The Federated States of Micronesia v Tuna Development Company P/L
[1994] FCA 408
•24 May 1994
JUDGMENT No. ........ ......., J ,.,?-. 408 9
C A T C H W O R D S
PRACTICE AND PROCEDURE - default judgment - failure to comply wth orders of court - case management system - procedural injustice - non-comphance to be viewed in context of previous breaches - cumulative prejudice to respondents -
applicat~on dismissed.
Trade Practices Act 1974
Bomanite Ptv Ltd v. Slatex Corporation Australia (1991) 32 FCR 379
Leniiamar Ptv Ltd v. AGC (Advances) Ltd (1990) 27 FCR 388
No. WAG 70 of 1993
PRlWClPH
French J
Perth
24 May 1994
28 JUN 1994
AUSTRAW
IN THE FEDERAL COURT )
OF AUSTRALIA
WESTERN AUSTRALIA ) DISTRICT REGISTRY GENERAL DIVISION
1 No. WAG 70 of 1993 B E T W E E N : THE FEDERATED STATES OF
MICRONESIA
First Applicant
and
THE STATE OF POHNPEI
Second Applicant
POHNPEI STATE ECONOMIC
DEVELOPMENT AUTHORITY
Th~rd Applicant
N A T I O N A L F I S H E R I E S CORPORATION Fourth Applicant
and
T U N A D E V E L O P M E N T COMPANY PTY LTD
(ACN 009 419 381)
First Respondent
THEODOSIOS GEORGE KAILIS Second Respondent
MURRAY RICHE FRANCE
Third Respondent
GEORGE THE0 KAILIS
Fourth Respondent
OF ORDER
JUDGE MAKING ORDER: French J
DATE OF ORDER: 24 May 1994 WHERE MADE: Perth
THE COURT ORDERS THAT:
The application is dismissed.
The applicants are to pay the respondents' costs of the application.
NOTE: Settlement and entry of Orders is dealt with in Order 36 of the
Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA 1 WESTERN AUSTRALIA ) DISTRICT REGISTRY 1 GENERAL DIVISION
1 No. WAG 70 of 1993 B E T W E E N : THE FEDERATED STATES OF MICRONESIA
Flrst Applicant
and
THE STATE OF POHNPEI
Second Applicant
POHNPEI STATE ECONOMIC
DEVELOPMENT AUTHORITY
Third Applicant
N A T I O N A L F I S H E R I E S CORPORATION Fourth Applicant
and
T U N A D E V E L O P M E N T COMPANY PTY LTD
(ACN 009 419 381)
First Respondent
THEODOSIOS GEORGE -IS Second Respondent
MURRAY RICHE FRANCE
Th~rd Respondent
GEORGE THE0 KAILIS
Fourth Respondent
CORAM: FRENCH J.
24 May 1994
REASONS FOR JUDGMENT ON MOTION TO STRME OUT ACllON
AND ON MOTION TO AMEND STATEMENT O F CLAIM
The Nature of the Case
These proceedings were instituted on 21 May 1993 by the Federated
States of Micronesia, the State of Pohnpei, the Pohnpei State Economic Development
Authority, the National Fisheries Corporation of the Federated States of Micronesia
and Caroline Fisheries Corporation h c ("Caroline Fisheries"). The respondents to the action are Tuna Development Company Pty Ltd ("Tuna Development Company") and three of its directors and shareholders. It is alleged m the statement of claim filed wth the application that in or about May 1990, the first four apphcants began
negotiations with Tuna Development Company through its directors with a view to establishmg, through a joint venture structure, a tuna fishing industry in the Federated States of Micronesia. Representations were said to have been made by Tuna
Development Company in the course of these negotiations to the effect that the
proposed joint venture was endorsed and approved by the Australian Government,
were suitable for fishing in the western Pacific Ocean, that the vessels would perform that three specified fishing vessels were actively engaged in commercial fishing and well financially fishing tuna in the waters of the western Paclfic Ocean and that Tuna Development Company had the abllity and expertise to manage a tuna fishing
operation in that area.
It is alleged that the applicants entered into agreements w t h the
respondents on the strength of those representations. The agreements were said to provide, among other things, for the incorporation of a joint venture company which became Caroline F~sher~es and for the purchase of the three specified fishing vessels
by that company. The three vessels are the Eastern Pacific, the Queen Mary and the Trinidad. The agreements provided for the financing of the purchase and for the
establishment and management of a tuna fishing business. The applicants allege that Tuna Development Company's representations were false or misleading or deceptive.
