What happened
Kazimir Kowalski was employed by Mitsubishi Motors Australia Limited from approximately January 1964 until his employment ceased on 16 March 1994. He had stopped performing work on 16 August 1991, citing emotional distress and a pathologically intense state of anxiety. The Mitsubishi Motors Australia Staff Superannuation Fund, constituted by a trust deed originally dated 30 November 1967 and amended on several occasions including in 1999, 2000 and 2002, was the vehicle through which Mr Kowalski claimed an entitlement to a Total and Permanent Disablement (TPD) benefit.
The relationship between Mr Kowalski and his former employer and the fund trustee was described by the primary judge as acrimonious, with a history of more than forty proceedings in various South Australian courts and tribunals, culminating in Mr Kowalski being declared a vexatious litigant in the Supreme Court of South Australia in Mitsubishi Motors Australia Ltd v Kowalski [2005] SASC 154. Two prior Federal Court proceedings had been summarily dismissed: Kowalski v Mitsubishi Motors Australia Ltd (1998) 88 FCR 55 and Kowalski v Mitsubishi Motors Australia Staff Superannuation Fund Pty Ltd [2002] FCA 1153 (affirmed on appeal).
In the present proceeding (SAD 11 of 2007), Mr Kowalski sought to litigate claims relating to the administration of the superannuation fund. The primary judge (Finn J) dismissed so much of the claim as relied on the Trade Practices Act 1974 (Cth) but granted leave to file an amended application and statement of claim: Kowalski v Mitsubishi Motors Australia Ltd Staff Superannuation Fund Pty Ltd (2007) 242 ALR 370. A further amended pleading was subsequently struck out with leave to replead again: Kowalski v MMAL Staff Superannuation Fund Pty Ltd (No 2) [2008] FCA 691. The primary judge described the latter grant of leave as Mr Kowalski's "last opportunity to provide an intelligible and unobjectionable pleading" at [1] of the 20 May 2008 reasons.
On 23 May 2008 Mr Kowalski filed a Further Amended Application and Further Amended Statement of Claim. The pleading alleged breach of the relationship of potential beneficiary and trustee, breach of fiduciary obligation under the trust deed, breach of good faith, breach of contract, breach of s 13 of the Insurance Contracts Act 1984 (Cth), fraud and negligence. The substantive relief claimed was payment of a TPD benefit of approximately $280,000 (including compound interest from 16 March 1994) plus compensation and punitive damages for stress and anxiety said to have been caused by the trustees' refusal to determine the claim.
The respondents moved on 6 June 2008 for summary dismissal under s 31A of the Federal Court of Australia Act 1976 (Cth) on the basis that the proceeding had no reasonable prospect of success, or in the alternative for strike-out under O 11 r 16 of the Federal Court Rules. After a hearing on 19 August 2008, Finn J delivered judgment on 5 February 2009 (Kowalski v MMAL Staff Superannuation Fund Pty Ltd (No 3) [2009] FCA 53). His Honour conducted a detailed examination of the 1994, 1998 and 2005 claims (some of which were not expressly pleaded), found that each lacked reasonable prospects, and summarily dismissed the entire proceeding under s 31A with costs.
On 6 February 2009 Mr Kowalski filed a document styled "Notice of Appeal" that both appealed the whole of the judgment and, in the alternative, sought leave to appeal if the order was interlocutory. The grounds asserted that the primary judge had protected and aided "wrongdoers", was biased, and had erred by not giving a further opportunity to amend, citing Gala v Preston (1991) 172 CLR 243 and Wills v Australian Broadcasting Corporation (2009) 173 FCR 284.
The Full Court (Spender, Graham and Gilmour JJ) heard the matter on 11 August 2009 and delivered judgment on 9 September 2009. The Court held that a s 31A summary dismissal is interlocutory, that the appeal was therefore incompetent without leave, that the primary judge's decision was not attended with sufficient doubt, that no further opportunity to amend should be given having regard to the principles in Aon Risk Services Australia Limited v Australian National University [2009] 258 ALR 14, and that the application for leave and the purported appeal should both be dismissed with costs.
Why the court decided this way
The Full Court's reasoning proceeded in three principal stages. First, it determined the character of the primary order. At [32]-[43] the Court applied the orthodox test from Re Luck (2003) 78 ALJR 177 at [4]: an order is final only if it finally determines the rights of the parties in the principal cause. Because a s 31A dismissal assesses whether, on the material then before the Court, the applicant has "no reasonable prospect of successfully prosecuting the proceeding", it does not finally determine those rights. The Court expressly disagreed with the views of Finkelstein J and Gordon J in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Limited (2008) 167 FCR 372 that such an order resolves the dispute on the merits. At [40] the Court stated that the legal effect of the judgment is not final. Consequently the order was interlocutory and leave was required under s 24(1A).
