to the respondents making discovery. Relevantly the letter stated:
Discovery
In view of the vastly increased scope of your client’s fourth further amended statement of claim (FFASOC) over its previous iteration, and the recent indications that you have given in relation to the form and magnitude of the discovery that your client intends to seek¹, it is clear that our clients’ costs implications of discovery are potentially enormous. Indeed, such implications have been raised by our clients’ counsel and acknowledged by Justice Lander on at least one occasion.² As you are aware, the significant costs of our clients’ discovery stems, in part, from the fact that your client’s claim now relates to some 650 products, whereas previously it was 31 products. Notwithstanding that your client’s current claim is framed somewhat differently from its predecessor, given the significant level of discovery required for even 31 products, we project that the discovery of documents in relation to 650 products will be exponentially larger.
To this end, we propose that discovery not only be limited or modified, but also that it be postponed until after the provision of your client’s expert reports, for reasons set out below.
Expert reports
In our view, the next appropriate procedural step is for your client, before discovery, to file its experts reports identifying precisely which products, of those claimed, fall within the paragraph 60 (FFASOC) definition of “Smart Products” by reference to the various criteria set out therein (including an expert evaluation of whether the products claimed in the FFASOC replicate the functionality of the original Smart Products).
By so doing, the scope of our clients’ discovery might thus not only be confined to those products properly falling within the definition of the “Smart Products” as determined by your client’s experts, but also will be able to be focused upon the particular characteristics of the products that are relevant to a determination of whether or not the products do fall within that definition.
Given that two of your client’s present directors have only very recently been appointed and that all three appear to have had no involvement with the products during the terms of the Heads of Agreement (in contrast to our clients), we suggest that the involvement of your experts at this stage of proceedings may assist in limiting the process of discovery to a more manageable one.
Although your client might contend that expert reports cannot be provided until such time as our client has made discovery this is not the case. The issue of expert determination of functionality and application are matters which can proceed largely independently of the kind of discovery your clients have sought hitherto.
We accept that discovery following from the provision of expert reports might throw up some additional information that might require further consideration by your client’s expert(s) and (assuming proper cause is shown) our clients would not object to any supplementary report(s) required to deal with the information arising out of discovery.
Further, the proposal for discovery that our clients have in mind also is not intended to foreclose the possibility of additional discovery (or a second tranche of discovery) should proper cause be made out. They are simply concerned to ensure that the first tranche of discovery is brought within manageable boundaries.
If, contrary to the proposal set out in this letter, or for any other reason, our clients are required to make full discovery before your client files its experts’ reports, we advise that we will necessarily require additional security for costs and will apply for such at the earliest opportunity.
Please indicate, at your earliest convenience, if your client agrees with the next procedural steps as set out above.
______________________
¹ For example, your request for us to produce the kinds of documents referred to in your letters dated 2 December 2008 and 5 March 2009.
² See, for example, pages 7 & 8 of the transcript of the hearing on 13 November 2008.

On 1 April 2009 the respondents applied orally for an order that the applicant provide an expert report on liability prior to the parties making discovery.
Mr Doyle submitted that the suggestion of an expert report ahead of discovery was an alternative to the respondents pursuing further particulars of the case they had to meet. The respondents contended that the applicant should provide an expert report on liability before discovery because that report would assist to inform the parties of the scope of discovery. Mr Doyle contended that the applicant’s FFASOC did not contain proper particulars but the respondents wished to avoid any further pleading arguments but needed at the same time to have a better understanding of the applicant’s case. Mr Doyle said:
MR DOYLE: That there be expert reports first and we openly acknowledge and accept that there may well need to be some focused discovery after that and the possibility of supplementary reports but that is, in our submission, going to result in a very large time and money saving – and particular in a situation, as your Honour would understand, where we’re the party that carried the burden of discovery in this case, it’s not a mutual exercise. And, as your Honour would know from our foreshadowed security application, we are seriously concerned about money we spend, in effect, going down the drain and not being recoverable.
The applicant said that it had already retained an electrical engineer to offer an opinion in relation to the functionality of the products referred to in Schedule C of the statement of claim. The applicant’s counsel was told that the applicant should identify the assumptions which it wished the expert to make for the purpose of the expert’s opinion.
An indication was given of the directions which might be made. The applicant would provide to the respondents the assumptions which the applicant wished its expert to make; the documents which the applicant intended to provide to the expert for the purpose of the opinion; the products which the applicant claims have a Smart functionality in themselves; the products which only have a Smart functionality when used with any other products; and would identify the opinion which was to be sought for the purpose of the proceedings.
The hearing was adjourned for seven days to allow the parties to get instructions.
On 8 April 2009 the hearing resumed and the applicant’s solicitor said that Mr Britten-Jones who had appeared for the applicant was no longer retained “because in the opinion of the managing director of the Smart Company Mr Britten-Jones had not been adhering to the client’s instructions and his services are no longer required as a result of that”. The applicants’ solicitor sought an adjournment so that Mr Blue QC, who was then retained but who was not available, could put an argument on this issue. The application was refused.
The applicant was ordered to provide within 28 days any assumptions it would ask the experts to make; the documents which the applicant would provide to the expert; identification of each of the products said to have a Smart functionality either by itself or in combination with other products; and the opinion it sought. This regime was implemented in order to provide some definition to and articulation of the claim.
The orders made on 8 April 2009 were:
1. The applicant provide to the respondents within 28 days the following:
1.1 the assumptions which the applicant would ask any expert to make;
1.2the documents which the applicant would and could provide that expert by reference to each of the products identified in paragraph 79.1 of the Fourth Further Amended Statement of Claim (FFASOC) and insofar as relevant, Schedule C thereof;
1.3identification of each of the products which is said to have a Smart functionality by itself;
1.4identification of each of the products which is said to have a Smart functionality only when used in combination with any product, and in that class identify whether, and if so which of those other products have a Smart functionality by themselves;
1.5when a product is by itself or in combination with some other product said to have a Smart functionality, identification of the Smart functionality by reference to paragraphs 15 and 16 of the FFASOC;
1.6the opinion which is sought for the purposes of the proceeding.