They say the joint venture was not endorsed or approved by the Australian Government, the fishing vessels had been idle for about two years at the time of the
representations, they were not su~table for tuna fishing in the western Pacific Ocean, that the company had no knowledge of how they would perform financially and did not have the ability or expertise to manage a tuna fishing operation in the western Pacific Ocean. It is said that, in reliance upon the representatlons and pursuant to
one of the pleaded agreements, Caroline Fisheries paid Tuna Development Company $13,250,000 for the three vessels. The claim against the company is that it
contravened s.52 of the Trade Practices Act 1974 (Cth) by engaging in misleading or deceptive conduct. Alternatively, it is said to have engaged in conduct that was
unconscionable contrary to s.51A of the Act. That claim depends upon the
contention that Tuna Development Company ent~ced the applicants to finance and
take part in a tuna fishing operation which was, at all times, unllkely to be financially viable. The three directors and shareholders named as respondents in the proceedings are sald to have been, at all material tlmes, involved in the company's
contravention pursuant to s.75B of the Trade Practices Act 1974 (Cth). In addition, it 1s said that m accordance with the marketing and management agreement, Carollne
Fisheries p a ~ d Tuna Development Company vanous moneys from time to tlme but that desplte repeated demands from Caroline Flshenes, Tuna Development Company has neglected or refused to render any proper account of such payments. The forms
of rehef claimed in the application lnclude declarations, damages, an account and an
order under s.87 of the Act declaring the sale agreement void.
History of the Proceedings
The history of these proceedings up to 1 March 1994 was set out in the
judgment delivered on that date in relation to a motion to extend time for compliance
with a springing order for lodgment by the applicants of security for the costs of the action. As indicated m that judgment, there were repeated failures, some four in all, to comply w t h tlme limits set by orders of the Court for the lodgment of security for costs. On a fifth occasion there was substantial compliance, save for a sum of $8,300 whlch was eventually paid in on 9 March 1994. In reasons for judgment gwen on 1 March 1994 extending the time for compliance wth the order, I said:
"At present the actlon stands d~smissed However the order for secunty for costs has been substant~ally though not completely complied wth.
The d~lficultles that the applicants have expenenced have not been ent~rely of their own malung and there has been a bona fide attempt to comply wth the order. If the dlsmlssal of the action stands, then it seems likely that there wll be prejud~ce suffered by the applicants because the actlon would be time barred to the extent that it rellcs upon the Trade Pract~ccs Act 1974, assumlng that the cause of actlon was complete at the tlme of the execution of the relevant agreements. Whde there is the reasonable posslb~lity of some prejudice to the respondents from the delay that has occurred In the progress of these proceedings there 1s no concrete endence to support that contention. They have been compensated to a degree by orders for costs in respect of the vanous extensions. Whlle the poss~blllty of procedural mn]ustlce of che land discussed m Bomanlte Pcv Ltd v. Slatex Comorat~on Australca (1991) 32 FCR 379 at 392 cannot be
d~sregarded, I do not feel that thls 1s a case m whlch such lnjust~ce would be lnfllcted by a further extension " (at pp.9-10)
On 14 March 1994, the respondents' solicitors wrote to the solicitors for
the apphcants setting out objections to particular elements of the statement of clalm as it then stood. They pointed, inter alia, to a pleading of fraud, Introduced by amendment to the statement of claim and lacking particulars. They complained also of a failure to plead facts causally connecting loss and damage said to have been suffered by the conduct of the respondents. The respondents' solicitors suggested that the applicants amend the statement and include in it full particulars of the alleged representations and the facts relied upon to falsify them. The respondents' solicitors swore an affidavit on 15 March 1994 which said, inter alia, that the applicants had not replied to their facsimile letter of the previous day. They also complained that the vagueness of the allegations against their clients meant that they were unable to take more than brief and incomplete proofs. The respondents' documents comprised two boxes of manilla files whlch had been supplled to then solicitors who required at least
28 days to plead to any reamended statement of claim. The af£idavit sworn by the
respondents' solicltors was in support of a direction that the applicants file an
amended statement of claim.
Also on 15 March, the solicitor for the applicants swore an affidavit and
filed subm~ssions in support of an order for discovery before partlculars. In that
affidavit the applicants' solicitor said:
"Furthcr, the Applicants, being legal entlt~es and not persons, must obv~ously at all tlmes have acted through ~ndiwduals. In some Instances, those lnd~wduals who acted on behalf of the varlous Applicants have not yet been identified, or cannot be ident~fied and
accordingly partlculars requ~red cannot be eliclted from them ..."
