FEDERAL COURT OF AUSTRALIA
Smart Company Pty Ltd (In Liquidation) v Clipsal Australia Pty Ltd (No 6) [2011] FCA 419
IN THE FEDERAL COURT OF AUSTRALIA | |
LANDER J | |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT ORDERS THAT:
1. The applicant’s proceedings be dismissed.
2. The applicant pay the respondents’ costs of the proceedings.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.
SOUTH AUSTRALIA DISTRICT REGISTRY | |
GENERAL DIVISION | WAD 132 of 2004 |
BETWEEN: | THE SMART COMPANY PTY LTD ACN 061 975 344 (IN LIQUIDATION) Applicant
|
AND: | CLIPSAL AUSTRALIA PTY LTD ACN 007 873 529 First Respondent CLIPSAL INTEGRATED SYSTEMS PTY LTD ACN 089 444 931 Second Respondent CLIPSAL TECHNOLOGIES AUSTRALIA PTY LTD ACN 007 824 231 Third Respondent
|
JUDGE: | LANDER J |
DATE: | 29 APRIL 2011 |
PLACE: | ADELAIDE |
REASONS FOR JUDGMENT
1 This is an application by the respondents pursuant to s 31A of the Federal Court of Australia Act 1979 (Cth), (“the Federal Court Act”) or alternatively pursuant to O 35A r 3 of the Federal Court Rules, that the proceedings be dismissed. Alternatively they seek an order that the proceedings be stayed. I shall refer in these reasons to the parties as they are described in the proceedings, notwithstanding that the application under consideration has been brought by the respondents.
2 Since that application was brought the applicant has made a number of applications related to the respondents’ application. The last was made by the liquidators of the applicant on 27 July 2010 and was the subject of evidence and submissions by the liquidators on 2 August 2010. These reasons also deal with and dispose of that application.
3 The respondents’ application was filed on 19 April 2010 and heard on 27 and 28 May 2010, when it was adjourned until 4 June 2010. At that time the trial was set down for hearing on 19 July 2010. On 27 May 2010 the trial was adjourned sine die pending the outcome of this application and other subsequent developments which are discussed below. On 4 June 2010 I reserved judgment on the respondents’ application. On 21 June 2010 the application was re-opened at the request of the respondents in order to file further evidence arising after the hearing. The applicant was given leave to put further submissions in relation to the application to dismiss the proceedings and the applicant’s liquidators put written submissions.
4 This is the third application of this type filed by the respondents. On 17 September 2009 the respondents filed a notice of motion to dismiss the proceedings if the applicant did not appoint a solicitor within 7 days. On 27 October 2009 a solicitor announced his appearance on behalf of the applicant and a notice of acting was filed on 5 November 2009.
5 On 4 November 2009 the respondents filed an amended notice of motion seeking to dismiss the proceedings or, in the alternative, to stay the proceedings. On 21 December 2009 that application was heard and on 23 December 2009 the notice of motion was dismissed and reasons were given on 15 January 2010: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4. Much of the history of the proceedings is set out in those reasons but for convenience and because of the events that have occurred since those reasons and for a better understanding of these reasons, the history will also be summarised again in these reasons.
6 The applicant was incorporated in Western Australia and was involved in the development of various technologies. It developed an electronic control system sold under the brand name “Jeeves” for installation in residential premises. The applicant’s products were distributed through the applicant’s wholly owned subsidiary Home Systems Plus Pty Ltd (HSP) and through various independent dealer networks.
7 The respondents in these proceedings Clipsal Australia Pty Ltd (CA), Clipsal Integrated Systems Pty Ltd (CIS) and Clipsal Technologies Australia Pty Ltd (CTA) were at all material times manufacturers, wholesalers and distributors of electrical products. All three entities were part of the Clipsal Group of companies and at various times had directors in common. CA was formerly known as Gerard Industries Pty Ltd, and CTA was formerly known as Gerard Industries (No 2) Pty Ltd. CA was a wholly owned subsidiary of CTA. CIS was a wholly owned subsidiary of CTA. CTA was a wholly owned subsidiary of Clipsal Australia Holdings Pty Ltd (CAH).
8 As at May 1995 the respondents had developed and released a product for electronic building automation lighting known as the Clipsal Bus, or C-Bus System. Bus Systems were at the time commonly used systems which enabled signals or data to be transmitted around a network from one device to another via wired or wireless transmission paths. They allowed for electronic control of buildings, such as control of heating, cooling and lighting.
9 The C-Bus system was able to send and receive on, off, and dim signals, and included a PC interface which could be installed by a technician.
10 By May 1995 the applicant had developed its own electronic building control and automation system compatible with Bus networks (the Smart System). The applicant claims the Smart System was capable of controlling devices in buildings to perform functions either on a schedule or upon the occurrence of multiple events or variables. The Smart System enabled devices on different bus networks to interact directly, and was capable of communicating simultaneously to a number of different bus systems using different computer language protocols. It had an end-user interface from which building control could be controlled by an untrained user, and was able to easily accommodate different interfaces. The Smart System was applicable to a number of building control systems, such as heating and cooling, audio visual systems, motion and smoke detection, data networking and security systems. It referred to all of the above functions as “Smart Functionalities”. The applicant’s definition of the Smart System and the Smart Functionalities is discussed later.
11 The applicant claims that the Clipsal’s C-Bus system was less sophisticated and had more limited functionality. For example, it could not make decisions based on multiple events or operate in accordance with a time clock. Therefore electronic functions could not be scheduled, only pre-programmed. The Smart System on the other hand was able to control a number of different functions, as opposed to the C-Bus System which could only enable on, off, and dim settings. The C-Bus System could not be integrated directly with other control systems, and could only be operated by a trained technician. Additionally, the C-Bus system was mainly for use in commercial settings, whereas the Smart System was capable of residential application.
12 The respondents deny that the functionality of its own C-Bus system was as limited as the applicant claims. They also deny the extent of the functionality which the applicant claims for its own system.
13 On 22 May 1995 the applicant and CA entered into a Collaboration Agreement to enable the direct connection of the Smart system to Clipsal’s C-Bus system. The applicant claimed that the integration of the Smart system and the C-Bus system gave the C-Bus “Smart Functionalities”. These are described in more detail below.
14 On or about 26 September 1996 the applicant, its subsidiary HSP, and CA, entered into a Heads of Agreement (HOA). From 7 September 1999 CIS performed CA’s obligations under the HOA. Under the HOA, the applicant and the respondents agreed to pool information for the development of certain products.
15 The scope of the products which were to be developed under the HOA, and the extent to which those products were in fact developed, is the subject of substantial disagreement between the parties.
16 The applicant claims that it owns the intellectual property for numerous products and systems developed by both parties or by the respondents only during the term of the HOA. It claims that licence fees are owed to by the respondent for the continuing sale and distribution of these products and systems.
17 In September 2001 administrators were appointed to the applicant. An administrator may be appointed to a company if the directors are of the opinion that the company is insolvent or likely to become insolvent: s 436A of the Corporations Act 2001 (Cth) (“the Corporations Act”). In December 2001 the applicant entered into a Deed of Company Arrangement pursuant to which a South Australian entity, Smart World Corporation Pty Ltd, purchased all of the applicant’s shares. On 28 July 2003 the administration of Smart terminated.
18 On 22 December 2003, CA, CIS and other entities within the Clipsal Group came under the majority ownership and effective control of Schneider Electric SA (Schneider), which was a competitor of the applicant. As a result, on 17 or 18 March 2004, the applicant terminated the HOA.
19 These proceedings have had an unfortunate history due mainly to the applicant’s inability to articulate its case with any precision or particularity; the applicant frequently changing solicitors; and the applicant’s failure to comply with directions in a timely fashion.
20 Previous judgments in relation to interlocutory applications have recounted the history of the proceedings: Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388; Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253; Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4. What follows is a summary of that history.
21 The applicant commenced the proceedings on 18 June 2004 in the West Australian District Registry by an application which was accompanied by a statement of claim. Solomon Brothers of Perth were the applicant’s solicitors.
22 The directors of the applicant were then Mr Sotirios Portellos and Mr Panagiotis Galanis.
23 On 9 July 2004 Lee J gave leave to the applicant to file an amended application and amended statement of claim by 30 July 2004. The documents were filed on 10 August 2004. On 20 August 2004, Lee J gave the applicant leave to file a further amended statement of claim, following receipt of a request for particulars by the respondents, by 15 September 2004. The further amended statement of claim was filed on 13 October 2004.
24 On 26 October 2004 the respondents sought an order that certain paragraphs of the statement of claim be struck out or, in the alternative, that the applicant give particulars. On 14 December 2004 Lee J ordered the applicant to file a second further amended statement of claim by 14 January 2005. That document was filed on 7 January 2005.
25 On their application of 26 October 2004 and 15 September 2004 the respondents also sought an order pursuant to s 56 of the Federal Court Act, or in the alternative s 1335 of the Corporations Act, that the applicant provide security for the respondents’ costs in the amount of $1,978,337.
26 On 14 January 2005 the applicant entered into a funding agreement with a litigation funder, IMF (Australia) Ltd (IMF) to meet the costs of the litigation. IMF provided a guarantee and an indemnity to the respondents in respect of any costs the applicant might be liable to pay to the respondents incurred between the date of the funding agreement and the date of termination of that agreement.
27 On 4 May 2005, the respondents’ application of 26 October 2004 was adjourned sine die.
28 On 20 May 2005, as a result of the respondents’ complaints and pursuant to a further grant of leave given by Lee J on 4 May 2005, the applicant filed its fifth version of the statement of claim which was the third further amended statement of claim.
29 On 31 October 2005 the respondents filed their defence and the first and second respondents filed a cross-claim. CA and CIS’ cross-claim is for an alleged advance paid by the respondents to the applicant which CA and CIS’ claim is repayable by the applicant and for damages for a failure by the applicant to pay licence fees. In dollar terms the cross-claim is relatively insignificant.
30 On 5 December 2005 Ms Dorothea Tomazos was appointed as a director of the applicant in addition to Mr Portellos and Mr Galanis.
31 On 23 January 2006 the respondents filed an amended defence and cross claim.
32 On 14 February 2006 IMF gave notice to the respondents that IMF would terminate the funding agreement on 21 February 2006.
33 On 17 February 2006 the respondents applied to have the proceedings transferred to the South Australian Registry.
34 On 23 February 2006 Solomon Brothers ceased to act for the applicant and on 27 February 2006 Gadens Lawyers Perth commenced acting for it.
35 The termination of the applicant’s funding agreement on 21 February 2006 led the respondents to reagitate their notice of motion filed on 26 October 2004 seeking security for costs.
36 The application to transfer the proceedings was opposed by the applicant but on 29 March 2006 Lee J made an order transferring the proceedings to the SA Registry: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2006] FCA 428. The respondents’ application for security for costs was adjourned sine die.
37 On 8 June 2006 and again on 17 July 2006 due to the applicant’s delay, directions were given in relation to the notice of motion seeking security for costs.
38 On 3 October 2006 orders were made by consent that the applicant provide $850,000 as security for the respondents’ costs in four separate tranches with the last payment to be made on 11 May 2007, and an order that the proceedings be stayed in the event of default if the security was not provided within the times prescribed in the order, such stay to continue so long as the default continued. The applicant complied with the orders.
39 At that time, an ASIC search carried out by the respondents indicated that shares in the applicant were held on trust for undisclosed beneficiaries by an entity known as Smart World Enterprises Pty Ltd. The applicant has always declined to disclose the identity of the beneficiary of the trust.
40 On 3 October 2006 Phillips Fox Lawyers were appointed to act for the applicant in place of Gadens Lawyers. On 9 October 2006 their authority was terminated and on 10 October 2006 Cowell Clarke were appointed as solicitors for the applicant.
41 On 8 November 2006 directions were made for a timetable for the filing of further pleadings and for the exchange of lists of documents.
42 On 19 January 2007 Mr Galanis resigned as a director of the applicant and Mr Simon Gerblich was appointed as a director.
43 On 1 February 2007 the applicant filed its reply to the amended defence and a defence to the cross-claim. This was a year after the respondents had filed the pleadings to which the reply and defence were directed. After two and a half years the pleadings were apparently closed.
44 On 26 March 2007 the orders in relation to discovery were varied so as to require the respondents to respond to the applicant’s list of categories and, if the parties were not able to agree on categories, to meet by 16 April 2007, to make discovery by 21 May 2007, and to give inspection by 4 June 2007.
45 The respondents were also directed to make any application they were to make to strike out the applicant’s reply and defence by 23 April 2007.
46 On 26 April 2007 the respondents filed a notice of motion to strike out certain parts of the applicant’s reply and certain parts of the defence to the respondents’ cross-claim. In the alternative the respondents sought further and better particulars.
47 The respondents’ notice of motion of 26 April 2007 led in due course to the applicant on 12 June 2007 seeking leave to amend the third further statement of claim. In the meantime, further directions were given in relation to discovery.
48 On 8 May 2007 the parties were ordered to make discovery by 28 June 2007 and give inspection by 5 July 2007. Directions were also given in relation to the respondents’ notice of motion of 26 April 2007, and that notice of motion was listed for hearing on 12 July 2007.
49 On 10 May 2007 the applicant and respondents filed lists of categories for discovery of documents by the applicant and the respondents, identifying the categories which had been agreed and not agreed.
50 In the respondents’ categories for discovery which were not agreed, the applicant requested documentation relating to:
4. The Sale and Purchase Agreement by which Schneider acquired Clipsal (“the Schneider Transaction”) with all due diligence reports relating thereto.
5. Documents recording or relating to claims made by Clipsal with respect to Smart Products (including legal advice received by Clipsal) in the context of:
a. The Harvey Norman dispute;
b. The voluntary administration process;
c. The IHG separation litigation (SC of WA 142of 2002); and
d. The Schneider Transaction
51 On 12 June 2007 the applicant filed a notice of motion seeking leave to amend its third further amended statement of claim.
52 On 28 June 2007 the applicant lodged its proposed fourth further amended statement of claim (FFASOC).
53 On 12 July 2007 after hearing the parties the following orders were made:
1. The applicant lodge and serve the applicant’s proposed fourth further amended statement of claim within 28 days.
2. The hearing of the applicant’s notice of motion dated 12 June 2007 to amend its further amended statement of claim be adjourned to 9.30am on 4 September 2007.
3. The applicant pay the respondent’s costs of the applicant’s notice of motion dated 12 June 2007.
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54 The issue of categories of discovery was put aside pending the application to amend.
55 On 16 August 2007 an order was made by consent that the applicant be granted an extension of time to lodge its proposed FFASOC from 9 August 2007 to 27 August 2007. The hearing of the application was adjourned from 4 September 2007 to 20 September 2007.
56 On 29 August 2007 the applicant provided the parties and the Court with the proposed FFASOC.
57 On 14 September 2007 the respondents filed their objections to the proposed FFASOC.
58 On 19 September 2007 the applicant filed a notice of motion seeking an adjournment of the hearing on 20 September 2007 of the applicant’s own notice of motion filed on 12 June 2007 to amend the applicant’s statement of claim.
59 On 20 September 2007, because of the applicant’s continuing default in addressing the proposed FFASOC the applicant’s notice of motion of 12 June 2007 was dismissed. On the same day the applicant made a further oral application for leave to file a further amended statement of claim. The following orders were made:
1. The applicant’s notice of motion of 12 June 2007 be dismissed.
2. The applicant pay the respondents’ costs of and incidental to the notice of motion.
3. The respondents’ oral application for an order that the costs be paid forthwith be reserved.
4. The respondents’ notice of motion of 26 April 2007 be adjourned until Wednesday, 7 November 2007 at 9.30am for mention.
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6. The applicant’s oral application for leave to file a further amended statement of claim be adjourned to the same date and time for hearing.
60 As a consequence of the oral application mentioned in paragraph 6, the following directions were made:
8. The applicant lodge with the Court and deliver to the respondents any further proposed amended statement of claim by Wednesday, 10 October 2007.
9. The respondents advise any objections to the proposed amended statement of claim by Monday, 29 October 2007.
10. The applicant respond to any notice of objection by Friday, 2 November 2007.
61 In October 2007 the applicant lodged a Change to Company Details Changes to (Members) Share Holdings which showed that the applicant was now wholly owned by Enterprise Global Resources Pty Ltd (EGR) on trust for undisclosed beneficiaries. Mr Portellos was the sole shareholder and director of EGR.
62 On 9 October 2007 the applicant’s then solicitors wrote to the Court advising that a notice of motion seeking leave to amend the applicant’s third further amended statement of claim together with an affidavit annexing a copy of the proposed FFASOC would be filed and served by 19 October 2007.
63 The applicant’s solicitors’ were advised by the Court that the existing orders which required the applicant to lodge any proposed amended statement of claim rather than file and serve that document with the Court.
64 On 19 October 2007 the applicant’s solicitors again wrote to the Court advising that the proposed FFASOC would not be ready until the following week.
65 On 24 October 2007 the applicant lodged the proposed FFASOC. The applicant had not complied with the directions given on 20 September 2007.
66 Some six months had passed since the respondents had applied to strike out the applicant’s reply and defence to cross-claim. More than four months had passed since the applicant had applied to amend its statement of claim.
67 On 31 October 2007 the applicant advised the Court that the parties had agreed that the respondents should provide any objections to the proposed FFASOC by Monday, 5 November 2007, and that directions only be given on 7 November 2007, rather than the hearing of the oral application to amend the statement of claim.
68 As requested by the parties directions were made on 7 November 2007 in relation to the respondents’ objections to the proposed FFASOC and for the applicant to reply to those objections by the filing of any further proposed FFASOC by 12 November 2007.
69 On 13 November 2007 the applicant’s solicitors lodged a revised proposed FFASOC. However, the respondents again identified objections to that document and, as a result, on 22 November 2007 the applicant forwarded yet another proposed FFASOC in substitution for the document lodged on 13 November 2007.
70 The hearing of the applicant’s application to file and serve the FFASOC was set for 27 November 2007 but, because of the applicant’s lateness in the provision of the further document, that hearing could not proceed. On that day further directions were made relating to the provision by the applicant of the applicant’s proposed FFASOC and the matter was listed for further hearing on 20 February 2008.
71 On 18 February 2008 Clelands Lawyers commenced acting for the applicant in place of Cowell Clarke.
72 On 20 February 2008 the applicant was given leave to file the then version of the FFASOC subject to providing further particulars. Between 12 July 2007 and 20 February 2008 when the order giving leave was made, six versions of that statement of claim had been proposed and considered by the Court.
73 On 7 March 2008 the applicant filed its FFASOC.
74 On 3 July 2008 reasons were published for ordering the applicant to pay the costs of its application for leave to file the FFASOC: Smart Company Pty Ltd v Clipsal Australia Pty Ltd (2008) 249 ALR 388.
75 On 5 September 2008 the respondents filed their amended defence and the first and second respondents’ cross claim.
76 On 16 September 2008, the following orders were made by consent:
1. The applicant file and serve any reply to the defence to the fourth further amended statement of claim on or before 12 November 2008.
2. The cross-respondent file and serve any amended defence to the amended cross-claim on or before 12 November 2008.
3. The directions hearing listed for 17 September 2008 be vacated.
77 The applicant did not comply with paragraphs 1 and 2 of the order.
78 On 3 October 2008 Mr Portellos and Mr Gerblich resigned as Directors of the applicant, leaving Ms Tomazos as the applicant’s sole director.
79 On 13 November 2008 the applicant sought an extension of time in which to file its reply and defence until 4 December 2008.
80 Mr Britten-Jones, who then appeared for the applicant, explained that his client had not been able to provide its solicitors with complete instructions. He sought an indulgence for the filing of the reply and the defence to the cross claim on the grounds that the solicitors had not been provided with all the necessary material, but that the documents were underway.
81 Mr Sam Doyle who appeared for the respondents said that the respondents would not object to a modest extension of time for the filing of the pleadings if it meant that the pleadings would be appropriately drafted rather than needing to be amended.
82 The extension of time sought was granted, but the applicant was warned that it “ought to understand … that the directions of this court are not optional”. The applicant was told that the Court’s directions must be complied with.
83 At the hearing of 13 November 2008 the contents of the FFASOC and the way in which the applicant’s case was pleaded was raised by Mr Sam Doyle who appeared for the respondents. For an understanding of that submission the FFASOC must be analysed.
84 In the FFASOC the applicant pleads that it is entitled to licence fees for all the products it defines as “Smart Products” which were developed during the term of the HOA by the applicant or the respondents or both. The applicant claims that it is entitled to licence fees for the Smart Products, both during the term of the HOA and since the HOA was terminated.
85 It is pleaded that the Smart Products are those products which were developed for building control and automation with the “Smart Functionalites”.
86 Smart Functionalities are defined in paragraph 15 as products capable of:
15.1 controlling devices in a building to perform functions;
15.1.1 on a schedule; and/or
15.1.2 on the occurrence of multiple events, variables and/or parameters;
15.2 causing devices on different Bus Networks to interact directly;
15.3 controlling and/or scheduling building control and automation functions by an end-user via a keypad;
15.4 communicating simultaneously on multiple Bus Networks using multiple protocols; and
15.5 accommodating additional interfaces without requiring a redesign of the Smart system.
87 The applicant identifies two broad categories of Smart Products that contain the Smart Functionalities as defined in paragraph 15 of the FFASOC: Improved Products and Unilateral Products.
88 Eight products are identified as being Improved Products, and they include controllers, keypads, a telephone support option and a C-Bus interface. They are products which the applicant pleaded were developed by the applicant and CA pursuant to the joint collaborative enterprise, and constitute improvements of, and modifications to, the Smart controller and system.
89 Unilateral Products are those which the applicant claims CA developed or procured at various times during the term of the HOA without the applicant’s knowledge or consent.
90 Unilateral Products are defined as:
78.1 products for building control and automation with Smart Functionalities;
78.2 products for building control and automation that when (and only when) combined with other products had (together with the products with which was combined) Smart Functionalities; and
78.3 a combination of products (including products referred to at paragraph 60.5) sold as part of a system for building control and automation whereby each product within the system was endowed with Smart Functionalities;
91 In paragraph 60.5 it is pleaded that the Smart Products include:
60.5 any product which was not of itself developed for building control and automation and did not of itself have the Smart Functionalities but which:
60.5.1 was capable of being incorporated into a combination of products for building control and automation;
60.5.2 when so combined, had Smart Functionalities; and
60.5.3 was sold in such a combination.
92 The unilateral products are identified in paragraph 79 and, more particularly, identified in Schedule C of the statement of claim. There are over 600 products in Schedule C.
93 In paragraph 78 of the FFASOC it is pleaded a product may be a Smart Product either because it has all 5 of the Smart Functionalities referred to in paragraph 15 of the FFASOC, or because it has those functionalities when combined with other products, or because it may be attached to a system which has those functionalities.
94 The 600 products referred to in Schedule C are not well particularised. Schedule C does not identify in which of the three categories mentioned in the last paragraph a particular Smart Product lies. It does not identify whether a product is a Smart Product because it alone has the Smart Functionalities, or because it has those functionalities when combined with other products, or because it may attached to a system with Smart Functionalities.
95 Schedule C does not identify how a product fits within one of those 3 categories of Unilateral Product. It does not, for example, identify if a product has two of the five functionalities on its own, but obtains the other three when combined with another product on the list which has two or more of the functionalities.
96 It does not detail how each of the products relate to each other.
97 The applicant claims that CA was obliged to pay to the applicant licence fees at the rate set out in the HOA in respect of all sales and sub-licensing revenues received after termination in respect of the unilateral products and the improved products. The applicant claims that CA has breached the HOA by failing to pay the licence fees.
98 It also claims that CA’s development of the unilateral products meant that CA breached a fiduciary duty owed by it to the applicant. It claims that CIS knowingly assisted CA in breach of that fiduciary duty. It further claims that CA holds the intellectual property which has been developed on trust for the applicant. It claims that CA has wrongfully applied for and obtained trademarks.
99 The applicant claims that CA contravened s 52 of the Trade Practices Act 1974 (Cth) (Trade Practices Act) by engaging in misleading and deceptive conduct. It complains that the CIS and CTA were knowingly concerned in those contraventions. The applicant’s claim for damages will be addressed separately.