Second, the Court refused leave. Applying the Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 test at [44], it asked whether the primary decision was attended with sufficient doubt to warrant reconsideration and whether substantial injustice would result if leave were refused. The Court concluded it was not. The primary judge had given Mr Kowalski two prior opportunities to replead and had described the second as the last opportunity. Detailed examination of the 1994, 1998 and 2005 claims at [71]-[88] of the primary reasons showed they rested on false assumptions (for example, that the trustee had a duty to consider a TPD claim without a formal application or that it had been provided with Dr McFarlane's 1993 report). There was no evidentiary foundation for allegations of bad faith or breach of fiduciary duty. The pleaded assertions "lacked any foundation and should never have been made" ([87] of primary reasons, endorsed on appeal).
Third, the Court addressed the refusal to permit yet further amendment. At [45]-[52] it drew heavily on Aon Risk Services (decided only a month earlier). The High Court had revisited State of Queensland v J L Holdings Pty Limited (1997) 189 CLR 146 and emphasised that case management principles are not to be applied only in "extreme circumstances". Parties have no entitlement to amend simply because a claim is arguable if substantial delay, costs and prejudice to other litigants would result. The Full Court noted the proceeding's "long and acrimonious" history, the vexatious litigant declaration, and the fact that the underlying complaints had been ventilated in multiple forums. At [71] the Court held that "the interests of justice would not be served by prolonging the matter any further".
The Court also rejected the bias allegations at [54]-[57]. Mere adverse outcomes do not demonstrate bias or apprehended bias; the test in Ebner v Official Trustee in Bankruptcy (2000) 205 CLR 337 was not engaged. A transcript from a later proceeding in which the primary judge disqualified himself on a different matter did not assist Mr Kowalski. Submissions that the primary judge could not dismiss the proceeding without a defence, or that earlier observations in Kowalski (No 2) created an estoppel, were dismissed as without substance at [72]-[77]. The power under s 31A is not predicated on a defence having been filed once a respondent has appeared.
Before and after state of the law
Prior to the insertion of s 31A by the Migration Litigation Reform Act 2005 (Cth), summary dismissal required the proceeding to be "hopeless" or "bound to fail" (Dey v Victorian Railways Commissioners (1949) 78 CLR 62; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125). The Explanatory Memorandum and Second Reading Speeches made clear that s 31A was intended to soften that test, allowing greater flexibility to deal with "unmeritorious" and "unsustainable" cases. Subsection (3) expressly provides that a proceeding need not be hopeless or bound to fail to have "no reasonable prospect of success". The Full Court at [25]-[28] endorsed the observations in Jefferson Ford and Boston Commercial Services Pty Ltd v GE Capital Finance Australasia Pty Ltd (2006) 236 ALR 720 that the section is concerned with substance not merely form and that real issues of fact or difficult questions of law should ordinarily go to trial.
The characterisation of s 31A orders as interlocutory confirmed the line of authority beginning with Re Luck and applied in Zoia v Commonwealth Ombudsman Department (2007) 240 ALR 624 and Luck v University of Southern Queensland [2009] FCAFC 73. It rejected the contrary obiter views in Jefferson Ford. After this decision, practitioners understood that any summary dismissal under s 31A would attract the leave requirement under s 24(1A), with the practical consequence that many such dismissals would not be reviewed on the merits unless the Décor threshold was met.
The treatment of amendment applications was significantly affected by the Full Court's adoption of Aon Risk Services. Prior to Aon, J L Holdings had been read as strongly favouring the grant of amendments to raise arguable points subject only to costs, except in extreme cases. After Aon (and its reinforcement in this judgment at [47]-[52]), courts were required to weigh delay, costs, prejudice to other litigants and efficient court administration as first-order considerations. The statement at [51] that there is "no such entitlement" to amend has been cited repeatedly in subsequent pleading disputes.
Key passages with plain-English translation
At [40]: "In our opinion, a case where summary judgment is given for a respondent in the absence of the full and complete factual matrix and full argument thereon, the Court being satisfied that the moving party has no reasonable prospect of successfully prosecuting the proceeding is no different from a case where an order is made dismissing an action because it is frivolous, vexatious, an abuse of the process of the Court or does not disclose a reasonable cause of action (see Re Luck) ... The legal effect of such a judgment is not final."
Plain English: Even after a detailed look at the papers, if the judge decides on the current evidence that your case is going nowhere, that decision is still only temporary. It does not lock in the final result of your rights; it just says "on what we have now, you cannot win". Therefore it is interlocutory and you need permission to appeal.
At [43]: "We consider that a judgment in the nature of summary dismissal under s 31A(2) of the Federal Court Act is interlocutory. Accordingly, an appeal from the judgment of the primary judge of 5 February 2009 in Kowalski No 3 was incompetent in the absence of a grant of leave to appeal."
