defendant. Application dismissed pursuant to r 13.05; no order as to costs.
Key principles
Where an applicant fails to comply with a court order requiring the filing of affidavit material, the court may dismiss the proceeding pursuant to r 13.05 of the Federal Circuit...
The court has discretion whether to dismiss proceedings for non-compliance with orders, and will consider factors including: (a) the prejudice to the respondent from the...
A corporate applicant cannot have standing before the Court unless represented by a legal practitioner or unless the court grants a director leave to appear on its behalf; where...
In determining whether to make a costs order against an unsuccessful applicant, the court may consider: (a) the potential deleterious effect on the applicant's mental health; (b)...
Issues before the court
Whether the court should dismiss the application for non-compliance with orders to file affidavit material
Whether the court should make an order for costs against the unsuccessful applicant
Plain English Summary
The court dismissed a claim alleging unconscionable conduct in a business sale because the applicants failed to follow court orders requiring them to file evidence. The applicants had demanded an early trial but then failed to provide their affidavit material by the deadline, did not attend a court hearing without explanation, and appeared without lawyers. The first applicant (a company) could not properly participate without a lawyer, and the second applicant (its director) could not adequately represent it in this complex case. The respondent was prejudiced because it could not prepare for trial without knowing what evidence the applicants would present. The court also declined to order the applicants to pay the respondent's legal costs, considering this could harm the second applicant's mental health and that the respondent had not been put to significant expense preparing for a trial that never proceeded.
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Whether the first applicant had standing given lack of legal representation
**CONSUMER LAW -** application for declaration - that the respondent engaged in unconscionable conduct - non-compliance with orders to file material - application dismissed pursuant to r.13.05
Judgment (17 paragraphs)
[1]
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
[2]
INTELLECTUAL TECHNOLOGY & COMMUNICATION PTY LTD (ACN 101 186 823)
On 3 October 2023, the first applicant company, Metasis Pty Ltd, and the second applicant, Daniel Borrowman, filed an application in this Court seeking a declaration that the respondent company, Intellectual Technology & Communication Pty Ltd, had engaged in unconscionable conduct within the meaning of the "unwritten" law and within the meaning of section 21 of Schedule 2 of the Competition and Consumer Act 2010 (Cth).
The applicants sought orders that it was unconscionable for the respondent to enforce, or seek to enforce, any of the heads of agreement. It sought all orders necessary to return the business of eFlux (the business) to the first applicant and to account for any profits made. The applicants also sought orders for damages.
[7]
In the statement of claim, the applicants pleaded a number of facts.
It was pleaded that the second applicant commenced carrying on a business in June 2009. That business provided information technology, consulting and support services to small and medium-sized businesses. In September 2013, the business operations were transferred to the first applicant and the first applicant thereafter operated the business under the new name, eFlux.
It was pleaded that, around September 2019, the second applicant started to suffer from depression. It was said that this depression was onset by high levels of work stress, financial pressures and relationship issues.
It was pleaded that, in September 2020, Michael Sobota, the managing director of the respondent, asked the second applicant whether the second applicant was interested in selling or merging his business with that of the respondent's. They met soon afterwards to discuss the proposal but, it is claimed, that no agreement was reached.
In June 2021, the second applicant appointed his sister as his financial and medical power of attorney because, it is claimed, his depression had worsened, and he could not continue to manage all of his own personal and financial affairs.
It is claimed that, in January 2022, the second applicant was diagnosed with major depressive disorder and was prescribed antipsychotic medication. The second applicant ceased working in the day-to-day operations of the business and it was then managed by seven members of staff.
Because of this, the second applicant decided to try and sell the business. Having made that decision, the sister of the second applicant contacted Mr Sobota advising him of the decision of the second applicant. They discussed the possible sale.
It is pleaded that from March 2022, the second applicant suffered from a double disc rupture in his neck and required surgery. He was also receiving high doses of pain medication at this time. It is claimed that the IT strategy manager of the business resigned on 4 March 2022 and, about two weeks later, commenced his own business, which operated in direct competition with the business of the applicants.
