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[2018] FCA 363
Federal Court of Australia
2018-03-14
Derrington J
Original judgment source is linked above.
The Application for Summary Judgment 1 The application today, pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth), is sought by the respondents and is for judgment to be entered for them and a further order that the proceedings QUD 291 of 2017, commenced by the applicant, be dismissed. The matter has a long history, having been commenced on 14 June 2017. There have been a number of interlocutory processes concerning the veracity of the applicant's statement of claim. I mention the statement of claim in the singular but, in fact, there have been various iterations of it, and I identified the various attempts by the applicant to plead his causes of action against the respondents in paragraph 3 of my reasons for judgment in this matter of 16 February 2018. There the last attempt to plead was struck out. 2 I refer to those reasons because they encompass the substance of the causes of action which were alleged against the respondents by the applicant, and I also refer to them for the fact that I found that none of the causes of action had any merit or, if there were some possible merit, something which I did not conclude, those causes of action were not adequately pleaded. The substance, or the gravamen, of the claim alleged by Mr Seaman is referred to in paragraphs 4 to 10 of my reasons for judgment of 16 February 2018, and I need not repeat it. I only mention that, in effect, he in his capacity as either a director, shareholder, or creditor, or subsequent trustee of the trust, pursued various causes of action against the respondents who are administrators. In my reasons, I found that, in those capacities, the applicant was unable to pursue any of those claims, and there was very recent Full Court authority which was binding on this Court (Macks v Viscariello [2017] SASCFC 172) that supported the judgment in which I struck out those claims. The present position is that, despite the date on which this matter was commenced, there is no extant statement of claim advanced by the applicant. This he appears to acknowledge in his submissions. He now indicates that he has taken, or purportedly taken an assignment from the company, Private Health Clubs Pty Ltd (in liquidation), of any causes of action it may have had against the respondents. 3 The applicant now says he wishes to pursue those assigned actions against the respondents in their capacities as administrators. The difficulty with that is it is presently unclear as to how he might pursue them. No statement of claim has been advanced which identifies the causes of action, nor has any outline been given to disclose what those causes of action are and on what they might be founded. I might assume, for present purposes, that they involve allegations about the respondents' conduct in the course of acting as administrators. However, given those actions are statutory causes of action and any damages enure to the company, it is not presently clear to me that taking an assignment of those causes of action would bear fruit for the applicant. 4 An alternative proposition may have been for the applicant to commence derivative proceedings in respect of claims by the company. This was an issue which was raised at the first directions hearing in this matter on 22 June 2017. I made directions requiring the applicant to bring any application for leave to commence derivative proceedings by 28 July 2017. It appears from the evidence before the court that, ultimately, that was considered by the applicant, but a tactical decision was made not to pursue that course. The upshot of the present situation is a little unusual, particularly so in the context of an application for summary judgment. Attempts have been made to agitate a cause of action, but all of those attempts have failed. 5 Although summary judgment is normally given on the basis of an advanced claim where evidence is adduced as to its veracity one way or the other, that is not the case here because the claims that the applicant has attempted to advance have been struck out. Nevertheless, in the circumstances of the present case where the respondents have been confronted with multiple versions of the statement of claim, none of which have succeeded, I can conclude that none of the claims advanced by whatever pleadings have been put forward or by any affidavit evidence, are viable. That seems to be acknowledged by the applicant who wishes to take now a different course but, again, there is no draft pleading and there is no outline of the cause of action: (a) which I can consider; and, (b) which the respondents would have an opportunity today to contest. 6 I am acutely aware that exercising the power to grant summary judgment is a significant matter. It requires satisfaction, to a high degree, that the applicant's cause of action lacks prospects of success. The provisions in relation to summary judgment require that the applicant have some prospects of success in his cause of action. They must be real and not fanciful, or even merely arguable. That necessitates the Court being satisfied to a high degree of confidence that the veracity of any proposed claim is lacking. In this case, I have reached that conclusion in relation to all the causes of action which have been advanced so far, or are advanced today. That is, in my view, an answer to the application and, for that reason, I am prepared to make an order giving judgment to the applicant on that ground, pursuant to s 31A of the Federal Court of Australia Act 1976 (Cth). 7 I also am of the view that the present state of the proceedings enlivens the inherent power of the court to dismiss the proceedings on the basis that they are, now, an abuse of process. The applicant does not have, after many months, any substantive statement of claim on which it can rely. Various iterations have been advanced and either struck out or withdrawn. The respondents have been put to what I can imagine to be substantial expense in responding to these claims. They have had serious, but unsubstantiated allegations levelled against them. It is within the scope of the inherent power of the court - as supported by, in particular, the obligations of practitioners under ss 37M and 37N - to ensure that litigation is conducted fairly. That includes fairness to the respondents to have the matter brought on and disposed of in an expeditious and cost effective way. It follows that I also dismiss the proceedings as an abuse of process in the technical sense.