100 The respondents’ case is that the definition of Smart Products asserted by the applicant does not appear in the HOA, and cannot be constructed from its terms. The respondents assert that even if the Smart Products were capable of being adequately identified by the FFASOC, the products as defined were not the subject of the HOA.
101 The respondents’ case is that the scope of the HOA was far more limited. The respondents plead that the HOA covered a discrete project known as the re-design project which covered a small number of products.
102 The respondents say that they agreed to advance up to $1 million in royalties, most of which was advanced. They say that the royalties advanced were never recouped by sales. The respondents also filed a cross claim for those royalties advanced and not materialised.
103 On 13 November 2008 Mr Doyle argued that the applicant’s inability to particularise its claim meant that there were no boundaries to the discovery process. He said that the discovery process would put the parties, but especially the respondents, to extraordinary expense. He estimated that discovery would involve tens of thousands of documents and could cost the respondents millions of dollars.
104 Mr Doyle sought an order that the matter be referred to mediation prior to the respondents embarking upon the discovery process. He also raised for the first time the possibility of the applicant delivering expert reports before the discovery process in order to limit the cost of discovery. Mr Doyle’s request that the matter be referred to mediation was opposed by the applicant at least until the parties made discovery. The respondents said that their application to refer the matter to mediation was in order to make the potentially unmanageable discovery process unnecessary.
105 During the hearing the following exchange regarding the respondents’ application for mediation took place:
HIS HONOUR: Has any list of documents been given by any party?
MR BRITTEN-JONES: Categories of documents, your Honour, have been put forward by each of the parties. There has been consultation between the parties by which the majority – I think I can say the majority of those categories were agreed. That was, of course, based on the old pleading. But I think that the same formula, in a sense, could apply to the extended claim with respect to products. The idea was not to have every single document with respect to the development of every product. It was only to have some final versions of documents with respect to products and – so there has been some attempts made there, and we’d hope that that process could occur so that informed mediation could take place.
HIS HONOUR: I assume, in a case such as this, the discovery process is going to be very expensive.
MR BRITTEN-JONES: Yes, and ---
HIS HONOUR: It’s one reason to have mediation before discovery.
MR BRITTEN-JONES: Well, I think your Honour recognised – well, probably at least 12 months ago, now, when we were talking about this issue of discovery and categories of documents – that it would be best to proceed by way of categories and that is certainly the case.
HIS HONOUR: But it – no, the point I’m making now is not so much how the discovery process will go forward, but it might be better to have mediation in advance of the discovery, because the cost of the discovery is often a useful leverage in settling the matter.
MR BRITTEN-JONES: Yes. I think – with respect, I agree to the concept. The only issue there is whether or not there is a little bit more work with respect to discovery, in the sense of just finishing off the job that had been begun a year ago, could actually ---
…
HIS HONOUR: But your client won’t be making anything like the discovery the respondent will be making.
MR BRITTEN-JONES: No, that’s true.
HIS HONOUR: The real cost of discovery is on the respondents’ part.
MR BRITTEN-JONES: Yes, yes. If we could limit the discovery that is to be made by the respondent, I accept that it would certainly have to be limited discovery.
106 There followed an exchange with Mr Doyle:
MR DOYLE: Your Honour’s apprehension that this might be an expensive exercise is entirely correct. Indeed, it’s going to be an enormously expensive exercise and we’re talking in the order, I would expect, tens of thousands of documents from my understanding, not just hundreds or thousands of documents.
HIS HONOUR: Some of them archived?
MR DOYLE: I expect so. I don’t have that level of knowledge, but I know it would be an enormous undertaking, and what was embarked upon last occasion was some categories in relation to a claim that, at that stage, was in relation to about 30-odd products. We’re now dealing with a claim that’s 20 fold that size. If it’s not an impossible burden, it’s certainly an enormous burden, and we are concerned not to incur that expense if there is any prospect of resolving the matter before that is done. So we – well, my client is keen to pursue mediation if – well, either if my opponent’s client would agree or if your Honour were prepared to impose mediation upon the parties.
My client wouldn’t have any objection, I don’t expect, if it was a case of, “Look, here’s, you know, a few dozen or even a few hundred documents we’d like to see before the mediation comes on.” We couldn’t have any difficulty with that if that was going to shed light on the merits of the matter, but even first of all determining the categories is going to be a process in itself, and we’d like to have a short attendance before your Honour to propose some more innovative or different approaches to discovery in this case with a view to trying to make that process manageable. But even just a category-based approach, even if they were fairly narrow categories in relation to 630-odd products, it’s just an enormous exercise that will take many months, and I don’t know what the dollars are, but they’ll be enormous.
So we’re very keen to pursue the possibility of mediation before embarking on that process. And part of the reason for that, as well, is what we intend proposing to your Honour is considering the prospect of experts’ reports from the plaintiffs coming before discovery here, and whilst we’ve responded to a pleading that is at the very general level of 630-odd products, 12-odd functionalities and any permutation or combination is potentially a breach, that that is just an unmanageable case in terms of providing discovery, but also attempting to answer it, we would have thought an expert’s report that says, “Well, here really are the key functionalities that we say involve breaches and they’re found in these respects in these particular products.”
The case just inevitably has to be narrowed at some point, and it would seem that that would happen through experts. I expect the answer will be, “Well, we need to see some of the documents before we can finalise that process.” My client would understand and expect that this is not going to be a one expert report, that’s the end of the matter, you can’t put a supplementary one. But we would have thought understanding the number for plaintiffs (sic) of the applicant’s case through its expert reports, then having an informed and focused process of discovery after that with ample opportunity for the applicant to supplement their expert reports in light of material that comes out of discovery would be an appropriate regime in this case.
107 I reached the tentative view that the parties should be ordered to mediate and said to Mr Britten-Jones that if the applicant instead wanted full discovery prior to mediation it might have to provide security for the millions of dollars the respondents estimated it would cost.
108 On 2 December 2008 Clelands Lawyers wrote to the respondents’ solicitors requesting further discovery for the purposes of the proposed mediation. The solicitors requested:
1. All documents held by the Defendants concerning the due diligence conducted by the Schneider Group in relation to the sale and purchase of the Clipsal Group in 2003, including:
a. Reports by Norman Waterhouse, Allens Arthur Robinson, PriceWaterhouseCoopers (“PWC”) and Allen Gledhill of Singapore, as well as the data room disclosure letter and accompanying list of documents (our client does not seek copies of all documents, merely the list of documents at this stage) in relation to the due diligence conducted in relation to the following transactions:
i. The acquisition of 100% of the Clipsal Australia Business (and its operations in South Africa, India and New Zealand), together with worldwide ownership of the Clipsal brand name, from the founding Gerard family and their 52% partner, a listed Singapore company, Clipsal Industries (Holdings) Limited (since renamed CIH Limited);
ii. Entry into a 50-50 JV with CIH Limited, which operated a similar Clipsal business in Asia, Greater China, and the Middle East pursuant to a long-term exclusive right to use the Clipsal name in these regions; and
iii. An off-market sale of Schneider Electric’s 18.7% shareholding in CIH Limited.
b. Sale and purchase agreements in relation to the above transactions.
2. All financial returns and the accompanying financial statements lodged with the Deputy Commissioner of Taxation or any other taxation authority by members of the Clipsal Group in the period 1 July 1995 to 30 June 2004;
3. Financial information from the Schneider Group in relation to sales of its T-Bis and other automation and building control ranges since 1 January 2004 to present; and
4. Copies of the minutes of meetings, and product direction documents, of the Clipsal Group’s International Steering Committee from 1 July 1995 to present.
109 On 4 December 2008 the respondents replied, maintaining the same paragraph numbering of the applicant’s letter:
1. We act for Clipsal Australia Pty Ltd, Clipsal Integrated Systems Pty Ltd and Clipsal Technologies Australia Pty and not for the Schneider Group. We do not expect that our clients will have any documents in their possession, custody or control responsive to your request in this paragraph. Alternatively, to the extend that any such documents might be in the possession of our clients’ former solicitors, Norman Waterhouse, they are likely to be, so far as relevant (if at all), privileged from production. We consider it highly unlikely that any of the documents requested are relevant to any issues arising on the pleadings and therefore invite your client to explain how they might be so that we can obtain our clients’ instructions with respect to your request.
2. In relation to your request in paragraph 2, you will be aware that the pleadings define the Clipsal Group of companies as comprising a broader group of companies than those for whom we act, and against whom your client claims in these proceedings. We fail to see how the provision of the financial information requested could be relevant to issues arising on the pleadings. Further, any “financial returns and accompanying financial statements” are likely to show only gross income, revenue, expenses and the taxable income for each entity. We consider that the documents requested will not be probative of any issues in dispute. We again invite your client to explain how they might be relevant or otherwise discoverable.
3. As set out above, we do not act for the Schneider Group and your request therefore relates to documents concerning sales by a third party. In any event, we are instructed that our client has no financial information from the Schneider Group, either in relation to an item or product called “T-Bis”, or at all.
4. We are instructed that our client, as presently advised, has no knowledge of any body that exists, or has existed, called the “Clipsal Group’s International Steering Committee” or “International Steering Committee”. Further, it is not aware of any documents called “product direction documents”, nor can it discern the relevance of such documents if they did exist. Please properly identify and clarify the existence of this committee, the nature of the documents requested and indicate, with reference to the Fourth Further Amended Statement of Claim, how your client considers such documentation to be relevant to issues arising on the pleadings.
110 On 4 December 2008 the applicant filed its reply and defence to the cross-claim. The date for filing those documents had been extended on 13 November 2008 until 4 December. The pleadings closed more than four years after the proceedings had commenced. The pleadings have not been amended since that time.
111 On 5 December 2008 the applicant’s request for discovery was addressed.
112 It is necessary to have some understanding of how the applicant has put its case on damages having regard to the case pleaded in the FFASOC. The applicant has pleaded its entitlement to damages by reference to the various causes of action upon which it relies:
BREACH OF THE HOA AND DAMAGE
Licence fees on Original and Improved Products
87. Smart is entitled to licence fees on:
87.1 all sales made of; and
87.2 all sub-licensing revenues derived in respect of;
all Original and Improved Products:
87.3 during the term of the HOA, pursuant to the term of the HOA pleaded at paragraph 62.2;
87.4 after termination of the HOA, pursuant to the term of the HOA pleaded at paragraph 85 or alternatively pursuant to the licence pleaded at paragraph 86.
88. In breach of its obligations, Clipsal failed to:
88.1 pay the advance payment of $300,000.00 in or before December 1998 in breach of clause 9.7.2.2 of the HOA;
88.2 account to and pay to Smart the licence fees due on sales of Original and Improved Products or sub-license revenues derived in respect thereof during the term of the HOA;
Particulars
88.2.1 Clipsal was obliged to pay licence fees based on the formula and defined terms in clause 9.1 of the HOA, namely in effect a percentage of the difference between its Net Selling Price and its Supply Price (as defined in clause 3.1.17 of the HOA);
88.2.2 Clipsal instead calculated and paid licence fees based only on the purported Supply Price for all Clipsal sales within the Specified Territories and at a fixed one third rather than at the varying proportions required by clause 9.1 of the HOA;
88.2.3 Smart did not and does not know the amount of Clipsal’s Net Selling Price, Total Manufactured Costs, Supply Price, purchase prices or selling costs;
88.3 account to or pay to Smart any licence fees in respect of sales of Improved Products and sub-licensing revenues derived after termination of the HOA.
89. In the premises:
89.1 Smart is entitled to an account by Clipsal of all profits from sales and consideration for sub-licensing rights in respect of the Improved Products;
89.2 Smart is entitled to an order for payment of the licence fees found due;
89.3 alternatively, Smart has suffered loss and damage in the amount of the said licence fees not paid by Clipsal.
Licence Fees on Unilateral Products
90. …
91. Smart is entitled to licence fees on:
91.1 all sales made of; and
91.2 all sub-licensing revenues derived in respect of;
all Unilateral Products:
91.3 during the term of the HOA, pursuant to the terms of the HOA pleaded at paragraph 62.5;
91.4 after termination of the HOA, pursuant to the term pleaded at paragraph 85 or alternatively pursuant to the licence pleaded at paragraph 86.
92. In breach of their obligations, Clipsal have failed to:
92.1 account to and pay Smart any licence fees due on sales of Unilateral Products or sub-licensing revenues derived in respect thereof during the term
92.2 account to or pay Smart any licence fees in respect of sales of Unilateral Products or sub-licensing revenues derived in respect thereof after termination of the HOA.
93. In the premises:
93.1 Smart is entitled to an account by Clipsal of all profits on sales and consideration for sub-licensing rights in respect of the Unilateral Products;
93.2 Smart is entitled to an order for payment of the licence fees found due;
93.3 alternatively, Smart has suffered loss and damage in the amount of the said licence fees not paid by Clipsal.
94. In the alternative, in the event that on the proper construction of the HOA the Unilateral Products are not Smart Products, by reason of their conduct pleaded in paragraph 78, Clipsal are in breach of the following terms of the HOA:
94.1 the terms pleaded at paragraphs 56 and 57;
94.2 the terms pleaded at paragraphs 62.5 to 62.8;
94.3 the term pleaded at paragraph 62.11;
94.4 alternatively each of the implied terms pleaded at paragraph 66.
95. By reason of the matters pleaded at paragraph 94, Smart has suffered loss or damage.
Particulars of loss or damage
95.1 Smart has lost licence fees on:
95.1.1 the sale of the Unilateral Products;
95.1.2 sub-licensing revenues derived in respect of the Unilateral Products;
which Smart would have received if those products had been Smart Products;
95.2 Alternatively Smart has lost:
95.2.1 profits from its own manufacture and/or sale of Smart Products;
95.2.2 licence fees from third parties for the manufacture and/or sale of Smart Products;
95.2.3 profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
Minimum Sales
96. In breach of clause 7.2 of the HOA, Clipsal failed to achieve the minimum sales of JV00 required by clause 7.2.
Particulars
See Schedule D attached
97. By reason of the breach, Smart has suffered loss and damage as set out in the particulars to paragraph 96.
CONTRAVENTION OF FIDUCIARY DUTIES
98. By their conduct pleaded at paragraphs 78 and 79, Clipsal breached the Clipsal Fiduciary Duty.
99. …
100. By reason of the matters pleaded at paragraph 98 or alternatively paragraph 99:
100.1 CA and CIS are required to account to Smart for all profits derived by them from Unilateral products;
Particulars
Particulars will be provided after discovery and experts reports.
100.2 CA and CIS have procured a benefit by way of ownership of the IP and UP Intellectual Property and hold those benefits on constructive trust for Smart;
100.3 Smart has suffered loss and damage.
Particulars of loss or damage
100.3.1 Smart has lost licence fees on:
100.3.1.1. the sale of the Unilateral Products which Smart would have received if those products had been Smart Products;
100.3.1.2. sub-licensing revenues derived in respect of the Unilateral Products;
100.3.2 Alternatively Smart has lost:
100.3.2.1. profits from its own manufacture and/or sale of Smart Products;
100.3.2.2. licence fees from third parties for the manufacture and/or sale of Smart Products;
100.3.2.3. profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
INTELLECTUAL PROPERTY CLAIMS
113 In respect of this cause of action damages are not sought but the application seeks rectification under the Trade Marks Act 1993 (Cth) and the Designs Act 1996 (Cth) or the Designs Act 2008 (Cth).
TRADE PRACTICES ACT CONTRAVENTION
112. By reason of Clipsal’s conduct pleaded at paragraph 110, Smart suffered loss and damage.
Particulars
Smart has lost:
A. profits from its own manufacture and/or sale of Smart Products;
B. licence fees from third parties for the manufacture and/or sale of Smart Products;
C. profits from developing and expanding Smart Products and manufacturing and selling or licensing the manufacturing and selling of such products.
…
117. By reason of the matters pleaded in paragraph 116, Smart has suffered loss and damage.
Particulars
117.1 Smart has lost:
A. profits from its own manufacture and/or sale of Smart Products;
B. licence fees from third parties for the manufacture and/or sale of Smart Products;
C. profits from developing, expanding, manufacturing and selling Smart Products.
114 No further particulars of damage are given in the FFASOC and none to the Court’s knowledge have been given.
115 The applicant has at various times, in evidence and from the bar table, estimated its damages as being in the realm of $4 billion, $2 billion or at least several hundred million dollars. Indeed, an expert report of the applicant written by Mr Alexander Reade (which report was ultimately ruled inadmissible) calculated the applicant’s losses at $3,988,819,150.10.
116 Notwithstanding it is no part of the applicant’s pleading, the applicant puts its damages claim on the following assumptions.
117 On 22 December 2003 Schneider acquired Clipsal’s electrical wiring devices and installation systems business (EWDIS) which the applicant has asserted without any proof includes that part of the respondents’ C-Bus business. The applicant has claimed that it is entitled to prove its damages by reference to the price paid by Schneider for the EWDIS business.
118 The applicant has continued to maintain that its damages may be measured by the price paid by Schneider for EWDIS even though no reference to the EWDIS business is made in the FFASOC, and even though the respondents assert that the totality of the products in the statement of claim comprise much less than 5% of the EWDIS business.
119 Mr Britten-Jones said that the applicant requested discovery of the documents relating to the transaction by which Schneider acquired the EWDIS business.
120 On 5 December 2008 when asked how that transaction would bear upon the applicant’s claim, Mr Britten-Jones said:
MR BRITTEN-JONES: It’s actually not something that would be relevant to the – necessarily to the pleadings but it is something that’s relevant to the quantification, an easy quantification, of the value of my client’s claim. In other words, if my client has a claim over all of the intellectual property and products associated with the home automation arm of Clipsal and that was, in effect, valued and sold as at 2003 pursuant to that Schneider transaction, then that will give my client some idea without the need to trek through the process of applying a formula to sales of smart products, which is the other way of doing it, without the need to do that, it would give my client some idea of the quantification of its claim. So it really goes to the quantification of the claim.
121 Mr Doyle addressed Clelands’ letter of 2 December 2008 which sought discovery of the due diligence report conducted by Schneider in relation to the sale and purchase of the Clipsal Group and Mr Britten-Jones’ request for those and other documents. He said that the request for those documents was not relevant to any issue raised on the pleadings. However, his instructing solicitors had written seeking further information in an endeavour to understand how the documents might be relevant.
122 The question of the applicant’s request for mediation was considered and an order was made referring the proceedings to mediation and the Honourable John von Doussa QC was appointed mediator. The mediation was to take place in mid March 2009.
123 On 18 December 2008 Mr Simon Gerblich was reappointed as a director of the applicant, and Mr Dean Clift was newly appointed as a director.
124 On 4 March 2009 the applicant wrote to the respondents requesting the further discovery which it had sought on 2 December 2008 for the purpose of the mediation.
125 On 4 March 2009 the respondents replied:
As your request for documents as set out in your letter dated 2 December 2009 is far broader than is required by your client for the purposes of calculation of quantum in this matter, our client declines to provide the documents as requested,
126 No further request was made by the applicant prior to mediation.
127 The mediation was conducted on 17 March 2009 but failed.
128 On 26 March 2009 the respondents sought to relist their application for security for costs on the basis that the applicant’s inability to articulate its claim meant it should provide further security.
129 On the same day the respondents wrote to the applicant inviting it to agree to a regime in which the experts’ reports were to be filed prior to the respondents making discovery. Relevantly the letter stated:
Discovery
In view of the vastly increased scope of your client’s fourth further amended statement of claim (FFASOC) over its previous iteration, and the recent indications that you have given in relation to the form and magnitude of the discovery that your client intends to seek1, it is clear that our clients’ costs implications of discovery are potentially enormous. Indeed, such implications have been raised by our clients’ counsel and acknowledged by Justice Lander on at least one occasion.2 As you are aware, the significant costs of our clients’ discovery stems, in part, from the fact that your client’s claim now relates to some 650 products, whereas previously it was 31 products. Notwithstanding that your client’s current claim is framed somewhat differently from its predecessor, given the significant level of discovery required for even 31 products, we project that the discovery of documents in relation to 650 products will be exponentially larger.
To this end, we propose that discovery not only be limited or modified, but also that it be postponed until after the provision of your client’s expert reports, for reasons set out below.
Expert reports
In our view, the next appropriate procedural step is for your client, before discovery, to file its experts reports identifying precisely which products, of those claimed, fall within the paragraph 60 (FFASOC) definition of “Smart Products” by reference to the various criteria set out therein (including an expert evaluation of whether the products claimed in the FFASOC replicate the functionality of the original Smart Products).
By so doing, the scope of our clients’ discovery might thus not only be confined to those products properly falling within the definition of the “Smart Products” as determined by your client’s experts, but also will be able to be focused upon the particular characteristics of the products that are relevant to a determination of whether or not the products do fall within that definition.
Given that two of your client’s present directors have only very recently been appointed and that all three appear to have had no involvement with the products during the terms of the Heads of Agreement (in contrast to our clients), we suggest that the involvement of your experts at this stage of proceedings may assist in limiting the process of discovery to a more manageable one.
Although your client might contend that expert reports cannot be provided until such time as our client has made discovery this is not the case. The issue of expert determination of functionality and application are matters which can proceed largely independently of the kind of discovery your clients have sought hitherto.
We accept that discovery following from the provision of expert reports might throw up some additional information that might require further consideration by your client’s expert(s) and (assuming proper cause is shown) our clients would not object to any supplementary report(s) required to deal with the information arising out of discovery.
Further, the proposal for discovery that our clients have in mind also is not intended to foreclose the possibility of additional discovery (or a second tranche of discovery) should proper cause be made out. They are simply concerned to ensure that the first tranche of discovery is brought within manageable boundaries.
If, contrary to the proposal set out in this letter, or for any other reason, our clients are required to make full discovery before your client files its experts’ reports, we advise that we will necessarily require additional security for costs and will apply for such at the earliest opportunity.
Please indicate, at your earliest convenience, if your client agrees with the next procedural steps as set out above.
______________________
1 For example, your request for us to produce the kinds of documents referred to in your letters dated 2 December 2008 and 5 March 2009.
2 See, for example, pages 7 & 8 of the transcript of the hearing on 13 November 2008.
130 On 1 April 2009 the respondents applied orally for an order that the applicant provide an expert report on liability prior to the parties making discovery.
131 Mr Doyle submitted that the suggestion of an expert report ahead of discovery was an alternative to the respondents pursuing further particulars of the case they had to meet. The respondents contended that the applicant should provide an expert report on liability before discovery because that report would assist to inform the parties of the scope of discovery. Mr Doyle contended that the applicant’s FFASOC did not contain proper particulars but the respondents wished to avoid any further pleading arguments but needed at the same time to have a better understanding of the applicant’s case. Mr Doyle said:
MR DOYLE: That there be expert reports first and we openly acknowledge and accept that there may well need to be some focused discovery after that and the possibility of supplementary reports but that is, in our submission, going to result in a very large time and money saving – and particular in a situation, as your Honour would understand, where we’re the party that carried the burden of discovery in this case, it’s not a mutual exercise. And, as your Honour would know from our foreshadowed security application, we are seriously concerned about money we spend, in effect, going down the drain and not being recoverable.
132 The applicant said that it had already retained an electrical engineer to offer an opinion in relation to the functionality of the products referred to in Schedule C of the statement of claim. The applicant’s counsel was told that the applicant should identify the assumptions which it wished the expert to make for the purpose of the expert’s opinion.
133 An indication was given of the directions which might be made. The applicant would provide to the respondents the assumptions which the applicant wished its expert to make; the documents which the applicant intended to provide to the expert for the purpose of the opinion; the products which the applicant claims have a Smart functionality in themselves; the products which only have a Smart functionality when used with any other products; and would identify the opinion which was to be sought for the purpose of the proceedings.
134 The hearing was adjourned for seven days to allow the parties to get instructions.
135 On 8 April 2009 the hearing resumed and the applicant’s solicitor said that Mr Britten-Jones who had appeared for the applicant was no longer retained “because in the opinion of the managing director of the Smart Company Mr Britten-Jones had not been adhering to the client’s instructions and his services are no longer required as a result of that”. The applicants’ solicitor sought an adjournment so that Mr Blue QC, who was then retained but who was not available, could put an argument on this issue. The application was refused.