On the same day directions were given for the filing of evidence and written submissions in relation to the applicant’s application for further security for costs.
On 22 April 2009 Tindall Gask Bentley commenced acting for the applicant in lieu of Clelands Lawyers and filed a notice to that effect.
On 12 May 2009 the applicant sought an extension of time in which to comply with the orders of 8 April 2009. Mr Duggan, who then appeared for the applicant, assured the Court that the draft of the assumptions was in near a final form, and that an expert had been identified. The application was allowed and the applicant was granted an extension of time of 14 days until 26 May 2009.
During the hearing the following exchange with Mr Duggan took place in relation to the applicant’s continuing delay:
MR DUGGAN: …There is obviously a prejudice caused by, if it turns out to be a conduct or pattern of delay because it’s the non-prosecution of a matter and your Honour, we’d hate for that to happen and certainly while I’m involved, obviously the strongest possible instructions are, you’ve got to get on. Once you’ve filed proceedings, you’ve got to get on with it, got to move towards the trial date.
HIS HONOUR: Well, as you say again, Mr Duggan. I’m not criticising you or your present instructors but the history of the matter has shown a reluctance on your client to take any practical view of how this litigation ought to be conducted and rather to run a Rolls Royce case, at a very slow speed without at any time being able to precisely identify what your case is. That’s the history of this matter. That’s why your client is facing another application for security, I think, and that’s why the unconventional order was made on the last occasion in relation to experts’ reports, so as to get the matter moving. Your client just keeps talking about it, not doing it and it’s got to come to an end. You either get on with the case or you don’t. It’s been going too long now. What’s it, when was it started? Five years ago and your pleading is just in shape and we haven’t had discovery. You can’t run litigation of this size at that pace.
MR DUGGAN: Yes. Well, I’ll make sure my instructing solicitors convey those remarks to my client.
The applicant did not comply with the order as extended. In a letter dated 27 May 2009 but received by the respondents on 4 June 2009, the applicant’s solicitor provided the respondents with the brief, which contained the assumptions on which the expert’s opinion on liability was to be based and the opinion sought. Those assumptions first came to the Court’s attention in an annexure to the affidavit of Stephen McNamara, solicitor for the applicant from 5 November 2009, sworn on 29 April 2010:
Assumptions
May 1995 Smart Products
19.Assume that as at May 1995 the Smart range of products comprised the products referred to in Attachment A [this is schedule A to the FFASC]. These products are referred to as the “May 1995 Smart Products”.
20. We attach various technical documents in relation to the May 1995 Smart Products (Attachment B). Assume that the descriptions of the May 1995 Smart Products in the technical document are accurate.
May 1995 C-Bus Products
21.      Assume that as at May 1995 the C-Bus range of Clipsal Products was limited to the products referred to in Attachment C [these are the products listed at paragraphs 8 and 9 to the FFASC]. These products are referred to as the “May 1995 C-Bus Products”.
22.      We attach various technical documents in respect of each of the May 1995 C-Bus Products (Attachment D). Assume that the descriptions of the May 1995 C-Bus Products in the technical document are accurate.
Attachment E Products [the Improved Products]
23. We attach a list of products (Attachment E) [these are the products listed at paragraph 74 to the FFASC].
24. We attach the trade catalogues in the public domain in respect of each of the products listed in Attachment E (Attachment F). Assume that the descriptions of the Attachment E products in the trade catalogues are accurate. We do not have all of the technical documents in respect of these products which are not in the public domain.
Attachment G Products [Unilateral Products]
25. We attach a list of products/systems. (Attachment G) [this is schedule C to the FFASC].
26. We attach the trade catalogues in the public domain in respect of each of the products/systems listed in Attachment G (Attachment H). We do not have the technical documents in respect of these products/systems which are not in the public domain. Assume that the descriptions of the Attachment H products in the trade catalogues are accurate.
27. We attach a scheduled (Attachment I) which divides the Attachment G products/systems into the following limbs:
a.        Limb 1:
i.A product for building control and automation with some or all of the following functionalities:
1.        controlling devices in a building to perform functions:
a.        on a schedule; and/or
b.on the occurrence of multiple events, variable and/or parameters;
2.causing devices on different bus networks to interact directly;
3.controlling and/or scheduling building control and automation functions by an end-user via a keypad;
4.communicating simultaneously on multiple bus networks using multiple protocols;
5.accommodating additional interfaces without requiring a redesign of the system.
b. Limb 2:
i.A product for building control and automation that when (and only when) combined with other products has (together with the products with which it is combined) the functionalities described in paragraphs 27(a)(i)(1)-(5) above.
c. Limb 3:
i.        A product which:
1.was capable of being incorporated into a combination of products for building control and automation;
2.when so combined, had some or all of the functionalities described in paragraph 27(a)(i)(1)-(5) above; and
3.        was sold in such a combination.
28.Do not assume the accuracy of the identification process performed by us in Attachment I. We ask you to perform the same sorting process yourself in respect of the Attachment G products/systems set out below.
The opinions sought were set out in the same brief. They were as follows:
1.What are the typical features and components of a system which performs building control and automation?
2.What were the features and functional capabilities of the May 1995 Smart Products, both on an item by item basis, and as part of a system?
3. What were the features and functional capabilities of the May 1995 C-Bus Products, both on an item by item basis, and as part of a system?
4. Compare and contrast the May 1995 Smart Products with the May 1995 C-Bus Products, including identifying the extent to which they were compatible with each other.