It was then sald that documentation in the hands of the respondents would asslst in
identifying such people. The Attorney-General of the Federated States of Micronesia,
Andrea Hillyer, had instructed the applicants' solicitor that the applicants had a bona
fide claim against the respondents whch they were unable adequately to particularise.
There was material exhlblted to the affidavit supportive of the applicants' case so far
as it related to the seaworthiness of the Eastern Pacific, whlch is one of the tuna
boats the subject of the claim.
On 16 March, I directed the applicants to file and serve any motion to
further amend the statement of claim and for discovery before particulars on or
before 6 April 1994. The motion and next directions heanng were to be listed for 27
April. In the event, no motion for leave to reamend the statement of claim was filed
untll 26 April, three weeks after the time h i t directed by the order of 16 March. In the meantime, on 20 April, the respondents filed a motion to dismiss the action for fallure to comply with the order of 16 March 1994 and for abuse of the court's
process. The second respondent, Mr Theo Ka~lis, swore an affidavit in support of the
motlon. It exhibited material broadly supportive of the respondents' case. This was
the Carollne Fisheries. As to that evidence, I took the vlew that material going to the in the form of memoranda from the second respondent to James Movick on behalf of merits of the case on either side of the argument was evidence golng only to the
question whether there was an arguable case on each side.An earlier affidavlt sworn by Kallls on 13 April, outlined the history of negotiations leading up to the contract. The representations alleged in the statement of claim were denied. The polnt was made that Gordon O'Neill, the accountant for Carollne Fisheries, had all that company's records with him on Pohnpei. O'Nelll, it
was sald, had ceased his association wth Caroline Fisheries from March 1992. This was confirmed in an affidavit sworn by O'Neill. The respondents, according to Kailis,
had no input into Caroline Fisheries dec~sion-making processes after that time. Major
decision-malung in the company had come to a stand still thereafter. Kailis took issue with the contention raised in the affidavlt sworn by the applicants' sohcitor that the vessel, Eastern Pacific, was unseaworthy and worth only its scrap value. Kailis went on to say that whlle the present action continues it has the ability to cause serious prejudice to the respondents by impeding their ablllty to raise further finance for expansion of their operations. The second to fourth respondents have been advlsed by their accountants that their statements of assets and liabilities have now to take
into account a contingent liability of $18 million in respect of this actlon having regard to the quantum of the applicants' claim. Kailis & France Holdings Pty Ltd, which is the parent company of Tuna Development Company, has had to put on hold its expansion program under whlch 20 to 25 people were to be employed in relation to pasta malung operations. The personal and business reputations of the respondents
are also sald to be belng seriously damaged by the continuance of the action. In the industry in which Kailis & France Holdings Pty Ltd operates reputations are important because the transactions normally undertaken are of a kind that involve large amounts of money and are concluded orally. At times payment for goods is made long after delivery so that trust is important. Following publication of a newspaper artlcle of these proceedings, Kailis & France Holdings Pty Ltd experienced problems with the operations of its lobster diwsion which has a turnover of about $15 million per year. The operation relies on 53 independent boat owners to supply their catches. It 1s done on trust and has taken 40 years for Kailis & France Holdlngs Pty Ltd to develop relationships wth boat owners who supply them with their catch
usually on a "pool" payment arrangement. Under that arrangement the fishermen initially draws a percentage of purchase value wth the remainder being paid up to SIX
months later after all product is sold. Individual boat owners have up to $200,000 invested in the system, relying upon the integrity and performance of Kailis & France Holdings Pty Ltd. Shortly after publication of the newspaper article, one family whlch operates nine vessels and another which operates three, called Kallis personally to discuss the ramifications of the newspaper article. He said he had to allay their fears
and assure them they would be paid. Another fam~ly operating some four vessels, did not raise the issue expressly but withdrew one of theu vessels from the Kailis & France Holdings Pty Ltd support fleet. There is concern that the continuation of the
action will also affect the import operations of Kailis & France Holdings Pty Ltd which rely on extended payment terms negotiated over many years. The impact of the action on staff morale was also adverted to. Kailis said that the continuance of the action has affected existing members of staff, most of whom are long term
associated companies. Serlous questions have been asked about the legal action employees who have taken career decisions to work with Kailis & France Foods and which he believes has had an effect on staff morale. I accept that generally s p e a h g the existence of the litigation has a continuing adverse effect upon the business of the first respondent and companies associated with it.