Costs 8 The respondents in this matter have been successful on an application for summary judgment. The remaining issue now is one of costs. At an early stage in the proceedings, on 28 July 2017, the respondents made an offer to the applicant, pursuant to r 25 of the Federal Court Rules 2011 (Cth). The respondents offered to compromise the proceedings on the basis of: (1) The applicant discontinues the proceedings against the respondents within seven days; (2) The applicant pays the respondents' costs fixed on the standard basis in an amount of $1950 within 14 days; (3) The offer of compromise is open to be accepted in writing for 14 days after service of this offer of compromise; (4) This offer is made without prejudice save as to costs. Needless to say, that offer was not accepted. 9 Ms Anderson, for the respondents, today asked that an order be made under r 25.14(2) of the Federal Court Rules 2011 (Cth). That rule provides for an order for indemnity costs on the unreasonable refusal of an applicant to accept the respondents' offer of settlement. It follows that the essential question is whether or not the refusal to accept the offer was unreasonable. That requires postulating the situation of the parties as at the date on which the offer was made. Whilst it can now be seen in hindsight that it would have been incredibly prudent of the applicant to accept the terms of the offer, that was not necessarily so as at the date on which the offer was received. 10 Nevertheless, in the circumstances of this case, that is, where causes of action which were pursued by the applicant have been found to be without merit in law and otherwise unable to be adequately pleaded, it is undoubted that the applicant must have known there was a degree of speculation in commencing the proceedings. 11 Mr Henry, for the applicant, made reference to the fact that it was only in December of last year that the Full Court of the South Australian Supreme Court delivered the reasons for judgment in Macks v Viscariello [2017] SASCFC 172. An earlier judgment had been delivered by Kourakis CJ, the substance of which was upheld on appeal. That decision had been delivered a couple of years earlier. The point to be made here is that the observations of the Chief Justice relevant to this action were upheld by the Full Court, and it is more than likely that the applicant was aware that there was authority against him. Now, I accept immediately that, to the extent to which the Chief Justice's decision was authority at first instance and not binding upon this Court, it was nevertheless the considered view of the Chief Justice of South Australia. That factors into whether or not it was unreasonable to refuse the offer of settlement. It is also relevant to observe that, at the time the application was commenced, a serious issue existed as to whether Mr Seaman in his personal capacities, being either a creditor, shareholder, director, or trustee, was entitled to bring those proceedings. 12 This must have been uppermost in the mind of Mr Seaman and those advising him because, in June of last year, he was given an opportunity to commence or seek leave to bring a derivative action on behalf of the company. He obviously chose not to do so. It was, as I have mentioned in my reasons for judgment on the application for summary judgment, a tactical decision. 13 I should mention that there exists a view in some decisions on costs to the effect that an offer by a party to another party that does not offer any compromise in terms of the substance of the claim is not a reasonable offer. That is not a view to which I subscribe. A litigant faced with a claim which they believe has no substance is not acting unreasonably by inviting the claim against them to be wholly withdrawn. In my view, in this case, it was not unreasonable for the respondents to have sought the proceedings be discontinued without offering payment of any money, and they were right to do so. The amount of costs that they sought to be paid was minimal, and that is particularly so considering the manner in which these proceedings have subsequently been conducted. 14 In those circumstances, I have reached the conclusion that the applicant unreasonably failed to accept the offer of 28 July 2017. Subsequently, the applicant's proceedings have been dismissed and, pursuant to r 25.14, the respondents are entitled to an order that the applicant pay their costs before 11am on the second business day after the offer was served on a party and party basis; and, after 11am on the second business day after the offer was served, on an indemnity basis. 15 Ms Anderson, for the respondents, also postulated obtaining an order for indemnity costs under the general discretion of the Court to make such an order. In doing so, she relied upon a number of factors, including those in Colgate-Palmolive Company v Cussons Pty Ltd (1993) 46 FCR 225. That decision has long stood as identifying some of the relevant circumstances a court might consider when exercising a discretion as to whether an order for indemnity costs should be made. In relation to the matters identified in that judgment, I am not convinced that the proceedings were commenced for any ulterior motive. Mr Seaman is seeking to pursue the claim for the purpose of recovering damages for losses he believes he sustained. Whether or not he was misguided in doing so is another question, but the motive which he had for commencing the proceedings was not "ulterior". 