v Addease Pty Ltd ACN 007 212 768

[2002] FCA 838

FEDERAL COURT OF AUSTRALIA

Dialog Pty Ltd ACN 010 089 175 v Addease Pty Ltd ACN 007 212 768

[2002] FCA 838

PRACTICE AND PROCEDURE – failure by applicant to comply with interlocutory order – application by second respondent to obtain judgment against the applicant on the cross-claim – no grounds upon which to grant relief sought

Federal Court Rules O 35 r 7(2)(e), O 11 r 23(1)(b), O 10 r 7(1)(b)

Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 referred to
Australian Securities Commission v Macleod (1994) 54 FCR 309 referred to

DIALOG PTY LTD ACN 010 089 175 v ADDEASE PTY LTD ACN 007 212 768 AND GEORGE MICHAEL MIHAILIDES
Q 235 OF 2001

DRUMMOND J
BRISBANE
26 JUNE 2002

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 235 OF 2001

BETWEEN:

DIALOG PTY LTD ACN 010 089 175
APPLICANT

AND:

ADDEASE PTY LTD ACN 007 212 768
FIRST RESPONDENT

GEORGE MICHAEL MIHAILIDES
SECOND RESPONDENT

JUDGE:	DRUMMOND J
DATE OF ORDER:	26 JUNE 2002
WHERE MADE:	BRISBANE

THE COURT ORDERS BY CONSENT THAT:

1.Dialog Pty Ltd be granted an extension of time being seven days from the date of this order within which to file and serve a notice of motion to appeal (including leave to appeal) from the orders of Cooper J made 10 May 2002.

2.Paragraph 1 of  Dialog Pty Ltd’s amended notice of motion filed 26 June 2002 be dismissed.

THE COURT ORDERS THAT:

3.Paragraph 4 of Dialog Pty Ltd’s amended notice of motion filed 26 June 2002 be dismissed.

4.Subject to Mr Key by 4.00 pm on 27 June 2002 and subject to Mr Tisdall by 4.00 pm on 28 June 2002 each delivering to Mr Mihailides a personal guarantee guaranteeing, jointly with the other and severally, the payment to him of $150,000 by Dialog Pty Ltd on 2 December 2002 and payment to him of a further $150,000 by Dialog Pty Ltd on 2 December 2003, unless the Court by its final judgment in this action otherwise orders, Dialog Pty Ltd be granted an extension to 24 September 2002 of the time within which to provide the security of $450,000 required by the orders of Cooper J made 10 May 2002.

5.Upon Dialog Pty Ltd providing to Mr Mihailides by 24 September 2002 a bank guarantee or guarantees securing to him the amount of $450,000 required by the orders of Cooper J made 10 May 2002, Mr Mihailides shall deliver up the personal guarantees of Mr Key and Mr Tisdall for cancellation.

6.Dialog Pty Ltd pay Mr Mihailides’ costs of and incidental to Dialog Pty Ltd’s amended notice of motion filed 26 June 2002.

7.Mr Mihailides’ notice of motion filed 17 June 2002 be dismissed.

8.There be no order as to costs on Mr Mihailides’ notice of motion filed 17 June 2002.

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

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q 235 OF 2001

BETWEEN:

DIALOG PTY LTD ACN 010 089 175
APPLICANT

AND:

ADDEASE PTY LTD ACN 007 212 768
FIRST RESPONDENT

GEORGE MICHAEL MIHAILIDES
SECOND RESPONDENT

JUDGE:	DRUMMOND J
DATE:	26 JUNE 2002
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1. Dialog Pty Ltd is the applicant in these proceedings and the respondent to the first and second respondents’ cross claim.  Both Dialog and Mr Mihailides, the second respondent, brought motions before me on short notice arising out of an order made by Cooper J on 10 May 2002 (“the order of 10 May”).  Dialog, this afternoon, obtained leave without objection by Mr Mihailides’ representative to file an amended notice of motion.  It seeks all the relief sought in its original motion that it brought before me by leave yesterday, save an additional claim for a stay of par 1 of the order of 10 May pending the hearing of Dialog’s foreshadowed notice of motion for leave to appeal that order and the hearing of the appeal, if leave be granted.

