Tinkler Group Holdings Pty Ltd v Winter

1. The proceedings be dismissed pursuant to s 56(4) of the Federal Court Act 1976 (Cth) and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth).
2. The applicants pay the respondents' costs of the proceedings, including the interlocutory application dated 19 April 2023, on an indemnity basis, in the lump sum of $240,000. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

JACKMAN J: 1 This is an application pursuant to s 56(4) of the Federal Court Act 1976 (Cth) (Federal Court Act) and r 19.01(1)(c) of the Federal Court Rules 2011 (Cth) (Rules) for dismissal of the proceedings for failure by the applicants to give security for costs within the time specified in my orders of 7 March 2023. On that date, I ordered that: (a) the applicants give security for the respondents' costs in the initial amount of $450,000 by payment into Court by 4 pm on 11 April 2023; and (b) if the applicants failed to do so by 18 April 2023, an application may be made returnable at 9.30 am on 28 April 2023 for an order that the proceedings be dismissed. 2 The proceedings involve serious allegations against the first respondent of breaches of fiduciary and statutory duties as an employee of the first applicant and also breaches of confidentiality. The proceedings involve allegations of dishonesty and fraud, and it is alleged that the second respondent participated and was involved in the first respondent's alleged wrongs. 3 The orders which I made on 7 March 2023 allowed about five weeks for the applicants to provide security for costs. On 19 April 2023, the Court Registry advised the solicitors for the respondents in response to their request that no payment by way of security for costs had been received. At that stage, about six weeks had elapsed since the making of the orders for security. 4 The present application for dismissal was filed and served on 19 April 2023. On that day, the solicitors for the applicants said that the applicants intended to make payment "by the end of the week or early next week". The applicants have not made payment of the security, nor have they put forward any concrete plan or any application for an extension of time beyond today for the provision of that security. 5 There is a history of delay by the applicants in prosecuting their claims. On 25 January 2022, the applicants commenced these proceedings by filing but not serving an originating application and statement of claim. On 16 February 2022, Cheeseman J adjourned the first case management hearing scheduled for 17 February 2022 to 17 March 2022, and there were subsequent adjournments to 28 April 2022, 2 June 2022 and 14 July 2022. 6 On 14 July 2022, at the first case management hearing, Cheeseman J ordered that the applicants file and serve any amended statement of claim by 5 August 2022, the proceedings be listed for case management on 18 August 2022, and the applicants notify the respondents of the listing. No amended statement of claim was filed or served by that date and the applicants did not notify the respondents of the listing. 7 On 11 August 2022, Cheeseman J made orders extending the period of time for the applicants to file and serve any amended statement of claim to 19 August 2022 and adjourned the case management hearing to 22 September 2022. On 12 October 2022, Cheeseman J made orders dispensing with the requirements of r 16.59(2) of the Rules in relation to marking up amendments of the amended statement of claim, extending the period of time for the applicants to file an amended statement of claim to 13 October 2022, extending the period for the applicants to serve the amended statement of claim to 20 October 2022, and adjourning the case management hearing to 30 November 2022. 8 On 13 October 2022, the applicants filed an amended statement of claim. On 14 October 2022, the second respondent received a letter from the applicants' solicitors attaching a copy of the amended statement of claim. This was the first communication from the applicants' solicitors in connection with these proceedings to either respondent. The letter did not attach a copy of the originating application. On 15 November 2022, the solicitors for the applicants attached a copy of the originating application and confirmed that the applicants had not filed a genuine steps statement. 9 On 25 November 2022, the respondents' solicitors sent a letter to the applicants' solicitors regarding the applicants' failure to properly particularise the allegations of fraud made in the amended statement of claim. On 1 December 2022, the respondents' solicitors received a letter from the applicants' solicitors in response to the 25 November 2022 letter, but there was no substantive response by way of particulars to that letter. On 16 December 2022, the respondents' solicitors caused to be sent a letter to the applicants' solicitors enclosing a request for further and better particulars to the amended statement of claim, including in respect of the fraud allegations. On 21 December 2022, a reply was sent stating that the applicants were attempting to finalise a response to the request for particulars within five days. A further request was sent on 27 January 2023 for a response to the request for particulars by 1 February 2023. On 2 February 2023, a response was sent saying that a response to the request for particulars would be provided by 10 February 2023. On that day, a further letter was sent by the applicants' solicitors stating that the applicants' response to the request for particulars would be provided the