It is pleaded that, over the next three months, four more employees resigned leaving only two junior employees remaining at the business.
[8]
In the defence, the respondent admitted that there had been a meeting in September 2020. The respondent admitted that there had been discussions about a sale with the sister of the second applicant, but no agreement had been reached by March 2022.
The respondent admitted that the second applicant recommenced negotiations, in July 2022, but that he did not ever disclose the specific illness he was experiencing. The respondent admitted that the second applicant had told Mr Sobota that he had decided to sell the business due to his health issues without specifying the nature of those health issues. He had also told him about the troubles with staff and of the current situation with the business.
The respondent claims that the discussions were mainly about the business's financial status, its sales, its balance sheet and its payroll. The respondent alleges that the email exchanges in mid-July 2022 were about the issues of staff and the resulting instability caused to the business.
The respondent claims that on 18 July 2022, the second applicant requested the respondent to provide dedicated technicians to handle customer requests and projects as the employees that were left could not effectively handle this. The respondent said that they agreed to provide that assistance and did do so.
The respondent accepts that a text message was sent with the heads of agreement but that the second applicant replied through a message group chat that he was about to lose his phone because he was going into hospital but that he had read the heads of agreement and forwarded them to his "accountant and legal" to review for him. Later that evening he sent a further text saying that he had reviewed it and "just waiting for accounts and legal". He said that he was legally not allowed to sign anything that day and "I'm hoping to have everyone smash through tomorrow".
Two days later, a text was sent to the second applicant asking if they could have the signed heads of agreement and pointing out that they had not heard from the accountant as yet, but that urgent communication was required for the respondent to provide continued assistance. The respondent concedes that they told the second applicant that they were not prepared to provide continued assistance if there was no formal commitment.
Later that day, the second applicant said that his accountant was drafting the email. About two hours later the second applicant forwarded an email sent by the accountant. In that email, the second applicant said that he did not understand the current situation and did not want to rush the process of acquisition. He said he had copied his accountant and sister into that correspondence.
[9]
The matter came before me as a first court date on 15 January 2024. On that date, the parties were arguing as to whether the matter should be transferred to Melbourne. The applicant was seeking discovery and was alleging that the respondent was deleting discoverable documents. The legal representative for the applicants told the Court that they may be seeking an injunction.
I adjourned the matter to 8 February 2024 and asked the parties to advise the Court, via a joint email, as to what the current position was.
The parties did not send a joint email, but each separately sent through proposed orders. The parties agreed that the matter should be mediated but did not agree to a mediator. The applicant said that they reserved the right to bring on an injunctive application if necessary and the respondent replied to that allegation say that there had been no deletion of material.
I ordered that the respondent file and serve a defence and/or any counterclaim by 22 February 2024 and that the applicant file any reply (and defence to the counterclaim) by 21 March 2024. I ordered that the parties attend private mediation by no later than 15 April 2024, and that, in the event of a successful mediation, the parties notify the Court as practicable.
I ordered that the matter be adjourned for mention on 7 May 2024 but, in the notations section of the order, told the parties what orders would be made if the mediation were unsuccessful. These orders were in the form of trial directions for filing of material including the dates of any trial.
The parties did not attend mediation, and on 7 May 2024, I made the orders that I had foreshadowed in the notations of the previous order. The trial was listed to commence on 22 July 2024 in Brisbane.
[10]
The orders were that the applicant file and serve his affidavit material by 28 May 2024 and the respondent file and serve their affidavit material by 25 June 2024. Shortly before that latter date, correspondence between the second applicant and the solicitors for the respondent detailed that the applicant was in breach of the orders as he had not filed his material.
On 20 June 2024, the second applicant forwarded all that correspondence to the registry asking for an extension of time. The registry contacted my Chambers. As the Court Plenary was occurring, my Chambers listed the matter for mention on 1 July 2024.
