The Federated States of Micronesia v Tuna Development Company P/L

[1994] FCA 263

JUDGMENT No. 263 ....... l ..,).H.nl. 9 4

C A T C H W O R D S

PRACTICE AND PROCEDURE - security for costs - time lim~t for provis~on of

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securlty - four extensions of tlme - springing order - portion of security provlded -

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order not compl~ed with - whether spring~ng order should be vacated.

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THE FEDERATED STATES OF MICRONESIA. THE STATE OF POHNPEI. POHNPEI STATE ECONOMIC DEVELOPMENT AUTHORITY. NATIONAL FISHERIES CORPORATION and CAROLINE FISHERLES CORPORATION INC v. TUNA DEVELOPMENT COMPANY PTY LTD (ACN 009 419 3812 THEODOSIOS GEORGE KAILIS. MURRAY RICHE FRANCE and GEORGE THE0 KAILIS

NO. WAG 70 OF 1993

I	PERTH
I
1 MARCH 1994

FRENCH J.

IN THE FEDERAL COURT )

OF AUSTRALIA	1
WESTERN AUSTRALIA	)
DISTRICT REGISTRY
GENERAL DIVISION	No. WAG 70 of 1993
B E T W E E N :	THE FEDERATED STATES OF

C MICRONESLA

First Appllcant

THE STATE OF POHNPEI

Second Appllcant

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

C A R O L I N E F I S H E R I E S

CORPORATION INC.

Fifth Appl~cant

and

T U N A D E V E L O P M E N T

COMPANY PTY LTD

(ACN 009 419 381)

F~rst Respondent

THEODOSIOS GEORGE KAXLIS

Second Respondent

MURRAY RICHE FRANCE

Third Respondent

GEORGE THE0 KAILIS

Fourth Respondent

MINUTE OF ORDER

JUDGE MAKING ORDER:	FRENCH J.
DATE OF ORDER:	1 MARCH 1994
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

On the Applicants' motlon filed 17 February 1994:

1. The tlme limited for compliance w~th the order of the Court made on 11

February be extended to enable the applicants to pay in the balance of the sum of $75,000 pursuant to the terms of that order.

2.                  The applicants are to pay the respondents' costs of the motion in any event.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the
Federal Court Rules.

IN THE FEDERAL COURT )
OF AUSTRALIA

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 Apphcant

THE STATE OF POHNPEI

Second Applicant

POI-INPEI STATE ECONOMIC

DEVELOPMENT AUTHORITY

Thlrd Applicant

N A T I O N A L	F I S H E R I E S
CORPORATION

Fourth Appl~cant

C A R O L I N E F I S H E R I E S

CORPORATION INC.

and

T U N A D E V E L O P M E N T

COMPANY PTY LTD

(ACN 009 419 381)

Flrst Respondent

THEODOSIOS GEORGE KAILIS

Second Respondent

IMURRAY RICHE FRANCE

Th~rd Respondent

GEORGE THE0 KAILIS

Fourth Respondent

CORAM:	EKkNCH J.
1 March 1994

REASONS FOR JUDGMENT

On Motion for Extension of Time for Compliance with S ~ r i n e i n ~ Order

On 21 May 1993, the Federated States of Micronesia, the State of

Pohnpel, the Pohnpel State Economic Development Authority, the National Fisheries

Corporation of the Federated States of hticronesia and Carollne Fisheries

Corporation Inc. Instituted proceedings against the Tuna Development Company Pty

Ltd (the Company) and three of its d~rectors and shareholders. By their statement of clalm, filed w t h the application, the applicants alleged that in or about May 1990 the first four applicants entered into negotlat~ons wlth the Company through its directors

in order to establ~sh by way of joint venture a tuna fishing industry in the Federated

States of Micronesia. In the course of those negotiat~ons it was s a ~ d that the

Company represented that the proposed jolnt venture had the endorsement and approval of the Australian Government, that three specified fishing vessels were actively engaged in commerc~al fish~ng and were sultable for fishing in the western Paclfic Ocean, that the vessels would fare well financially fishlng tuna in the waters of

manage a tuna fishing operation in the western Pacific Ocean. the western Paclfic Ocean and that the Company had the ability and expertise to As a result of those representations it 1s said that the applicants entered