2. By par 1 of its notice of motion filed yesterday, Dialog sought an order pursuant to O 35 r 7(2)(e) the Federal Court Rules varying the order of 10 May on the ground that it did not reflect what Cooper J truly intended to make provision for in pronouncing it.  This afternoon, senior counsel for Dialog consented to the dismissal of the amended notice of motion, in so far as par 1 is concerned. 

3. By par 2 of its notice of motion, Dialog seeks an extension of time - sixty days only was sought yesterday, ninety days are now sought - from today within which to provide the $450,000 security required by the order of 10 May.  Senior counsel indicated that he would only pursue that particular paragraph of the notice of motion if the stay application, now raised for the first time by amendment, is rejected. 

4. By par 3 of its notice of motion, Dialog sought an extension of time within which to file and serve a notice of motion to appeal (including leave to appeal) the interlocutory mandatory injunction of 10 May.  The Court’s reluctance to permit appeals in matters of practice and procedure, as is that particular order, is well established:  see Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc (1981) 148 CLR 170 at 177. However, the legal representative for Mr Mihailides was prepared to consent to my making an order in terms of par 3 of Dialog’s notice of motion and in those circumstances an order in those terms will be made.

5. I have set out the terms of the stay sought by Dialog in its amended notice of motion.  Senior counsel for Dialog informed me that that is not really Dialog’s intention.  It has already provided, in purported compliance with the order of 10 May, a bank guarantee limited to the amount of $150,000.  Senior counsel indicated that Dialog does not seek a delivery up and return of that particular bank guarantee; it is content to allow that particular guarantee to remain in Mr Mihailides’ hands.  But it seeks a stay of that order in so far as compliance with it requires Dialog to provide not $150,000, but $450,000.  That order is in these terms:

   “The cross-respondent [ie, Dialog], within fourteen days of the date of this order, provide to the second cross-claimant [ie, Mr Mihailides] a bank guarantee securing payment by the cross-respondent of $150,000 per year until 30 November 2004 in accordance with clause 3(c) of a Contract of Employment between the cross-respondent, as employer, and the second cross-claimant, as employee, dated 1 December 1999.”

6. It is now conceded by Dialog that the order, on its proper construction, required the provision within the fourteen day period of a bank guarantee in a total amount of $450,000 to secure a series of three payments of $150,000, each over a number of years.

7. There are a number of factors telling against the grant of this stay.  Cooper J, in giving the reasons for the order of 10 May, said:  “I have a high degree of assurance that at trial it will appear that any interlocutory mandatory injunction was rightly granted”.  No submissions were made suggesting how his Honour’s view might be said to be wrong.

8. Dialog took, in my opinion, an untenable view of the true effect of the order.

9. Cooper J, in his reasons, said at [10]:

   “In order to obtain interlocutory injunctive relief, Mihailides must make out a serious question to be tried, that he has an entitlement under clause 3(c) to the payment of wages totalling $450,000 under the clause, and an entitlement to the bank guarantee by way of security.”

10. His Honour continued at [11]:

    “Accordingly, [Mr Mihailides] makes out a serious question to be tried that he was entitled to payment under clause 3(c) of $450,000 in total to be paid by three separate payments of $150,000 as provided in the clause, and that he was entitled to a bank guarantee to secure payment by Dialog under the clause.”

11. After discussing issues relevant to the balance of convenience, his Honour said at [22]:

    “I am satisfied that the balance of convenience is in favour of granting the interlocutory relief sought.  As the contractual right was to obtain security for the whole amount owing, I see no basis or reason to reduce the value of the security by ordering provision of a bank guarantee in a lesser amount.”