136 The applicant was ordered to provide within 28 days any assumptions it would ask the experts to make; the documents which the applicant would provide to the expert; identification of each of the products said to have a Smart functionality either by itself or in combination with other products; and the opinion it sought. This regime was implemented in order to provide some definition to and articulation of the claim.
137 The orders made on 8 April 2009 were:
1. The applicant provide to the respondents within 28 days the following:
1.1 the assumptions which the applicant would ask any expert to make;
1.2 the documents which the applicant would and could provide that expert by reference to each of the products identified in paragraph 79.1 of the Fourth Further Amended Statement of Claim (FFASOC) and insofar as relevant, Schedule C thereof;
1.3 identification of each of the products which is said to have a Smart functionality by itself;
1.4 identification of each of the products which is said to have a Smart functionality only when used in combination with any product, and in that class identify whether, and if so which of those other products have a Smart functionality by themselves;
1.5 when a product is by itself or in combination with some other product said to have a Smart functionality, identification of the Smart functionality by reference to paragraphs 15 and 16 of the FFASOC;
1.6 the opinion which is sought for the purposes of the proceeding.
138 On the same day directions were given for the filing of evidence and written submissions in relation to the applicant’s application for further security for costs.
139 On 22 April 2009 Tindall Gask Bentley commenced acting for the applicant in lieu of Clelands Lawyers and filed a notice to that effect.
140 On 12 May 2009 the applicant sought an extension of time in which to comply with the orders of 8 April 2009. Mr Duggan, who then appeared for the applicant, assured the Court that the draft of the assumptions was in near a final form, and that an expert had been identified. The application was allowed and the applicant was granted an extension of time of 14 days until 26 May 2009.
141 During the hearing the following exchange with Mr Duggan took place in relation to the applicant’s continuing delay:
MR DUGGAN: …There is obviously a prejudice caused by, if it turns out to be a conduct or pattern of delay because it’s the non-prosecution of a matter and your Honour, we’d hate for that to happen and certainly while I’m involved, obviously the strongest possible instructions are, you’ve got to get on. Once you’ve filed proceedings, you’ve got to get on with it, got to move towards the trial date.
HIS HONOUR: Well, as you say again, Mr Duggan. I’m not criticising you or your present instructors but the history of the matter has shown a reluctance on your client to take any practical view of how this litigation ought to be conducted and rather to run a Rolls Royce case, at a very slow speed without at any time being able to precisely identify what your case is. That’s the history of this matter. That’s why your client is facing another application for security, I think, and that’s why the unconventional order was made on the last occasion in relation to experts’ reports, so as to get the matter moving. Your client just keeps talking about it, not doing it and it’s got to come to an end. You either get on with the case or you don’t. It’s been going too long now. What’s it, when was it started? Five years ago and your pleading is just in shape and we haven’t had discovery. You can’t run litigation of this size at that pace.
MR DUGGAN: Yes. Well, I’ll make sure my instructing solicitors convey those remarks to my client.
142 The applicant did not comply with the order as extended. In a letter dated 27 May 2009 but received by the respondents on 4 June 2009, the applicant’s solicitor provided the respondents with the brief, which contained the assumptions on which the expert’s opinion on liability was to be based and the opinion sought. Those assumptions first came to the Court’s attention in an annexure to the affidavit of Stephen McNamara, solicitor for the applicant from 5 November 2009, sworn on 29 April 2010:
Assumptions
May 1995 Smart Products
19. Assume that as at May 1995 the Smart range of products comprised the products referred to in Attachment A [this is schedule A to the FFASC]. These products are referred to as the “May 1995 Smart Products”.
20. We attach various technical documents in relation to the May 1995 Smart Products (Attachment B). Assume that the descriptions of the May 1995 Smart Products in the technical document are accurate.
May 1995 C-Bus Products
21. Assume that as at May 1995 the C-Bus range of Clipsal Products was limited to the products referred to in Attachment C [these are the products listed at paragraphs 8 and 9 to the FFASC]. These products are referred to as the “May 1995 C-Bus Products”.
22. We attach various technical documents in respect of each of the May 1995 C-Bus Products (Attachment D). Assume that the descriptions of the May 1995 C-Bus Products in the technical document are accurate.
Attachment E Products [the Improved Products]
23. We attach a list of products (Attachment E) [these are the products listed at paragraph 74 to the FFASC].
24. We attach the trade catalogues in the public domain in respect of each of the products listed in Attachment E (Attachment F). Assume that the descriptions of the Attachment E products in the trade catalogues are accurate. We do not have all of the technical documents in respect of these products which are not in the public domain.
Attachment G Products [Unilateral Products]
25. We attach a list of products/systems. (Attachment G) [this is schedule C to the FFASC].
26. We attach the trade catalogues in the public domain in respect of each of the products/systems listed in Attachment G (Attachment H). We do not have the technical documents in respect of these products/systems which are not in the public domain. Assume that the descriptions of the Attachment H products in the trade catalogues are accurate.
27. We attach a scheduled (Attachment I) which divides the Attachment G products/systems into the following limbs:
a. Limb 1:
i. A product for building control and automation with some or all of the following functionalities:
1. controlling devices in a building to perform functions:
a. on a schedule; and/or
b. on the occurrence of multiple events, variable and/or parameters;
2. causing devices on different bus networks to interact directly;
3. controlling and/or scheduling building control and automation functions by an end-user via a keypad;
4. communicating simultaneously on multiple bus networks using multiple protocols;
5. accommodating additional interfaces without requiring a redesign of the system.
b. Limb 2:
i. A product for building control and automation that when (and only when) combined with other products has (together with the products with which it is combined) the functionalities described in paragraphs 27(a)(i)(1)-(5) above.
c. Limb 3:
i. A product which:
1. was capable of being incorporated into a combination of products for building control and automation;
2. when so combined, had some or all of the functionalities described in paragraph 27(a)(i)(1)-(5) above; and
3. was sold in such a combination.
28. Do not assume the accuracy of the identification process performed by us in Attachment I. We ask you to perform the same sorting process yourself in respect of the Attachment G products/systems set out below.
143 The opinions sought were set out in the same brief. They were as follows:
1. What are the typical features and components of a system which performs building control and automation?
2. What were the features and functional capabilities of the May 1995 Smart Products, both on an item by item basis, and as part of a system?
3. What were the features and functional capabilities of the May 1995 C-Bus Products, both on an item by item basis, and as part of a system?
4. Compare and contrast the May 1995 Smart Products with the May 1995 C-Bus Products, including identifying the extent to which they were compatible with each other.
5. Compare and contrast the May 1995 Smart Products with the Attachment G products, identifying where possible the extend to which you consider the Attachment G products were an improvement or modification of the May 1995 Smart Products.
6. In respect of each of the Attachment G products/systems, do you consider that it is a product for building control and automation with some or all of the following functionalities:
a. controlling devices in a building to perform functions:
i. on a schedule; and/or
ii. on the occurrence of multiple events, variables and/or parameters;
b. causing different devices on different bus networks to interact directly:
i. controlling and/or scheduling building control and automation functions by an end-user via a keypad;
ii. communicating simultaneously on multiple bus networks using multiple protocols;
iii. accommodating additional interfaces without requiring a redesign of the system?
7. In respect of each of the Attachment G products/systems in respect of which you answer no to question 6, do you consider that it is a product for building control and automation that when (and only when) combined with other products has (together with the products with which it is combined) the functionalities described in question 6 above?
8. In respect of each of the Attachment G products/systems in respect of which you answer no to questions 6 and 7, do you consider that it is a product which:
a. was capable of being incorporated into a combination of products for building control and automation;
b. when so combined, had some or all of the functionalities described in question 6 above; and
c. was sold in such a combination?
144 On 23 June 2009 the respondents’ application of 26 March 2009 for further security for costs was heard. At that time the parties were told that they should proceed on the basis that the trial would commence in May 2010.
145 On that occasion Mr Solomon appeared for the applicant. During that hearing Mr Solomon was told that the applicant was attempting to run a “Rolls Royce case at its own speed” which the applicant had to recognise was no longer appropriate. The applicant had to move swiftly.
146 During the hearing Mr Solomon said that the applicant had provided the assumptions which were to be the basis of the expert’s opinion to the respondent, but had not received any comment from the respondents on the proposed assumptions. Mr Ben Doyle, who appeared for the respondents, replied:
MR DOYLE: Your Honour, the position as we had understood it was that the assumptions were to be prepared with a view to the applicant’s expert then indicating which, if any, documents it would require by way of discovery in the first tranche. As my friend indicated, we have been provided with assumptions. We haven’t been provided with the identity of the expert, and I don’t know whether the expert has been briefed. But we don’t see that there is really any role for us to provide comments. It is the applicant’s case.
HIS HONOUR: Yes.
MR DOYLE: And we would expect – and I think my friend agrees – that they shouldnow go ahead and brief the expert, if the expert isn’t already briefed, and an application for discovery can be brought in due course, and no doubt that will be explored in correspondence before we trouble your Honour about it.
HIS HONOUR: I think then, Mr Solomon, your client ought to proceed with that ---
MR SOLOMON: Yes.
147 On that day the following orders were made:
1. The part of exhibit DT3 to the affidavit of Dorothea Tomazos sworn on 8 June 2009 which identifies a customer of the applicant and its addresses be forbidden from publication.
2. Paragraphs 10 and 15 of exhibit DT1 to the affidavit of Dorothea Tomazos sworn on 18 June 2009 be forbidden from publication.
3. The reference made in Dorothea Tomazos’ oral evidence to the customer in Greece be forbidden from publication.
4. The contents of exhibit B, the Sale and Purchase Agreement, be forbidden from publication.
5. Judgment be reserved.
148 On 7 July 2009 the parties were advised in writing that the trial would commence in May 2010, the intention being to give the parties a year to get their cases ready for trial. The applicant commenced these proceedings on 18 June 2004. Five years had passed when the parties were advised that the trial would commence in 12 months’ time. The applicant had had sufficient time in which to get its case ready.
149 On 20 July 2009 the respondents’ solicitors wrote to the applicant’s solicitors:
As we understand it, you are in the process of briefing an expert to provide his or her opinion on the matters laid out in the brief provided to us on 4 June 2009. If that expert requires recourse to further documents which may be in the respondents’ power, possession or custody in order to provide that opinion, it is anticipated that those documents will form the first “tranche” of discovery (absent any dispute as to relevance etc).
Although there is no formal timetabling in place at present in relation to discovery and experts reports, we are concerned to progress the matter given that it has now been listed for trial. Please let us know when you expect to be in a position to request further material, if any, in order for your expert’s report to be prepared.
150 On 5 August 2009 the respondents wrote again to the applicant’s solicitors:
We refer to our letter dated 20 July 2009, to which we have received no response. We anticipate that the matter will be listed for further directions in early September after Lander J returns from leave and ask that you consider the matters raised below to ensure that the parties are properly prepared to progress the matter at that hearing.
---
Given that your client’s brief was finalised by 4 June 2009, by the time the matter is next heard, your client’s expert will have had some three months to consider what materials they require to complete their report. Any request for technical materials should be made prior to the next directions hearing, and as far as possible in advance to give our client time to review it.
151 On 3 August 2009 Tindall Gask Bentley ceased to act for the applicant, but were not replaced by any other solicitors and as a consequence the applicant became unrepresented. Because the applicant was a corporation it could not carry on the proceedings without a solicitor unless the Court gave leave: Federal Court Rules O 4 r 14(2). No leave was sought.
152 On 17 September 2009 the respondents filed the notice of motion, mentioned previously in [4], seeking an order dismissing the proceedings if a solicitor were not appointed within 7 days.
153 On 7 October 2009 on the return of that notice of motion no legal practitioner appeared for the applicant. A director of the applicant who was in Court informed the Court that DLA Phillips Fox had been retained to act for the applicant. The following orders were made:
1. The respondents file any further evidence upon which they seek to rely in support of the notice of motion of 17 September 2009 within 7 days.
2. The applicant file any evidence it may be advised in opposition to the notice of motion within 14 days.
3. The notice of motion be heard on Tuesday 27 October 2009 at 10.15am.
154 On 27 October 2009 Mr McNamara of Commercial & General Law appeared for the applicant and said that DLA Phillips Fox had advised that it could not appear because of a conflict of interest and that he was considering whether to act for the applicant. He sought an adjournment of 14 days in order to allow the applicant and him to consider their positions. The respondents advised that they intended to amend their application in the notice of motion to seek further relief. The application was adjourned and the following orders were made:
1. If the respondents seek to amend their notice of motion, they provide the amended notice of motion to the applicant:
(a) by providing a copy to Mr McNamara of Commercial & General Law;
(b) by serving Ms Tomazos at her email address; and
(c) by serving the applicant at the applicant’s registered office.
2. The applicant pay the respondents’ costs of today’s attendance.
3. The proceeding be adjourned to Monday, 9 November 2009 at 1.45pm (Adelaide time).
155 On 4 November 2009 the respondents filed an amended notice of motion in which they sought orders dismissing the proceedings, or in the alternative staying the proceedings unless the applicant filed a notice of appointment of solicitor and the applicant provide evidence of its capacity and desire to progress the matter to trial.
156 On 5 November 2009 Commercial & General Law filed a notice of acting. It filed a second notice on 9 November 2009 and a third notice on 10 November 2009.
157 Mr Stephen McNamara who was the solicitor who had the care and conduct of the matter said in an affidavit sworn on 27 April 2010 that at the time of filing the Notice of Acting he was instructed that:
31.1 Mr Seeger Snowden, a technical expert had been retained in July 2009 and that a set of assumptions settled by senior counsel had been provided to the expert;
31.2 financial experts Sothertons Chartered Accountants had been retained;
31.3 lay witness statements had been drafted and the major witness statements had been settled by counsel;
31.4 senior counsel was available to conduct the trial which had been set down to commence on the 31st May 2010; and
31.5 the hard copy file was not available as it was being retained by Smart’s former solicitors in this matter but that all documents, pleadings and other matters the subject of the claim were available electronically.
158 On 9 November 2009 the respondents’ application for further security for costs was dismissed and the respondents were ordered to pay the applicant’s costs of the application: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2009] FCA 1253.
159 On the same day the following orders were made:
1. The proceeding be set down for trial on all issues on 31 May 2010 with an estimated duration of 12 weeks.
2. The applicant file and serve its expert evidence in relation to the assumptions provided to the respondents under cover of letter dated 4 June 2009 by Friday, 4 December 2009.
3. The parties seek to agree a form of discovery protocol in accordance with the Federal Court Practice Note 17 by Friday, 4 December 2009.
4. The parties exchange the categories of discovery each party requests from the other by Friday, 4 December 2009.
5. Any dispute as to the categories of discovery, if not resolved, be heard on Monday, 14 December 2009 at 8.45am.
6. The parties make discovery in accordance with those categories by Friday, 22 January 2010.
7. The applicant file and serve a list of the witnesses to be called at trial and an outline of the evidence of each witness upon which the applicant proposes to rely at trial by Friday, 12 February 2010.
8. The applicant file and serve any further expert evidence upon which it proposes to rely by Friday, 12 February 2010.
9. The respondents file and serve any experts reports upon which they propose to rely by Friday, 26 March 2010.
10. The respondents file and serve a list of witnesses to be called at trial and an outline of the evidence of each witness upon which they propose to rely by Friday, 26 March 2010.
11. The applicant’s solicitors serve on the respondents’ solicitors a draft index for the proposed Court book including documents to be tendered by Friday, 9 April 2010.
12. The parties’ solicitors consult as to the content of the Court book and agree a final form of the Court book by Friday, 16 April 2010.
13. The applicant’s solicitors serve the respondents’ solicitors and file for the use of the Judge a paged and indexed Court book comprising the current pleadings and one copy of each of the proposed exhibits by 30 April 2010.
14. The applicant pay the respondents’ costs of the notice of motion filed on 17 September 2009 as amended by the notice of motion filed on 4 November 2009.
160 The applicant did not object to the making of any of those orders.
161 On 17 November 2009 Mr McNamara emailed Mr Kennett, solicitor for the respondents, requesting copies of product literature and brochures for Smart products sold by HSP and a list of the CIS product range for each year since the inception of the company.
162 On 18 November 2009 Mr Kennett wrote to Mr McNamara noting the history since 20 July 2009. He wrote:
1. On 1 April 2009 there was initial debate before the Court as to the process whereby your client’s expert report on functionality would be provided prior to discovery, on the basis that any specific documents required by him to prepare his report would be requested from us. Formal orders were made on 8 April 2009.
2. On 4 June 2009, the assumptions to be provided to your expert were provided to us.
3. On 20 July 2009, we wrote to your client by its former solicitors asking when you expected to be in position to request further material for your expert (if any). We received no reply.
4. On 5 August 2009, we again wrote to your client advising that any request for technical materials should be made prior to the directions hearing. We received no response to that letter.
5. On 17 September 2009, we served on your client our client’s notice of motion of the same date, which attached a schedule of directions allowing your client until 16 October 2009 to provide its expert report.
6. By reason of your client’s change of solicitors, that date was extended to 4 December 2009.
Your client has been aware of the regime in place for expert reports for nearly 6 months. No request for documents has been formulated before now.
163 Mr Kennett attached a schedule of documents in response to the first request for product brochures, but noted that all trade product guides for the period from 1995 to 2003 had previously been provided to the applicant more than 5 years before, on 28 September 2004. He also said that on 22 November 2007 the applicant had been provided with further trade product guides.
164 Mr Kennett said that the respondents did not consider that a list of the CIS product range was relevant to the liability of the respondents for the purpose of the liability report in relation to the products identified in Schedule C of the FFASOC.
165 On 24 November 2009 Mr McNamara wrote in response to Mr Kennett’s letter stating that the applicant had expected the respondents to comment on the assumptions of 4 June 2009 and had only realised at the hearing of 23 June 2009 that they would not be commenting on those assumptions. He said in that letter that the information relevant to the assumptions and copies of relevant documents were provided to the expert in July 2009 “and the expert has been working through the various documents since that time”. In paragraph 4 of his letter Mr McNamara stated:
4. The information the expert has sought does not relate to the Original Smart Products as set out in the FFASOC. Rather, it relates to the peripheral devices which formed part of the suite of Smart Products which were being sold by Home Systems Plus (“HSP”) both prior to and after signing of the HOA. These include OEM devices which HSP had sourced and distributed bundled together with the Original Smart Products in product offerings. We attach a copy of the HSP Price List for September 1996 (“Enc 1.”). The information requested includes product documentation for the following product numbers, as referred to on the attached list:
• JV06 – Keypad; JV21 –
• X10 Powerline Tx; JV25 – Temperature Sensor;
• JV29 – Battery Backup;
• V100 X10 Appliance Module;
• JV101 – X10 Light Module;
• JV102 – Powerline I/F TS523;
• JV103 – Wall Dimmer Module;
• V104 – Wall Switch Module;
• JV105 – Modular JV21 Cable;
• JV106 – FJ131 Mount Jack;
• JV107 – Modular JV30 Cable;
• JV110 – Filter Coupler;
• JV111 – X10 Cabling Tester;
• JV112 – Universal Module; J
• V113 – Signal Blocking Filter (60A);
• JV114 Maxi Controller for Lighting;
• JV115 – Key Chain Remote Controller;
• JV116 – 15Plus Wireless Remote Controller;
• JV117 – Smart RF Repeater;
• JV118 3 Unit RF Wall Switch;
• JV200 – Reed Switch;
• JV202 – PIR,
• JV203 – Ceiling 350 degree PIR;
• JV204 – Dual Mode PIR;
• JV205 – Smoke Detector;
• JV206 – External Siren with Cover;
• V207 – Sonalert Buzzer;
• JV208 – Internal Screamer;
• JV211 – Ewatherproof Strobe;
• JV212 – Isolated Converter RS232 to RS485 and
• JV213 – RS-485 Repeater.
Given that our request did not relate to documents which are indeed already within our client’s possession, we dispute the payment of any photocopying of this material. Kindly provide us with the relevant product information as a matter of urgency.
5. As regards the list of CIS products: CIS took over the sale of Smart Products from HSP. The expert has requested the list in order to be able to assess the evolution of the product range and is very relevant to the case at hand. The list at Schedule C of the FFASOC was an attempt made by our client at the insistence of your counsel and without the benefit of discovery and under the assurance that all product guides had been provided to our client. Schedule C provides a clear guide to the expert as to our client’s assessment of what falls within the definition of “Smart Product”. Schedule C cannot however be allowed to detract from the expert’s assessment of what, in his mind, falls within the definition of a Smart Products particularly given that CIS was established for the specific purpose of distributing the C-Bus and Minder range of products and replaced HSP in the performance of this role.
6. Further our expert has indicated that he requires samples of the C-Bus range pre-May 1995. Please provide these.
7. As you are aware, there are certain other documents which are of relevance to this matter and have involved expert assessments of the products under dispute (please see attached ENC.2) [ENC.2 was not attached to the affidavit.]
8. Of the due diligence reports previously requested: the due diligence report of PriceWaterhouseCoopers relates, inter alia, specifically to confirmation of the net assets, namely the intellectual property of Clipsal’s EWDIS/Smart Product business. The financial data requested in the attached letter ENC 2 remains of significant relevance to the preparation of expert reports.
166 The requests in paragraphs 4-7 in the letter form the basis of a later application by the applicant for orders for discovery.
167 Paragraph 8 of the letter suggests that the respondents had previously requested a due diligence report authored by Price Waterhouse Coopers on behalf of Schneider at the time of Schneider’s acquisition of the respondents’ EWDIS business.
168 On 25 November 2009 Mr Kennett wrote to the applicant’s solicitor complaining of the delay by the applicant in providing the expert’s report. He wrote:
1. In relation to the matters set out in paragraphs 1 to 3 of your correspondence, without necessarily accepting the position was as you have described it (see the comments of Lander J and your counsel, Mr Solomon, on 23 June 2009 at page 145 of the transcript), the fact is that:
this process commenced with the making of orders on 1 April 2009, over seven months ago;
your client’s expert has had some five months, subsequent to our indication that we did not propose to comment on the assumptions (on 23 June 2009) to determine what further material is required;
by letter dated 20 July 2009, we invited your client to request any further material that might be required by your client’s expert in order to undertake his initial review.
With respect, the recent retention of your firm does not explain delays by the expert. We note that you have not responded to our invitation to provide copies or evidence of your expert’s request (in accordance with the course frequently adopted in modern litigation).
169 In response to paragraph 5 of Mr McNamara’s letter of 24 November 2009 he wrote:
Schedule C to the FFASOC is not a “guide” to your expert, or open-ended in any other sense. Our clients, your client, and the Court have expended significant resources to determine precisely the scope of your client’s claim. On the face of the pleading, your client’s claim (in respect of “Unilateral Products”) is restricted to the products now claimed in Schedule C.
In this respect, we refer you to the dispute between the parties which began with your client’s reply, which referred generally to “Smart Products” (beyond the scope of those listed in the TFASOC). This precipitated our clients’ motion to strike out the reply dated 26 April 2007 and culminated in numerous attempts to amend the statement of claim to identify the products the subject of the claim with particularity, ending with the filing of the FFASOC on 7 March 2008.
The following documents in particular set out the history of the parties’ positions in relation to the identification of the “Smart Products” and the requirement that they be identified in a precise, definitive and exhaustive fashion:
our clients’ Outline of Argument dated 27 June 2007, in particular paragraphs 7-24 and 38-52;
our clients’ Objections to the Proposed Fourth Further Amended Statement of Claim dated 14 September 2007, in particular paragraphs 13-22;
our clients’ Objections to the Proposed Fourth Further Amended Statement of Claim dated 5 November 2007, in particular paragraphs 2-10;
We enclose copies for your convenience. Your client’s counsel Mr Blue QC stated at the hearing before Lander J on 20 February 2008 that all of our client’s concerns in relation to the particularisation of the “Unilateral Products” had been addressed.