Into agreements w ~ t h the respondents providing, among other things, for the

incorporation of a joint venture company, whlch was the fifth applicant, and for the purchase by that company of the three fishing vessels which were the subject of the representations. The agreements also provided for the finanang of the purchase and

for the establishment and management of a tuna fishing business. Particulars of the

agreements are set out in thc statement of claim. The applicants allege that the Company's representations were false or m~sleading and deceptive m that 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 suitable for tuna fishing in the western Pacific Ocean, that the Company had no knowledge of how the vessels would fare financially and did not have the ability or

expertise to manage a tuna fishing operation in the western Pacific Ocean.

In reliance upon the representat~ons and under one of the agreements

particularised in the statement of claim it is said that the fifth applicant paid the

Company the sum of SUS13,250,000 for the vessels. The Company is said, by its

allegedly misleading or deceptive conduct, to have contravened s.52 of the
Practices Act 1974 and, further and in the alternative, to have engaged in conduct that

was unconscionable contrary to s.51A of the Act. The latter claim is based on the allegation that the Company enticed the applicants to finance and take part in a tuna fishing operation which was at all times unlikely to be financially vlable. The three

directors and shareholders named as respondents in the proceedings are said to have

been at all material times involved in the Company's contravention pursuant to s.75B

of the Trade Practices Act 1974. Further, it is said that m accordance with a Marketing and Management Agreement the fifth applicant paid the Company various

moneys from time to tlme but that despite repeated demands from th fifth applicant the Company has neglected or refused to render any proper account of such payments. Various forms of relief are claimed including declarations, an order under s.87 oi the Act declaring the sale agreement void, damages and an account.

The respondents filed an appearance on 4 June 1993. A directions

hearing was held on Y June and was adjourned to enable dlscusslon on the provision

of particulars of the statement of claim and secur~ty for costs. On 5 July, orders were made for the filing of defences and any motlon for security for costs which was to be returnable on 12 August 1993. A motion seek~ng security for costs was filed on 2

August. On 12 August an order was made in the followng terms:

"1.	The applicanu do on or before 9 September 1993 provide secunty for the respondents' costs of the action to the point oC entry or lrial in the amount of S75,000 00, such security to be provided by way of a bank guarantee to be lodged with the Registrar in a
ram approved by the Registrar

2             The action be staqed on and from 10 September 1993 In the event security 1s not promded.

3            There be liberty to apply tor additional security to cover thc trial of the actlon and to lary the terms of this order."

On 21 September, leave was granted to the applicants to amend the

statement of claim and the time llmited for the lodgment of the security for costs was extended to 23 November 1993. The application was othenvlse stayed until the securlty was provided. On 30 November, the time limited for the provision of the securlty was further extended to 22 December. On 23 December, the security not having been lodged, the respondents moved to strike out the action for non-

compliance wlth the securlty order.

In opposition to the motlon. the applicants relied upon an affidav~t

sworn by Andrea Smith H~llyer, Actlng Attorney-General for the State of Pohnpel in the Federated States of Mlcronesla. MS Hlllyer 1s an attorney l~censed to practice law

in the State of Florida in the Unlted States of Amer~ca slnce 1983. She is authorised

to represent the applicants in thls action and has retained solicitors in Western Australia for that purpose. In relation to the question of security for costs, she said

that fundlng for the State of Pohnpei's annual budget is dependent upon the United States Government and the Federated States of Micronesia Natlonal Government in

that approximately 80% of the fundlng comes from the United States, pursuant to the Compact of Free Assoc~ation, and from the Federated States. Funding for the

Federated States 1s also dependent upon the United States government. According to

MS Hlllyer, both the government of the State of Pohnpel and the Natlonal

government of the Federated States have stringent laws regarding the use of publlc

funds. Under the Constitution of the Federated States, public money raised or

received by the National government 1s to be deposited in a General Fund or special funds withln the National Treasury. Money may not be withdrawn from the General

Fund or speclal funds except by law. There is a s~mllar provision in the Pohnpei State

Constltutlon. The financial management of public funds in the Federated States is

governed by Chapter 2 of Title 55 of the Federated States of Micronesia Code.

