Deangrove Pty Ltd v Commonwealth Bank of Australia

REASONS FOR JUDGMENT 1 The respondent ("the Bank") has moved pursuant to Federal Court Rules ("FCR"), O 10 r 7 that the applicants' amended statement of claim filed in these proceedings be dismissed or alternatively stayed. 2 FCR, O 10 r 7 relevantly provides as follows: "7(1) Where a party fails to comply with an order of the Court directing that party to take a step in the proceedings, any other party may move the Court on notice - (a) if the party in default is an applicant - for an order that the proceeding be stayed or dismissed as to the whole or any part of the relief claimed by him in the proceeding; (b) if the party in default is a respondent - for judgment or an order against him; or (c) for an order that the step in the proceeding be taken within the time limited in that order. (2) The Court may make an order of the kind mentioned in sub-rule (1) or any other order or may give such directions, and specify such consequences for non-compliance with the order, as the Court thinks just." 3 The basis for the respondent's claim is the failure of the second applicant ("Mr Jeans") to comply with an order made on 2 October 2002, as amended on 1 November 2002 ("the Order"). The order made on 2 October 2002 was as follows: "1. An order that the Second Applicant provide to the Respondent by 7 November a further irrevocable Bank Guarantee which is: · issued by an Australian trading bank; · issued in favour of the receivers and managers of the first applicant; · payable upon demand; · for an amount of $87,000." On 1 November 2002, I varied that order by substituting 16 November 2002 for 7 November 2002. 4 These proceedings were commenced on 26 October 2000. The nature of the proceedings and their relationship to earlier proceedings between the same parties is outlined in my judgment in Deangrove Pty Ltd (Receivers and Managers Appointed) v Commonwealth Bank of Australia (2001) 108 FCR 77 ("Deangrove No 1"), which was delivered on 6 March 2001. I do not repeat that history here, but that judgment should be read with this one. 5 In Deangrove No 1, I applied (at 87) the principle that "where a company in receivership has a claim against the debenture holder and the receiver declines to pursue the claim, the directors are entitled to initiate and maintain proceedings in the name of the company, provided the directors offer the company a satisfactory indemnity against costs. The latter requirement is designed to ensure that the interests of the debenture holder, qua debenture holder, are not prejudiced." I ordered that the proceedings be stood over until 29 March 2001 for the purpose of hearing submissions as to appropriate orders. 6 On 29 March 2001, orders were made by consent that Mr Jeans provide to the Bank a written indemnity in relation to costs incurred or payable by the first applicant ("Deangrove") in the proceedings. Mr Jeans was also ordered to secure the indemnity by providing an irrevocable bank guarantee in favour of Deangrove in an amount of $40,000. The orders provided a mechanism for increasing the value of the bank guarantees. The terms of the indemnity and the orders appear in my judgment in Deangrove Pty Ltd (Receivers and Managers Appointed) v Jeans [2001] FCA 1724 ("Deangrove No 2"), at [3], [5]. 7 A dispute arose between the parties as to the construction of the consent orders. That dispute was resolved by the judgment in Deangrove No 2. The effect of the judgment, against which no application for leave to appeal was brought, was that the amount guaranteed was to be increased at intervals by (at [15]) "the equivalent of the difference between the value of any guarantees in existence at the date of the application and the maximum total potential exposure of Deangrove to an order for costs calculated on an indemnity basis". In fact, to date Mr Jeans has provided bank guarantees totalling $158,000. 8 On 28 September 2002, the Bank applied by motion for Mr Jeans to provide a further irrevocable bank guarantee in the sum of $87,000. As already noted, the order extracted above (at [3]) was made on 2 October 2002 and varied on 1 November 2002. It is the non-compliance with the Order as varied that has provoked the present application. 9 Mr Jeans' failure to comply with the Order is a matter of some significance. The rationale underlying the making of the Order is that the interests of the debenture holder must not be prejudiced by the conduct of the litigation. As I said in Deangrove No 1 (at 88): "the governing principle is that those giving instructions on behalf of Deangrove [including Mr Jeans], in order to continue the proceedings, must demonstrate that 'nothing in the course of the proceedings which they institute is going in any way to threaten the interest of the debenture holders'". (Citation omitted.) Plainly, Mr Jeans' failure to provide the required bank guarantee to support Deangrove's indemnity threatens the interests of the Bank as Deangrove's debenture holder. In the absence of that guarantee, the Bank is at risk of Deangrove's assets being reduced by reason of the litigation. 10 This, however, is not the only consideration to take into account. Previous proceedings between the parties in which the applicants sought the same relief were dismissed by reason of the applicants' non-compliance with a self-executing order. The present proceedings have been characterised by repeated non-compliance by the applicants with orders of the Court. 11 The lamentable history of the litigation reached something of a climax on 1 November 2002 when the applicants sought to vacate the nine day hearing that had been set down for 3 December 2002. (The hearing had been set down later than the Bank preferred in order to meet the convenience of the applicants' then counsel.) In essence, the reason given by the applicants' (fresh) counsel was that, despite assurances I had previously been given that the applicants' case was ready for a final hearing, it was in fact seriously deficient and needed substantial work. As I record in the judgment (Deangrove Pty Ltd (Receivers and Managers Appointed) v CBA [2002] FCA 1352 ("Deangrove No 3"), it became clear in the course of the hearing that no substantial work had been done in the previous month to prepare the applicants' case because the applicants' legal advisers had not been put in funds. 