5. Compare and contrast the May 1995 Smart Products with the Attachment G products, identifying where possible the extend to which you consider the Attachment G products were an improvement or modification of the May 1995 Smart Products.
6. In respect of each of the Attachment G products/systems, do you consider that it is a product for building control and automation with some or all of the following functionalities:
a. controlling devices in a building to perform functions:
i. on a schedule; and/or
ii.on the occurrence of multiple events, variables and/or parameters;
b.causing different devices on different bus networks to interact directly:
i. controlling and/or scheduling building control and automation functions by an end-user via a keypad;
ii.communicating simultaneously on multiple bus networks using multiple protocols;
iii.accommodating additional interfaces without requiring a redesign of the system?
7.In respect of each of the Attachment G products/systems in respect of which you answer no to question 6, do you consider that it is a product for building control and automation that when (and only when) combined with other products has (together with the products with which it is combined) the functionalities described in question 6 above?
8.In respect of each of the Attachment G products/systems in respect of which you answer no to questions 6 and 7, do you consider that it is a product which:
a.was capable of being incorporated into a combination of products for building control and automation;
b.when so combined, had some or all of the functionalities described in question 6 above; and
c.was sold in such a combination?
On 23 June 2009 the respondents’ application of 26 March 2009 for further security for costs was heard. At that time the parties were told that they should proceed on the basis that the trial would commence in May 2010.
On that occasion Mr Solomon appeared for the applicant. During that hearing Mr Solomon was told that the applicant was attempting to run a “Rolls Royce case at its own speed” which the applicant had to recognise was no longer appropriate. The applicant had to move swiftly.
During the hearing Mr Solomon said that the applicant had provided the assumptions which were to be the basis of the expert’s opinion to the respondent, but had not received any comment from the respondents on the proposed assumptions. Mr Ben Doyle, who appeared for the respondents, replied:
MR DOYLE: Your Honour, the position as we had understood it was that the assumptions were to be prepared with a view to the applicant’s expert then indicating which, if any, documents it would require by way of discovery in the first tranche. As my friend indicated, we have been provided with assumptions. We haven’t been provided with the identity of the expert, and I don’t know whether the expert has been briefed. But we don’t see that there is really any role for us to provide comments. It is the applicant’s case.
HIS HONOUR: Yes.
MR DOYLE: And we would expect – and I think my friend agrees – that they shouldnow go ahead and brief the expert, if the expert isn’t already briefed, and an application for discovery can be brought in due course, and no doubt that will be explored in correspondence before we trouble your Honour about it.
HIS HONOUR: I think then, Mr Solomon, your client ought to proceed with that ---
MR SOLOMON: Yes.
On that day the following orders were made:
1.The part of exhibit DT3 to the affidavit of Dorothea Tomazos sworn on 8 June 2009 which identifies a customer of the applicant and its addresses be forbidden from publication.
2. Paragraphs 10 and 15 of exhibit DT1 to the affidavit of Dorothea Tomazos sworn on 18 June 2009 be forbidden from publication.
3. The reference made in Dorothea Tomazos’ oral evidence to the customer in Greece be forbidden from publication.
4.The contents of exhibit B, the Sale and Purchase Agreement, be forbidden from publication.
5. Judgment be reserved.
On 7 July 2009 the parties were advised in writing that the trial would commence in May 2010, the intention being to give the parties a year to get their cases ready for trial. The applicant commenced these proceedings on 18 June 2004. Five years had passed when the parties were advised that the trial would commence in 12 months’ time. The applicant had had sufficient time in which to get its case ready.
On 20 July 2009 the respondents’ solicitors wrote to the applicant’s solicitors:
As we understand it, you are in the process of briefing an expert to provide his or her opinion on the matters laid out in the brief provided to us on 4 June 2009. If that expert requires recourse to further documents which may be in the respondents’ power, possession or custody in order to provide that opinion, it is anticipated that those documents will form the first “tranche” of discovery (absent any dispute as to relevance etc).
Although there is no formal timetabling in place at present in relation to discovery and experts reports, we are concerned to progress the matter given that it has now been listed for trial. Please let us know when you expect to be in a position to request further material, if any, in order for your expert’s report to be prepared.
On 5 August 2009 the respondents wrote again to the applicant’s solicitors:
We refer to our letter dated 20 July 2009, to which we have received no response. We anticipate that the matter will be listed for further directions in early September after Lander J returns from leave and ask that you consider the matters raised below to ensure that the parties are properly prepared to progress the matter at that hearing.
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Given that your client’s brief was finalised by 4 June 2009, by the time the matter is next heard, your client’s expert will have had some three months to consider what materials they require to complete their report. Any request for technical materials should be made prior to the next directions hearing, and as far as possible in advance to give our client time to review it.
On 3 August 2009 Tindall Gask Bentley ceased to act for the applicant, but were not replaced by any other solicitors and as a consequence the applicant became unrepresented. Because the applicant was a corporation it could not carry on the proceedings without a solicitor unless the Court gave leave: Federal Court Rules O 4 r 14(2). No leave was sought.
On 17 September 2009 the respondents filed the notice of motion, mentioned previously in [4], seeking an order dismissing the proceedings if a solicitor were not appointed within 7 days.
On 7 October 2009 on the return of that notice of motion no legal practitioner appeared for the applicant. A director of the applicant who was in Court informed the Court that DLA Phillips Fox had been retained to act for the applicant. The following orders were made:
1. The respondents file any further evidence upon which they seek to rely in support of the notice of motion of 17 September 2009 within 7 days.
2.The applicant file any evidence it may be advised in opposition to the notice of motion within 14 days.
3.The notice of motion be heard on Tuesday 27 October 2009 at 10.15am.