Section 220 provides:

"Unless specifically authorized by law, no officer or employee of the Federated Statcs of Micronesia, or allottcc or funds shall make or authorize an expenditure from, or create or authorize an obl~gat~on

pursuant to any approprtatlon, apportionment, reapportionment, or allotment of funds of the Un~ted States Government or the Federated Statcs of Mlcroncs~a Governrncnt: (1) in excess of the sum made ava~lablc by law; or (2) in advance of the availability of funds; or (3)

lor purpo\es other than lhosc lor whlch an allotment has bccn made."

There 1s also a restr~ctive provlslon in the Financial Management Act of Pohnpel.

MS Hillyer said that at the time of swearing her afidavlt she had

recently been Informed by a Pohnpei State budget official that the Pohnpei State Leglslature and the Federated States of Micronesia Congress had not authorised any

obllgatron nor appropriated any funds which could be utllised to satisfy the security for costs requirement. She indicated then that she was submitting a request to the

Pohnpei State Leglslature prior to their next sesslon scheduled to begin on 10 January

1994 for authorisation and appropriation of funds to establish a litigation fund account

m the Office of the State Attorney General in order to pursue the present litigation

and other litigation. She said that she was requesting sufficient fundlng to satlsfy the Court's order for securlty for costs and expected that the State of Pohnpei would be

able to satisfy the order to produce a bank guarantee from an Australian bank "in the very near future". In the event a springing order was made on 23 December 1993 in the following terms:

"2 The Applicallon stand diim~ssed from midnlght on 11

February 1994 unless prlor 10 that tlme the applicants shall have lodged security for the respondents' cosls in accordance w~th the ordcr made on 12 August 1993."

On 11 February 1994, before the expiry of that order, the time limited for compliance

wlth the order for security was further extended to 15 February so that unless prior to close of buslness on that date security should have been lodged, the action would stand dismissed. Thls extension was based upon the oral assurances of counsel that payment of the amount was imminent, appropriate arrangements hawng been made

with an Australian bank. In the event, the 15th February came and went, and security had not been lodged. The directions hearlng was rehsted for 21 February 1994 at

whlch time the applicants brought a motion to set aslde the dismissal of the proceedings which liad by then taken effect pursuant to the order of 11 February

1994. That motlon was supported by an affidavit worn by Mr Garry Lawton, a

partner in the firm of solicitors act~ng for the applicants. I l e began by pointing out

that because none of the applicants are resldent within Australia and because of various other dlfficultles in relation to the laws of the Federated States of Micronesia, the applicants experienced both procedural and pract~cal difficulties in complying with the order as initially made and as extended from tlme to time. Ultimately, according

to Mr Lawton, it was proposed, on behalf of the appl~cants, that the sum of $75,000

be despatched to Lawton Gillon and that this sum would be used to provide secunty

to an Australian bank to enable it in turn to furnlsh a bank guarantee to meet the

security order. Mr Lawton said he made contact with a branch of the Rural and

Industries Bank of Western Australia and despatched to it a form of guarantee previously approved by the Registrar for approval by the Bank's legal department. On 10 February 1994 he was advised by Desmond Sm~th, the acting manager of the

Morley branch of the Bank, that, subject to a minor amendment, the form of guarantee was acceptable to the Bank. Pursuant to the proposal the sum of

$US48,000 was despatched by telegraphic transfer by the Bank of Guam to the

Natlonal Australia Bank for deposit in the Lawton Gillon trust account. This

occurred on 10 February 1994. The Court was advised of that transfer at the direct~ons hearing on l1 February 1994. At that tlme, however, Mr Lawton was not

able to confirm receipt of the funds by the Natlonal Australia Bank In Perth. Shortly after the directions hearlng, at which the time for compliance with the order was extended to 4pm on 15 February 1994, Mr Lawton was advised that the funds had been recelved but that the actual amount in Australian dollars was approx~mately

$66,720. Early on Monday, 14 February, Mr Lawton contacted the manager of the

Morley branch of the R. & I. Bank to finalise arrangements for the guarantee. The

manager attended at hls office late on Monday, 14 February, with a letter offering the guarantee in the terms previously proposed. Mr Lawton countersigned the offer by

way of acceptance and slgned other bank documents necessary to put the guarantee into effect. H e was advised by the manager that on h ~ s dcposlting the funds by way of

bank cheque the following morning, arrangements would be made to have the

necessary documentation sent by courier so that the guarantee could be mad=

available to h ~ m in Perth before close of business at the Federal Court on 15

February. A copy of the R & I. Bank's letter of offer was exhibited to the affidavit.

iMr Lawton deposed that on 15 February he personally pald Into the R. & I. Bank at

Barrack Street in Perth Into its Morley branch suspense account the sum of $66,700

by way of bank cheque at about loam on 15 February. During the course of the day

he telephoned the manager of the Morley branch, who advised hlm that the

documentation was "with head office" and that he was waitlng to hear. At about

3.15pm he was advised by the manager that the Bank had some difficulties in issuing

the guarantee and that the deadline of 4pm might not be achieved. Evidently realising that he would be unable to stamp the guarantee and lodge it in the Perth Registry of the Court as requlred by 4pm, Mr Lawton requested that the funds be ~rnmediately released by way of bank chcquc for payment Into Court. A bank chcquc was made available at the head office of the R. Br I. Bank which he attended at about 3.45pm and which he ultimately caused to be paid into Court by way of security for

costs that same afternoon. Mr Lawton sald that he had been instructed by MS Hlllyer, the Actlng Attorney General for the State of Pohnpel, that the shortfall in

funds arose because of an error in appl~cation of the appropriate exchange rate. She

was unable to state whether the error was hers or the Bank's. He was instructed by her on 16 February that arrangements were being made for the balance of funds to

be transferred to Perth. He did not then know when they could be available but

expected them to available within a further seven days.

The motlon was strenuously opposed by counsel for the respondents

who polnted to the number of extensions that had been granted in this case and asserted that her clients were prejudiced by the delays because of the impact of the action on their ability to ralse finance for thelr own purposes. There was, however, no affidavit evidence in this regard.

In this case the action was lnstltuted on 21 May 1993. It was ordered

on 12 August 1993 that security for costs be provided by 10 September. That time llrnit was ex-tended by over two months to 23 November, on 21 September 1993. It

was again extended by a month to 22 December, pursuant to an order made on 30

November. It was further extended until 11 Februa~y 1994 subject to a springing

order. AI1 in all, there have been four extensions of time on that 11mit imposed by the orlginal order. That order was made over six months ago. At present the action stands dlsm~ssed. However the order for security for costs has been substantially though not completely complied wlth. The difficulties that the applicants have experienced have not been entirely of their own maklng and there has been a bona fide attempt to comply wlth the order. If the dismissal of the act~on stands, then it

seems llkely that there will be prejudice suffered by the applicants because the actlon would be time barred to the extent that it relies upon the Trade Practices Act 1974, assumlng that the cause of actlon was complete at the time of the execution of the relevant agreements. Wh~le there is the reasonable poss~b~l~ty of some prejudice to the respondents from the delay that has occurred in the progress of these proceedings there is no concrete ev~dence to support that contention. They have been compensated to a degree by orders for costs in respect of the various extensions. While the possibihty of procedural injustice of the kind d~scussed in Bomanlte Ptv Ltd v. Slatex Corporation Austraha (1991) 32 FCR 379 at 392 cannot be disregarded, I do not feel thls 1s a case in which such Injustice would be inflicted by a further extension. In my oplnlon the interests of justlce requlre that the applicants have the opportunity to proceed subject to payment in of the balance of the security ordered previously.

I certlfy that this and the preceding

nine (9) pages are a true copy of the

Reasons for Judgment of his Honour Justlce French.

Associate:

Date:

Counsel for the Appl~cants: Mr G. Lawton

Solicltors for the Applicants: Lawton Glllon

Counsel for the Respondents: MISS	J. Thornton
Sol~citors	for the Respondent: Parker & Parker
Date of Heanng: 21 ~ e b r u a j	1994

Date of Judgment: 1 March 1994