An affidavit in opposition to the stnke out motion was sworn by Noel
Slapp. His evidence related to the condition of the three vessels, Eastern Pacific,
Queen Mary and Trinidad, which are the subject of these proceedings. All were said
to require extensive repalrs. There were op~nions expressed about their fish carrying capacities. Generally this evidence tended to support the applicants' case. I make no finding of fact, however, beyond the fact that the evidence exlsts. A further affidavit
by Fredenck Ramp, an Attorney at Law in the Federated States of Micronesia,
referred to Slapp's evidence andl that of the fleet manager for Caroline Fisheries, one Captain Karnber. That ewdence was also received solely as evidence of the fact that
it exists and is broadly supportive of the applicants' case.
A further affidawt sworn on 27 Apnl by the solicltor for the applicants
contained the following statements:
"3. On the 16th March 1994, HIS Honour Mr Justice French granted leave to the Appl~cants to file and serve any Motion to further amend the Statement of Cla~m and for Discovery before Particulars on or before the 6th Apnl 1994 together wth any
supporting Affidawt.
4. After recons~derat~on of the proposed Applicat~on for Part~culars before Discovery after that date and after discussion w t h the Acting Attornq General for the Second Appl~cant from whom I receive lnstmctions in this matter it was determined that an attempt would be made to particularise as much as possible the allegations contained in the Amended Statement of Claim thereby obwat~ng the need for the unusual
step of Discovery before Part~culars "
Substantial efforts were thereafter made by the Acting Attorney-General to locate and
peruse relevant docurnentat~on for the purpose of preparing the particulars. The
solicitor for the applicants hlmself perused hmlted documentation with which he had to that time been supplied for the same purpose. He was subsequently able to prepare a Mlnute of Proposed Reamended Statement of Clalm which contalns
substantial particulars. That document, however, was not able to be completed an fded in the Registry untll late on 26 April 1994. And because of his pre-occupation
with the task of drawng the statement of claim and the limited resources available to the Acting Attorney-General, no response was prepared to the affidavit of Theo Kailis sworn 14 Apnl 1994. As appears from the affidavit, the applicants decided m
substance to disregard the orders previously made and not to seek any variation of them. The motion to amend the statement of claim whlch should have been filed on 6 April was not filed untll 26 April.
The Strike Out Motion
The respondents contended fust that the application should be
dismssed upon the ground that the applicants had falled to comply w t h an order of
the Court. Secondly, it was said, that the action was commenced at a tlme when the applicants were not in a positlon to formulate a statement of clalm and that this
constituted an abuse of process. The polnt was made that the application was filed
only a few days before the explry of the limitation period in relation to the trade
practices element of the clam.
There was undoubtedly a breach of the order of this Court made on 16
March whlch requlred a motlon for an amended statement of claim to be filed by 6
Apnl. That motlon was not filed unt~l 26 April as a result of a consc~ous decislon of the applicants to produce a fully particularised pleading at that time. It is, however, apparent that the documents and other information necessary for that purpose had been available to them all along. No extension of time was sought. Taken by itself,
their non-compliance might have merited little more than an order for costs against them on the stnke out motion. But having regard to the history of this matter and the repeated failure of the applicants to comply wth time limits to which they themselves had consented in relation to the provision of security for costs, the position is more serious. This is a case in which there is now evidence before the Court of
significant and continuing detriment to the respondents during the pendency of the action. The application was commenced late in the day having regard to the time l~mit applicable to the claim made under the Trade Practices Act 1974 (Cth). The
particulansation of the alleged representations was madequate. The pleading as it
presently stands contalns unparticulansed allegations of fraud.
In the cucumstances, I am unable to avo~d the conclusion that the
application was made at a time when the applicants' case was not assembled It was commenced to protect the application's position with respect to time under the Trade
Practices Act 1974 (Cth). The history of the proceedings since they were commenced has been one of disorganisation and lack of adequate communication from the applicants to their solicltors and the provision of apparently inadequate resources for the proper prosecution of t h ~ s large and complex cla~m. This has resulted m a cumulative procedural injustice to the respondents which cannot be redressed by mere costs orders. In Bomanlte Ptv Ltd v. Slatex Cor~oration Australia (1991) 32 FCR
379, I referred, at 392, to the non-compens~ble inconvenience and stress which are significant elements of modem litigation. In this case a company engaged in a major commercial fishing operation and its directors have been sued by a sovereign state for misleading or deceptive conduct and unparticularlsed fraud. The nature of the allegations and the magnitude of the claim have, as the evidence discloses, a continuing lmpact upon the commercial actlvitles and reputation of the respondents and their assoc~ated companies. The applicants have been p e n more than adequate indulgence in this case, particularly in relation to the provision of security for costs.