On 27 October 2009 Mr McNamara of Commercial & General Law appeared for the applicant and said that DLA Phillips Fox had advised that it could not appear because of a conflict of interest and that he was considering whether to act for the applicant. He sought an adjournment of 14 days in order to allow the applicant and him to consider their positions. The respondents advised that they intended to amend their application in the notice of motion to seek further relief. The application was adjourned and the following orders were made:
1.If the respondents seek to amend their notice of motion, they provide the amended notice of motion to the applicant:
(a)by providing a copy to Mr McNamara of Commercial & General Law;
(b)by serving Ms Tomazos at her email address; and
(c)by serving the applicant at the applicant’s registered office.
2. The applicant pay the respondents’ costs of today’s attendance.
3. The proceeding be adjourned to Monday, 9 November 2009 at 1.45pm (Adelaide time).
On 4 November 2009 the respondents filed an amended notice of motion in which they sought orders dismissing the proceedings, or in the alternative staying the proceedings unless the applicant filed a notice of appointment of solicitor and the applicant provide evidence of its capacity and desire to progress the matter to trial.

After Mr McNamara commenced acting for the applicant the applicant has pursued a claim to be entitled to damages based upon the sale of Clipsal’s EWDIS business to Schneider together with some consequential damages in relation to further transactions entered into by Schneider after that time. There is no evidence before the Court that those transactions which the applicant relies upon for proof of its damages have any relevance whatsoever to the causes of action pleaded in the FFASOC.
There is evidence to the contrary, albeit hearsay evidence contained in the affidavit of Ms Thanissorn of 20 May 2010. In that affidavit Ms Thanissorn referred to the information which she had received from the Commercial Financial Controller at Clipsal (Mr Freeman) that the products the subject of the applicant’s claim comprised less than 5% of the business referred to as EWDIS.
The respondents have consistently maintained that the transactions upon which the applicant would wish to rest its claim for damages have no relevance to these proceedings. The applicant has never attempted to identify the relevance but only to assert it.
More particularly however, the claim for damages bears no relationship to the claims for damages in the FFASOC. The claims for damages are identified earlier in these reasons and it can be seen that none of them rest upon the sale of the EWDIS business and the further Schneider transactions.
The applicant continues to maintain that it is entitled to prove its damages by reference to facts and circumstances not pleaded. After six years the applicant’s statement of claim is still so deficient, both in respect to its causes of action and in that respect by identification of the particular products, and in relation to damages, that any trial would be likely to be unmanageable.
The respondents are not to be criticised for failing to seek further and better particulars of the applicant’s claims. The respondents made a calculated decision to defend the proceedings on the contents of the FFASOC. That decision was in my opinion not unreasonable having regard to the number of versions and the time it had taken the applicant to gel the FFASOC in order. The respondents have consistently tried to get these proceedings to trial. They have cooperated fully in meeting all timetables. They could well have thought further and better particulars would only come at too high a price.
The applicant refused to co-operate in relation to a regime whereby the respondents would not be put to inordinate expense.
On 8 April 2009 the applicant was ordered to provide the assumptions which it would want its expert on liability to make within 28 days. The purpose of that order was to identify more precisely the products which were the subject of the applicant’s claim and thereby provide a structure for discovery which the pleadings were unable to do.
The applicant did not comply with that order but sought an extension, which was granted but not complied with until shortly after the date for compliance had passed.
Shortly after the order was made the parties were advised that the trial would commence on 31 May 2010, a year away. If the applicant had proceeded diligently and in conformity with the Court’s orders that date would have allowed the parties to be ready for trial in good time.
Instead, the applicant made one of its frequent changes of solicitors on 3 August 2009 with the result that the proceedings did not progress at all between 3 August and 9 November 2009. Three months of the period allowed for the parties to be ready for trial were lost because of the applicant’s inaction. The applicant was only provoked into action by the respondents’ application to dismiss the proceedings.
On 9 November 2009 I made a suite of orders for all relevant interlocutory processes to take the proceedings to trial. Because the applicant had been unrepresented during the preceding three months that was the first available opportunity to make those orders.
Paragraph 2 of those orders required the applicant to present its expert reports on liability by 4 December 2009. The expert then retained was Mr Seeger-Snowden who had been retained in July and who, on the applicant’s evidence, had been working on the report since he was first retained. The date for compliance was more than two months after the applicant had been required to provide their assumptions to the expert.
Mr McNamara who was then acting for the applicant contacted Mr Seeger-Snowden on 12 November 2009 and advised him that his report had to be filed by 4 December 2009. On that day Mr McNamara was told that Mr Seeger-Snowden could not comply with the order but might be able to provide the report by the end of December 2009.
It is clear from both Mr McNamara’s affidavit of 8 December 2009 and Ms Tomazos’ affidavit of 18 December 2009 that they both knew as early as 12 November 2009 that Mr Seeger-Snowden’s report could not be provided within the time required in paragraph 2 of the 9 November orders. Moreover it is clear from Mr McNamara’s affidavit that on 14 November 2009 he knew that Mr Seeger-Snowden could not provide the report by the end of December and not before 12 February 2010. On 23 November 2009 Mr Seeger-Snowden signed a document which was in affidavit form in which he said that the report could not be available until the end of February 2010.
Notwithstanding the applicant was aware that the order could not be complied with no notification was given to the respondents before 2 December 2010 and no application was made before the time for provision of the report expired for an extension of time in which to provide the report. No satisfactory explanation has ever been given for the applicant and its lawyers’ failure to advise the respondents and the Court on 12 or 14 November 2009 or shortly thereafter that Mr Seeger-Snowden could not deliver his report until mid February 2010.
The information which the applicant had on 14 November 2009 meant that the applicant must have known that the trial could not commence on 31 May 2010. The Court and the respondents should have been advised immediately.
In the end result because the Court had no alternative, except than to dismiss the proceedings, the time within which the applicant had to comply with the provision of the expert report on liability was extended until 1 March 2010.