While, of course, our clients cannot prevent you from seeking an opinion from your client’s expert on whichever matters you see fit, we note that:
your client’s own letter of instructions to its expert does not trespass beyond the Schedule C products; and
we will resist any attempt to run a case at trial, whether based on any expert report or otherwise, which trespasses beyond the pleadings.
…
5. In relation to the matters raised in paragraphs 7 and 8 of your letter, you are now requesting financial information in relation to the value of components of our clients’ businesses. That was an illegitimate request in the context of the mediation, and it is totally irrelevant to the expert report you are presently seeking. We refer you to our letter dated 4 December 2008 in response to your request for financial documentation relating to the Schneider Group, which sets out our response in detail.
If we have misunderstood the basis upon which you say those reports are relevant, we invite you to identify the relevant paragraphs of the pleadings, and the expert report in respect of which you say the information is required.
170 Mr Kennett referred to the history of the parties’ positions in relation to identification of the “Smart Products” and the requirement that they be identified in a precise, definitive and exhaustive fashion.
171 On 27 November 2009 Mr Kennett wrote to the applicant’s solicitor enclosing a draft discovery protocol and a schedule of categories of discovery upon which the respondents’ solicitor sought comment.
172 On 2 December 2009 Mr McNamara replied by email commenting on the form and headings of categories to be used. He then wrote:
I also put you on notice that I will be asking this matter be brought on for directions in relation to the time table set by the Court, as our expert has had to leave for overseas on 25th Nov and will not return until the end of January 2010.
173 The applicant did not comply with the direction to file its expert report on liability by 4 December 2009.
174 On 4 December 2009 the respondents’ solicitors Mr Kennett sent two letters to the applicant’s solicitor in response to Mr McNamara’s email of 2 December 2009.
175 The first letter dealt with that aspect of the email concerning categories of discovery and requested that Mr McNamara more fully explain his position in relation to categories of discovery. Mr Kennett then wrote:
Would you kindly clarify your position as a matter of urgency, given that it will be necessary for the matter to be resolved on 14 December 2009 if it cannot be resolved by consent before that time. This means that any dispute must be crystallised within a very short period, in order that his Honour can be advised, in advance of that hearing, of the nature of the dispute.
176 The second letter dealt with Mr McNamara’s comment that the expert retained would not be available until the end of January 2010. Mr Kennett wrote:
With respect to your client’s expert, we understand your email to mean that your client will not serve its expert report on us today, contrary to the orders of Lander J made on 9 November 2009 (“Orders”) and that we will not be provided with any expert report until after the end of January 2010.
You indicated on 2 December 2009, for the first time, that your expert left the country on 25 November 2009, notwithstanding that you wrote to us on 24 November 2009 setting out documents purportedly requested by your expert for the finalisation of his report. We note that we have not had any response to our letter of 25 November 2009 in relation to those documents.
This is of serious concern to our clients and may jeopardise the trial date.
Your client should immediately have the matter brought back before his Honour, and, while it is a matter for your client, we consider that some explanation should be provided for your client’s expert’s absence, and when your client was first informed of same.
As presently instructed, our clients do not consent to any variation to the timetable, and our clients reserve their position in relation to paragraph 4 of their amended notice of motion filed on 4 November 2009.
177 On 8 December 2009 Mr McNamara wrote to Mr Kennett agreeing with the draft discovery protocol contained in Mr Kennett’s letter of 27 November 2009, and attaching the applicant’s proposed categories of discovery.
178 Mr Kennett responded on the same day. Amongst other objections, the respondents objected to a category titled “Documents evidencing other contractual arrangements or enquires with third parties after 1996 for development of products with building control and automation” because he said it appeared to refer to products outside those specified in the FFASOC. The FFASOC related only to the Unilateral Products or systems with the Smart Functionalities identified in paragraph 79.1 and listed in Schedule C, rather than all products with building control and automation.
179 The respondents also objected to discovery of any share sale agreement by Schneider to shareholders of Clipsal, or discovery of “Due diligence documents carried out by PWC on sale to Schneider” on the basis that they were not relevant to any issue raised on the pleadings.
180 The respondents objected to a request for documentation on “Financial data from Clipsal from 1996 to current” as being too broad a request, especially when relevant sales data had been agreed discoverable.
181 In an affidavit sworn on 8 December 2009 Mr McNamara stated that the applicant would at the next directions hearing seek the following orders:
24.1 To extend the time for filing and serving the Expert Report until the 1st March 2010;
24.2 Orders consequential to the extension of time to file and serve the Expert Report; and
24.3 for an order that the Respondent provide copies of the documents referred to in paragraph 18 hereof.
182 Paragraph 18 said:
18. I seek an order that the Respondent provide to the Applicant copies of the following documents:
18.1. Documents relating to the peripheral devices which formed part of the suite of Smart Products which were being sold by Home Systems Plus (“HSP”) both prior to and after signing of the HoA. These include OEM devices which HSP had sourced and distributed bundled together with the Original Smart Products in product offerings. The information requested includes product documentation for the following product numbers:
• JV06 – Keypad; JV21 –
• X10 Powerline Tx; JV25 – Temperature Sensor;
• JV29 – Battery Backup;
• V100 X10 Appliance Module;
• JV101 – X10 Light Module;
• JV102 – Powerline I/F TS523;
• JV103 – Wall Dimmer Module;
• V104 – Wall Switch Module;
• JV105 – Modular JV21 Cable;
• JV106 – FJ131 Mount Jack;
• JV107 – Modular JV30 Cable;
• JV110 – Filter Coupler;
• JV111 – X10 Cabling Tester;
• JV112 – Universal Module; J
• V113 – Signal Blocking Filter (60A);
• JV114 Maxi Controller for Lighting;
• JV115 – Key Chain Remote Controller;
• JV116 – 15Plus Wireless Remote Controller;
• JV117 – Smart RF Repeater;
• JV118 3 Unit RF Wall Switch;
• JV200 – Reed Switch;
• JV202 – PIR,
• JV203 – Ceiling 350 degree PIR;
• JV204 – Dual Mode PIR;
• Jv205 – Smoke Detector;
• JV206 – External Siren with Cover;
• V207 – Sonalert Buzzer;
• JV208 – Internal Screamer;
• JV211 – Ewatherproof Strobe;
• JV212 – Isolated Converter RS232 to RS485 and
• JV213 – RS-485 Repeater.
18.2. the due diligence reports effected in relation to the acquisition of 100% of the Clipsal Australia business (and its operations in South African (sic) India and New Zealand), together with worldwide ownership of the Clipsal brand name, from the founding Gerard family and their 52% partner, a listed Singapore company, Clipsal Industries (Holdings) Limited (since renamed CIH Limited) (the “Schneider Transaction”) in so far as these relate to:
18.2.1. the definition of Clipsal’s electrical wiring devices and installation systems (“EWDIS”);
18.2.2. an analysis and confirmation of the intellectual property list or asset portfolio related to Clipsal’s EWDIS business;
18.2.3. any expert report conducted on the items included in the EWDIS asset portfolio;
18.2.4. information related to all licensing and sub-licensing agreements related to Clipsal’s EWDIS business;
18.2.5. financial information and breakdowns relating to the respondents’ sales of the EDWIS (sic) products worldwide;
18.3. copies of all ISC product strategy and technology roadmaps from September 1996 to the current time;
18.4. details of the products which the respondents consider to be part of the C-Bus range of products as per the Cope Affidavit as well as the products which were under development since September 1996 which products may not necessarily have been commercialised by the respondents and therefore are not to be found in any trade product guide; and
18.5. samples of the C-Bus range pre-May 1995.
These documents reflected the request made by Mr McNamara in his letter to Mr Kennett of 24 November 2009. No notice of motion was filed seeking the orders.
183 In relation to paragraph 24.1, Mr McNamara said that in or about July 2009 the applicant had retained Mr John Seeger-Snowdon, a technical expert, to provide an expert’s report on the set of assumptions which had been “agreed to by the parties to this action”. Mr McNamara first had contact with Mr Seeger-Snowdon on 12 November 2009 when he telephoned him to advise him of the date upon which Mr Seeger-Snowdon’s report had to be filed. Apparently Mr Seeger-Snowdon told Mr McNamara in that conversation that he would not be able to provide a meaningful report by 4 December 2009 but might be able to provide such a report by the end of that month. He told Mr McNamara that the delay was partly caused by the close down of the Melbourne University with which Mr Seeger-Snowdon was associated for the Christmas break. In those circumstances it would be difficult for him to obtain administrative services.
184 Two days later, on 14 November 2009, Mr Seeger-Snowdon contacted Mr McNamara and advised him that he now intended to go to Europe on 25 November 2009 and would not return until the end of January 2010. Because of other Court commitments which he had it would not be possible for him to complete the report by 4 December 2009 or even by the end of 2009. He told Mr McNamara that even if he worked on the report whilst in Europe he would not be able to complete it until 12 February 2010 and only then if he were provided with further documents and had the opportunity to inspect installations of the applicant’s and respondents’ systems.
185 Mr McNamara said that he was unable to arrange a suitable time to meet with Mr Seeger-Snowdon. On 23 November 2009 Mr McNamara provided Mr Seeger-Snowdon with a draft affidavit which Mr Seeger-Snowdon signed but did not swear before a person authorised to take oaths. Mr McNamara said that Mr Seeger-Snowdon had advised him that he had been working on the expert report continuously since receiving the brief in July 2009. Insofar as the document was Mr Seeger-Snowdon’s, Mr Seeger-Snowdon said in that document:
6. I have been working on the expert report as and when I have been able to since being retained in July of 2009. I have been provided with a large number of documents by the Plaintiff which I have been systematically going through and have requested further documents from the Plaintiff, some of which I believe are in the possession of the Defendants. For the expert report to be meaningful requires me to look at the product description and in some instances the electronic and design drawings for products and components of over 50 individual items. I also require in some instances to inspect the actual hardware and inspect installations of both the Plaintiff’s products and those installed by the Defendants.
7. I am informed and verily believe to inspect some of the installation sites that I need to inspect for the purposes of the report I will need to travel to a number of different States of Australia, all of which will take time.
8. I am presently working on other matters for other clients and on the 25th November 2009 I leave Australia for overseas and do not return until the 26th January 2010. Whilst I am overseas I can continue to work on the report but only at a limited level. Further during the months of December and January I am unable to access full office facilities and support. This will slow down the completion of the Report.
9. Given the nature and extent of the report that I am required to deliver, knowing the resources that are available to me and knowing that I have to test and view items and look at those items from a systems perspective not only from the assumptions provided to me by the Plaintiff but also from the claims of the Defendants I realistically think I will not have a meaningful report available until the end of February 2010.
186 Mr McNamara said that the expert report could not be written by different people, nor could Mr Seeger-Snowdon enlist the assistance of others in various aspects of the report. He said:
It is a report that has to be commenced and completed by one person and it necessarily takes time.
187 Mr McNamara referred to a copy of the publication made by PriceWaterhouseCoopers in May 2004 which set out the details of the due diligence it undertook for the takeover of the respondents by Schneider. He said:
From current Schneider publications it appears that the products and systems the subject of the due diligence carried out by PriceWaterhouseCoopers are the same as those being looked at by the applicant’s expert Mr John Seeger-Snowdon and although the expert’s task is more limited than that of the PriceWaterhouseCoopers’ team, the time taken by this team gives some indication of the amount of time which is necessary for the completion of the expert report.
188 Mr McNamara said that the further documents Mr Seeger-Snowdon required to complete his report were set out in paragraph 18 of Mr McNamara’s affidavit (extracted above).
189 Mr McNamara also addressed counsel’s availability and said that Mr Blue, who had been retained by the applicant as Senior Counsel, was not aware that the matter had been set down for hearing on 31 May 2010 until he received a copy of the orders of 9 November 2009.
190 Mr McNamara said that Mr Blue had said that he had never been consulted on this date, and would not be able to accept the brief because he would be overseas on that date. Mr McNamara stated that the applicant was unaware of Mr Blue’s unavailability but understood that Mr Blue had been contacted by its former solicitors. Mr Blue would be available in October and November 2010.
191 On 8 December 2009 proceedings were commenced in the Supreme Court of South Australia by Tindall Gask Bentley, the applicant’s former solicitors, seeking to wind up the applicant for the applicant’s failure to pay Tindall Gask Bentley’s fees incurred in acting for the applicant in these proceedings.
192 On 13 December 2009 the respondents’ solicitors provided to the applicant’s solicitors and the Court minutes of order which the respondents said they would seek at the directions hearing on 14 December 2009:
1. Pursuant to Order 35A, rule 3(1)(a) of the Federal Court Rules, the amended application be either:
(a) dismissed; or, alternatively
(b) permanently stayed as to the whole of the relief claimed by the applicant, with costs.
2. In the alternative to paragraph 1 herein, the amended application be stayed subject to a right of the applicant to apply for leave to reinstate the proceeding, on the basis that:
(a) any application by the applicant for leave to reinstate the proceeding must be supported by affidavit evidence exhibiting the expert report of Mr John Seeger-Snowdon and deposing to the status of the applicant’s trial preparation and the applicant’s capacity and desire to undertake the necessary steps required in order to progress the matter to trial without causing significant prejudice to the respondents orderly preparation for trial;
(c)(sic) if, by 12 February 2009, the applicant has not obtained leave to reinstate the proceedings, the amended application shall stand dismissed, or alternatively, permanently stayed.
3. Such further or other order as this Court may deem fit.
193 These orders represented a variation on the amended notice of motion of 4 November 2009. The order sought in the amended notice of motion requiring the applicant to proceed by way of a legal practitioner was deleted and a proposed order was added requiring any application to remove any stay be accompanied by further evidence of Mr Seeger-Snowdon’s expert report.
194 On 14 December 2009, the orders sought by the applicant in paragraph 24 of Mr McNamara’s affidavit of 8 December 2009, were also addressed.
195 Mr McNamara was asked whether his client sought any orders in relation to discovery, as had been requested in his letter to the respondents of 24 November 2009 and referred to in paragraph 18 of his affidavit of 8 December 2009.
HIS HONOUR: Are there any other orders you’re seeking?
MR McNAMARA: No, your Honour, I was looking for an order with respect to some additional documents to be provided which I’ve set out in paragraph, I think, 18 of my - - -
HIS HONOUR: Are there any other orders you’re seeking, Mr McNamara?
MR McNAMARA: No, I’m not going to seek those orders, your Honour. I think the expert can provide the report without those documents.
HIS HONOUR: You don’t want any orders for discovery?
MR McNAMARA: Not at this stage, your Honour. There are already orders made, you Honour. What I’m suggesting is that the applicant make discovery - - -
HIS HONOUR: What orders are you seeking, Mr McNamara?
MR McNAMARA: The only one I seek, your Honour, is an extension with respect to the provision of the expert’s report.
196 The hearing of 14 December 2009 had been listed pursuant to paragraph five of the orders of 9 November 2009, which directed that any dispute as to categories of discovery be heard at that date. Thus, Mr McNamara had ample notice that any issue as to categories of discovery was to be considered at that hearing.
197 At that hearing the respondents recognised that the applicant’s default in relation to the delivery of the expert report had not occurred at the time of the filing of the respondents’ amended notice of motion of 4 November 2009. The applicant was entitled to notice of the further amended application in case it wanted to put on evidence in relation to the proposed orders provided by the respondents on 13 December 2009. The following orders were made:
1. The applicant file and serve any affidavits upon which it seeks to rely in opposition to the respondents’ application for the orders sought in the proposed minutes of order of 14 December 2009 by Thursday, 17 December 2009.
2. The respondents file and serve any affidavits in reply by Friday, 18 December 2009.
3. The respondents’ application for the orders sought in the proposed minutes of order of 14 December 2009 and the applicant’s application for an extension of time to serve the applicant’s expert report be listed for hearing on Monday, 21 December 2009 at 10.00am.
198 On 16 December 2009 Ms Thanissorn, a solicitor in the employ of the respondents’ solicitors, swore an affidavit exhibiting the correspondence which had passed between the parties between 9 December and 16 December relating to the categories of documents which the parties asserted were relevant in relation to discovery.
199 On 18 December 2009 one of the applicant’s directors, Dorothea Tomazos, swore an affidavit in which she said that she had been in contact with Mr Seeger-Snowdon from time to time since July 2009 but was not aware at any time prior to 14 November 2009 that Mr Seeger-Snowdon would be absent from Australia after 25 November 2009. She had been made aware on 12 November 2009 that Mr Seeger-Snowdon could not provide a report by 4 December 2009 and not before the end of December 2009. She said:
11. On 14th November 2009 Mr. McNamara contacted me to discuss that he’d been advised by Mr Seeger-Snowden and I verily belief to be true that Mr Seeger-Snowden was going to Europe on the 25th November 2009 and was not returning until the end of January 2010 and with the other Court commitments he had up until the time of his departure there would be no possible way he could have the report completed by the 4th of December 2009.
12. At no time prior to 14th November 2009 was I aware that Mr. Seeger-Snowden would be overseas from 25th November 2009. During a conference telephone call involving Mr Seeger-Snowden, Mr McNamara and myself on the 12th day of November 2009, Mr. McNamara advised Mr. Seeger-Snowden of date in the Court time table for this matter for the provision of his Expert Report. Mr Seeger-Snowden advised us and I verily believe that he would not be able to provide a meaningful report by the 4th December 2009 but that he might be able to complete such a report by the end of December 2009. Mr. Seeger-Snowden’s overseas travel and incumbent delay in finalising his report beyond the end of December 2010 was totally unexpected and beyond the control of the Applicant.
200 She said Mr Seeger-Snowdon had been working on the report continuously since July 2009.
201 Importantly she said in that affidavit that the applicant would be in a position to make discovery by 22 January 2010. Moreover she said, in order to ensure that an expert’s report was provided by 1 March 2010, the applicant would undertake to obtain a second expert report in addition to that of Mr Seeger-Snowdon. She said she believed that the applicant’s previous solicitors had informed Mr Blue of the hearing dates in May 2010. She said that whilst the applicant would benefit from Mr Blue’s availability, the applicant would brief other counsel in order that the matter could proceed on 31 May 2010.
202 On 21 December 2009 I heard the applicant’s request for an extension of time for filing its expert report and the respondents’ notice of motion seeking either an order dismissing or an order staying the proceedings.
203 During the hearing of 21 December 2009 the respondents contended that the applicant’s failure to comply with the Court’s orders to provide the expert reports by 4 December 2009, and the consequential change to the timetable and likely trial commencement, was the “final straw” that should lead to an order dismissing the proceedings. The respondents relied upon the applicant’s history of delay and the ‘amorphous and unmanageable’ nature of the applicant’s pleaded case. In the alternative the respondents contended that the proceedings should be stayed until the applicant had obtained an expert’s report and satisfied the Court of the applicant’s preparation and its capacity to progress the proceedings to trial without prejudicing the respondents. The respondents contended that the stay should be in the nature of a self-executing order that would lead to the dismissal of the proceedings if the applicant had not satisfied the conditions by 12 February 2010.
204 Mr McNamara said that the applicant’s expert report on quantum could be provided by 1 March 2010. The respondents expressed their doubts as to how the quantum report could also be ready by 1 March 2010 particularly when the report involved the calculation of sales of a still unidentified number of products over 10 or 15 years, where the information for those calculations was not in a form which enabled the ready calculation of those sales.
205 The applicant confirmed that it would be able to provide the report by that date, “subject to getting some documents from the respondents”. Mr McNamara said that the applicant required some documents from the respondents including copies of the accounts for CIS and a copy of the due diligence report in respect of the takeover of Clipsal by Schneider. The following exchange occurred:
HIS HONOUR: Have you asked for them?
MR McNAMARA: We have previously asked for them, you Honour, and were told that they’re not relevant.
HIS HONOUR: Have you pressed that?
MR McNAMARA: Well, I’ve only been involved for eight weeks your Honour, so I haven’t - - -
HIS HONOUR: I’m not criticising you, Mr McNamara.
MR McNAMARA: I haven’t asked for it again, your Honour, but it has been asked for.
HIS HONOUR: So those documents have got to be made available to you, but your expert will still be able to do it by 1 March?
MR McNAMARA: That’s what we’re told, your Honour. Can I just move on from that, your Honour?
206 Later, Mr McNamara said:
MR McNAMARA: …in respect to the series of documents that have been requested and in respect to quantum because we don’t have those but apart from that, your Honour, we are agreeing with what your Honour said, we probably don’t require any further documents from the respondents.
207 After some discussion as to which categories of documents the applicant did require in respect to quantum, Mr McNamara said:
MR McNAMARA: What we are specifically after, your Honour, are the documents that were requested in the letters; the accounts with respect to Clipsal Integrated Services and the due diligence report from PriceWaterhouseCoopers and subject to seeing what they’ve got in them that should be sufficient for the requirements of the applicant, your Honour.
….
MR McNAMARA: Well, again, your Honour, certainly the applicant does not require general discovery, and what we’re saying is that if the applicant makes discovery first, then the discovery required by the respondents, in my submission, would be limited to the documents that have been requested in paragraph 18 of my affidavit, and the documents relating to quantum.
HIS HONOUR: The documents related to?
MR McNAMARA: Quantum, which are the CIS accounts and documents on which they relate to rely upon and the due diligence reports from PricewaterhouseCoopers.
HIS HONOUR: Do you have the due diligence report?
MR McNAMARA: No, your Honour, we only have a ---
HIS HONOUR: The reference to it?
MR McNAMARA: A reference to it, and a copy of an article or pamphlet put out by PricewaterhouseCoopers.
HIS HONOUR: You’re after – you only want discovery of the documents in paragraph 18 of your affidavit?
MR McNAMARA: Yes, your Honour.
HIS HONOUR: Pricewaterhouse due diligence report?
MR McNAMARA: Yes, your Honour, and the Clipsal Integrated Services accounts, and the primary documents, which they were put together.
HIS HONOUR: What, accounts for what?
MR McNAMARA: Well, for the ---
HIS HONOUR: Since 2003?
MR McNAMARA: Since it would commence, your Honour, which I think was about ---
HIS HONOUR: Since it’s commencement?
MR McNAMARA: Yes, your Honour.
HIS HONOUR: The primary document supporting the accounts?
MR McNAMARA: Yes, your Honour.
HIS HONOUR: Otherwise you waive any obligation for the respondents to make discovery.
MR McNAMARA: Yes, your Honour.
208 Mr Doyle contended that the damages must be calculated in accordance with the FFASOC and therefore the documents sought, especially those relating to due diligence, were not relevant. He said that his instructing solicitors had written advising the applicant’s solicitor that the documents which were sought bore no resemblance to the nature of the case that was put against the respondents. In particular, he said the due diligence report related simply to the transfer of the entire business and was also not relevant.
209 Consistent with their argument for a procedural regime to limit discovery and their argument concerning the relevancy of the documents, the respondents sought that certain categories of discovery requested by the applicant be carved out, specifically the documents in categories 8.3, 8.4. 9.2 and 11.3 of Schedule 1 of Exhibit 4 of the affidavit of Riya Thanissorn of 16 December 2009.
210 Exhibit 4 was the List of Discovery Categories exchanged between the parties. Category 8.3 and 8.4 were part of the ‘Outcome of Co-operative Development under HOA’ category. Category 8.3 was in the sub category ‘Documents relevant to the timing of the design of Schedule B (Amended Defence) documents and was described as the ‘Final scope of works (Design Requirement Specification)’. Category 8.4 was described as ‘Contracts or licensing agreements in relation to the products’. Category 9 related to ‘Unilateral Developments of Products by Clipsal’, and 9.2 was described as ‘Core Design Documentation for the Unilateral Products as catalogued in Schedule C to the FFASOC’. Category 11.3 was relevant to the sub category ‘Documents relevant to the calculation of Smart’s claim for licence fees in respect of the Unilateral Products and/or their claim for an account of profits’ and was described as ‘Summary financial spreadsheet identifying all Schedule C (FFASOC) product sales by date, territory and customer..’.
211 Mr Doyle said that those categories related to the product design documentation and the financial documentation. He argued that if the expert went about the quantum exercise in a certain way, some of their financial records would be irrelevant and not discoverable. Similarly, if the expert reporting on liability narrowed the claim down to 50 products, then there would be no need to discover much of the product documentation relating to the 650 plus products claimed. He argued that approach was consistent with the regime that had been implemented, namely, the filing of the expert reports before discovery in order to make the process manageable.