12. Mr Brown, the solicitor for Dialog, in an affidavit read yesterday says that despite the terms of the order of 10 May and these reasons, he understood, from an exchange that took place between senior counsel for Dialog and Cooper J immediately after his Honour pronounced the order and published his written reasons, that Dialog was required to provide not one, but three guarantees, the first to secure the $150,000 payable on 1 December 2001, and the others on the two subsequent anniversaries of that date, each for a similar amount.  Mr Brown says that senior counsel confirmed to Dialog’s managing director in Mr Brown’s presence immediately at the conclusion of the Court hearing on 10 May that a single guarantee of $450,000 was not required but rather that one of three $150,000 guarantees was required immediately and “if a further sum of $150,000 became due and payable on 1 December 2002 (after trial and before judgment), then that sum would also be secured by a further bank guarantee and likewise for 1 December 2003”.

13. But under clause 3(c) of the employment contract, Mr Mihailides’ claim is that he became entitled on 22 November 2001 to $450,000, not $150,000, and to a bank guarantee securing payment of the $450,000 that then immediately became owing, albeit with payment to be in three instalments.  In the exchange between senior counsel for Dialog and Cooper J, upon which Dialog places so much reliance, his Honour expressly said he intended the order in question would reflect what clause 3(c) of the employment contract says.

14. The statement by senior counsel and Cooper J’s response does not record anything like a clear or unqualified statement by his Honour that he intended that there should be not a single guarantee for $450,000, but instead a series of $150,000 guarantees each to be provided annually and then only if judgment had not been given by an earlier date.  Nothing in this exchange provides, in my view, support for the notion referred to by Mr Brown that security was to be controlled, not by clause 3(c) of the employment contract, but by a combination of clause 3(c) and when final judgment was given in the action.

15. Cooper J’s response to senior counsel’s comment, in my view, puts beyond doubt that his Honour’s intention was to make an order giving effect upon an interlocutory basis to one thing and one thing only, viz, Mr Mihailides’ entitlement to the full security provided for by clause 3(c).  That can only be a guarantee for payment of a total amount of $450,000.  How any mistaken belief about the true intent of the order still said to exist on Dialog’s side of the record could have survived a reading of Cooper J’s reasons, whether before or after Mr Mihailides’ protests in late May/early June of the inadequacy of the $150,000 guarantee, has not been explained.

16. Dialog has long been alert to the assertions by the solicitors for Mr Mihailides, first made on 28 May, that the only bank guarantee so far proffered does not meet the requirements of the order.  It elected not to take any action to seek to appeal the order or to have it varied, but preferred to stand on its mistaken understanding not of the order, but what it thought his Honour intended when he made the order.  It maintained this position, as I have said, even after its legal advisers can be taken to have read Cooper J’s reasons.  It persisted in that stand until it decided to file its cross motion by leave yesterday, ie, until after Mr Mihailides finally sought to bring the inadequacy of the security offered before the Court by filing his motion on 17 June 2002 and serving it on Dialog late last week.  Dialog had from 10 May until yesterday taken no action to challenge the injunctive order of 10 May or to seek to vary that particular order.  The explanation for Dialog’s delay in waiting until now to commence action to seek to appeal the order is not cogent.

17. It is, I think, of significance that as appears from Mr Doessel’s affidavit, filed 7 May 2002 on behalf of Dialog, that that company is a very substantial commercial organisation.  Mr Doessel said it has traded profitably since it commenced business in 1979.  It now operates offices in Brisbane, Canberra, Sydney, Melbourne, Perth and a number of provincial cities.  It employs about 500 employees throughout Australia and the annual payroll including tax and superannuation currently amounts to $26,280,000.  Mr Doessel says in his affidavit: “Dialog’s March 2002 profitability exceeded $200,000 and April 2002 is forecast to be of the same order”.  He went on to estimate Dialog’s profit for May 2002 and June 2002 at $600,000 and $400,000 respectively.  The provision of a bank guarantee for a further $300,000 might not be thought to cause Dialog any significant problem.

18. Despite that, the stay is sought on a number of grounds including a change of financial circumstances.  In particular, it is said that there has been changed circumstances affecting Dialog’s ability to provide a bank guarantee since the review of its facilities by the Bank of New Zealand which was completed earlier this month.

19. The evidence put before me yesterday in relation to the financial impact upon Dialog of being required to furnish an additional $300,000 bank guarantee was, in my view, unpersuasive.  However, Dialog was given leave to file and read an affidavit sworn by its managing director, Mr Key, which goes into more detail than was put before me yesterday on this particular issue.  The only objection taken by the representative of Mr Mihailides to the reading of Mr Key’s affidavit was to pars 3 and 4, which deal with Mr Key’s personal assets, a matter relevant to the worth of a personal guarantee he has offered to which I will return in due course.

20. In the course of the part of the affidavit not objected to, Mr Key says, among other things, that he was informed yesterday by the senior manager business banking of the Bank of New Zealand that the provision of a further $300,000 bank guarantee would be outside the terms of the approved facility and result in the reduction of Dialog’s working capital facilities, with the consequence that it would be likely to severely hamper the ability of Dialog to successfully perform its obligations in future projects (which will enable it to maintain current staff levels).  Dialog will be required to provide bank security for its component parts of those projects.  One such future project is referred to in Mr Key’s affidavit at par 9.1(e) in some detail.

21. Mr Key elaborates on his fears for the company should it be required to put the additional $300,000 bank guarantee which it is now common ground was required by the order of 10 May.  In relation to the particular project referred to in par 9.1(e), he mentions that Dialog has a few weeks ago been privately advised that it has been selected as the preferred vendor for a major project with an unknown Queensland government organisation.  Mr Key explains what is likely to be involved in running that project and the associated costs to Dialog and he says that the provision of any performance guarantee will need to be funded out of Dialog’s bank facility.  In relation to that performance guarantee, he says:

    “I should be in a position to know the value of the performance guarantee required for that project by the end of September 2002.  By that stage I should be in a position to know whether a bank guarantee conforming with the total amount sought of $450,000 could be provided from within the facilities then available to Dialog.”

22. I have listed the various matters which I think are of significance in relation to whether Dialog should be granted the stay sought by the amended notice of motion.  I do not consider the difficulties Mr Key deposes to and, in particular, the major problem he fears with respect to the project described in par 9.1(e) of his affidavit tilt the balance of factors that I have listed, which tell against the grant of the stay, in favour of Dialog’s application.  That is, at least, not for the present time.  Mr Key himself says the position will crystallise and become more certain by September 2002.  The refusal of the stay which I propose is, of course, an interlocutory order and there is nothing to stop Dialog renewing the application, if it is so advised if circumstances have, in fact, changed.

23. It now becomes necessary to return to par 2 of the amended notice of motion which seeks an order that Dialog be granted an extension of ninety days from today within which to provide the security required by the order of 10 May.

24. There is no question that I have power to vary the order of 10 May if circumstances for Dialog have changed in the intervening period.  I see no ground, however, for depriving Mr Mihailides of the benefit of the order he obtained that day, subject to one consideration.

25. Dialog has abandoned the application to vary the order of 10 May.  It has delayed until yesterday in seeking to challenge the order, by way of appellate process.  It has obtained an extension of time to institute an appellate challenge to the order, not by determination, but by consent.  It has, however, put on evidence to show, in more detail than was available yesterday, the financial risk it may face if required to put up the additional security now, even though it is plain that Dialog is a very substantial business operation.

26. At my suggestion yesterday, those advising Dialog have taken instructions from Mr Key and Mr Tisdall, the sole directors and shareholders of Dialog.  They have now jointly and severally offered to personally guarantee the timely payment of the moneys referred to in clause 3(c) of the employment contract and the order of 10 May upon their becoming due on the next business day after each 1 December 2002 and 1 December 2003, ie, they have now offered to secure, by way of their personal guarantees to Mr Mihailides, the $300,000 shortfall between what Cooper J ordered on 10 May and the bank guarantee provided by Dialog on 24 May 2002.  They appear, from the material before me, to have the means at present to meet these obligations.  But for the personal guarantees that have been offered, I would have dismissed par 2 of the notice of motion.  They, however, are a significant consideration which I take into account.