Because of the time which had been lost between August and November 2009 and by reason of the failure to provide Mr Seeger-Snowden’s report on 4 December 2009 the applicant was also ordered on 23 December 2009 to provide all of its expert reports by 1 March 2010.
In the orders of 9 November 2009 the applicant had been required to provide the expert report which contained the assumptions by 4 December 2009 and any other expert evidence by 12 February 2010: paragraphs 2 and 8 of the orders of 9 November 2009.
The effect of the orders made on 23 December 2010 was to give the applicant an extension of time not only in respect of the report which was to contain the assumptions on liability but also the other expert reports including any expert report on damages.
Contrary to the submissions made by Mrs Shaw the applicant was thereby granted two indulgences. The expert evidence apart from evidence on liability was not in any way dependant upon the expert report based upon the assumptions and so effectively the applicant was granted an indulgence in respect of the expert report on damages.
Contrary to Mr McNamara’s assertions, the applicant could not reasonably have believed that the applicant had any entitlement to present by way of its case-in-chief any expert reports which were not delivered by 1 March 2010. The orders of 9 November 2009 and 23 December 2009 are unambiguous and required in the end result all of the applicant’s expert reports to be filed and served by 1 March 2010.
The suggestion in the minutes of order in the email sent by Mr McNamara on 3 March 2010 that the applicant could provide an expert report from Mr David Richards nearly four weeks after 3 March 2010 is an unreasonable understanding of the orders made and can not be accepted. The application to provide such a report was never pursued.
The applicant complied with the orders of 23 December 2009 in relation to expert reports, and served their experts reports by 1 March 2010, though the expert report of Mr Reid was not filed until 11 March 2010.
However, its failure to comply with paragraph 2 of the 9 November 2009 orders meant that the trial had to be adjourned and on 29 January 2010 the commencement of the trial was adjourned until 19 July 2010 to allow for the extended timetable. That adjournment was solely as a result of the applicant’s failure to comply with the Court’s orders.
On receipt of the applicant’s expert reports the respondents made it clear that they believed the reports were inadmissible in that they did not comply with s 79 of the Evidence Act. Nor did they comply with the Federal Court Practice Note in that they did not indicate the assumptions on which the opinions were based or the reasons for the opinions.
The respondents had either the choice of obtaining admissible expert reports or seeking a ruling as to the admissibility of the applicant’s expert reports. They chose the latter procedure no doubt for the reasons they expressed that the costs of expert reports would be very great and the respondents should not be put to those costs if the applicant’s reports were not admissible.
The ruling on admissibility could not be given in a vacuum because to do so might disadvantage the applicant. A ruling on admissibility is not in my opinion an order from which leave to appeal might be sought but simply part of a trial process.
If the Court were to make the ruling without the trial commencing the applicant would be left with no redress either at that time or later. It would not be an order from which leave to appeal could be sought and it would not be a ruling in the trial which could be complained of after the trial had completed.
For that reason the trial was called on but only as a formality for the purpose of making a ruling within the trial to protect both parties in the conduct of the trial and to protect the unsuccessful party who would wish to complain about the ruling after the trial. The hearing was a voir dire hearing to determine the admissibility of critical evidence in the trial.
Contrary to the submissions made by Mr McNamara and Mrs Shaw, the procedure did not disadvantage the applicant in any way. What it told the applicant was that it could not reply on the existing expert evidence in the trial so in that regard it had advance notice of the ruling when the trial proper commenced on 19 July 2010.
If the proceedings had simply been allowed to go to trial on 19 July 2010 with all the attendant costs upon the applicant and the respondents the applicant would have been told in the first few days of the trial that the tender of the reports was rejected. The applicant’s case would have immediately collapsed. The procedure which was adopted gave the applicant the chance to obtain admissible expert evidence in advance of the commencement of the trial proper. It also saved the respondents from retaining experts to address reports which were not admissible.
At the conclusion of the hearing on 26 March 2010 the applicant was told that the Court would consider any application for the filing of alternative expert reports if such reports were first provided to the respondents and the Court. The applicant has been aware since the ruling that Court would not make an order for the filing and serving of any alternative expert reports which might have required the respondents to respond, without first seeing the reports and being satisfied that they were admissible. As it happens the applicant has not been able to obtain any further expert reports notwithstanding that from time to time the respondents and the Court have been told that experts are available to write reports. The failure to obtain those reports lies at the feet of the applicant. There has been nothing to prevent the applicant obtaining those reports except the applicant’s own inaction.
Because the applicant has no experts reports it cannot successfully prosecute these proceedings. There is no argument but that it needs experts to give opinions on liability and damages.
Paragraph 7 of the orders of 9 November 2009 required the applicant to file and serve a list of witnesses to be called at trial and an outline of the evidence of each witness upon which the applicant proposed to rely at trial by 12 February 2010.
The applicant did not comply with that order and on 15 February 2010 the respondents wrote complaining. Mr McNamara’s response that he thought that the orders made on 23 December 2009 extended the time in which the applicant had to comply with paragraph 7 of the 9 November 2009 to 1 March 2010 orders is unreasonable. The 23 December 2009 orders did not address paragraph 7 and so he could not reasonably have been of that opinion. It is quite unreasonable having regard to Mr McNamara’s statement on 21 December 2009 to the Court that the applicant was in a position to provide the witness statements by 12 February 2010.
But in any event his suggestion in his letter of 16 February 2010 that “we are aiming to deliver it to you sometime toward the end of next week” is inconsistent with such an understanding.
The applicant failed to comply with paragraph 7 of the 9 November 2009 orders and remained non-compliant at the time the applicant was wound up and has remained non-compliant ever since.