The applicant did not attend on that date and gave the Court no notice as to why it was that he would not be able to attend. The Court attempted to call him on three occasions and the call went straight to voicemail. My associate also sent the second applicant an email advising him to call into the meeting immediately. There was no response to the request.
As the trial was to begin in three weeks, the respondents were quite anxious that there be some form of resolution because they felt they would be unduly prejudiced. The legal representatives for the respondent, justifiably, asked for the matter to be struck out for failure to comply with the order of the Court.
I decided to adjourn the matter for a week to give the second applicant one last chance to explain himself to the Court.
Despite not been contacted by the second applicant, my Chambers sent him a reminder email on the Friday afternoon to tell him, again, that the matter would be mentioned at 9:15 AM on Monday morning.
On Sunday afternoon (7 July 2024), the second applicant emailed my Chambers in reply to the reminder email. The second applicant wrote:
[11]
I am going to personally attend the courts in this instance. I am staying right next to the courthouse. I understand that you must not have received my reason for not attending the first listing. Can you please advise as to how I attend this next session in person. There is reason to believe there is obstruction of justice occurring with this matter.
[12]
The second applicant did appear at the mention. He said that he had his legal representative withdraw and he did not know what to do.
[13]
While it is true that the legal representative for the applicants withdrew the day before the material was due to be filed, they had given the applicants a notice of intention to withdraw over seven days previously.
It was the applicants who were, almost, demanding that the Court give this matter a trial listing because of the serious allegations therein. The Court has accommodated the applicant notwithstanding that the parties did not give the Court the joint letter it had asked them to do and did not go to mediation. Nevertheless, the Court moved many matters around to accommodate the trial date.
The first applicant is not represented and therefore cannot have standing before this Court unless the Court grants the second applicant leave to appear for the first applicant. Given the issues involved here, this is not a matter where the first applicant should be represented by a director rather than a legal representative.
The second applicant has been very cagey as to his activity. When asked why he did not appear last week, he hinted that he was the subject of a crime of deprivation of liberty committed at Dalby. He was then asked as to whether the police have been involved. When he said they had, the Court adjourned the matter for four hours so that the second applicant could make contact with that officer for him to give some clarification to the Court.
It turned out that the second applicant did not attempt to contact the police officer until 23 minutes before Court was to resume. My associate ended up having to contact the Bundaberg CIB, only to be told that the particular officer was not in that day. When asked as to why he did not contact the police immediately upon the Court adjourning, the second applicant said that he needed to go to the Crime and Corruption Commission.
It is trite to say that everyone must have a fair hearing. But this does not mean that the person, who is now unrepresented, gets liberties to which he would not otherwise be entitled. It was the applicant who brought this matter to the Court, and it was the applicant who insisted on an early trial. The respondent has complied with all of my orders, however, two weeks away from trial, the respondent still does not know what evidence there is to prove the case against them.
[14]
This matter is simply not ready for trial, and I cannot see it ever being ready for trial. The first applicant is not legally represented, and it does not seem that the first applicant will ever be in a position to be legally represented. As I have previously remarked, this is simply too complex a matter for the first applicant not to be represented by a legal representative. The interests of the first applicant may differ from the interests of the second applicant and it would not be proper for the first applicant to be represented by the second applicant.
There is no evidence of a medical nature pleaded that would show that the second applicant was unable to exercise proper judgement when he signed the documentation in July 2022 and again in August 2022. Even if that evidence were to become available, the applicants must prove that the respondent knew of the condition of the second applicant and exploited that knowledge.
It may be that the second applicant was not in in the best condition from 2020 to 2023, but he must be able to prove something greater than seller's remorse. There has been no pleading that goes to the state of knowledge of the respondent as to any condition of the second applicant when he signed the heads of agreement, and when he signed the agreements.
There is also no pleading by the applicants as to the knowledge of the respondent regarding the claim that the applicants had received no legal advice.