212 The following exchange with Mr McNamara took place:
HIS HONOUR: Very well. Now, Mr McNamara, what do you say about Mr Doyle’s propositions in relation to the order for discovery?
MR McNAMARA: Your Honour, we’re of the view that this needs to get under way and ---
HIS HONOUR: I don’t think there’s any dispute about that.
MR McNAMARA: - - - the documents we’ve asked for in paragraph 18 of my affidavit of 8 December, your Honour, we think we’re on the sort of periphery of what’s required so we’re happy to proceed and give discovery pursuant to the categories that have now been put before the court. There may be some requests made of the respondent, your Honour, with respect to the expert’s report with respect to quantum but we will just proceed, your Honour, and we just ask for liberty to apply if we need to come back.
HIS HONOUR: I’ve given you liberty to apply on 12 hours notice; the intent of that being that either party may apply on very short notice.
MR McNAMARA: Yes, realistically, your Honour, we just need to get underway and if there are holes in what’s being put before the court we’ll have to come back but I don’t believe there will be, as I said we’re really tempering with the edges.
213 Paragraph 18 of Mr McNamara’s affidavit of 8 December 2009 is described in [182] above. Importantly, Mr McNamara said that those documents were “on the sort of periphery of what’s required so we’re happy to proceed and give discovery pursuant to the categories that have now been put before the Court”.
214 Witness statements were addressed and Mr McNamara said that the applicant was in a position to provide witness statements by 12 February 2010.
215 On 23 December 2009 Mr McNamara wrote to Mr Tim Cousins seeking to retain him to provide a second Technical Expert Report should Mr Seeger-Snowdon not be able to provide a report by 1 March.
216 On 23 December 2009, after indicating that written reasons would be given later, the following orders were made:
1. The respondents’ application for an order:
(a) dismissing the applicant’s amended application as to the whole of the relief sought; or
(b) permanently staying that proceeding;
be dismissed.
2. The time within which the applicant has to comply with paragraphs 2 and 8 of the orders made on 9 November 2009 be extended to 1 March 2010.
3. There be no order as to costs of the respondents’ application or the applicant’s application.
4. The parties have liberty to apply on 12 hours’ notice.
5. Paragraph 6 of the orders made on 9 November 2009 be amended such that the applicant make discovery in accordance with the agreed categories by Friday, 22 January 2010.
6. The respondents make discovery in accordance with the agreed categories by Monday, 22 February 2010 except for the documents in categories 8.3, 8.4, 9.2 and 11.3 of Schedule 1 of Exhibit 4 to the affidavit of Riya Thanissorn sworn on 16 December 2009.
7. The directions hearing be adjourned to 10.00am on 16 February 2010.
217 In January 2010 Mr Seeger-Snowdon advised the applicant that because of his commitments in Europe he would not be able to complete the technical expert report by 1 March 2010, which was the timeframe set by the Court on 23 December 2009.
218 On 12 January 2010 Mr Tim Cousins was retained by the applicant to complete a technical report.
219 Neither the Court nor the respondents were made aware that Mr Seeger-Snowdon would not be providing an expert’s report.
220 On 15 January 2010 reasons were delivered for the orders made on 23 December 2009: Smart Company Pty Ltd v Clipsal Australia Pty Ltd [2010] FCA 4. In my reasons I said:
57 The applicant’s conduct of the proceeding has not been entirely satisfactory. It has, for reasons unexplained, changed its solicitors on numerous occasions and changed its counsel. The failure to have continuity in the applicant’s legal representation has meant that the matter has been unnecessarily protracted. It has sought and obtained indulgences in relation to directions given from time to time because it has been unable to comply with those directions. It took about two years and six versions of the fourth further amended statement of claim before the applicant could articulate the case which it wished to present at trial.
58 The applicant’s conduct has meant that the hearing of the proceeding has been delayed.
59 Both parties, however, have made the mistake of arguing about issues and not seeking the resolution of those issues by the Court. The failure by the parties after 18 months to have agreed upon the categories of document which would inform the discovery to be given by the parties is inexcusable. The parties should have returned to the Court seeking the Court’s direction as to the categories of document that would inform the discovery.
60 The applicant’s failure to have legal representation between 3 August 2009 and 6 November 2009 meant that the proceeding did not progress at all during that period, and for that the applicant is solely accountable. The applicant has not provided the reasons why Tindall Gask Bentley ceased to act for it and why it did not appoint other solicitors immediately to progress the proceeding.
61 However, the immediate concern is the failure by the applicant to comply with the order to provide its expert’s report on liability by 4 December 2009.
221 On 19 January 2010 the respondents wrote to my associate stating that because of the orders made extending the time for filing of the applicant’s expert report, they would not be ready for trial on 31 May 2010. The directions hearing which had been set for 16 February was brought forward to 29 January 2010 to determine when the trial should commence.
222 On 22 January 2010 the applicant made discovery by serving on the respondents’ solicitors an affidavit of Dorothea Tomazos and a compact disc which contained a schedule of the applicant’s discovered documents.
223 On 29 January 2010 the commencement of the trial was adjourned until 19 July 2010 so as to allow the respondents time to respond to the applicant’s expert reports. The following orders were made:
1. The proceeding be set for trial on Monday, 19 July 2010 at 10.15am to continue to 1 October 2010 or earlier completion, with the exception of the week beginning Monday, 6 September 2010.
2. The directions hearing listed for Tuesday, 16 February 2010 at 10.00am be vacated and a directions hearing be held on Thursday, 4 March 2010 at 9.30am (Adelaide time).
224 On 1 February 2010, following a request by the respondents’ solicitors, copies of the applicant’s discovery documents were provided to the respondents.
225 On 15 February 2010 the respondents wrote to the applicant seeking production of its list of witnesses. In paragraph 7 of the orders of 9 November 2009 the applicant had been ordered to provide a list of witnesses and an outline of the evidence of each witness upon which the applicant intended to rely by 12 February 2010.
226 On 16 February 2010 the applicant’s solicitor wrote to the respondents’ solicitors stating that he understood that the applicant had until 1 March 2010 to file such a list. His email said:
It was my understanding from the directions on the 23rd December that the matters in items 7 and 8 of the Orders of the 9th October 2009 (sic) (including the provision of witness lists) were extended to the 1st March 2010 in line with the report required from the expert witness as to technical aspects of our client’s claim.
On that basis we are aiming to deliver it to you sometime toward the end of next week. If this will cause you any embarrassment please advise and I will endeavour to have it to you earlier.
227 On 17 February 2010 the respondents’ solicitors replied and referred to the parts of the transcript of the hearing of 21 December 2009 in which the applicant’s counsel stated that its witnesses’ statements would be provided by 12 February 2010. They wrote:
With respect, your email misstates, or reflects a misunderstanding of, the orders made on 23 December 2009. On that occasion, the only variations to the orders of 9 November 2009 related to paragraphs 2, 6 and 8; paragraph 7 remained unchanged.
This is consistent with your submissions to the Court on 21 December 2009. On that occasion, you repeatedly submitted that your client was in a position to file and serve its list of witnesses and witness statements by 12 February 2010. For example, at page 37, line 34 of the transcript of that hearing, the following exchange took place:
HIS HONOUR: But you’ve got to provide your witness statements first.
MR McNAMARA: Yes, your Honour, we’re in a position to ---
HIS HONOUR: By 12 February.
MR McNAMARA: We’re in a position to do that, your Honour.
Later, at page 40, line 5, the following exchange took place:
MR McNAMARA: … the witnesses and witness reports required by the applicant can be met in the timeframe that your Honour has already set down.
HIS HONOUR: Well, no. You have already said that your forensic accountant can’t report by 12 February.
MR McNAMARA: Sorry, I was talking about the witness reports ---
HIS HONOUR: Apart from ---
MR McNAMARA: --- apart from the expert’s, your Honour, we say can be met with in the timeframe …
Later still, at page 44, line 31, you stated that your client “is well underway with respect to witnesses” and at page 47, line 24, you stated:
So the things that needed to be attended to are witness statements which have to be prepared and my submission is that they are already underway …
At no time between 23 December 2009 and 12 February 2010 did you notify us that the position had changed such that your client would not be able to comply with paragraph 7 of the 9 November 2009 orders.
Our clients require that your client remedy this default immediately. Should your client fail to do so, we anticipate that our clients will instruct us, at short notice, to seek to have the matter listed. Our clients reserve their rights in respect of the default.
228 On 18 February 2010 the applicant’s solicitors emailed the respondents’ solicitors stating that the applicant would “have its witness list to you on Monday” (being 22 February 2010).
229 On 19 February 2010 the respondents’ solicitors emailed the applicant’s solicitors reminding the applicant that the applicant was required to file not only a list of witnesses, but “an outline of the evidence of each of the witnesses upon which the applicant proposes to rely at trial by Friday, 12 February 2010”.
230 On 22 February 2010 pursuant to the orders of 23 December 2009 the respondents made discovery in accordance with the categories agreed between the parties.
231 On the same day the applicant served a list of witnesses, 10 days after the date specified in the orders. The list of witnesses did not include an outline of their evidence. The list was in the following form:
Name | Evidence Relating Inter-Alia To | Role | |
| 1 | Clift, Dean | Ongoing development of Smart | Managing Director of The Smart Company Pty Ltd |
2 | Cousins, Tim | Expert Report | Tim Cousins & Associates |
| 3 | Filsell, David | Background which may include but is not limited to paragraphs 6 to 32, 56 to 65, and 113 to 115 of the FFSOC and Defence thereto | General Manager of Home Systems Plus, involved with The Smart Company Pty Ltd and Smart Suburbs Pty Ltd |
| 4 | Fitzpatrick, Paul | Background which may include but is not limited to paragraphs 6 to 65, 72 to 79, 85 to 115 of the FFSOC and Defence thereto | Previous Director of Marketing, The Smart Company Pty Ltd |
| 5 | Mittnacht, David | Background which may include but is not limited to paragraphs 6 to 65, 72 to 79, 85 to 115 of the FFSOC and Defence thereto | Chief Systems Architect, The Smart Company Pty Ltd |
| 6 | Portellos, Sotirios | Events up to and including the voluntary administration of SmartWorld Corporation, the Deed of Company Arrangement, events during the period 2001 to 2004 including termination of the Heads of Agreement, including but not limited to paragraphs 70 to 71 and paragraphs 82 to 84 of the FFSOC and Defence thereto | Previous director of The Smart Company Pty Ltd |
7 | Reade, Alex | Expert Report | Sothertons |
8 | Richards, David | General industry background | SmartHouse Magazine |
| 9 | Rohrlach, Robert | Background which may include but is not limited to paragraphs 6 to 65, 72 to 79, 85 to 115 of the FFSOC and Defence thereto | Previous Managing Director of The Smart Company Pty Ltd, previous director of IHG Limited, Smart Suburbs Pty Ltd and other affiliates |
| 10 | Sheedy, Des | Background including but not limited to paragraphs 33 to 54 of the FFSOC and Defence thereto | Director of Primaries of WA |
| 11 | Tomazos, Dorothea | Background and ongoing development of Smart | Director of The Smart Company Pty Ltd |
232 On 23 February 2010 the respondents’ solicitors emailed the applicant’s solicitors identifying the deficiencies in the applicant’s list of witnesses and noting that the applicant had not provided an outline of the evidence of each witness. They wrote:
We refer to the list of witnesses served on us on 22 February 2010 and to our correspondence dated 15 February and 17 February 2010.
Your client remains in default of his Honour’s order made 9 November 2009 to file and serve an outline of the evidence of each witness upon which the applicant proposes to rely at trial by Friday 12 February 2010.
It is apparent from both the terms of the order and the exchanges recorded on transcript set out in our correspondence dated 17 February 2010 that what was required by the order was that witness statements be provided by 12 February 2010, rather than a mere indication of possible topics that the witnesses might address. This was and is particularly important, having regard to the stringent time restraints that the parties are working to (in large part because of your client’s defaults), in order to ensure that the respondents received clear and fait notice of your client’s evidence in chief.
With respect, the column in your client’s table entitled “Evidence relating inter alit to” gives no notice at all of your client’s case in chief.
233 The respondents’ solicitors addressed the witnesses individually. They pointed out that Mr Cousins’ area of expertise was not identified. They wrote in respect of Mr Seeger-Snowdon:
7. We also note that Mr Seeger Snowdon does not appear on your client’s witness list at all.
As you are aware, timetabling orders to progress this matter to trial were initially made on 9 November 2009. Some leniency was given at that time in relation to the filing of your client’s expert evidence by reason of your unfamiliarity with the file, but trial was nonetheless listed for 31 May 2010 with experts’ reports due on 4 December 2009.
Your client was unable to meet the first deadline for the filing and service of experts’ reports by 4 December 2009. At the directions hearing on 14 December 2010, you advised the Court that Mr Seeger Snowdon had left the country without fulfilling his obligations to provide a report within the time then specified and would not be returning until late January (T14.12.09 p2 124-25). You advised the court that “something had come up, it appears, urgently” (T14.12.09 p2 136). Your client sought an extension of time to 1 March 2010 to provide its expert reports.
On 21 December 2009 the respondents applied to dismiss the proceedings. That application was unsuccessful and your client was granted the extension of time to 1 March 2010 to accommodate Mr Seeger Snowdon’s commitments.
On 29 January 2010, the trial was adjourned by seven weeks to 19 July 2010 to enable to respondents to prepare for trial, albeit within a very restricted timetable, by reason of that extension.
It has come to our attention by way of publicly available information that Mr Seeger Snowdon was the speaker at an engineering industry body course in London on 11 January 2010 entitled “Forensic Engineering and Expert Evidence”. As participant bookings were required to be finalised by 1 November 2009, it is apparent that Mr Seeger Snowdon would have been aware of this commitment for some time and at the very least prior to 1 November 2009.
The matters raised above have caused our clients significant concern and call for explanation.
If it is the case that your client no longer proposes to call Mr Seeger Snowdon, would you please advise us as a matter of urgency.
234 On 25 February 2010 the applicant’s solicitors responded in writing to the letter of 23 February 2010 from the respondents’ solicitors:
Our client was required to provide a list of witness and an outline of the evidence to be given by each, not “witness statements” as your letter suggests.
Our client’s pleadings along with the witness list and out line of evidence provided and the report of our client’s expert Mr Cousins will give your client “clear and fair” notice of the case to be brought against your clients.
235 On 1 March 2010 the respondents’ solicitors wrote to the applicant’s solicitors requesting that several deficiencies in the list of documents annexed to Ms Tomazos’ affidavit of 22 January 2010 be remedied. Their requests were set out in paragraphs 2.1 to 2.6 of the letter:
2.1 remedy the errors identified at paragraph 1.1 and 1.2 above and undertake to correct any other such errors;
2.2 provide copies of the missing documents identified in paragraph 1.3 above and any other documents which are listed but have not been provided;
2.3 confirm that your client does not have documents in its possession which fall within categories 11.4, 12, 14 and 15.1;
2.4 confirm that your client will not be relying on any further documents which fall within categories 11.4, 12, 14 and 15.1;
2.5 confirm that your client has only one record in its possession which falls within category 15.2; and
2.6 confirm that your client will not be relying on any further documents which fall within category 15.2.
236 On 1 March 2010 the applicant filed and served an expert’s report on liability authored by Mr Timothy Cousins. On the same day an expert’s report on quantum authored by Mr Alexander Reade was served but it was not filed until 11 March 2010.
237 On 3 March 2010 the applicant sent to the Court an email which contained orders which the applicant would contend for at the directions hearing to be heard the next day. The proposed orders were:
1. The parties write to each other on or before Friday 12 March 2010 setting out any further and better discovery required
2. Parties provide further and better discovery on or before Friday 26th March 2010
3. Applicant provide Expert Report from David Richards on or before Friday 26th March 2010
4. The respondents file and serve any experts reports upon which they propose to rely by Monday, 26 April 2010.
5. The respondents file and serve a list of witnesses to be called at trial and an outline of the evidence of each witness upon which they propose to rely by Monday, 26 April 2010.
6. The Applicant file and serve any supplementary experts reports upon which they propose to rely by Monday, 17 May 2010
7. The applicant’s solicitors serve on the respondents’ solicitors a draft index for the proposed Court book including documents to be tendered by Monday, 17 May 2010.
8. The parties’ solicitors consult as to the content of the Court book and agree a final form of the Court book by Monday, 24 May 2010.
9. The applicant’s solicitors serve the respondents’ solicitors and file for the use of the Judge a paged and indexed Court book comprising the current pleadings and one copy of each of the proposed exhibits by 31 May 2010.
10. Suggest a further Mediation conference sometime in June 2010
238 On 4 March 2010, when addressing the applicant’s witness statements, Mr Doyle raised the question of the applicant’s witnesses’ evidence, referred to the hearing on 21 December 2009 and Mr McNamara’s statements. He said:
MR DOYLE: [T]hose exchanges, in my submission, are very important for two additional reason, not just the timing issue but both your Honour and Mr McNamara were speaking in terms of statements and in my submission that’s – or, on some occasions, in the case of Mr McNamara, reports.
And also Mr McNamara referred to the statements being well underway and also being already underway. In my submission, that makes it clear that everybody’s understanding, consistent with our understanding, was that these were to be substantive documents, even if not full blown witness statements that were to be a substitute for evidence-in-chief. Nevertheless, something tantamount to that and at least setting out not only the topics but the substance to be given.
239 The following exchange with Mr McNamara regarding the applicant’s compliance with paragraph 7 of my orders of 9 November 2009 which directed the applicant to file a list of witnesses and an outline of their evidence by 12 February 2010 took place:
MR McNAMARA: Your Honour, my understanding from the matters that went before us was that we were to supply an outline with respect to the witnesses, not witness statements. The witness statements are the documents we are preparing for ourselves by way of ---
HIS HONOUR: This isn’t an outline.
---
MR McNAMARA: Well, your Honour, it tells them what topics and what aspects of the statement of claim that the witnesses are going to give evidence in respect to.
HIS HONOUR: Well, it doesn’t…There’s not much point in debating it, Mr McNamara, I don’t think this is an outline.
---
HIS HONOUR: …How long will it take to give your witness statements?
MR McNAMARA: …I’d be asking for 21 days.
HIS HONOUR: No. It’s too close to trial I think.
MR McNAMARA: Well, your Honour, the respondents are asking through until the middle of June to supply witness statements and expert’s reports. We can’t see how with 21 days with respect to setting out – they have a list of our witnesses, your Honour – as setting out the outlines is going to affect anything that the respondent is doing by way of preparation.
HIS HONOUR: Well, they can’t complete their witness statements until such time as they’ve seen yours. What I have in mind is to order that you supply the respondent with your client’s witness statements, which will stand as your client’s witnesses’ evidence-in-chief.
MR McNAMARA: So, your Honour, you are saying that this is now a trial by affidavits?
HIS HONOUR: It’s a trial by witness statements, yes. Because you’re not – your client wasn’t complying with the directions I gave earlier.
MR McNAMARA: Well, your Honour, my client was of the understanding he had complied with the direction that your Honour had given.
HIS HONOUR: Mr McNamara, I don’t think – I can’t understand how your clients could think that, frankly.
---
HIS HONOUR: Now, I’m not prepared to allow you now to rely on the outline of your witness statements. You’ll have to provide the witness statement which will be your client’s witnesses’ evidence-in-chief.
MR McNAMARA: So they are basically forming affidavits then?
HIS HONOUR: Well, we can call them affidavits if you like, you don’t have to put them in the form of an affidavit. They can be a witness statement which will be tendered when they give their evidence. I’m not going to have you provide witness statements giving evidence of some events and then supplement it by evidence of which the respondent has not been given notice.
240 The respondents advised the Court that Mr Seeger-Snowdon, whose unavailability was the basis for extending the filing date of the applicant’s expert report, was no longer an expert witness for the applicant. The witness list did not refer to Mr Seeger-Snowdon.
241 Mr Doyle addressed the question of Mr Cousins’ expert report which had been provided to the respondents on 1 March 2010. He said that the reports did not address the applicant’s pleaded case and the reports might not be admissible.
242 Next Mr Doyle addressed the proposed orders which had been emailed to the Court the previous day. He said in respect to paragraphs 3 and 4 of those orders that they are:
… just flat out contradictory to the regime that your Honour has put in place. The applicant’s expert evidence was due by 1 March, and we’ve received two reports either within or shortly after that timeframe. In my submission, that must form the applicant’s case so far as expert evidence is concerned.
243 Mr Doyle said that whilst he could not resist a direction in the terms that there be a window of opportunity for expert reports to be provided by the applicant in reply to the respondents’ expert reports, the reports which were contemplated were not of that kind but were of a kind that would be tendered in the applicant’s case.
244 It was put to Mr McNamara that the order of 23 December 2010 was that all of the applicant’s expert evidence was to be filed by 1 March 2010. The following exchange occurred:
MR McNAMARA: Yes, your Honour. I understand that, but there was – what I’m saying is that Mr Richards was in a position to provide a report but could only provide it when he got Mr Cousins’ report, so we ---
HIS HONOUR: You can’t ignore my orders.
---
HIS HONOUR: You’ve made no effort to extend the time in relation to Mr Richards. You’ve just ignored it.
MR McNAMARA: Your Honour, my understanding is when we had the discussion before the court that we were providing an expert’s report in relation to the financial aspects of the case and an expert’s report in relation to the financial aspects of the case. We’re now providing a further expert’s report with respect to the actual market, your Honour.
---
HIS HONOUR: Those orders said, clearly and succinctly:
The applicant file and serve its expert evidence in relation to the assumptions provided to the respondents by Friday, 4 December 2009.
And paragraph 8:
The applicant file and serve any further expert evidence upon which it proposes to reply by Friday, 12 February 2010.
Those orders were varied on 23 December 2009, the time within which the applicant has to comply with paragraphs 2 and 8 of the orders, made on 9 November 2009, be extended to 1 March 2010. That means all experts’ reports.
---
HIS HONOUR: And it can’t mean anything else. How do you say it means anything else?
MR McNAMARA: Well, your Honour, in my understanding from the discussions that we’re having at the time that – we talked about the expert’s report in relation to the technology, which is what the assumptions were based on, and then the discussions at the time were providing the expert’s report, with respect to the financial loss of the applicant and, you Honour, there was a discussion about what documents were going to be required by the financial expert. I think that was in the December appearance, and I thought it was confined to those two experts’ report – or those two areas, your Honour.
HIS HONOUR: It says:
The applicant file and serve any further expert evidence upon which it proposes to reply by 1 March 2010.
How can that exclude Mr Richards’ reports?
MR McNAMARA: Well, I’m saying that in the context of the matters before the court at the time, your Honour, we were discussing the reports of the technical expert and the financial experts that were required.
245 Leave to file any expert evidence from Mr Richards was refused but it was indicated that if the applicant received a report from Mr Richards the applicant could make an application. No application was ever made.
246 The applicant in its proposed minutes of order also requested that the respondents make further and better discovery but without specifying the discovery which was sought. The respondents conceded that they could not stop the applicant writing seeking further and better discovery, but were not prepared to submit to any order of that kind by a particular time until they knew what the request entailed. An order was made regarding the time within which the applicant had to identify the documents of which it sought further and better discovery. The applicant was also ordered to address the respondents’ request of 1 March 2010 in relation to certain deficiencies in the applicant’s discovery. Further orders were made regarding timetabling which reflected the new trial date. The orders made were:
1. The applicant provide the witness statements upon which it seeks to rely, which will form the evidence in chief of the witnesses at the trial, within 21 days.
2. The applicant respond to the respondents’ requests contained in paragraphs 2.1 to 2.6, in the letter to the applicant from the respondents’ solicitors dated 1 March 2010, by Tuesday, 9 March 2010.
3. The applicant identify the documents of which it seeks further and better discovery by the respondents, by Tuesday, 9 March 2010.
4. The respondents file and serve any experts’ reports upon which the respondents seek to rely by Monday, 31 May 2010.
5. The respondents provide their witness statements upon which they seek to rely, which will form the evidence in chief of the witnesses, by Monday, 7 June 2010.