The non-comphance with the order of 16 March was calculated and conscious. While it may have been mot~vated by a desire to file a fully particularised statement of claim, it is slgnlficant that the motion to amend was not filed until after a strike out motion had been lodged. In my opinion, the non-compliance with the order of 16
March has further delayed these proceedings. It was a conscious decision on the part of the applicants that led to that delay. The case management system of this Court requires adherence to its dlrectlons. If they cannot be met in a particular case a variation or extension can be sought prlor to the expiry of the relevant time limit. This was not done. In my oplnion, the applicants' conduct has inflicted prejudice on
the respondents and challenged the authority of the Court. Further, it appears that the action was commenced without proper consideration of the basis for the claim. I have regard to the observations of Wilcox and Gummow JJ in Leniiamar Ptv Ltd v. AGC (Advances) Ltd (1990) 27 FCR 388 at 396. Their Honours there pointed out that the power given by 0.10 r.7 to dismlss an action for fallure to comply with an order of the Court is conditioned on one circumstance only, the failure of the party to comply wth the order. There 1s no requirement of intentional default or contumelious conduct, although the attitude of the applicant to the default and the court's judgment as to whether or not the applicant genuinely wshes the matter to go to trial within a reasonable period, will usually be important factors in the exercise of the discretion conferred by the rule. Nor 1s there any requirement to demonstrate "inordinate and inexcusable delay" on the part of the applicant although such delay is hkely to be significant. Nor is there a requirement of prejudlce to the respondent, although the existence of prejudlce is also likely to be significant. Their Honours sa~d:
"The d~scrct~on conferrcd by 0.10 r 7 is unconfined, except for the
cond~t~on or non-comphance w t h a direct~on. As ~t 1s ~mposs~ble to foresee all of the circumstances under whlch the rule m~ght be sought to be used, it 1s undeslrablc to make any exhaustlvc statement of the circumstances under whlch the power grantcd by the rule wll appropnately be exercised. We w11 not attempt to do so. But two sltuatlons arc obwous cand~dates for the excrnse of the power: cases In which thc hlstory of non-compl~ance by an appllcant is such as to ~nd~cate an lnab~llty or unwllingncss to co-operate wth the Court and the other party or partles m having the matter ready for trlal w t h ~ n
an acceptable penod and cases - whatcver the appl~cant's state of mlnd or resources - m wh~ch the non-comphance IS contlnulng and occaslonlng unnecessary delay, expense or other prejudice to the respondent. Although the hlstory of the matter wll always be
relevant, it 1s more l~kely to be dec~sive in the first of these two sltuatlons Even though the most recent non-compl~ance may be
mmor, the cumuldtlve effect of an applicant's defaulu may be such as
to sat~sfy the judge that the appllcant 1s either subject~vely unwlling
to Co-operate or, for some reason, 1s unable to do so. Such a
conclus~on would not readtly bc reached; but, where it was, fairness to
the respondent would normally require thc summary diim~ssal of the proceed~ng "
In this case the resources wh~ch the applicants are able or willing to devote to this
case do not appear to be sufficient to enable them to co-operate adequately with the court's case management process. The inadequacy of their commitment to the l~tigation is to be cons~dered alongs~de the fact that it was commenced at a tlme close
to the expiry of the tlme 11m1t for bring~ng a cla~m under the Trade Practices Act 1974
(Cth). The obligation on the applicant in those circumstances was to proceed with
expedition. This it has not done. I have no reason to believe that the position is going to improve in the future. I propose therefore to order, pursuant to 0.10 r.7,
that the application be dismissed w~th costs.
I certify that this and the preceding
thirteen (13) pages are a true copy of the Reasons for
Judgment of his Honour Justice French.
Counsel for the Applicants: Mr G. Lawton
Solicitors for the Appl~cants: Lawton Glllon
Counsel for the Respondents: Mr A. Siopis
Sohators for the Respondents: Parker & Parker
Date of Hearing: 27 Apnl 1994
Date of Judgment: 34 May 1994
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