On 22 February 2010 the applicant purportedly served a list of witness which the applicant said contained an outline of their evidence. That list and outline of their evidence is at [231] above. On no understanding of the Court’s orders did that list contain an outline of the evidence which paragraph 7 of the orders of 9 November 2009 required. To merely indicate the paragraphs of the FFASOC the lay witnesses’ evidence would address is not an outline of the witnesses’ evidence. But “the outline” did not even do that. It said “the witnesses may give evidence … but not limited to the paragraphs”. The document provided the respondents with no information except the names and occupations of the witnesses. The “outline” did not amount to an attempt to comply with the Court’s orders.
Mr McNamara was advised as much by the Court on 4 March 2010 when Mr McNamara said that the applicant would be able to provide witness statements within 21 days.
An order was made that day that the applicant provide the witness statements which would form the evidence-in-chief of the witnesses at trial within the 21 days which Mr McNamara sought. That order was another instance of the order being forced upon the Court. As on that date the respondents had no idea what evidence the witnesses would give. The respondents could not complete their witness statements in advance of the applicant’s witness statements. The trial was due to commence on 19 July 2010.
The applicant did not comply with that order.
On Friday 26 March 2010 the applicant sought an extension until 31 March 2010 because as Mr McNamara said “they were going to be ready today but I have been in Court all day and all of pretty much yesterday, I would ask for an extension until Wednesday to get the witness statements in because I do need to read them.” No order was made but contrary to Mr McNamara’s later evidence, he could not reasonably have understood that he was entitled to deliver the statements when it suited him or the applicant. Mrs Shaw rather suggested in her submissions on 29 April 2010 that Mr McNamara thought he was entitled to deliver the statements when I returned from leave six weeks later. That is not a reasonable understanding of what Mr Doyle said on 26 March 2010 or my statement to Mr McNamara.
No order was made extending time but the exchange to which reference is made at [285] and [286] above could have left no misunderstanding in the applicant’s or Mr McNamara’s mind that if the applicant complied with Mr McNamara’s statement an order would be made nunc pro tunc. It would appear from Mr McNamara’s later affidavit of 27 April 2010 that to this point in time he had not read the witness statements critically, although he had said that he had been informed at the time of his appointment as the applicant’s solicitor that counsel had settled the major witness statements. The witness statements had not been filed or served when the respondents made this application. In those circumstances when this application was made the applicant had no evidence at all to present at trial.
The respondents’ application was heard urgently even though I was on leave at the time because it appeared that there was little prospect of the matter going to trial on 19 July 2010 in view of the state of preparedness of the applicant’s case. The respondents were entitled to know three months before the trial whether a trial which would take three months would start. The respondents also had an obligation to provide their witness statements and they were entitled to know whether they had to meet their own timetable. Moreover the Court was entitled to know whether the three months it had set aside to hear these proceedings would be used for that purpose or whether the Court might be left in circumstances that due to the shortness of time no other proceedings could be listed.
Notwithstanding that Mrs Shaw had been briefed a week before the proposed hearing on 29 April 2010 and had worked on her brief for that week, she said she was not able to argue the matter even with the assistance of Mr McNamara who was in Court. Mrs Shaw requested that the application be adjourned to 12 May 2010 so that Mr Blue could argue the matter. Due to other commitments the Court and the respondents were not available until 27 May 2010. That meant another month was lost.
When the matter came on on 27 May 2010 although Mr Blue was present he did not argue the matter and Mrs Shaw advanced the applicant’s arguments.
It is clear from what Mrs Shaw said at the hearing that no counsel had then been retained for a trial which was then due to commence on 19 July 2011. Mr Blue had indicated many months before that he was available. The failure to have retained counsel at that time was consistent with the applicant having no intention of going to trial at that time.
On 29 April 2010 the applicant attempted to lodge five witness statements with the Court but they were refused. They were not served on the respondents’ solicitors.
Mrs Shaw said that when Mr McNamara said on 26 March that the witness statements could be filed within five days he did not appreciate the enormity of the task of cross-referencing them to discovery or issues of admissibility. Whilst that might be so the fact is that the applicant did not seek an extension of time in which to comply with the orders of 4 March 2010 and the applicant remained in default.
At the hearing on 27 May 2010 the applicant said that the witness statements were ready for filing and service.
The question of discovery has never been properly addressed by the applicant and discovery on the applicant’s contentions remains unresolved.
In Mr McNamara’s affidavit of 8 December 2009 he identified in paragraph 18 the documents the applicant required. The applicant had been on notice since 4 December 2008 that the respondents objected to making discovery of many of those documents mainly on the ground of relevance.
Notwithstanding that the applicant says that the documents are necessary for the purpose of the applicant’s case the applicant has done little or nothing to obtain any orders for the discovery of the documents.
At the hearing of 14 December 2009 Mr McNamara was asked directly what orders he wanted in addition to the extension of time for the provision of the expert report, and he said none. Later at the same hearing he said that the expert could provide the report without the documents. He was directly asked whether he wanted any orders for discovery and he said no.

At the hearing of 21 December 2009 he said that the applicant did not require any further documents from the respondents apart from those contained in paragraph 18…and he again referred to the reports relating to the EWDIS sale which the respondents had said more than 12 months before were not relevant. Later he said, referring again to paragraph 18 “we think we’re on the sort of periphery of what’s required so we’re happy to proceed and give discovery pursuant to the agreed categories”: see [212] and [213].
The orders that were made on 23 December 2009 were that the applicant make discovery in accordance with the agreed categories by Friday 22 January 2010 and that the respondents make their discovery in accordance with the agreed categories except for the document identified in paragraph 6 of those orders.
There was no suggestion by Mr McNamara that those orders would not provide appropriate discovery to his client or that the orders would in any way impede upon the provision of the expert reports which by virtue of the same orders were due on 1 March 2010.