6. The applicant provide any experts’ reports in reply to the respondents’ experts’ reports by Monday, 14 June 2010.
7. The applicant’s solicitors serve on the respondents’ solicitors a draft index for the proposed court book, including the documents to be tendered by Monday, 21 June 2010.
8. The parties’ solicitors consult as to the content of the court book and agree on a final form of the court book by Monday, 28 June 2010.
9. The applicant’s solicitors file and serve an indexed court book comprising the current pleadings and one copy of each of the proposed exhibits by Monday, 5 July 2010.
10. The directions hearing be adjourned to Tuesday, 16 March 2010 at 9.00am.
247 The time given to the applicant to provide its witness statements was the time sought by Mr McNamara.
248 On 5 March 2010 the respondents’ solicitors emailed the applicant’s solicitors:
Further to the directions hearing held on 4 March 2010, we are instructed to seek a hearing to deal with the respondents’ objections to aspects of the two reports served by Smart in this matter.
We have made contact with his Honour’s associate to ascertain his Honour’s availability for such a hearing. We understand that you are unavailable next week. His Honour could accommodate a hearing on Monday 15 or Tuesday 16 March 2010, but is unavailable for the remainder of the week commencing 22 March 2010. We understand that his Honour is on leave from 29 March 2010. We consider that a prompt resolution of any objections to the reports is in the interests of all parties. In these circumstances we seek your consent to a hearing (with an estimated length of half a day) on either 15 or 16 March. Our preference would be 16 March.
On the basis of a hearing on 16 March, we would propose the following directions:
- The respondents to file and serve an outline of their objections to the expert reports served by Smart on or before close of business Thursday 11 March 2010.
- Smart to file and serve any responding outline on or before close of business 15 March 2010.
We would be grateful if you would let us know your client’s position as a matter of urgency.
249 Mr McNamara responded advising that he would be away from the office until 15 March and a hearing on 16 March would be inconvenient because he would have no time to prepare, and could not arrange alternative counsel.
250 On 9 March 2010 the applicant filed an affidavit of Ms Tomazos exhibiting a compact disc containing an amended list of documents and a supplementary list of documents. The respondents’ solicitor, Ms Thanissorn later deposed in an affidavit filed on 23 April 2010 that she formed the view that the lists did not address the deficiencies identified in the respondents’ solicitors’ letter of 1 March 2010.
251 On 10 March 2010 the applicant’s solicitors wrote to the respondents seeking the production of various documents, a day after paragraph 3 of the orders of 1 March 2010 required the applicant so to do. The documents sought were, inter alia:
1. Documents referred to in Mr McNamara’s affidavit sworn on 8 December 2009.
2. Files RES13.16 to RES13.27 (which related to Electronic Product Guides).
3. Documents relating to all agreements and communications between Clipsal and Telstra, Clipsal and Honeywell, Clipsal and Hitachi/Argyle, and Clipsal and OTE.
4. Documents of all communications relevant to the Harvey Norman Dispute, the voluntary administration process and the IHG litigation.
5. Documents requested by Alex Reade in his expert report dated 1 March 2010.
252 The applicant also identified some administrative errors in relation to already discovered documents but they are unimportant.
253 On 11 March 2010 Mr Viscarello of Commercial & General Law (the applicant’s solicitor) appeared for the applicant in lieu of Mr McNamara who was away from the office.
254 At that hearing Mr Sam Doyle for the respondents contended that the applicant’s expert reports could not be tendered in the trial because they were inadmissible. The respondents requested that the proceedings be called on to test the admissibility of those reports. In support of that contention they said that if those reports were inadmissible, the respondents would be saved the cost of obtaining answering expert reports. Due to the complex nature of the case and the respondents’ continuing complaints about the applicant’s inadequate particularisation of its claim that the expert report on liability was intended to address, the respondents should be allowed to put their contentions as to why the tender of those reports should be refused. The following orders were made:
1. The respondents provide to the applicant and the Court the grounds upon which they contend that each expert report is inadmissible, and their submissions in support by Monday, 15 March 2010.
2. Liberty to apply on 12 hours’ notice.
3. The proceeding be listed for trial on Wednesday, 24 March 2010 at 3.00pm.
255 The trial was called on to allow a ruling to be made on the admissibility of evidence. A ruling of that kind could not be made in a vacuum and could not be made outside the trial. The trial was only called on for that single purpose. The applicant did not object to the course of action adopted.
256 On 18 March 2010 the respondents’ solicitors responded to the applicant’s request contained in the applicant’s solicitors’ letter of 10 March 2010. The letter is too long to be included in these reasons but it contains extensive reasons why the respondents refused to discover the documents sought in the applicant’s request.
257 On 24 March 2010 the trial commenced but only for the purpose of ruling on the admissibility of the applicant’s expert reports.
258 Despite assurances from the applicant that senior counsel had been retained for two years, senior counsel was not available to argue the matter on 24 March 2010.
259 In their written submissions the respondents contended that the reports of Mr Cousins and Mr Reade, both of 1 March 2010, were inadmissible for three separate reasons; first, relevance; secondly, expertise; and thirdly, basis/reasoning.
260 As to the first matter, the respondents contended that s 56(2) of the Evidence Act 1995 (Cth) (the Evidence Act) provides that evidence that is not relevant in a proceeding is not admissible in the proceeding. Relevant evidence is evidence that if it were accepted could rationally affect the assessment of the probability of the existence of a fact in issue in the proceeding: s 55(1) of the Evidence Act.
261 It was contended that the issues in these proceedings were those identified in the FFASOC, the respondents’ Defence, the Amended Cross Claim and the applicant’s Reply, Defence and Defence to Cross Claim.
262 Secondly, it was put that evidence is not admissible to prove the existence of a fact about the existence of which the opinion was expressed unless the person stating the opinion has specialised knowledge based on the person’s study or experience and the opinion is wholly or substantially based on that knowledge: s 79 of the Evidence Act.
263 Thirdly, it was put that the expert has a duty to include in the expert’s report the assumptions upon which the expert has based the report and the reasoning process which has led to the expression of the opinion.
264 In respect of Mr Cousins, it was said that he did not have any engineering qualifications, or any expertise in any relevant area in which he had expressed opinions. Moreover, the matters on which he opined were not matters raised upon the pleadings. It was also put that his opinions did not disclose the assumptions upon which they were based or the reasoning process which led to their expression.
265 In respect of Mr Reade, it was contended he also lacked expertise in that he did not have any expertise in relation to the analysis or valuation of large-scale manufacturing or technology businesses or the valuation of intellectual property. Further, his report did not distinguish between assumptions and opinions or identify the facts upon which he relied for the expression of opinion. His opinion was not based upon the pleadings.
266 For those reasons, the respondents contended that both reports should not be received by the Court.
267 The argument proceeded over two days until 26 March 2010, at which time the expert reports were ruled inadmissible.
268 Mr Cousins described his relevant experience as being an electronic and computer system failure analyst and disaster recovery consultant with 18 years experience. He said that between 1990 and 1999 he had been involved in the development of a range of software products and electronic hardware products. His role as an electronic and computer systems failure analyst involved establishing the cause, nature and extent of damage to a system, and establishing cost effect re-instatement strategies. He claimed his specialist knowledge arose from practical experience in systems analysis and design, and the practical experience of viewing damage to C-Bus systems and reviewing the scope or work required to repair or replace them. He was neither an electrical engineer nor a designer of electrical products of the kind which were the subject of the proceedings. Rather, he investigated disasters. The report did not identify the specialist knowledge Mr Cousins had for the purpose of expressing the opinions. His report could not be admitted because he did not have the specialised knowledge required by s 79 of the Evidence Act and so the opinion rule in s 76 of the Evidence Act would apply.
269 The tender of the report was refused for two other reasons. In paragraph 79 of the FFASOC the applicant identified 20 essential systems which it considered to be Smart Systems. In Schedule C the applicant identified over 600 products which it said in combination with each other formed the systems pleaded in paragraph 79. However, the applicant provided Mr Cousins with a brief which referred to the systems in paragraph 79 and then attached further documents that included more products than those pleaded in Schedule C. In total, Mr Cousins’ report was based on 223 more products than those which were pleaded. The applicant’s case was constrained by its pleadings. Therefore Mr Cousins had been asked to assume facts which were inconsistent with the FFASOC and thus irrelevant.
270 Further, it was not possible to identify from Mr Cousins’ report why he was of the opinion that any particular product, or indeed any system, had any particular functionality. The report did not identify the relevance of the assumptions which he had made for the purpose of expressing his opinions.
271 Mr Reade is a chartered accountant of 18 years experience who had been a partner in his firm since 1997. While he had the specialised knowledge of an accountant he did not have the necessary expertise to give the opinions which he proffered. This was demonstrated by the report itself, particularly in relation to his discussion of the claim for lost business opportunities, which he dealt with in just over a page.
272 He stated in the report that he did not address other possible contributory losses and had assumed that Clipsal’s actions were the total cause of the loss of business opportunities. He assumed that Clipsal was aware of the relationship between the applicant and certain other companies, assumed that Clipsal knew its role as a manufacturer would impact on the applicant’s performance, and assumed that Clipsal was aware of the applicant’s financial position. He stated that the analysis of what the applicant might have achieved but for Clipsal’s actions involved a prediction of what might have happened under certain circumstances, but did not identify what the prediction was. He stated that he used the discounted cash flow method to assess the applicant’s loss of profits, but did not then apply the method in the report. He finally concludes that the total loss of business opportunity may be in the order of $1 billion, but provided no reasons why that figure was reached.
273 Mr Reade further assumed that in referring to Clipsal he was referring interchangeably to the respondents and to other companies related to Clipsal, when in fact only three of the Clipsal companies are respondents in these proceedings.
274 In some respects the claim for damages was formulated by Mr Reade on a basis inconsistent with the applicant’s pleadings. Mr Reade did not identify his reasoning process in relation to the particular losses.
275 For those reasons, both the technical report of Mr Cousins and the quantum report of Mr Reade were ruled inadmissible.
276 After the ruling was handed down, the applicant’s counsel indicated the applicant would seek leave to appeal against the ruling:
MR McNAMARA: Yes, your Honour, and to the extent necessary, your Honour, I would ask leave to appeal your Honour’s ruling as you ---
HIS HONOUR: You can’t appeal it. It’s not an order.
MR McNAMARA: I understand it’s not an order, your Honour, but it is a ruling.
HIS HONOUR: I think it’s a ruling within the trial but you can try but---
MR McNAMARA: I have said to the extent that I need to, your Honour, I need to have a look at that. It is a ruling and ---
HIS HONOUR: I think it’s a ruling on evidence which ordinarily you can’t appeal. You have to go through the trial and then appeal, I think.
MR McNAMARA: I make that application if I need to, your Honour, and if---
HIS HONOUR: Well, you don’t have to make it to me and, in any event, I wouldn’t hear your application. I would allow it to be heard by someone else.
MR McNAMARA: Yes, your Honour.
HIS HONOUR: I think I’m right in saying that being a ruling on evidence within the trial you have to make your application at the end of the trial.
MR McNAMARA: Yes, your Honour.
HIS HONOUR: I’m not trying to dissuade you from doing it.
MR McNAMARA: I’m just saying to the extent that I need to, your Honour, I would make that application. If I don’t need to do it, then ---
HIS HONOUR: Yes, you ought to. If you are going to make an application for leave, make it to some other judge who can hear it as a matter of urgency.
MR McNAMARA: Yes, your Honour, I understand.
277 No appeal or application for leave to appeal was ever lodged by the applicant.
278 Mr McNamara was told at that hearing if any application were to be made to deliver further expert reports or to adjourn the trial, the Court would need to see some expert reports to justify the making of those orders. No further expert reports have ever been delivered to the respondents or provided to the Court.
279 After the ruling was made further issues were raised. The relevance of the EWDIS business to the statement of claim and the applicant’s request for further discovery by the respondents of documents relating to EWDIS was raised.
280 It had been Mr Doyle’s contention that the products the applicant alleges were Smart Products made up less than 10% of the EWDIS business. Mr McNamara put that there had been no evidence of this assertion, that it had only been given from the bar table, and that in any event it was a matter which had to be proved at trial:
MR McNAMARA: …Your Honour, there is no evidence before the Court at all that the EWDIS business is not a proxy for the monetary relief, that is for the relief that we say Smart is entitled to with respect to improved products, original products and new products.
281 And later:
MR McNAMARA: …we will show that in Clipsal’s own documents, they say that the EWDIS business was made up of what we say are Smart Systems and Smart Products,
282 At the hearing Mr McNamara made an oral application to amend the FFASOC so as to remove Schedule C and the reference to it in paragraph 79.1 of the FFASOC. Mr McNamara said that all the products in Schedule C were simply items which were part of the systems also referred to in paragraph 79.1. The following exchange with Mr McNamara took place:
HIS HONOUR: But that will mean your technical report doesn’t address paragraph 79.
MR McNAMARA: Well, the technical reports do address paragraph 79, your Honour, because they ---
HIS HONOUR: Not on its terms, though. Not on its terms.
MR McNAMARA: They address the major items, your Honour, but the technical report, your Honour correctly says the opinion is that the items, no matter what, if they are put into the system, become part of the system, and at paragraph 79, talks about systems. So, we say that the technical report that has been received, just confirm, is that we don’t need to have Schedule C in the pleadings and with respect to the financial expert’s report, your Honour, we say it doesn’t reflect it at all because paragraph 79 is what we say was the EWDIS Clipsal system and that’s what the sale is, and your Honour, the submission obviously is that we take on board what you’ve said and that ---
HIS HONOUR: How will you identify, if I were to all the amendment, how do you identify each of those systems? Are they obviously identifiable?
MR McNAMARA: They’re identifiable in the respondent’s own document, your Honour.
---
HIS HONOUR: …If this amendment were allowed, no doubt, Mr Doyle will argue that that further contaminates the existing reports and their form. Anyway, that’s a matter for you.
MR McNAMARA: I’ve just made my submission, I think, your Honour, I say that it doesn’t contaminate the reports at all. In fact, the report of the expert on technology indicates that that’s where it should be, that anything, that any product that is put into the system is part of the system. That’s what his report says and, based on that report, then we should be amending, and my further submission in respect to Mr Reade’s report is that his report is based on the fundamental that the EWDIS Clipsal business related to the systems in paragraph 79 and it doesn’t matter what’s in them. He’s picked up and used that, so it doesn’t affect his report.
283 The respondents opposed any such application:
MR DOYLE: …claim is for products, products and products. The definition is Smart Products, it’s not Smart Systems. It’s unilateral products, it’s improved products, it’s all anchored in products, some of which may be, on occasion, sold as part of systems but it’s not a system based case. To take away the schedule C would be to leave the case even more hopelessly particularised than it already is and would, in my submission, make it an untenable pleading. So, in my submission, your Honour wouldn’t allow that course at this stage.
But even if the amendment were allowed, it would solved the problem in that the problem is one of identify how it is that certain products come within the definition of Smart Products. What’s pleaded at the moment is the 3(d) definition. What’s not pleaded is it doesn’t matter what your functionalities are. If you can be used as part of that system, you become a Smart Product. That’s not the case that’s being run, so just removing schedule C won’t convert it into that sort of case. The case is still one that’s pleaded through paragraphs 15, 17, 60 and 79 as being you qualify as a product by satisfying one of these three limbs.
For particularly limbs 2 and 3, we need to know is it qualifying because for each product it has two of the functionalities itself and it gets three from these five products or how those limbs are made out and Mr Cousins says, “Yes,” to a lot of limb two and three inquiries without ever explaining how it is.
284 It was left for Mr McNamara to consider his position in view of what Mr Doyle said. No ruling was made at that stage.
285 Mr McNamara also sought an extension of time to file the witness statements which by reason of the orders of 4 March 2010 were due on 25 March 2010, until 31 March 2010. The following exchange occurred:
MR McNAMARA: Your Honour, with respect to the witness statements, your Honour, they were going to be ready today but I have been in court all day and all of pretty much yesterday, I would ask for an extension until Wednesday to get the witness statements in because I do need to read them.
HIS HONOUR: Do you object to that, Mr Doyle?
MR DOYLE: Your Honour, I wonder whether we can just deal with that on your Honour’s return. It may be that if it’s only a matter of five days, then we don’t have a serious opposition.
HIS HONOUR: Extend the time nunc pro tunc.
MR DOYLE: Yes.
MR McNAMARA: Yes.
HIS HONOUR: All right, perhaps if you deliver them when you can, Mr McNamara.
286 The applicant did not thereby obtain the Court’s permission to the later filing. The applicant was told that if the witness statements were filed by 31 March 2010 the Court would in all probability make an order extending the time to file the witness statements nunc pro tunc to 31 March 2010.
287 Later Mr McNamara said in an affidavit affirmed on 27 April 2010 that when he read the draft witness statements on or around 26 March 2010 he formed the view that they were not ready for filing as they:
79.1 contained hearsay and other inadmissible material;
79.2 did not address the new materials that had been obtained from the Respondents as part of the discovery process; and
79.3 did not address so of the issues that had been raised as a result of the hearings on the 24th through to the 26th March 2010.
79.4 did not use consistent terminology or refer to documents in a consistent manner so as to be confusing.
79.5 did not refer to documents using the document references provided by the applicant and the Respondent as part of the discovery process.
288 On 29 March 2010 Mr McNamara began contacting suitable experts who would be in a position to provide experts’ reports. He stated that his inquiries had been impeded by Easter.
289 On 1 April 2010 the respondents’ solicitors wrote to the applicant’s solicitors referring to their letter of 18 March 2010 and requested that the applicant immediately discover its financial statements for the financial years ending 30 June 2000 to 30 June 2009.
290 The applicant did not file a draft index, the court books and documentary evidence on or before 9 April 2009, as was directed in paragraph 11 of the orders of 9 November 2009. No application was made seeking an extension of time to do so. Those documents were never filed.
291 On 19 April 2010 the respondents filed the notice of motion the subject of these reasons:
1. Pursuant to section 31A of the Federal Court of Australia Act 1976 (Cth) or, in the alternative, pursuant to Order 35A Rule 3 of the Federal Court Rules, the proceeding be dismissed in its entirety;
2. In the alternative to order 1 herein, that the proceeding be dismissed insofar as it relates to the Unilateral Products as set out in paragraphs 1c.-1g. inclusive, 2, 3, 4, 5, 6, 7 and 8 of the Amended Application filed 7 March 2008;
3. In the further alternative to order 1 herein, an order pursuant to section 56 of the Federal Court of Australia Act 1976 (Cth) and Order 28 of the Federal Court Rules, and further or in the alternative, section 135 of the Corporations Act 2001 (Cth), that the applicant pay into Court or provide a bank guarantee in the sum of $900,000 in respect of security of the costs of trial of this action;
4. That the respondents have the costs of this motion;
5. Such further or other order as this Honourable Court may deem fit.
292 The notice of motion was supported by an affidavit of Mr Kennett, sworn on 16 April 2010. In that affidavit Mr Kennett said that the applicant’s expert reports had been ruled inadmissible on 26 March 2010 and the applicant had not indicated that it proposed to make an application seeking leave to serve and rely on any additional expert reports. He further said that the applicant had failed to file its witness statements or affidavits and was thereby in default of the Court’s orders.
293 At the time the notice of motion was filed I was on leave. However, after my associate notified me that the notice of motion had been filed, he was instructed to email the parties. On 19 April 2010 my associate, at my direction, emailed the parties:
His Honour Justice Lander is cognisant of the circumstances and grounds upon which this application has arisen.
As you are aware, his Honour is currently on leave until 10 May 2010 and in the first week of his return will be in Canberra for Full Court. Please be advised that the notice of motion moved by the respondents will be listed on Wednesday 16 May 2010 at 9.15am for mention only.
The filed copies of the notice of motion and supporting affidavit will be processed shortly and will be ready for collection this afternoon.
294 The trial was listed to commence on 19 July 2010 which was only two months after the date for mention that I had proposed. On 21 April 2010 my associate, again as instructed, sent a further email to the parties:
I refer to my email below sent on Monday, 19 April 2010.
Justice Lander has given the matter some further thought. His Honour is of the view that the respondents’ notice of motion filed on Monday, 19 April 2010 (the notice of motion) should be heard earlier.
Please be advised that the notice of motion is now listed for hearing on Thursday, 29 April 2010 at 9.30am.
His Honour has asked that:
1. The respondents file and serve evidence and submissions upon which they seek to rely, in support of the notice of motion, by Friday, 23 April 2010; and
2. Smart file and serve its evidence and submissions upon which it seeks to rely, in reply, by Tuesday, 27 April 2010.
I ask that you please confirm receipt of this email as soon as possible.
295 On 21 April 2010 Mr McNamara responded by email to my associate:
I am in a matter in the Supreme Court on the 29 April.
296 On the same day my associate responded:
Dear Mr McNamara
In light of your email below it will be necessary for me to notify Justice Lander of your current commitment in the Supreme Court on 29 April 2010.
Before I contact his Honour, it would assist if you could advise me of your availabilities or, if necessary whether another counsel can be arranged if the notice of motion is to proceed on 29 April 2010.
297 Mr McNamara responded, again on the same day:
I am available on the 19th May as it was previously listed for and in the week commencing the 3rd May and on the 13th May.
298 Again at my direction, my associate responded on the same day:
Dear Mr McNamara
I have notified Justice Lander of your availabilites.
Please be advised that the respondents’ notice of motion is to proceed on Thursday, 29 April 2010 at 9.30am for hearing. His Honour is of the view that the notice of motion must be heard so that the parties are in a position to understand how the matter is to proceed. Understanding your commitment in the Supreme Court of South Australia that day, his Honour has noted that another counsel may have to appear for the applicant.
299 Mr McNamara said that upon receiving the above email he contacted Bar Chambers to ascertain the availability of Mr Blue and was advised that he was overseas until 10 May 2010.
300 On 21 April 2010 Mr McNamara wrote to my associate concerning the ruling on 26 March 2010 saying that he needed a copy of the judgment of 26 March which was not available electronically.
301 My associate responded that:
… the reasons given on 26 March 2010 have not been published because it was a ruling, and not a judgment, that was made.
302 My associate suggested that Mr McNamara order the transcript which would contain the ruling.
303 On 23 April 2010 Ms Rita Thanissorn swore an affidavit in support of the respondents’ notice of motion of 19 April 2010, in compliance with the request in my associate’s email of 21 April 2010.
304 Ms Thanissorn’s affidavit set out the chronology of events relating to the applicant’s change of solicitors; the timetable set down on 9 November 2009; the provision of expert reports; the adjournment of the trial date, the failure of the applicant to provide an outline of the witnesses’ evidence, the further timetable of 4 March 2009 and the further default in provision of witness statements; the deficiencies in the applicant’s expert reports; the deficiencies in the applicant’s discovery, and a history of the security for costs application.
305 Those events have been addressed in these reasons.
306 In relation to the question of security for costs, Ms Thanissorn said that the winding up proceedings brought by Tindall Gask Bentley on 8 December 2009 in the Supreme Court of South Australia, had been heard by Judge Withers who had reserved his decision.
307 She addressed Ms Tomazos’ affidavit sworn on 26 March 2010 (the 26 March 2010 affidavit) which had been sworn in opposition to Tindall Gask Bentley’s application and filed in the Supreme Court. Ms Tomazos had exhibited to the 26 March affidavit what she said was a true copy of the applicant’s financial statements for the financial year ending 30 June 2009. Ms Thanissorn said that Ms Tomazos had sworn in the 26 March 2010 affidavit that the company’s financial position had improved for the better since those financial statements were prepared.
308 Ms Thanissorn then analysed various assets of the applicant for the purpose of showing that the applicant’s financial position was not as stated in the financial statements.