The second applicant has had every opportunity to put such evidence before the Court but has failed to do so. It must be remembered that, on the pleadings of the applicants, that if the respondent had not acted as it did, the business would no longer be in existence. The second applicant was simply no condition to administer the business during 2022.
Just on the pleadings before this Court, it would seem that the applicant has a number of enormous hurdles to leap over before he could be successful in this litigation.
When it is that the second applicant has spoken to the Court to put across where he perceives this matter to be heading, he simply speaks in riddles and conspiracy theories as to why he is being taken advantage of, but he has put no concrete material before the Court.
The respondent is not in any position to know what case it must meet. The prejudice to the respondent is obvious and it grows greater the longer the matter remains unresolved.
Rule 13.05 states that, if an applicant is in default, the Court may order that the preceding as to the whole of the relief claimed by the applicant be dismissed.
In all of the circumstances that obtain in this matter, I am of the view that the application filed on 3 October 2023 should be dismissed.
Whilst it is that the usual order, in the consumer protection jurisdiction, is that an unsuccessful party must pay the costs of the successful party, I am of the view that making such an order would be deleterious to the mental health of the second applicant. I have no firm evidence to support such a finding other than my many years of experience.
It is also obvious to me that the second applicant would have no means by which to pay any costs ordered by the Court. I also note that, apart from filing a notice of address for service, two affidavits of a legal practitioner and the defence, the respondent has not been put to the trouble of having to prepare affidavits and, realistically, prepare for trial.
In all of these circumstances, I will exercise my discretion and make no order as to costs.
[16]
I order that the application filed on 3 October 2023 be dismissed, pursuant to Rule 13.05.
I make no order as to costs.
[17]
I certify that the preceding seventy-eight (78) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Vasta.
Parties
Applicant/Plaintiff:
Metasis Pty Ltd
Respondent/Defendant:
Intellectual Technology & Communication Pty Ltd [2024] FedCFamC2G 611
Legislation Cited (3)
Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021
Consumer Act 2010
Circuit and Family Court of Australia (Division 2)(General Federal Law) Rules 2021
AI Analysis
Outcomedefendant
Disposition:
Application dismissed pursuant to r 13.05; no order as to costs.
It is pleaded that, because of the incapacity of the second applicant, the business required external management to assist in the day-to-day business operations. In June 2022, the second applicant contacted a business called "Mission Control" with a view to them taking over the management of the business until such time as the business could be sold. The second applicant claims that he paid a deposit to Mission Control in anticipation of them taking over the management of business.
It is pleaded that on 7 July 2022, the second applicant recommenced communications with the respondent regarding the potential sale of the business and told Mr Sobota that he was keen to act quickly because of his poor health.
The next day, the second applicant and Mr Sobota met to discuss the potential sale. The second applicant advised Mr Sobota of his health issues and the issues regarding his staff. He told Mr Sobota about his intention to appoint Mission Control.
Over the next weeks, the discussion about a potential sale continued. Mr Sobota ended up telling the second applicant that it was not necessary for the second applicant to appoint Mission Control to manage the business because the respondent was now ready and able to manage the business while the second applicant was incapacitated, with a view to the parties entering into a contract of sale shortly thereafter.
From 18 July 2022, the respondent commenced managing the day-to-day affairs of the business. It is claimed that there was no formal written management contract between the first applicant and the respondent. On 20 July 2022, another representative of the respondent texted the second applicant the proposed heads of agreement for sale.
In effect, the respondent was to manage the business for 12 months, and at the completion of that term, the respondent would have the option to purchase the business for $250,000. The respondent would pay the first applicant licence fee of $550 per month. The respondent would engage the second applicant, at his current rate of remuneration for four weeks to assist with the execution of the management agreement. The second applicant would not have any involvement in, nor would he interfere with the operation of, the business.
The second applicant responded to the text message saying that he was in hospital, but he had forwarded the draft to his accountant for review. It is pleaded that he said that he was not "legally allowed" to sign anything on that day (because of the pain medication he was on).