following week. No particulars or substantive responses were provided in the following week. 10 On 20 February 2023, the respondents' solicitors received an email from the applicants' solicitors attaching draft consent orders proposing that the applicants respond to the request for particulars by 3 March 2023, and on 24 February 2023 the respondents' solicitors sought further and better particulars of the reply to the defence of the first respondent and the reply to the defence of the second respondent which had been filed on 23 December 2022. On 1 March 2023, the applicants' solicitors sent a letter attaching draft consent orders proposing that the applicants respond to the request for particulars by 3 March 2023 and a request for reply particulars by 10 March 2023. There has still not been any substantive response to the request for particulars or the request for reply particulars. 11 The authorities and principles relating to an application such as this were helpfully summarised by Sarah Derrington J in Sunshine Energy Australia Pty Ltd v Youssef [2023] FCA 189. As her Honour said in that case, the power under s 56(4) of the Federal Court Act is a broad discretionary power, the only limitation being that it must be exercised judicially. Her Honour referred at [9] and [10] to the five principal factors recognised in the authorities as being relevant to the exercise of the discretion. I deal with those in turn. 12 The first factor is: "the period that has elapsed since security was ordered". In the present case, the period that has elapsed is over seven weeks, and the provision of security is now more than two weeks overdue. There is no explanation for the delay and there is no concrete proposal that has been offered by the applicants. In my opinion, the applicants have had ample time to provide the security which I ordered. 13 The second factor is: "that the plaintiff has been on notice of the application for dismissal". In the present case, the applicants were aware of the respondents' intention to make this application on 7 March 2023 (and probably earlier, given the form in which the original interlocutory application took), when I made provision for the present application for dismissal to be heard today if security had not been given. In addition, the applicants were served with the present interlocutory application on 19 April 2023, more than a week ago. 14 The third factor is: "the seeming inability of the plaintiff to further fund the [m]ain [p]roceedings". In the first place, there is no evidence of the applicants being able to meet the order for security for costs. On 7 March 2023, the applicants accepted that the elements of s 1335 of the Corporations Act 2001 (Cth) were satisfied, that is, that there was reason to believe that the applicants would be unable to pay the respondents' costs if they were unsuccessful. There is no evidence before me as to the financial position of the applicants, and I infer from the many delays in the proceedings referred to above that the applicants have been unable to fund the main proceedings. 15 The fourth factor is: "the prejudice to the defendants". That prejudice is established by the inevitable incurring of costs in the litigation, the loss of executive time on the part of both respondents, and also the strain of litigation, particularly litigation alleging serious misconduct against a personal respondent, no matter how baseless the allegations may be. 16 The fifth factor is "the position of the Court". In my view, litigation involving the kinds of delays and breaches of Court orders which the present case has experienced is an unwarranted use of the Court's resources. 17 Accordingly, all five of the principal factors point towards the exercise of the discretion in favour of the respondents. 18 In my opinion, the appropriate course is to dismiss the proceedings, and I will so order. The respondents seek an order for indemnity costs in the lump sum of $240,000. 19 As to indemnity costs, pursuant to r 40.02 of the Rules, such costs are awarded where there is some special feature justifying the exercise of discretion to depart from the ordinary rule. In the present case, the excessive delays and disregard of court orders would justify such an order on their own. In addition, the making of allegations of fraud and serious misconduct without adequate particularisation, together with a failure to respond meaningfully to requests for particulars which strike me as entirely appropriate requests, compounds the matter. In my view, it is an appropriate case for the award of indemnity costs against the applicants. 20 As to the award of costs in the lump sum of $240,000, provision is made in r 40.02 of the Rules for costs to be awarded by way of lump sum. In my opinion, the factors which point strongly towards the appropriateness of such an order are: (1) first, the delay and inconvenience of having the costs assessed, which appears to me unwarranted in the light of the delays already incurred in the proceedings; (2) second, it appears that the respondents will not be able to recover the costs of assessment against the applicants, given the applicants' apparent financial position; and (3) third, there is compelling evidence of the quantum of costs incurred, given by Mr Harris, the respondents' solicitor, who is a highly experienced litigation solicitor, and I see no reason to doubt the cogency of the estimates which he has given, which produce the total figure of $240,000 on an assessment of indemnity costs. 21 Accordingly, the orders which I make are: