Australian Securities and Investments Commission v. McIntyre & Ors [2007] QSC 139 (23 May 2007)

[1] There are two applications before the court. On 26 February 2007 the applicant filed an application seeking an order that the proceedings against the first and second respondents be referred to mediation on certain terms. Mediation is provided for in Division 3 of Part 4 of Chapter 9 - Ending Proceedings Early of the Uniform Civil Procedure Rules 1999. On 28 February 2007 the second respondent filed an application seeking an order that the proceedings against her be dismissed for want of prosecution, or alternatively that a restraining order made against her on 13 March 2003 be revoked and that directions be made for the future conduct of the principal proceeding.

[2] The applicant began the principal proceeding by an originating application made under the Corporations Act 2001 (Cth) filed on 27 March 2002. The application concerned the affairs of the third, fourth, fifth, sixth, and seventh respondents (the McIntyre group of companies). The first and second respondents are husband and wife. Against the first respondent the applicant sought declarations that he had contravened ss. 180, 181, and 182 of the Corporations Act in relation to the management of the respondent companies, an order that he pay to the Commonwealth a pecuniary penalty in respect of his contraventions of the Act, an order that he pay compensation to the respondent companies for damage sustained by each of them as a result of contraventions of the Act, and an order that he be disqualified from managing a corporation for a period the court considered appropriate. Against the second respondent, orders in the same terms mutatis mutandis were sought. In addition, the applicant sought orders that the respondent companies be wound up. The declarations were sought against the first respondent as the director and officer of the respondent companies and against the second respondent as an employee and/or officer of the respondent companies.

[3] In an amended statement of claim filed on 28 February 2005, the current statement of claim, the relief sought against the second respondent remained as originally formulated except that the declarations sought had been amended to a declaration that she had contravened ss. 181 and 182 of the Corporations Act in relation to the management of the third and seventh respondents only, and the order for payment of compensation had been amended to an order that she pay compensation to the third and seventh respondents only.

[4] By the time the amended statement of claim was filed winding-up orders had been made in respect of the respondent companies - on 29 May 2002 (the seventh respondent) and 7 April 2003 (the remaining corporate respondents). On

22 February 2007 a notice of discontinuance of the proceeding against an eighth respondent, Mr Richard Gagie, was filed. He had been pursued as the controlling trustee of the first respondent appointed on or about 11 March 2002 pursuant to

s. 188 of the Bankruptcy Act 1966 (Cth).

[5] The case against the second respondent turns on allegations of payments to or on behalf of her of sums of $1,031,681 in all by the seventh respondent between in or about July 2000 and in or about July 2001, and sums of $200,465 in all by the third respondent between in or about early July 2001 and in or about March 2002. The applicant alleges that the second respondent was involved in contraventions of

ss. 181 and 182 of the Corporations Act by the first respondent as sole director and secretary of the third and seventh respondents, and improperly used her position as employee of those respondents to gain advantages for herself and to cause detriment to them, thus contravening ss. 181 and 182.

[6] By a series of orders of this court made in this proceeding the second respondent has been subject to severe restrictions on her ability to deal with property. The first restrictions were provided for in an order obtained by the applicant ex parte on

27 March 2002 and the latest were in an order made on 13 March 2003. Between those dates restraining orders were made on 1 May 2002, 16 July 2002, and

20 August 2002. The original order, which was in force until 1 May 2002: prohibited her dealing in any way with certain specified funds and property; restrained her from selling, disposing of, further encumbering, charging, mortgaging, parting with possession of, removing from their then-present location, diminishing or otherwise dealing with all of her assets or money, including assets or money held on trust for any other person or entity, subject to certain, limited, exceptions for living and operating expenses, paying costs reasonably incurred in the proceeding etc.; restrained her from disposing of, further encumbering, charging, mortgaging, parting with possession of, diminishing or otherwise dealing with certain specified property; restrained her from withdrawing, transferring, or otherwise dealing with any funds held in bank accounts operated and controlled by her without the prior written consent of the applicant; required her to provide in an affidavit the details of her assets; appointed a receiver and manager of her property; required her to surrender her passport to the Registrar of the Court; and prohibited her from leaving Australia without the consent of the Court.

[7] Some restrictions (among them those concerning the receiver and her passport) were removed by orders made after 27 March 2002, but the second respondent is still subject to those imposed by the order of 13 March 2003. Pursuant to s. 1323 of the Corporations Act 2001 she is restrained until trial or further order from dealing with any or all of her assets or money (including any and all assets and money held in trust for any other person or entity). Subject to giving the applicant seven days prior written notice identifying specified particulars of any proposed dealing with those assets or money which exceeds $4,000 in relation to any individual transaction, or any proposed payment by her to investors in certain specified schemes, the second respondent is entitled to deal with those assets or money for the purposes of:

(a) Paying her reasonable living expenses;

(b) Paying her reasonable legal costs in connexion with this proceeding;

(c) Paying bona fide debts or liabilities in respect of her assets;

(d) Making payments by her to investors in specified schemes;

(e) Acquiring other assets in a bona fide arms-length transaction; and

(f) Carrying out a transaction agreed to in writing by the applicant.

[8] The steps in the case against the second respondent taken will not take long to recount since there are few. On 1 May 2002 it was ordered that the proceedings continue as if started by claim. On 29 May 2002 an amended originating application was filed. On 25 June 2002 the applicant's statement of claim was filed and delivered, and on 5 September 2002 the second respondent's defence was filed. There has been no reply by the applicant. On 2 February 2004 a direction permitting the second respondent to inspect documents in the possession, power and control of the applicant was made. On 9 December 2004 the applicant gave notice of its intention to take a further step in the proceeding. On 28 February 2005 the amended statement of claim was filed and delivered the following day. On

18 December 2006 the applicant gave another notice of its intention to take a further step in the proceeding. Then on 26 February 2007 the applicant's present application was filed. I should mention also that on 21 March 2003 in the Magistrates Court at Brisbane there was a public examination of the second respondent in relation to the affairs of the third, fourth, and seventh respondents.

[9] Both applicant and second respondent failed to comply with directions given by the court for delivery of their pleadings by delivering them late (over two weeks in the case of the statement of claim, and just over one week in the case of the defence) but those defaults are not relevant to the issues before me. What is relevant - and strikingly so - is the circumstance that the second respondent has been subject to strict restraining orders for five years and yet there seems little prospect of the applicant's seeking to bring the case to trial in the near future. The proposed mediation could not be described as an attempt to end the proceeding early.

[10] In seeking the order dismissing the applicant's proceeding against her, the second respondent relies upon the inherent power of the court to do so for want of prosecution in an appropriate case, and not upon any specific power conferred by statute (see s. 85(2) of the Supreme Court of Queensland Act 1991 which provides that if two years have passed since the last step was taken in a proceeding, the court may dismiss the proceeding) or the rules of court, apart perhaps from the power conferred by rule 5(4) of the Uniform Civil Procedure Rules 1999. That rule provides that the court may impose appropriate sanctions if a party does not comply with the rules, which include rule 5(3). Rule 5(3) provides that, in a proceeding in a court, a party impliedly undertakes to the court and to the other parties to proceed in a expeditious way.

[11] A recent discussion of the inherent power and the specific powers conferred on a court may be found in Quinlan v. Rothwell [2002]

1 Qd. R. 647. The principles are well known, and I do not think that it is necessary for me to rehearse them here, but two relevant comments on the subject of the relationship between the inherent power and the specific powers should be noted. In Quinlan v. Rothwell Thomas J.A. observed:

On my reading, the combination of rr. 5, 280 and 371 of the UCPR re-affirm the Supreme Court's longstanding powers of dismissal. Now the powers expressly mentioned in those rules have also been conferred on the District Court and Magistrates Court. Although this court's inherent power remains, these rules are a sufficient starting point in the determination of such applications. Rule 280 is an express and untrammelled statement of the power of all three courts in Queensland to dismiss a proceeding for want of prosecution. Subject to what is said below, the wide-ranging factors that have been identified as potentially relevant to such applications, such as those mentioned in Cooper v. Hopgood & Ganim, will continue to guide courts in exercising the power. In addition, r. 5 gives express recognition to the importance of expeditious resolution of issues in proceedings. In my view the nature of the power of this court has not been altered, but the rules are a clear indication of the change in attitude that has independently taken place in courts throughout Australia. They suggest that courts will now be less tolerant of delay and that the expedition of proceedings should be encouraged to a greater extent than was formerly the case. (p. 658)

Rule 280 concerns default by plaintiff or applicant, and provides that if a plaintiff or applicant defaults in taking a step required by the rules or in complying with an order of the court, the court may dismiss the proceeding on the application of a defendant or respondent. Rule 371 concerns the effect of failure to comply with rules. In Dover v. Mercantile Mutual Insurance (Aust) Ltd & Ors [2005]

Q.D.C. 160 McGill D.C.J. made this observation concerning Rule 5(4):

Finally, I am concerned that, although there is authority that the court may in an appropriate case dismiss an action under r 5(4), there is no guidance in the cases as to the circumstances under which it would be appropriate to do so. It occurs to me that it would be unlikely that it would be appropriate to do so in circumstances where the court had not previously made any orders or given any directions in relation to the conduct of the matter by the plaintiff, with which the plaintiff had failed to comply, and the two year period specified in s 85 had not yet run. (para. 35)

Those observations should be seen as indicating that caution should be exercised in resorting to the inherent jurisdiction of the court to dismiss a proceeding for want of prosecution, but I do not understand either judge to be suggesting that there can never be an appropriate case for invoking the inherent jurisdiction of the court even in a case in which there has been lengthy delay with only a perfunctory compliance with the rules of court.

[12] Lists of relevant factors to be considered on an application of this kind may be found in the cases. In Cooper v. Hopgood & Ganim [1998] QCA 114; [1999] 2 Qd. R. 113 McPherson J.A. referred to:

... matters such as the duration of the time lapse involved; the cogency of any explanation for delay; the probable impact of procrastination on fading recollection; the death or disappearance of critical witnesses or records; costs already or likely in future to be expended or thrown away; the apparent prospects of success or otherwise at a trial of the action; and the progressively growing problem of effectively hearing and determining questions of fact arising out of events that have taken place many years before. The list is not, and is not intended to be, exhaustive; and it takes no account of another factor that is often likely to be material, which is that ordinary members of the community are entitled to get on with their lives and plan their affairs without having the continuing threat of litigation and its consequences hanging over them. The psychological as well as the commercial effects of such a state of affairs ought not to be underestimated. (p. 124)

The last-mentioned factor is of particular relevance in this case because since the principal proceeding began the second respondent has been subject to strict restraining orders. A more extensive list of factors may be found in Tyler v. Custom Credit Corp Ltd & Ors [2000] QCA 178 at para. 2 in the reasons of Atkinson J., with whom McMurdo P. and McPherson J.A. agreed.

[13] The relevant features of this case are obvious enough. The applicant began its proceeding in March 2002, nearly five years before the applicant's current application was filed. Since then the second respondent has been subject to severe restraints, and the case against her appears to be little closer to trial than it was at the close of pleadings in September 2002. I have referred to the implied undertaking in Rule 5(3). Also extremely relevant is the special obligation resting on those who seek the benefit of restraining orders, of which a Mareva injunction is another example. In Lloyds Bowmaker Ltd v. Brittania Arrow Plc [1988] 1 W.L.R. 1337, Glidewell L.J. observed:

A Mareva injunction, as Donaldson L.J. in Bank Mellat v. Nikpour [1985] F.S.R. 87,92, said, is a draconian remedy. It is intended as an adjunct to the action itself, not as a substitute for relief to be obtained on trial. In other words, a plaintiff who succeeds in obtaining a Mareva injunction is in my view under an obligation to press on with his action as rapidly as he can so that if he should fail to establish liability in the defendant the disadvantage which the injunction imposes upon the defendant will be lessened so far as possible. (p. 1347)

Those considerations are of particular relevance in a case like this where the applicant is a government agency that seeks the imposition of a penalty.

[14] It is said on behalf of the applicant that some of the obvious delay in the proceeding against the second defendant can be accounted for by unsuccessful negotiations from December 2004 to October 2006. Commenting on that suggestion, Mr David Hill of Sykes, Pearson & Miller, solicitors for the second respondent, explained the nature of those negotiations in paragraphs 31 and 32 of his affidavit filed on 6 March 2007:

31. The without prejudice correspondence/dialogue between my firm and the ASIC in the period December 2004 and October 2006 has been limited. It consisted of 5 letters in the period 9 December 2004 to 2 February 2005 primarily directed to whether the parties wished to hold without prejudice discussions (without there being any offers to settle as such); 5 letters in the period 8 February 2006 to 15 May 2006 only one of which contained what could be regarded as an offer to settle, the balance dealing with the manner in which settlement discussions would be held or being follow up letters; a further 2 follow up letters by my firm, the first being dated 9 June 2006 and the second being dated 17 August 2006 to which no response was received from the ASIC.

32. I have held no verbal without prejudice discussions with the ASIC in which settlement offers have been discussed. I have only held two without prejudice telephone conversations with representatives of the ASIC and those related to the mechanisms for holding settlement discussions. Both were prior to June 2006.

It is said on behalf of the applicant that it had received no correspondence from the second respondent's solicitors terminating the 'without prejudice' communications or stating that their client did not wish to pursue any further discussions with a view to resolving the matter. That may be accepted as correct, but there is also no evidence that the second respondent acquiesced in any way to the prolongation of the obviously unsuccessful discussions which, it was conceded on behalf of the applicant at the hearing, were initiated by the applicant. The second respondent's position appears to have been made quite clear as early as June 2002 when she made an application to the court for directions for the further conduct of the proceeding including an order that the applicant immediately file and serve a statement of claim and in default the proceeding be struck out. As alternative relief she sought an order that the proceeding be dismissed then for want of prosecution. That application was filed, on 13 June 2002, because the applicant had failed to comply with a direction that it deliver a statement of claim by 7 June 2002. The application was returnable on 26 June 2002, but did not proceed because the day before the applicant filed and delivered its original statement of claim.

[15] The second respondent, in an affidavit filed on 6 March 2007, has sworn that she will be prejudiced in various ways by the delay in prosecuting the case against her: in particular, loss of documents and loss of contact with potential witnesses. Without going into detail about the alleged prejudice, one may accept that there will be prejudice brought about by the passage of time, and even if witnesses can be found their memories will no doubt have faded.

[16] On behalf of the applicant some reliance was placed upon the steps taken in the proceeding against other respondents. They are of course relevant, but in my view of marginal relevance in respect of the second respondent's application. The focus on that application must be upon the effect of the delay on her. The time has come for the second respondent to be relieved, in McPherson J.A.'s words, of the psychological and commercial effects of her inability to get on with her life and plan her affairs without having the continuing threat of litigation and its consequences hanging over her. I am, of course, mindful of the public interest in the prosecution of proceedings of the kind to which the second respondent has been subject, but one must also remember that court proceedings should not be used as an instrument of the oppression inherent in unreasonable delay, particularly when draconian interlocutory orders have been made.

[17] I can see no basis for concluding that the second respondent is in any way responsible for any delay in bringing the claim against her to a conclusion. In the circumstances - particularly the lengthy delay accompanied by the retention of the strict restraining order - I conclude that the second respondent should have the principal relief she seeks and the proceeding against her brought to an end.

[18] The first respondent did not appear on the hearing of the applications although he had notice of the applicant's, and from evidence put before me I understand he does not resist the order sought for mediation of the claim against him subject to a reservation about venue.

[19] I shall invite further submissions on the costs of the second respondent's application and the order to be made on the application against the first respondent.