309 She said in that affidavit that she estimated the applicant’s costs of the trial would be no less than $900,000. She said:
106. By reason of:
106.1 the 3 month period in which the applicant was not legally represented as described in paragraphs 4 to 8 above;
106.2 the applicant’s failure to provide its expert reports by 4 December 2009 in default of Lander J’s orders of 9 November 2009;
106.3 the resultant adjournment of the trial date from 31 May to 19 July 2010;
106.4 the deficiencies of the applicant’s discovery which are yet to be fully remedied;
106.5 the applicant’s failure to file and serve outlines of its witnesses’ evidence by 12 February 2010 in default of the orders of Lander J made on 9 November 2009, and its continuing failure to file and serve those outlines by 25 March 2010 in default of the orders of Lander J made on 4 March 2010; and
106.6 the deficiencies of the Cousins Report and the Reade Report resulting in Lander J’s refusal to accept the tender of those documents,
the applicant has caused significant delay and uncertainty in the prosecution of these proceedings.
310 On 23 April 2010 PKF Chartered Accountants and Business Adviser agreed, subject to the applicant meeting certain terms and conditions, to provide a financial and accounting expert report to the applicant. The report would be given by the two senior directors in Adelaide, Peter Hunt and Henry Veronese.
311 On 25 April 2010 Dr Kenneth Wacks of Massacheussets, USA agreed, subject to the applicant meeting certain terms and conditions, to provide a technical expert report for and on behalf of Smart.
312 On 28 April 2010 the applicant filed a notice of motion seeking orders that:
1. the hearing of the Respondent’s Notice of Motion dated the 16th of April 2009 and filed herein on the 19th April 2009 be adjourned;
2. in the alternative, argument as to the second and third order sought in the Respondents’ Notice of Motion be adjourned;
3. the time within which SMART is granted leave to file and serve any expert reports it proposes to rely upon be extended to two calendar months after the later of:
3.1 the production of, and determination of questions of access by the parties to, the documents contemplated by the subpoena referred to in order number 9 hereof;
3.2 the provision of the documents contemplated in order 7 hereof;
4. the time within which SMART is granted leave to file and serve witness statements (or amended witness statements as the case may be) it proposes to rely upon in the trial as its evidence-in-chief be extended to 14 calendar days after the later of:
4.1 the production of, and determination of questions of access by the parties to, the documents contemplated by the subpoena referred to in order number 9 hereof;
4.2 the provision of the documents contemplated in order 7 hereof;
5. consequential orders be made in respect of answering reports and statements by SMART’s proposed lay and expert witnesses;
6. further consequential orders be made in respect of answering reports and statements by Smart’s proposed lay and expert evidence;
7. the Respondent provide to SMART within 7 calendar days copies of the documents referred to in paragraph 18 of the Affidavit of Stephen Patrick McNamara sworn on 8 December 2009 and filed here in on 9 December 2009;
8. leave be given to SMART to seal and serve a subpoena against Schneider Electric SA; Clipsal Australia Pty. Ltd A.C.N. 007 873 529, Clipsal Integrated Systems Pty Ltd ACN 089 444 931, Clipsal Technologies Australia Pty Ltd ACN 007 824 231 and Price Waterhouse Coopers
9. that the continuation of the trial of this matter be adjourned sine die.
…
313 The applicant filed an affidavit sworn by Mr McNamara on 27 April 2010 in support of this application.
314 In support of paragraph 1 of the notice of motion, Mr McNamara referred to the correspondence between the parties and my associate between 18 and 21 April 2010. Mr McNamara stated that due to Court commitments he had not been able to consider the matter until the afternoon of Friday, 23 April 2010 and that he had not received Ms Thanissorn’s supporting affidavit until 4.45pm on that Friday. Therefore he could not confer with Counsel until 6.00pm. He further stated because of the long weekend (Anzac Day weekend) Smart did not have access to all business resources until Tuesday, 27 April 2010.
315 Mr McNamara stated that counsel retained by the applicant due to his and Mr Blue’s unavailability had not had sufficient time to read the papers. Mr McNamara stated that the applicant’s ability to defend the notice of motion was severely compromised.
316 Mr McNamara said that although he had told the Court on 21 December 2009 that the witness statements that had been prepared for Smart in 2008 by a previous solicitor would be available by 12 February 2011, he had not at that time read the witness statements. Therefore he did not know that they would require as much work as they did. He further stated that the timetable set at that time only required that an outline of witness statements be filed by 12 February 2010, and that he had made his statement regarding their ability to meet the timetable on the basis that only an outline would be needed.
317 He stated that at no time was it suggested or contemplated by him that the witness statements would be the whole and only basis for each of the witnesses’ evidence-in-chief.
318 He said in relation to those witness statements and their non-delivery after 26 March 2010:
78. On the 26th March 2010 I requested of the Court an extension of time for Smart to file and service its witness statements, as because of Court commitments I had not at that stage had the opportunity to read the witness statements. At page 83.14 of the transcript His Honour stated to me in relation to the witness statements: “All right, perhaps if you deliver them when you can”.
79. When I read the extant draft witness statements at around this time, I formed the view that they were not ready for filing with the Court as they:
79.1 contained hearsay and other inadmissible material;
79.2 did not address the new materials that had been obtained from the Respondents as part of the discovery process; and
79.3 did not address so (sic) of the issues that had been raised as a result of the hearings on the 24th through to the 26th March 2010.
79.4 did not use consistent terminology or refer to documents in a consistent manner so as to be confusing.
79.5 did not refer to documents using the document references provided by the applicant and the Respondent as part of the discovery process.
80. To have the witness statements refer to discovered documents by discovery number, even where those documents have been discovered by our client, has taken a long time to do. For instance even though the statement of Robert Rohrlack (sic) had been prepared with the assistance of Counsel prior to 2009, none of the documents referred to in the Statement was cross referenced with discovered documents identification numbers (because discovery had not been made at that stage). The Cross referencing task alone took three weeks to complete.
81. The witness statements have now been re-caste and are being settled. I expect that the witness statements of:
81.1 Robert Rohrlach
81.2 David Mittnacht
81.3 Sotirios Portellos
81.4 Dorothea Tomazos
81.5 Benetti
81.6 David Filsell
81.7 Dean Clift
81.8 Des Sheedy
81.9 Paul Fitzpatrick,
will be filed in this Honourable Court before the hearing on Thursday 29 April 2010.
319 In relation to expert reports, Mr McNamara said that despite the fact that the purpose of providing the technical report prior to discovery was to assist the respondents to understand the case and thereby limit discovery, and to avoid the need for an application by the respondents for further and better particulars, discovery had ultimately proceeded prior to the filing of the expert reports.
320 Mr McNamara said that given the very short timeframe encompassing discovery, the provision of all expert reports, the ongoing efforts to file all lay witness statements and the application by the Respondents to exclude the expert reports, the applicant was not able to obtain Counsel’s advice on whether further technical experts reports were required, or review or change the assumptions that had been put to the technical expert, or have the experts review the respondents discovery and consider whether it raised further matters of relevance to their opinions.
321 In relation to the issue of further discovery requested by the applicant, Mr McNamara referred to the transcript of 21 December 2009 and 26 March 2010 where he had submitted that the financial expert required further information which required further and better discovery.
322 Mr McNamara referred to the transcript of 26 March 2010 when he made an oral application to amend the pleading by deleting Schedule C and he was advised to consider the application. Mr McNamara said that due to all the other matters which he needed to attend, he had not had the opportunity to obtain Mr Blue’s advice as to the proposed amendment. Mr McNamara requested that a consideration of the application to amend the FFASOC by removing Schedule C from it be deferred until Mr Blue returned so that his advice on the amendment might be obtained. He also stated that he wished to consult Mr Blue on a further pleading issue which had arisen in light of discovery. He did not identify this issue.
323 Mr McNamara said that he had believed that the matter was set down for argument on 24 March 2010 but did not know that the trial was to start on that day, because a junior solicitor, Mr Viscarello, had been at the previous directions hearing in Mr McNamara’s absence. He stated that he was not aware that any of the proceedings contemplated by O 30 had been addressed or complied with.
324 The applicant also relied on an affidavit by Ms Tomazos sworn on 27 April 2010. She referred to the respondents’ discovery and identified what she called deficiencies, most of which related to administrative errors. Ms Tomazos also sought production of documents created by Clipsal’s legal advisor in relation to the HOA, and over which Clipsal had claimed legal professional privilege.
325 She further stated that the respondent had failed to provide discovery in relation to:
9.8.1 loss of business opportunity to Smart: Documents relating to either dealings between Clipsal and/or CIS and/or any affiliate of either Clipsal or CIS and Telstra, Honeywell and Hitachi/Argyle;
9.8.2 Financial statements and/or accounts of the Respondents; and
9.8.3 documents in relation to the Respondents’ dealings with the Voluntary Administrator of Smartworld Corporation Limited
9.8.4 documents sought by Smart as set out in the Affidavit of Stephen McNamara sworn on 8th December 2009 and filed herein.
326 The paragraphs of her affidavit in which she addressed the respondents’ documents which she said showed the respondents’ knowledge and which she said would make out the applicant’s claim in the proceedings, were not admitted into evidence.
327 Ms Tomazos explained the circumstances of the changes in solicitors during 2009. She said that Tindall Gask Bently had been appointed on 22 April 2009 while Smart’s directors were overseas on business and where the respondents had brought an urgent application for security for costs. Once those instructions were terminated on 3 August 2009, the applicant immediately sought to obtain alternative solicitors.
328 Ms Tomazos said that the applicant had commenced negotiations with DLA Phillips Fox and believed that an agreement had been reached by 8 October 2009. Ms Tomazos stated that she believed that Schneider Electric then complained to the Sydney office of DLA Philips Fox about a conflict of interest, and the conflicts committee within that firm had determined that they could not act for the applicant. Ms Tomazos claimed that the process of engaging new solicitors delayed the matter for at least 2 months until Commercial and General Law filed their notice of acting.
329 Ms Tomazos said that Mr Blue’s ongoing involvement in the matter was required by Smart and that Smart would be prejudiced if unable to retain Mr Blue for trial. She referred to Mr McNamara’s affidavit of 8 December 2009 and said that Mr McNamara had told her, and she believed, that Mr Blue was never asked if the date of 31 May 2010 was suitable for him regarding the beginning of the trial. She further deposed that Mr Blue would not be available for trial commencing on 19 July 2010, but would only be available for trial in October or November 2010.
330 In relation to witness statements, Ms Tomazos stated that the witness statements were being prepared in 2008 and 2009, but were not prepared on the basis that they would be the evidence-in-chief of each witness. Ms Tomazos said that the respondents’ discovered documents revealed information previously not available to Smart which impacted upon Smart’s case and required that the statements be reviewed and updated.
331 Ms Tomazos responded to Ms Thanissorn’s affidavit of 23 April 2010 in relation to the deficiencies of the applicant’s expert reports and the admissibility ruling. Ms Tomazos said the applicant had requested the documents which are set out in paragraph 18 of Mr McNamara’s affidavit of 8 December 2009 since December 2008.
332 She stated that the applicant had sought orders at the hearing of 21 December 2009 that the respondent provide those documents to the applicant. Ms Tomazos stated that this issue was not dealt with at the hearing of 21 December, because the applicant had submitted that it could provide its technical expert report without the documents, but could not provide its financial report without the documents.
333 Ms Tomazos stated that these documents were not provided by the respondents on 22 February 2010, and that the respondents had not provided any documents which would allow the applicant to calculate the royalties it alleged were owed under the HOA. Ms Tomazos stated that the financial experts were not able to complete a report without the documents requested by Smart.
334 Ms Tomazos addressed the retaining, subject to certain terms and conditions, of PKF Chartered Accountants and Business Advisers, to which reference has already been made.
335 Ms Tomazos addressed Ms Thanissorn’s allegations of deficiencies in the applicant’s discovery, most of which she claimed were either administrative errors or alleged deficiencies in document provision. Ms Tomazos stated that many of the allegedly missing documents had in fact been provided on previous occasions, or had been provided under different category headings.
336 Ms Tomazos said that the respondents’ conduct in requiring an expert’s report as to the technical aspects of the case prior to the parties making discovery had put the applicant to considerable expense. She also said the applicant had been put to considerable time and expense trying to comply with the orders for the technical expert’s report, and by having to file a financial expert’s report before receiving adequate discovery from the respondents.
337 She said that the procedure which had been adopted would shorten the length of the trial because the trial was now proceeding on the basis that witness statements to be filed by each party would be the only evidence-in-chief. She said that the funds already in Court would be adequate to cover security for costs for the respondents.
338 Ms Tomazos set out a number of ways in which the actions of the respondent had detrimentally affected Smart’s financial position.
339 On 28 April 2010 Mr McNamara swore an affidavit in support of the issue of subpoenas against the respondents, Schneider Electric, and PriceWaterhouseCoopers NewZealand. The subpoenas were directed to obtaining the documents requested in paragraph 18 of Mr McNamara’s affidavit of 8 December 2009.
340 He also swore an affidavit on 29 April 2010 in which he stated that five of the nine witness statements proposed by the applicant had been filed that day. In fact they had only been lodged. Mr McNamara stated that the statement of the key witness Mr Rorlach was 317 pages with over 10,500 pages of attachments and a statement of Mr Mittnacht was 297 pages with 3,600 pages of attachments. Although the statements were never filed, the respondents in paragraph 8 of their submissions of 27 May 2010 said that the statement of Mr Rorlach referred to less than 100 of the respondents’ discovered documents.
341 Mr McNamara also stated that the remaining four statements would be filed on 29 or 30 April 2010. This did not occur.
342 Mr McNamara also annexed a proposal to provide an expert report from PKF Corporate Advisory in relation to the issue of quantum of loss.
343 On 29 April 2010 Mrs Shaw QC appeared for the applicant and requested an adjournment of the application as counsel briefed in the matter, Mr Blue was not available and would be away until 10 May 2010. She said she had been briefed a week before the hearing date. The applicant sought an adjournment so that Mr Blue could argue the application.
344 Mrs Shaw said that on 26 March when Mr McNamara asked for an extension of five days to file the witness statements, he had not read the statements that needed to be filed in terms of the requirements that the statements would form the witnesses’ evidence in chief. He had read a version of the statements, but only that which was contemplated in December 2009, when there was no requirement that the statements be the evidence in chief. Therefore he did not appreciate the enormity of the task of cross referencing them to the discovery or the issues of admissibility that arose when the statements are to be considered the witnesses’ evidence in chief.
345 Mrs Shaw claimed that the delay in the provision of the witness statements was a result of the onerous task of cross-referencing the statements to the discovery documents. She also argued that the delay was due to discovery occurring only on 22 February 2010, after which time the applicant had only 3 weeks to produce the witness statements. Mrs Shaw said that since she had been briefed a week earlier, she had been working constantly with junior counsel to prepare the statements and prepare for this hearing.
346 Of the nine witnesses on the applicant’s list of 22 February 2010, Mrs Shaw indicated that the applicant had attempted to file four witness statements on that day, 29 April, but that they had not been accepted by the Registry as they were not correctly bound. One more was being delivered to the Registry during the hearing, three more were relatively short and nearly prepared, and the final witness was unavailable to sign his statement but would do so shortly.
347 Mrs Shaw addressed the delay in provision of the witness statements between 26 March and the attempted filing of 4 of them on 29 April 2010. She said that Mr McNamara’s understanding of the exchange referred to in [285] and [286] above was:
MRS SHAW: What I’m suggesting to your Honour is he understood that he would deliver them as soon as he could, hopefully – and he understood at that time, without reading them, that he would be able to deliver them by Wednesday, but he understood that your Honour wouldn’t be returning for six weeks and therefore - - -
HIS HONOUR: It’s not for me to read them, it’s for Mr Doyle to read them, he needs the statements, not me.
348 Later, in relation to the same issue and the exchange on 26 March 2010, I said:
HIS HONOUR: It was clear from what – the exchange that took place between Mr McNamara and Mr Doyle and myself that Mr Doyle would indicate whether or not he objected to a late filing to Wednesday after the filing had occurred.
MRS SHAW: Yes.
HIS HONOUR: Then he would indicate whether he would agree to an order being made nunc pro tunc.
MRS SHAW: Yes.
HIS HONOUR: There was no suggestion that Mr McNamara had had any further time after that. If Mr McNamara wanted a further extension, he should have applied, but he doesn’t apply for extensions of time, he just ignores them.
MRS SHAW: Your Honour, with respect, I disagree. Firstly, your Honour had indicated that ---
HIS HONOUR: Where does he apply for an extension of time?
MRS SHAW: Can I just complete that part of my submission, your Honour?
HIS HONOUR: What part?
MRS SHAW: The part where your Honour said. “Why didn’t he apply for an extension?”
HIS HONOUR: Yes.
MRS SHAW: The submission I make is your Honour had indicated that you would be away for six weeks.
349 Mrs Shaw submitted that the respondent had brought two applications in 2009 and although both were unsuccessful the applicant had been required to address the applications Moreover, the applicant later had to prepare for the matter being called on for trial on 24 March.
350 She further submitted that much of the applicant’s difficulty in complying with orders was the already tight time frame for preparation for trial which had been put in place. Mrs Shaw submitted that the whole process had placed an unfair burden on the applicant. She said:
MRS SHAW: …the direction back in July, and the requirement for the applicant to file his expert’s report to assist the respondent to understand the pleadings, had the result that discovery was not ordered by your Honour until November. When discovery was ordered as to categories, the respondent was – the applicant was – still required to provide this expert report to assist the respondent’s discovery, and discovery did not take place until 22 February by the respondent. Now, between that time, November, and February, when the respondent had to provided discovery, various orders were put in place that meant that the applicant gave his discovery by January, the applicant had to file his list of witnesses and the outline without the benefit of the respondent’s discovery, and then your Honour directed he had to file all his witness statements, that was the entire case, within three weeks.
351 Mrs Shaw said that the problems that the applicant had with complying with the orders, and their general delay, had their genesis in the orders of 8 April 2009 when the applicant was ordered to file the assumptions on which the expert report would be based prior to discovery taking place.
352 Mrs Shaw said that the respondents’ reasons for seeking the orders of 8 April 2009 were to avoid further pleadings arguments. She noted that those orders were however made 12 months after the FFASOC was filed, and when all pleadings were closed.
353 Mrs Shaw was directed to the applicant’s failure to comply with the directions to file the expert’s report on 4 December 2009. She said that the applicant ought not to be punished that because no fault was found against the applicant when the respondents’ application for an order dismissing the proceedings or staying the proceedings on 23 December 2009 was dismissed.
354 Mrs Shaw said that on 8 April 2009 Mr Britten-Jones had objected to the regime being considered, on the grounds that it “could result in a control or interference in the applicant’s preparation or the way in which it wished to conduct the case.”
355 Mrs Shaw said that on 8 April 2009 the respondents had been prepared to accept that further discovery after the expert liability report could mean or would mean that the applicant would need to file a further expert liability report. She said that the failure to commence the discovery process before orders were set for scheduling for trial meant that the applicant had been “behind eight ball” all along. I said:
HIS HONOUR: But the applicant should have complained about that at the relevant time.
MRS SHAW: What I’m submitting to your Honour is Mr Britten-Jones in---
HIS HONOUR: No, no. No, no. Mr Britten-Jones, if he was still on the case then, I think that was his last appearance before me, should have, at that stage, brought an appeal if he thought that the way in which I was case managing this proceeding prejudiced his client. That’s what he should have done; that’s what you do.
MRS SHAW: Well, your Honour – you Honour – in hindsight, your Honour, one can see that that should have happened.
356 In relation to Mr McNamara’s reference to further expert reports in his affidavit of 29 April 2010, it was put to Mrs Shaw that if the application were allowed, it would mean the trial could not go on in July. If the applicant were given a further two months to file its reports, then the respondents were entitled to have some months to obtain theirs, which would mean they would not be able to file them for five months.
357 Mrs Shaw submitted that the failure by the respondents to provide complete discovery, including meeting the request of Mr McNamara’s letter of 4 December 2009 and paragraph 18 of his 8 December 2009 affidavit, had affected the applicant’s provision of its witness statements and its ability to provide complete expert reports. Mrs Shaw further submitted that the timetable providing for expert reports prior to discovery had itself affected the applicant’s ability to prepare for trial.
358 Mrs Shaw further submitted that the judgment of 15 January 2010 had attributed delays in discovery to both the applicant and the respondents.
359 Mrs Shaw argued that in order to prepare the witness statements, Mr McNamara had been endeavouring to resolve discovery issues.
360 Mrs Shaw applied for an adjournment so that Mr Blue could argue the matter “with the full vigour of someone who is familiar with the issues in the case”. She was unable to answer without instructions why other counsel had not been briefed for the trial.
361 Mrs Shaw referred to Mr McNamara’s affidavit of 8 December 2009 in which he had deposed that Mr Blue had not been asked about his availability and had not been made aware until late 2009 that the trial was set down for 31 May 2010. Mr Blue was not available for trial at that time.
362 Mrs Shaw said that although she had told the applicant’s solicitor that she was available to conduct the trial and notwithstanding that over the course of the proceedings Mr Blue had only appeared on one interlocutory application, Mr Blue was needed to argue the application because he had been retained for two years and was on top of the material and the issues.
363 Mrs Shaw was not able to say whether Mr Blue who was then overseas but who was returning on 10 May, would be available to argue the matter on 19 May, which was the date originally set for the hearing.
364 Mrs Shaw said that she was not in a position to argue the respondents’ application to strike out or stay the proceedings. She needed time to familiarise herself with the history of the proceedings.
365 I asked if the applicant was seeking an adjournment so that Mr Blue could argue the application or not.
MRS SHAW: We’re seeking an adjournment so Mr Blue can argue it. What I’m putting to your Honour is that if – your Honour, the suggestion that Mr Blue is not available on the 19th is not something that Mr McNamara is aware of. He has said he does not know one way or the other, because it was listed only for mention on the notice of motion, your Honour. It was listed for – the notice of motion that was filed was listed for mention.
366 Mr Doyle opposed the applicant’s application.
367 In relation to the application for an adjournment of the respondents’ application, Mr Doyle submitted that the nature of the respondents’ application meant it was inherently urgent. He stated that he was not available on 19 May 2010.
368 He further submitted that if the applications were adjourned, there would have to be a suspension of the timetable for the weeks of the adjournment in order to give his clients some certainty. The respondents were due to deliver evidence on 7 June and could not be left in a position where they would only know if they needed to comply three weeks prior.
369 He further submitted that an adjournment of the applications and the consequential suspension of the timetable would have the effect of granting the applicant what it sought, which was an adjournment of the trial.
370 Mr Doyle said that an adjournment of the applications was not necessary because Mr McNamara was present and aware of the detail of the proceeding.
371 He further submitted that the applicant had been given warning after warning of the consequences of not complying with orders and of not indicating a willingness to get the matter to trial. He submitted that in my judgment of 15 January 2010 I had warned that it was unlikely the applicant would obtain further any adjournment.
372 In relation to Mrs Shaw’s submission that the applicant did not get the further discovery it requested in Mr McNamara’s affidavit filed on 9 December 2009, Mr Doyle said of the hearing of 21 December 2009, “… rather than there being an application for further and better discovery, the requests for further discovery were abandoned expressly during the hearing that took place”.
373 Mr Doyle referred to the hearing of 14 December 2009 (meaning I think to refer to the hearing of 21 December 2009) and the exchange with Mr McNamara regarding any further documentation required for the quantum report. Mr Doyle submitted that any further request for discovery had been abandoned at that time.
374 Before deciding the issue of an adjournment an assurance was sought from Mrs Shaw that she was not able to argue the matter.
HIS HONOUR: …Now, Mrs Shaw, I want a candid undertaking and assurance from you that you have not, that you are not in a position, to properly argue any of the applications presently listed before me today, because of your inability to become properly prepared.
MRS SHAW: I thought, with respect, that was plain from the way I’ve been unable to answer many of your Honour’s questions.
HIS HONOUR: Well, no, quite the contrary actually. I think you’re showing a knowledge of the case which I would have expected of someone who could argue it.
MRS SHAW: Well, your Honour, I can indicate I have concentrated on the history to try and get on top of the orders that have been made ---
HIS HONOUR: I’m not – I’m asking you to give me that assurance.
MRS SHAW: Well, I do give that assurance, your Honour.
HIS HONOUR: Because it would only be for that reason that I’d adjourn the matter. There are no arguments in favour of adjourning this proceeding, except one of simple fairness, that the only counsel who is presently able to stand up isn’t in a position to put the argument.