Both parties complied with their discovery obligations. Later Mr McNamara in his affidavit of 13 May 2010 said that his reference to periphery could not reasonably be interpreted as meaning that the documents were peripheral to the exercise of discovery or preparation of the experts’ evidence, rather that we “were only at the edge of what would ultimately be required.”
I reject Mr McNamara’s ex post facto rationalisation of what passed at the hearings on 14 and 21 December 2009 because it is inconsistent with what he said at those two hearings; inconsistent with his acquiescence in the orders of 23 December 2009; inconsistent with the provision of the expert reports on 1 March 2010; and inconsistent with the applicant’s failure to press any claim for discovery. It is also inconsistent with the orders sought by the applicant in its notice of motion of 28 April 2010 for an extension of time to file its witness statements until after discovery was made, and the subsequent statement by Mrs Shaw on 29 April 2010 and 27 May 2010 that the witness statements were ready for filing.
The applicant would have the Court believe now that it has been seriously disadvantaged in not obtaining the appropriate orders for discovery. That contention must be rejected having regard to the history mentioned above.
The end result of the matters to which I have referred means that after six years the pleadings are not settled, the applicant requires further discovery, the applicant cannot file any expert reports until such time as further discovery is made and the applicant had not filed its witness statements. Moreover the applicant has not complied with paragraph 11 of the orders of 9 November 2009.
In those circumstances it would appear on the applicant’s contentions that these proceedings are no further advanced than they were perhaps four years before this application was made.
The respondents’ application has to be considered in view of the further following circumstances.
The conduct of Ms Tomazos since 6 April 2010 has been extraordinary. As a Director of the company she executed a deed whereby the company purportedly transferred to her its most significant asset at a time when she said in her affidavits filed in this Court and shortly after filing an affidavit in the Supreme Court on 26 March 2010 that the company was solvent. There is also Mr McNamara’s evidence in his affidavit of 24 May 2010 that he was told by Ms Tomazos that the applicant was solvent. It was wound up in insolvency in the same week as that assertion.
Ms Tomazos has not been heard in relation to these matters and so caution should be exercised in relation to any findings. But it is difficult to understand how the assignment of the chose-in-action of 6 April 2010 could have been in the best interests of the applicant.
The two further deeds which she executed appear to be as a result of the conflict in which she was placed by reason of the execution of the first deed.
Again a judgement should not be made in the absence of Ms Tomazos being heard but it’s not unreasonable to infer that the transactions were designed to avoid these proceedings becoming subject to the winding up order of the Supreme Court.
Mrs Shaw has claimed that she still had further submissions to make when the Court adjourned on 27 May 2010. She has not been able to identify those submissions and after a number of months of waiting for her to do so, the submissions were never put.
The applicant is insolvent and hopelessly so. Its liabilities exceed its assets by about $10,500,000. It is under the administration of liquidators who are receiving no cooperation from the applicant’s former directors or indeed the applicant’s former solicitors or former counsel. The liquidators have substantial difficulty in obtaining access to the company’s books and records and have needed to call upon ASIC to assist in that regard. In the end they have obtained a Court order which has allowed them access to archived books and records.
The order for costs which was made on 4 June 2010 to compensate the respondents for the costs thrown away by reason of the adjournment of the trial. The trial was adjourned twice because of the applicant’s failure to comply with the Court’s orders. There is no prospect of the applicant meeting these costs. Nor is there any prospect of the applicant meeting the numerous orders for costs made prior to that order and identified at [514].
It is reasonable to infer that because the liquidators have not said otherwise since filing the affidavits of 2 August 2010 and making their submissions that day that they do not have litigation funding. That inference arises because the liquidators have advised of other relevant circumstances since that time. Having regard to the history of this matter, the conduct of at least one of the applicant’s directors, the previous history of litigation funding which terminated and the applicant’s existing exposure to costs, it would be most unlikely that the applicant could obtain such funding.
If the applicant were allowed to prosecute the proceedings by the liquidators, the respondents would inevitably seek a further order for security for costs which could not be met and would probably lead to a stay.
If the proceedings were not to be dismissed or stayed, then it is likely that a new regime would have to be put in place in relation to pleadings, discovery and expert evidence before any trial could be resumed. It is likely that that would take many months and perhaps years and mean that the trial could not occur until possibly some time in 2013.
The respondents have not been guilty of any delay whatsoever in the proceedings. Whatever delay occurred prior to the submissions being made was the fault of the applicant. The applicant has consistently failed to comply with directions and orders of the Court.
A number of the excuses and explanations have been put forward especially after Mr McNamara became the applicant’s solicitor. He has claimed on oath that he has misunderstood a number of the orders that were made by the Court, especially in relation to the provision of witness statements.
For the reasons already given, I do not accept that a solicitor could reasonably misunderstand the orders which were made and the effect of those orders in relation to the provisions of witness statements. I reject his excuses and explanations especially in circumstances where, when the orders were made, he said that the witness statements could be available by 12 February 2010.
The applicant claimed that Mrs Shaw had further submissions she wished to make after she apparently concluded her submissions in relation to the application to dismiss the proceedings on 27 May 2010.
Since that time considerable effort has been made by the liquidators and the liquidators’ solicitors to identify those issues and to have Mrs Shaw argue them. They have not been successful in that regard and the result is most unsatisfactory.
The respondents have as Ms Thanissorn’s affidavit of 20 May 2010 shows expended more than $3 million on the defence to this claim by 20 May 2010. Clearly they would have expended a significant sum of money after that time. She also said that she estimated the costs of trial at $900,000.
Of course, as Ms Thanissorn herself admits, not all of those costs would be recoverable on a party and party basis, but that is not so much to the point in my opinion. The fact is that the respondents have been put to very great expense and would, if these proceedings were allowed to continue, to be put to very great future expense in defending these proceedings. A good deal of the expense to which they have been put has been the fault of the applicant.