16 The second criteria referred to in the Colgate-Palmolive decision was whether the proceedings were commenced, or continued, in wilful disregard of known facts or clearly established law. In respect of that criteria, Mr Henry, on behalf of Mr Seaman, submits that the law was not as clearly established as it is now, and I can accept that proposition. Nevertheless, Mr Seaman would have known that, at least to some extent, the prevailing trend of the law in relation to the causes of action he wished to pursue was not in his favour. So, I do not think that that factor, of itself, perhaps reaches a height which might warrant making of an order for indemnity costs. 17 The third element in Colgate-Palmolive is whether or not allegations were made which ought never have been made. That is a vexed question. It has been raised on a number of occasions during the course of this matter, particularly in relation to the conduct of the respondents in accepting their appointment as administrators knowing the resolution was not made by the required quorum of directors of the company in question. Given the order of Jagot J validated their appointment, that issue ought never have been raised. It could never have succeeded unless the decision of her Honour was set aside. No attempt was ever made for that to occur. To some extent, the applicant can be criticised for maintaining or seeking to pursue that claim. 18 The fourth criterion is where proceedings were unduly prolonged by groundless contentions. Ms Anderson, for the respondents, relies upon that, and not without some force. The question of the adequacy of the pleadings was first raised at the first case management hearing in this matter. To a significant extent, the pleadings were not ever attended to sufficiently. Moreover, the contentions relating to Mr Seaman's entitlement to pursue the action, although vigorously pursued by him, might now be seen to have been ill-fated. That said, I do not think that it is possible to say those contentions fell within the description of being groundless. 19 One other factor relied upon by Ms Anderson was the failure of the applicant to comply with the provisions of the Civil Dispute Resolution Act 2011 (Cth), which requires the filing of a Genuine Steps Statement prior to a commencement of any action. This was not done in this case, and I understand it not to be in doubt that no genuine steps were taken by the parties. None have been indicated in the course of this hearing. Although it may be the case that, after the proceedings were started, I waived the obligation to file the statement, it was rather otiose by that stage given that the proceedings had been commenced and there had been an absence of those steps. As his Honour Reeves J has said in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977, compliance with the Civil Dispute Resolution Act 2011 (Cth) is an important step in proceedings, and it imposes an obligation on practitioners to comply with it and for good reason. The purpose of the Act is to encourage resolution of disputes before the significant costs of the looming litigation are incurred. In any event, the Act also provides avenues against legal practitioners who do not comply with the requirements of the Act. It also commits the court to take into account the failure to comply with the requirements in the Act when exercising a discretion to award costs. 20 If the only question was whether, in the general exercise of discretion to award costs, that I should order indemnity costs by reason of a failure to file a genuine steps statement, I would probably not exercise my discretion in that way. However, when taken with the other factors to which I have referred to above in relation to the Colgate-Palmolive criteria, I ultimately come down in favour of granting an order for indemnity costs in respect of the action, at least from the date specified in r 25.14(2)(b). Ultimately, because of my view on the operation of that rule, that is r 25.14, and my conclusion that the refusal to accept the offer was unreasonable, there is no discretion left for me to exercise. 21 In the result, the order in relation to costs is as I have indicated above, that the applicant pay the respondents' costs before 11am on the second business day after the offer of 28 July 2017 was served on a party and party basis; and, after 11am on the second business day after the offer dated 28 July 2017 was served, on an indemnity basis. That being the costs order. I reiterate that the other orders of the court are that, pursuant to s 31A of the Federal Court of Australia Act (1972), judgment be entered for the respondents to the proceeding QUD 291 of 2017, and that it be dismissed. The order for costs is as I have indicated. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington.
Seaman
Silvia