The second applicant said that he was repeatedly texted by the representative of the respondent and asked to sign the proposed heads of agreement. The second applicant said that he was sent a text saying that the respondent was not prepared to continue providing the business with management services if the second applicant did not sign the agreement.
The second applicant said he was then telephoned twice asking that he sign the proposed heads of agreement. The second applicant says that he told the representatives of the respondent that he was reluctant to sign because his accountant had advised him that the terms were commercially unfavourable to him. The representatives disputed the accuracy of what the accountant was conveying to the second applicant.
On 26 July 2022, the second applicant signed the heads of agreement. The second applicant claims that he was heavily medicated and without legal advice when he did so.
It is pleaded that on 19 August 2022, the solicitors for the respondent emailed the second applicant with a number of documents that largely mirrored the terms of the heads of agreement. The second applicant claims that the representatives of the respondent repeatedly asked him to sign those agreements.
On Monday, 22 August 2022, the second applicant claims that the respondents revoked the second applicant's access to all intellectual data resources owned by him and the first applicant. On 24 August 2022, the second applicant signed the agreements. He claims that he was heavily medicated and was without legal advice or witnesses when he did so.
On 21 December 2022, it is claimed that the respondent again disabled the access of the second applicant to all electronic systems of the business.
The second applicant, on behalf of the first applicant, claims that it was unconscionable for the respondent to take advantage of, or rely upon, the heads of agreement or the agreement. It is also claimed that the conduct of the respondent was in contravention of Australian Consumer Law.
The second applicant further claims that the respondent disabled his access to all electronic systems owned by him and the first applicant, changed the passwords to those systems, disabled multifactor authentication and gave all staff members of the respondent full administrative privileges over the data owned by the first applicant and the second applicant.
The second applicant said that in January 2023, he was given an identity theft alert by Equifax which meant that his identity data had been leaked onto the dark web. He also claimed that, in May 2023, he discovered that his crypto currency hard wallet recovery phase was compromised, meaning that he had permanently lost access to the hard wallet which contained over $300,000 in crypto currency. He further claims that over US$120,000 of crypto currency have been misappropriated from his crypto currency hard wallet. The second applicant claims that this is the fault of the negligence of the respondent.
On 25 July 2022, a representative of the respondent sent a second version of the heads of agreement. The next day, the second applicant sent a text message indicating that, after some little amendments, he would sign a copy of the heads of agreement. He asked the respondent to confirm that, once the heads of agreement were signed, action was to be taken by the respondent for the clients of business. An hour later, the second applicant sent a copy of the heads of agreement signed by him.
The respondent admits that, on 19 August 2022, the solicitors sent the draft agreements to the second applicant for him to sign.
The respondent admits that a representative sent messages to the applicant asking whether he had a chance to review the draft agreement. The second applicant responded that he was busy with his personal affairs and will try to look at the document when he sat down. The respondent sent a message the next day asking whether he'd had a chance to review as they had their lawyer on standby in case any amendment was required. About five hours later, the second applicant sent a message that he was reviewing the documents.
There were other messages sent by the respondent saying that they were on standby or could arrange a conference, if the second applicant had any questions. The second applicant sent back a message that he wasn't able to sign onto his iPad and he was going to work in an hours' time.
On 24 August 2024, the second applicant sent an email attaching copies of the management agreement, the deed of call option and the business sale agreement. The second applicant also sent a power of attorney which empowered the respondent to act on behalf of the first applicant for the operation of the business.
The respondent admits that it did disable the access of the second applicant to the electronic systems of the business, but this was a common practice within the industry. Those actions, it is claimed, on the basis of the management agreement that had been entered into.
The respondent also received information from a customer that the second respondent was asking that customer to move MS licensing from the respondent to a new company that the second applicant was setting up.
The respondent denied that they had engaged in unconscionable conduct. The respondent denied gaining access to the personal information and data of the second applicant and, therefore, being, in any way involved in the missing crypto currency.