Plain English: We have looked at all the recent cases and we are sure that throwing a case out early under s 31A is not a final order. Mr Kowalski's appeal document was therefore invalid unless he first obtained leave.
At [51] (quoting Aon Risk Services at [111]): "An application for leave to amend a pleading should not be approached on the basis that a party is entitled to raise an arguable claim, subject to payment of costs by way of compensation. There is no such entitlement. All matters relevant to the exercise of the power to permit amendment should be weighed. The fact of substantial delay and wasted costs, the concerns of case management, will assume importance on an application for leave to amend."
Plain English: You do not have an automatic right to keep rewriting your claim just because you can think of something arguable. The judge must balance everything: how long the case has dragged on, how much money has been wasted, and the impact on other people waiting for court time. Previous cases that suggested otherwise should no longer be followed.
At [71]: "The decision of the High Court in Aon Risk Services makes it clear that a further opportunity should not be afforded to Mr Kowalski to 'clarify and amend his pleading'. He had been afforded his 'last opportunity to provide an intelligible and unobjectionable pleading.' The interests of justice would not be served by prolonging the matter any further."
Plain English: The High Court has told us that enough is enough. Mr Kowalski has already had his final chance. Keeping this going would not be just to the trustees or to other litigants.
What fact patterns trigger this precedent
This decision is triggered whenever a litigant seeks to appeal a summary dismissal made under s 31A and the question arises whether leave is required. It applies with particular force where the proceeding has a long history, multiple prior opportunities to replead have been given, and the primary judge has expressly indicated that the last chance has been afforded. It is also engaged where a self-represented litigant with a pattern of repetitive claims against the same or related parties (especially in superannuation or employment contexts) files yet another poorly pleaded claim alleging breach of trust or fiduciary duty without evidentiary foundation.
The amendment principles apply to any application for leave to amend pleadings late in a proceeding or after previous amendments have failed to cure defects. Fact patterns involving allegations of bias based solely on adverse rulings, or arguments that a defence must be filed before summary dismissal can occur, will also engage the reasoning at [54]-[57] and [72]-[73].
The case is particularly relevant to superannuation trustees facing claims by former members for TPD benefits where the trustee has made no formal determination because no proper claim was lodged, or where a deed of release or mediation agreement exists that may bar the claim.
How later courts have treated it
Subsequent Full Courts have treated the classification of s 31A dismissals as interlocutory as settled law. In Kowalski v Telecom Australia [2010] FCAFC 8 the same Full Court (including two of the present judges) applied the principle without re-argument. Spencer v Commonwealth (2010) 241 CLR 118 (High Court) cited the decision with approval when discussing the s 31A test, although it clarified that the "no reasonable prospect" language must be applied in a way that does not impose too high a bar.
The amendment principles drawn from Aon Risk Services and reinforced here have been applied in Hogan v Australian Securities and Investments Commission (2010) 183 FCR 1 and Tamaya Resources Ltd v Claymore Resources Ltd [2010] FCAFC 11. Judges routinely cite [51] of this judgment for the proposition that there is no "right" to amendment.
In superannuation litigation, Finch v Telstra Super Pty Ltd (2010) 242 CLR 254 referred to the need for real and genuine consideration by trustees but did not disturb the procedural holdings. Lower courts have followed the bias analysis, rejecting claims of apprehended bias based merely on prior adverse decisions against serial litigants (Kowalski v Mitsubishi Motors Australia Ltd [2012] FCA 540).
Overall, the decision has been followed on the interlocutory point in numerous unreported leave applications and is now regarded as authoritative on the interaction between s 31A, the leave requirement and modern case management principles.
Still-open questions
The judgment leaves open the precise boundary between a "detailed examination" that is permissible under s 31A and one that impermissibly resolves contested questions of fact or credit. The primary judge conducted an unusually thorough review of materials because of the proceeding's "not ordinary" provenance ([68]); it is unclear how far other judges may go before straying into the territory that Rares J in Boston Commercial Services said should go to trial.
The interaction between s 31A and the Insurance Contracts Act 1984 (Cth) or specific superannuation trust deed obligations was not finally determined; the Court simply held that the particular claims lacked reasonable prospects on the facts. Whether a trustee's failure to request further information in a TPD claim could ever ground a breach of fiduciary duty in a properly pleaded case remains unresolved.
The weight to be given to a litigant's status as a vexatious litigant in the s 31A analysis is not exhaustively spelt out. While the Court referred to the South Australian declaration, it did not articulate a general principle for when such status alone justifies summary dismissal.
Finally, the decision assumes that the Décor test remains the correct leave threshold post-Aon Risk Services. Whether the heightened emphasis on case management and prejudice to other litigants should also tighten the leave threshold itself has not been authoritatively addressed in a subsequent Full Court decision.