12 In the event, I reluctantly acceded to the application to vacate the hearing, but made directions in accordance with a timetable to ensure that the final hearing could take place in March 2003. Despite the explicit warnings given by me and an acknowledgement by their counsel that the applicants could expect no further indulgences, the applicants have again failed to adhere to the directions of the Court. In particular, they were directed to make any application for leave to amend the pleadings by 10 December 2002. The evidence indicates that they still intend to make such an application, but are not yet in a position to do so. On the evidence before me, the only available conclusion is that, to date, Mr Jeans has either been unable or unwilling to devote the resources required for the orderly conduct of this litigation in accordance with the directions of the Court. 13 In Lenijamar Pty Ltd v AGC Ltd (1990) 27 FCR 388, at 395-396, Wilcox and Gummow JJ explained the operation of FCR O 10 r 7: "It is to be noted that the power given by this rule is conditioned on one circumstance only; the failure of a party to comply with an order of the Court directing that party to take a step in the proceeding. There is 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 wishes the matter to go to trial within a reasonable period will usually be important factors in weighing the proper exercise of the discretion conferred by the rule. There is no requirement of 'inordinate and inexcusable delay' on the part of the applicant or the applicant's lawyers, although any such delay is likely to be a significant matter. There is no requirement of prejudice to the respondent, although the existence of prejudice is also likely to be significant. And it must be remembered that in almost every case, delay adversely affects the quality of the trial and is an additional burden upon the parties. … The observations which we have just made about the scope of O 10, r 7 are not intended to convey the impression that any failure to comply with a procedural direction will appropriately result in the dismissal of the proceeding. On the contrary, the rules must be administered sensibly and with an appreciation both of the fact that some delays are unavoidable, and unpredictable, by even the most conscientious parties and their lawyers, and of the likely serious consequences to an applicant of staying or dismissing a claim…. We would not wish our observations to cause respondents to apply for dismissal of proceedings simply because there has been a non-compliance with a direction by the applicant, even though it does not cause or indicate a continuing problem in preparing the matter for an early trial. The discretion conferred by O 10, r 7 is unconfined, except for the condition of non-compliance with a direction. As it is impossible to foresee all of the circumstances under which the rule might be sought to be used, it is undesirable to make any exhaustive statement of the circumstances under which the power granted by the rule will appropriately be exercised. We will not attempt to do so. But two situations are obvious candidates for the exercise of the power: cases in which the history of non-compliance by an applicant is such as to indicate an inability or unwillingness to co-operate with the Court and the other party or parties in having the matter ready for trial within an acceptable period and cases - whatever the applicant's state of mind or resources - in which the non-compliance is continuing and occasioning unnecessary delay, expense or other prejudice to the respondent." 14 In this case, the history of the proceedings demonstrates that the applicants (and Mr Jeans in particular) to date have been unable or unwilling to co-operate with the Court and the Bank to have the matter ready for trial within an acceptable period. Mr Jeans' failure to comply with the Court's order to provide security in support of his indemnity creates prejudice to the Bank, since it will be forced to prepare for the scheduled trial without the full benefit of the secured indemnity in relation to costs to which it is entitled. 15 I do not think it appropriate simply to stay the proceedings pending the provision of further security by Mr Jeans. That is likely to lead to yet another order vacating the rescheduled hearing. It is also likely to reward Mr Jeans for his non-compliance with Court orders by giving him the opportunity, in accordance with his own timetable, to restore the proceedings for hearing. Moreover, it leaves the Bank in indefinite limbo so far as the applicants' claim is concerned, although it presumably could proceed with its own cross-claim. 16 On the other hand, I think it would be too harsh peremptorily to dismiss the proceedings without giving Mr Jeans one further opportunity to provide the bank guarantee. The evidence suggests that a bank is prepared to provide a guarantee if Mr Jeans executes certain documentation, although Mr Jeans has chosen not to offer any explanation as to why the necessary documentation has not already been executed. The applicants' solicitor sought an extension of time until 20 December 2002 to comply with the Order. I propose to give Mr Jeans a period of approximately four weeks to provide the guarantee, that is, until 8 January 2003. 17 If Mr Jeans does not provide the guarantee within this period, it seems to me appropriate that the proceedings be dismissed on terms that the applicants be prevented from bringing further proceedings on the same causes of action for the same relief. The applicants have received repeated indulgences from the Court and have had ample opportunity to prepare their case for trial. If the guarantee is not provided, it would be the clearest possible indication that Mr Jeans is either unwilling or unable to provide the receivers with the security to which they are entitled if the applicants are to proceed with their claim. The failure to provide the guarantee would also expose the Bank to a risk of financial loss in its capacity as debenture holder if it was still required to prepare for a hearing of the applicants' claims. For reasons that are explained in Deangrove No 1, the Bank should not be subjected to that risk. 18 The orders I propose to make are these: 1. Extend the time for compliance with Order 1 made on 2 October 2002 to 8 January 2003. 2. Direct that if the second applicant defaults in complying with order 1 made on 2 October 2002 (as amended by order 1 above) then the application filed on 26 October 2000 and the amended statement of claim filed on 3 October 2002 be dismissed with costs, on terms that such dismissal prevents the applicants or either of them from bringing further proceedings on the same or substantially the same causes of action or for the same or substantially the same relief. 3. The second applicant pay the respondent's costs of the motion filed on 4 December 2002. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice SACKVILLE.