The trial has had to be adjourned on two occasions because of the applicant’s default. On the second occasion on 4 June 2010 I ordered the applicant to pay the respondents’ costs thrown away fixed at $200,000 and made the order that the costs be payable forthwith. Those costs have not been met.
When the applicant got itself in a position where it could not comply with directions which had been made to which no objection was taken, the applicant complained about the regime which was put in place in relation to the provision by the applicant of its expert report on liability and generally the management of the proceedings.
If the applicant objected to any of the directions which had been given at any time the applicant could have sought leave to appeal. If the regime caused the injustice which the applicant now claims, it is surprising that the applicant did not seek leave.
Therefore the respondents’ application has to be considered in circumstances where the applicant is in liquidation, hopelessly insolvent, unfunded and under-resourced and unable to comply with the Court’s directions.
In my opinion, the respondents have made out a case under both paragraphs (a) and (f) of Order 35A r 2(1) and they are entitled to an order under Order 35A r 3. In respect of Order 35A r 2(1)(a) the respondents have established that the applicant has failed to comply with orders made on 9 November 2009, 23 December 2009 and 4 March 2010. In respect of Order 35A r 2(1)(f) the respondents have established that the applicant has failed to prosecute the proceedings with due diligence.
The respondents have established that the probabilities are that if allowed the applicant could not prosecute the proceedings to conclusion. The respondents have satisfied the Court that they have suffered prejudice which cannot be compensated for in costs.
The liquidators argue that the proceedings should be stayed rather than dismissed, until further order so that the liquidators might consider whether they should adopt the proceedings. They need however to make further enquiries before they make that decision and need to secure funding. The applicant’s defaults to which I have referred are now so egregious that a stay would not be an appropriate remedy especially in circumstances when there is no evidence as to when the liquidators might be in a position to consider adopting the proceedings. The liquidators have not proffered any regime whereby the respondents might be paid the $200,000 costs order thrown away by reason of the adjournment of the trial on 19 July 2010 or the other costs orders or how the liquidator might address any application for security for costs. The order sought by the liquidators is for a stay until further order. The respondents would be left in a position that they would not know whether the liquidators intended to adopt and prosecute the proceedings.
The applicant has had its chance to invoke the Court’s jurisdiction and has squandered that chance. The respondents should not be put to the continuing expense which would be occasioned by a stay. Nor should the respondents have to remain under the commercial uncertainty which would be associated with a stay. The liquidator’s submission that the Court order a stay and not dismiss the proceedings is rejected. In doing so I have received the affidavits of 2 August 2010 relied upon by the liquidators and given consideration to the submissions proffered.
There is no need to make any orders on that notice of motion because it only sought leave to reopen to put the submission which has been allowed.
In view of my conclusion that the respondents are entitled to relief under O 35A r 3 it is unnecessary to decide whether the respondents would for the same reasons be entitled to an order under s 31A of the Federal Court Act.
In all those circumstances it would be appropriate to dismiss the proceedings and there will be an order accordingly. The applicant must pay the respondents costs of the proceedings.
An order dismissing the applicant’s proceedings does not impact upon the respondents’ cross claim which subject to leave being granted the respondents would be entitled to pursue: s 471B of the Corporations Act. However, I offer no opinion in advance of any application being made whether this would be an appropriate case for leave.
After the time for appeal has expired or if an appeal has been brought and dismissed, I will order the respondents in their capacity as cross-claimants to either bring an application pursuant to s 471B of the Corporations Act or seek leave to discontinue.
I will also hear the respondents on any application for the payment out of the moneys paid into Court as security for costs.

I certify that the preceding six hundred and seventy-eight (678) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Associate:
Dated: 29 April 2011

Citation:		Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419
Parties:		THE SMART COMPANY PTY LTD ACN 061 975 344 (IN LIQUIDATION) v CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529, CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 and CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 007 824 231
File number:		WAD 132 of 2004
Judge:		LANDER J
Date of judgment:		29 April 2011
Catchwords:		PRACTICE AND PROCEDURE – application under O 31A of the Federal Court Act 1979 (Cth) for summary judgment or alternatively under O 35A of the Federal Court Rules to dismiss or stay the proceedings in whole or in part – whether the applicant failed to prosecute the proceedings with due diligence – whether the applicant failed to comply with an order or orders of the Court – whether the applicant’s behaviour in the proceedings means the proceedings ought to be dismissed or stayed
Legislation:		Federal Court of Australia Act 1979 (Cth) s 31A, s 56, s 37N, s 37M, s 37P Corporations Act 2001 (Cth) s 1335 Evidence Act 1995 (Cth) Federal Court Rules O 35A r 2(1)(a), (f), O 35A r 3
Cases cited:		Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2011] FCA 35 cited Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4 discussed Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388 cited Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253 cited Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2006] FCA 428 cited Dey v Victorian Railways Commissioners (1949) 78 CLR 62 not followed General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 not followed Deckers Outdoor Corporation Inc v Farley (No 2) (2009) 176 FCR 33 approved Dandaven v Hanbeth Holdings Pty Ltd [2008] FCA 955 approved
Date of last submissions:	2 August 2010
Place:	Adelaide
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	678
Counsel for the Applicant:	Mrs M Shaw QC, Mr M Blue QC, Mr A Dal Cin and Mr J Neate
Solicitor for the Applicant:	Lynch Meyer Solicitors Commercial & General Law
Counsel for the Respondents:	Mr S Doyle, Mr B Doyle
Solicitor for the Respondents:	Kelly & Co Solicitors

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION	WAD 132 of 2004

JUDGE:	LANDER J
DATE OF ORDER:	29 APRIL 2011
WHERE MADE:	ADELAIDE

JUDGE:	LANDER J
DATE:	29 APRIL 2011
PLACE:	ADELAIDE