27. I turn now to the question of possible prejudice to Mr Mihailides if the extension of time of ninety days to provide the full amount of the security order of 10 May is granted.  The solicitor for Mr Mihailides procured the urgent hearing of his motion yesterday by asserting this in his letter to the District Registrar of 20 June 2002:

    “It is, with respect, imperative that the Notice of Motion be heard without further delay.  The orders of Justice Cooper amount to a mandatory injunction, and, in our view, the applicant has not complied with that order.  The respondents were entitled to the protection flowing from the security that Justice Cooper ordered be provided.

    They have not received that protection. 

    In the circumstances, they are entitled to approach the court for immediate relief. 

    We understand that Justice Cooper is presently overseas.  The respondents would be seriously prejudiced if their application was delayed until his return.  If it transpired, for instance, that the applicant had used the intervening time to arrange its affairs in a manner prejudicial to the respondents, the respondents might be deprived of a remedy to which they contend they have a present entitlement.”

28. Mr Mihailides, however, has made no attempt to put on any evidence to show that his solicitor’s comments raise anything more than a theoretical possibility.  This failure is understandable given the magnitude of Dialog’s operation.

29. In view of the personal guarantees offered by Mr Key and Mr Tisdall, and the absence of any demonstrated prejudice to Mr Mihailides, I am prepared to make an order in terms of par 2 of Dialog’s amended notice of motion, ie, an order extending the time for compliance with Cooper J’s order from 24 May 2002 to 24 September 2002.

1. It remains to deal with Mr Mihailides’ own notice of motion filed 17 June 2002.  It seeks, among other things, the following relief:

   “1. That the applicant’s [ie, Dialog’s] defence to the second respondent’s [ie, Mr Mihailides’] cross-claim be struck out and there be judgment for the second respondent against the applicant on the cross-claim.”

2. Dialog’s failure to comply with the order of 10 May within the time allowed exposed both it and its directors to proceedings for contempt of court.  Mr Mihailides has not taken such action.  No attempt was made to identify a basis upon which it would be proper for the Court, on the ground of Dialog’s failure to comply with the order of 10 May, to strike out its defence to Mr Mihailides’ cross claim.  It was not submitted on behalf of Mr Mihailides that the duty to comply with the order of 10 May was a duty on Dialog to “take a step in the proceeding” within O 10 r 7 the Federal Court Rules.  That rule could not be relied on, nor was any other basis for striking out Dialog’s defence identified.  It is difficult to see that there is any foundation for this application.

3. Moreover, even if it were proper to strike out Dialog’s defence to Mr Mihailides’ cross claim because of the particular default in question, no attempt was made to lay a basis for the relief sought in the form of judgment on the cross claim.  That would require Mr Mihailides to put on evidence showing that he had an entitlement in fact and law to such judgment.  See O 11 r 23(1)(b) the Federal Court Rules and compare the requirements with which an applicant must comply before being entitled to a default judgment under the cognate rule in O 10 r 7(1)(b), discussed in Australian Securities Commission v Macleod (1994) 54 FCR 309. Mr Mihailides was not prepared to undertake the burden of seeking relief that was appropriate in consequence of Dialog’s non-compliance with the order of 10 May. The motion he chose to file is misconceived because the relief sought could never be obtained. It will be dismissed.

I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Drummond.

Associate:

Dated:             1 July 2002

Counsel for the Applicant:	J Douglas QC and I A Erskine
Solicitor for the Applicant:	Gateway Lawyers
Counsel for the Respondent:	J Dalton
Solicitor for the Respondent:	Corrs Chambers Westgarth
Date of Hearing:	25 and 26 June 2002
Date of Judgment:	26 June 2002