MRS SHAW: Yes. I do give that assurance, your Honour…
375 On the hearing of 29 April 2010 the following orders were made:
1. The applicant file and serve any further affidavits upon which it seeks to rely in opposition to the respondents’ notice of motion filed on 19 April 2010, and in support of its notice of motion filed on 28 April 2010 within 14 days.
2. The respondents file and serve any affidavits upon which they seek to rely in reply to the applicant’s further affidavits within 21 days.
3. Paragraphs 4 and 5 of the orders made on 4 March 2010 be discharged.
4. The respondents’ notice of motion filed on 19 April 2010 and the applicant’s notice of motion filed on 28 April 2010 be adjourned for hearing on Thursday, 27 May 2010 at 9.30am.
5. The applicant pay the respondents’ costs thrown away by reason of the adjournment.
6. The application for an order that the respondents’ costs be taxed forthwith be reserved.
---
376 Paragraphs 4 and 5 of the orders of 4 March 2010 which are referred to in paragraph 3 of the orders of 29 April 2010 required the respondents to provide their expert reports by Monday, 31 May 2010 and their witness statements comprising the evidence-in-chief of those witnesses by 7 June 2010.
377 After those orders were made, Mrs Shaw requested leave to file the witness statements that had been prepared and to which Mr McNamara had referred in his affidavit of 29 April 2010. The application was directed to an order sought in the applicant’s notice of motion of 28 April 2010. The following exchange occurred:
HIS HONOUR: Well, that’s exactly the application I’ve adjourned.
MRS SHAW: I appreciate that, your Honour, but ---
HIS HONOUR: I’ve made an order adjourning that – you’ve asked for the adjournment of the notices of motion, and that includes an application to – for leave to file affidavits.
MRS SHAW: Yes, yes. Well, your Honour, I make the submission that that can occur in the interim, in the sense of ---
HIS HONOUR: It seems curious, you’re arguing against yourself aren’t you?
MRS SHAW: Well, it is curious, but in my submission if the applicant is successful in meeting – in answering the notice of motion on the next occasion, then there’s nothing to lose by them having been filed and it would assist in the progress of the matter if the ---
HIS HONOUR: Except if I have to accede to your proposition, they’ve lost the advantage they had in the application they brought.
MRS SHAW: Well, as your Honour says, the purpose of the Act is to try and facilitate litigation, and in my submission, that is a proper course, it’s not to assist one party presenting an argument or the other.
HIS HONOUR: I won’t make it for two reasons, the first is you didn’t ever apply for it, you applied for the adjournment of your notice of motion, you didn’t apply for the adjournment of some part of your notice of motion, and I’ve acceded to that application. If you had wanted to make that application, you should have made it at that time.
MRS SHAW: I apologise, your Honour.
HIS HONOUR: You should have made it clear to Mr Doyle that he had another argument to put against any application for an adjournment, because if you had made that application at the time you were putting your submissions, I wouldn’t have adjourned the matter.
MRS SHAW: Very well.
…
HIS HONOUR: Well, do you want me to vacate the orders I’ve already made and then hear the parties on the understanding that you want that result today and the rest adjourned?
MRS SHAW: No, your Honour, no.
HIS HONOUR: Because you wouldn’t be in a position to contend for that, having regard to what you’ve told me.
MRS SHAW: That’s right, but I’ve simply made the point that – I’m endeavouring to make the point that the applicant’s position is that it’s endeavouring to get the matter ready for trial, and it wasn’t – didn’t seem to me to be inconsistent, and I apologise if I ---
HIS HONOUR: Well, Mrs Shaw, you’ve told me you’re not in a position to argue the notices of motion, now you want to?
MRS SHAW: I’m not wanting to argue it, what I’m putting to your Honour is that it’s not that the filing of the witness statements, at this stage, is not inconsistent with the application for the adjournment. If your Honour considers that it is, and it requires a separate argument, then I don’t persist with it.
HIS HONOUR: Well, of course it is, because Mr Doyle would oppose it, he would say that you’re not entitled to an extension of time for all the reasons we now have to address.
---
378 Mrs Shaw’s application for an extension of time to file the witness statements was refused.
379 On 13 May 2010 Mr McNamara swore an affidavit in which he deposed that the two further experts to which previous reference has been made had been retained. He said PKF Advisory Consulting advised that its report on quantum would take 12 weeks to provide. He said that PKF had advised that it required copies of the documents referred to in paragraph 18 of Mr McNamara’s affidavit of 8 December 2009.
380 He also said that the applicant had engaged Dr Kenneth Wacks to provide a technical report on liability. He said that Dr Wacks would be able to provide a preliminary estimate within 14 days as to the time needed to prepare a final report.
381 Mr McNamara said that Dr Wacks had been provided with the same assumptions which Mr Cousins had been asked to make notwithstanding Mr Cousins’ report had been ruled to be inadmissible.
382 Mr McNamara referred to Mr Doyle’s submission at the hearing on 29 April that the applicant had abandoned any request for further discovery. Mr McNamara denied conceding that the applicant would not seek further discovery in relation to the expert report as to damages. He referred to his statement on 14 December 2009 where he said the respondents did not require any further documentation except in respect of quantum. Mr McNamara said he was preserving the request for an order for additional discovery.
383 Mr McNamara then referred to the hearing of 21 December 2009 where he said of the documents in paragraph 18 of his affidavit of 8 December 2009, “we think we’re on the sort of periphery of what’s required so we’re happy to proceed…”. Mr McNamara said of this comment:
I was attempting to state there that further documents may be required to be discovered by the respondents in relation to issues of quantum and for the purposes of the Financial Expert’s Report. My reference to ‘periphery’ was not intended to mean (and could not reasonably be interpreted as meaning) that the documents were peripheral to the exercise of discovery or preparation of the expert evidence, rather that we were only at the edge of what would ultimately be required.
384 In relation to the application for security for costs and costs thrown away, Mr McNamara stated that as the trial was now proceeding on the basis that the witness statements which comprised the witnesses’ evidence-in-chief, the trial would be significantly shorter.
385 He stated that the applicant was prepared to and able to, provide a further $300,000 toward security for costs and costs thrown away if the trial were adjourned to allow the applicant to be properly prepared for trial.
386 On 20 May 2010 Ms Thanissorn swore an affidavit in which she referred to Mr McNamara’s statements on 26 March 2010 that the EWDIS business was comprised only of products and systems said by the applicant to be Smart Products and Systems. Ms Thanissorn said that she had been informed by Mr Alan Freeman, the Commercial Financial Controller of Clipsal’s Installation Systems Control business that:
10.1 he understands that the expression “EWDIS business” is or has been used within entities associated with the respondents in these proceedings to relate to a number of product ranges manufactured and distributed by a number of entities within the Clipsal Group;
10.2 his understanding is that as at 2002-2003, the “EWDIS business” incorporated products manufactured and/or distributed by Clipsal Controlgear Pty Ltd, Australian Electrical Suppliers Pty Ltd and Clipsal Extrusions Pty Ltd (which entities manufactured and distributed products such as toasters, Stanley tools and extruded conduit, and which entities did not manufacture or sell any products the subject of these proceedings);
10.3 in respect of the balance of the “EWDIS business” comprising products manufactured, sold or distributed by the first and second respondents, he estimates that:
10.3.1 the total sales of the second respondent (which was principally responsible for the sale of the products the subject of these proceedings) accounted for in the order of 5% of the total sales of the “EWDIS business”; and
10.3.2 it is not the case that the products the subject of these proceedings account for all of the sales of the second respondent.
387 In relation to costs, Ms Thanissorn said that if an adjournment of the trial were granted, the respondents would seek to have their motion in relation to security for costs of the trial heard and determined. Ms Thanissorn sought an order that costs thrown away be paid on a solicitor and client basis.
388 Ms Thanissorn estimated that, despite Mr McNamara’s assertion that the trial would be shorter due to the witness statements comprising the evidence-in-chief, the costs of the trial would be, conservatively, $900,000. That was the same figure which she said in her affidavit of 23 April 2010 would be necessary to secure the respondents’ costs.
389 Of the costs incurred by the respondents to date, Ms Thanissorn said:
22. I have interrogated this firm’s accounting systems and confirm that the solicitor client costs incurred by the respondents since the inception of the matter total $3, 185, 173. 79. I accept that this total does not reflect the party and party costs and I also accept that certain of those costs have been incurred in respect of three applications in relation to which the respondents will not be entitled to an order for costs if they succeed at trial (namely, an earlier application for costs forthwith, an earlier application for security for costs, and an earlier application for dismissal of the proceedings). I nevertheless consider that the party and party costs to which the respondents will be entitled in respect of the proceedings to date will very significantly exceed $850,000 presently held by way of security for pre-trial costs.
390 The costs to which she referred did not include any costs that would be incurred in dealing with the suggested application to amend the FFASOC, any interlocutory disputes including the ones under consideration, and any further costs relating to the provision of discovery or further expert reports.
391 The applicant filed a further affidavit of Mr McNamara sworn on 24 May 2010 in reply to Ms Thanissorn’s affidavit of 20 May 2010. In that affidavit Mr McNamara said that the applicant intended to prove its claim for damages upon the basis of the sale of EWDIS business to Schneider. Mr McNamara described EWDIS as ‘ a term of art used by the Respondents to describe the business that was sold to Schneider Electric Aust Pty. Ltd’. He referred to three documents published by the respondents which referred to EWDIS. Mr McNamara stated:
5. In each of these documents EWDIS refers to the business of “Building Automation and Control”. It is the Applicant’s contention that any electrical devices that were manufactured in the EWDIS business by Clipsal were for the purposes or intention of being used in Building Control and Automation. It is the Applicant’s contention that this will be shown in the documents sought by the Applicant as part of the Applicant’s request for further and better discovery by the Respondents and in particular the Due Diligence Documents prepared in relation to the sale to Schneider Electric Aust Pty Ltd.
392 Mr McNamara said that neither Dr Wacks nor PKF were able to provide an estimate of when they could complete their respective reports. Mr McNamara stated that PKF were unable to do so until they received the information the subject of the applicant’s application for further and better discovery. Dr Wacks was considering the documents provided in order to determine when the expert report could be completed.
393 Mr McNamara said Ms Thanissorn’s estimate of the costs of the trial over-estimated the length of the trial.
394 In relation to the application for security for costs, Mr McNamara deposed that Ms Tomazos had informed him that the books and records filed by the applicant in the winding up proceedings in the Supreme Court of South Australia were more current than the books and records of the company that were produced in the last application for security for costs by the respondents.
395 Mr McNamara said that Ms Tomazos had informed him that these books and records showed that the applicant was solvent and could meet its debts as and when they fall due.
396 The hearing of the respondents’ application of 19 April 2010 and the applicant’s application of 28 April 2010 commenced on 27 May 2010. The hearing in this Court was the day before Judge Withers, a Master of the Supreme Court of South Australia, was to give judgment on the winding up application.
397 Mrs Shaw appeared with Mr Blue for the applicant. Mr Sam Doyle and Mr Ben Doyle appeared for the respondents.
398 The respondents opposed the granting of any extensions of time for the applicant to comply with the interlocutory orders and opposed the adjournment of the trial. The respondents did accept, as they had to, that if the Court were to grant any extensions the trial would necessarily have to be adjourned.
399 The orders sought by the respondents are identified at [291] and the orders sought by the applicant are identified at [312] above.
400 Mr Sam Doyle first addressed the failure by the applicant to deliver any witness statements notwithstanding paragraph 7 of the orders made on 9 November 2009 which required the applicant to file and serve a list of the witnesses to be called at trial and an outline of the evidence of each witness upon which the applicant proposed to rely by 12 February 2010 and the further order made in paragraph 5 of the orders of 4 March 2010 which required the applicant to provide its witness statements on which it was to rely which would form the evidence-in-chief of the witnesses at trial, within 21 days of that date.
401 Mr Doyle observed that Mr McNamara had at the hearing of 4 March 2010 requested an extension of 21 days to file the witness statements which had been granted but that the witness statements had still not been provided.
402 He said that on 26 March 2010 Mr McNamara had sought an extension of time to file the statements by 31 March 2010. Leave was not granted but it was stated that the matter would be considered nunc pro tunc in the event of the statements being delivered. Mr Doyle said that the respondents had received two witness statements across the Bar table from the respondents at the hearing on 29 April 2010 but had received no further witness statements since that time and no witness statements had been filed with the Registry since the Registry’s refusal to accept the witness statements. Mr Doyle said that the Court should infer that there were no further witness statements because none had been delivered apart from the two which have already been mentioned.
403 Mr Doyle renewed the respondents’ complaint about the lack of particularisation in the FFASOC. He contended that the FFASOC did not sufficiently particularise which products in the Clipsal range constituted the Smart Products. He also contended that the FFASOC did not particularise which permutation and combinations of the products listed in Schedule C to the FFASOC are Smart Products. He said it did not articulate how those permutations and combinations attract the definition of Smart Products.
404 He asserted that the nature of the case against the respondents had changed over time. He pointed out that the initial application which purported to rely upon a case based on misuse of confidential information had been totally abandoned.
405 Because of the inadequate particularisation in the FFASOC, he said the Court had put in place a regime on 8 April 2009 which required the applicant to obtain an expert’s report in advance of discovery so that the expert’s report could inform the parties as to the nature of the discovery which was required.
406 He complained that as at 27 May 2010 the applicant still did not have an expert’s report which was admissible in evidence, having regard to the ruling made on 26 March 2010 when the Court ruled Mr Cousins’ report to be inadmissible.
407 He also said that on 26 March 2010 the applicant had sought leave to file a report from Mr David Richards who is apparently an expert who would direct a report to liability. He reminded the Court that leave was not granted because the Court needed to see the report in advance of considering the question of leave. He said that no further expert reports had been delivered since that time on the question of liability and, in those circumstances, the applicant had no expert reports on liability upon which it could rely.
408 Moreover, he said that although the applicant said it could obtain a liability report from Dr Wacks, no time frame was indicated as to when that report would be available.
409 He next directed attention to the expert report which the applicant said it would obtain from PKF. In Mr McNamara’s affidavit of 29 April 2010 he said that the report could be available in 12 weeks but in a later affidavit of 24 May 2010 Mr McNamara stated that PKF would require further documents which were the subject of the applicant’s application for further and better discovery as well as other information not yet identified before PKF could provide a report. Mr Doyle said that in those circumstances there was no time identified within which the applicant could provide a report from PKF.
410 Mr Doyle pointed out that some two months had passed since the Court had ruled the previous experts’ reports to be inadmissible, and at the date of this hearing there were no experts’ reports available when the trial was to commence in 10 weeks.
411 Lastly he pointed out that the applicant had indicated that it had provided the experts which it had recently retained with the same set of assumptions provided to Mr Cousins and Mr Reade. Mr Doyle submitted that because those reports had been ruled inadmissible partly on the basis that the experts had been provided with irrelevant assumptions, any other reports based upon the same assumptions would have to be inadmissible.
412 In those circumstances Mr Doyle said that with a trial approaching in 10 weeks’ time the applicant was without any admissible expert evidence.
413 The respondents contended that the applicant had been guilty of gross delay in the preparation of these proceedings and in bringing the proceedings to trial notwithstanding that the Court had on a number of occasions requested the applicant to proceed with the proceedings expeditiously. He referred to the exchange when Mr Duggan was counsel on 12 May 2009, extracted at [141] above, and the exchange with Mr Solomon at the hearing of 23 June 2009 reported at [145] above.
414 He said that the original hearing date for the trial was 31 May 2010 but that date had had to be vacated because of the applicant’s failure to comply with directions prior to 21 December 2009. If the applicant was to be granted any further indulgence, he said the trial date of 19 July would also have to be vacated and that no further date could be set until such time as the applicant provided experts’ reports.
415 Mr Doyle identified the prejudice which the respondents had suffered by reason of the applicant’s failure to properly prosecute the proceedings. The respondents he said had suffered prejudice in that six years after the proceedings had been commenced the trial had not taken place. He submitted that the passing of time had an effect on the ability of the Court to conduct a fair trial especially in circumstances where these proceedings referred to negotiations between the parties going back to 1995.
416 He said that the time which had passed must have had an effect on the memory of witnesses who were present at those negotiations and whose evidence might be relevant for the purpose of the Court identifying the objective intentions of the parties in the sense understood in Codelfa v Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337.
417 He said that the respondents had had to maintain continuous contact with more than 30 witnesses to ensure that they were available for the trial when it was due to commence on 31 May 2010 and since it had been ordered to commence on 19 July 2010.
418 He said that the prejudice which had been suffered by the respondents was not capable of being cured by orders for costs.
419 He submitted that the respondents had suffered the continuing uncertainty since the commencement of these proceedings which are said to be for damages of many hundreds of millions of dollars which the Court ought to infer would give rise to lack of business certainty.
420 For all of those reasons he said that the failure by the applicant to properly prosecute the proceedings ought to lead to the conclusion that the proceedings should be dismissed.
421 Mr Doyle also addressed in advance of the applicant’s contentions the orders which the applicant sought.
422 As to discovery he said that the applicant could not complain about any inadequate discovery on the part of the respondents because they had been put on notice as early as 4 December 2008 that the respondents were not prepared to make discovery of the documents sought: see [109].
423 He said that since that time the applicant had not sought to obtain an order for discovery of those documents.
424 He also said that the respondents had asked the applicant what documents it needed to complete the expert’s report on two occasions but received no response from the applicant until the applicant sought an extension of time within which to file the expert’s report.
425 He said the respondents had recently explained once again why they were not prepared to provide the documents on 18 March 2010, but again nothing further had been done by the applicant until the application of 28 April 2010.
426 He dealt with Mr McNamara’s claim in his affidavit of 13 May 2010 that Mr McNamara had not abandoned the applicant’s request for discovery. He took the Court to the exchange with Mr McNamara on 14 December and 21 December 2010 and on the latter occasion where Mr McNamara referred to the documents as being “on the periphery” of what was required.
427 He also reminded the Court that in the orders of 23 December 2009 the documents in question in paragraph 18 of Mr McNamara’s affidavit of 8 December 2009 were carved out.
428 He said that the respondents had replied in their letter of 18 March 2010 giving reasons why the respondents were not prepared to discover the documents sought in the applicant’s request of 10 March 2010.
429 He referred to Ms Thanissorn’s affidavit of 20 May 2010 in which she said that the financial controller of Clipsal had said that the products the subject of the claim comprised less than 5% of the business referred to as EWDIS and therefore that any request for documentation concerning the sale of the EWDIS business to Schneider was irrelevant. Mr Doyle said that in any event the FFASOC did not refer to the EWDIS business.
430 If the applicant’s case were structured around the unilateral products and Mr Freeman, who was the financial controller referred to in Ms Thanissorn’s affidavit, was correct in saying that the goods bear no relationship to the EWDIS business, then that business bore no relationship to the pleaded case.
431 He said that the claim for damages was primarily based upon licence fees lost which had nothing to do with the EWDIS business.
432 He said that the applicant could not seriously contend that the expert reports which were ordered to be provided on 1 March 2010 were only intended to be preliminary. He said that the orders which had been made at that time meant that such an argument could not be seriously put. He also said that the applicant had said it could provide both expert reports by 1 March 2010.
433 He said that the regime which was put in place was for the provision of the technical report which would inform the parties absent any proper particulars in the FFASOC and provide some assistance in the discovery process, and then secondly, all other evidence. He said however that because the applicant failed to comply in the provision of the expert’s report on 4 December 2009, ultimately the experts’ reports were ordered to be provided at the same time.
434 Mr Doyle submitted that the applicant appeared to think it had an immutable right to conduct the litigation as it wished.
435 He submitted that if the Court were to accede to the applicant’s request the effect would be of rewinding the proceedings to a point in time before the orders made on 8 April 2009.
436 Mr Doyle said that if the respondents’ application were dismissed and the applicant granted further indulgences the trial would have to be adjourned. If that were to occur, the applicant should have to pay the respondents’ costs on an indemnity basis and the order should be that the costs be paid forthwith.
437 Mr Sam Doyle was followed by Mr Ben Doyle who addressed the respondents’ claim for security for costs. That claim was put only if the Court were of the opinion that the respondents’ applications to dismiss or stay the proceedings failed. The claim for security for costs rested upon s 56 of the Federal Court Act and s 1335 of the Corporations Act. Section 1335 requires the Court to address a threshold question whether the corporation will be able to pay the opponent’s costs before exercising its discretion. That question was addressed. It is not necessary to say any more about Mr Ben Doyle’s argument because for reasons which follow it was not responded to by the applicant and eventually the application was adjourned sine die.
438 Although Mr Blue appeared with Mrs Shaw he did not put any argument on the applicant’s behalf. Mrs Shaw first addressed the question of witness statements. She said that the witness statements were in Court and had been provided to the respondents. The witness statements contained all the evidence-in-chief of all the witnesses. She said that the provision of those witness statements to the respondents indicated that the applicant had progressed the matter. She said it also indicated that the applicant’s evidence-in-chief apart from any expert’s report was ready to be filed.
439 In answer to an observation that the order sought in paragraph 4 of the applicant’s notice of motion of 28 April was for leave to file and serve witness statements 14 days after the production of the documents referred to in paragraph 7 and that the provision of these witness statements at this time contradicted the application, Mrs Shaw said that the applicant was now seeking an extension of time to file the witness statements to the day of this hearing, 27 May 2010.
440 She said that Mr McNamara had explained in his affidavit of 27 April 2010 as to why it was that the witness statements had not been provided earlier.
441 Mr McNamara understood, so he said in his affidavit, that the witness statements would not contain all of the witnesses’ evidence-in-chief. He also had difficulties in cross-referencing the witness statements and completing those statements. Mr McNamara also believed that the exchange on 26 March 2010 meant that he was not under any obligation to file a witness statement within a specific period.
442 She explained the failure of the applicant to deliver any witness statements after the hearing of 29 April was because she thought that the respondents would not want to receive the witness statements in advance of an order of the Court so that they could preserve their position in opposition to any extension of time.
443 She said that the applicant had made discovery on 22 January 2010 in compliance with the Court’s order. The applicant had filed a list of witnesses and their summary of evidence. She acknowledged that the list was deficient but she said that the applicant had been attempting to obtain further discovery from the respondents.
444 She addressed the question of experts’ reports. She observed that the procedural regime which had been set in place which provided for experts’ reports prior to discovery was unusual and put the applicant at a disadvantage. She contended that the timetable which was set resulted in the applicant experiencing grave difficulty in preparing its case and put the applicant to unnecessary expense and delay. She said that the obligation to provide the assumptions upon which the expert was to rely was unusual and that usually a party was entitled to deal with his expert witness in private.
445 She said that although the respondents asserted that the procedural regime had been set in place in order to define issues and aid efficient discovery, the applicant was later ordered to file and serve all expert reports upon which it intended to rely and not just those which would satisfy the original purpose of the regime.
446 She said that the trial had commenced on the respondents’ application for the purpose of determining the admissibility of the experts’ reports without any compliance first being had with O 30 of the Federal Court Rules.
447 She said that the trial should not have started in those circumstances.
448 She said that the applicant ought not to be precluded from obtaining further discovery and further experts’ reports having regard to the size of the applicant’s claim. She said that no-one could have anticipated the difficulties the applicant would experience with Mr Seeger-Snowdon.
449 She returned to the question of discovery and said that the applicant had been seeking access to the respondents’ documents since 2007. She said if discovery had been given in 2007 the applicant would have been better equipped to meet the respondents’ arguments as to sufficiency of the pleadings and the need to obtain pre-discovery experts’ reports.
450 If the applicant had received discovery it would have been able to better instruct expert witnesses and investigate more thoroughly the evidence of the lay witnesses.
451 Mrs Shaw said that the problem with discovery was at the heart of the applicant’s problems in complying with direction and preparing for trial.
452 She said in answer to the proposition that the respondents’ letter of 4 December 2008 and further communication since that time suggested that the respondents would not make the documents which were sought available and that in those circumstances the applicant should have made an application for discovery, she said that the applicant had never abandoned its claim for discovery and that Mr McNamara had sworn in his affidavit of 13 May 2010 that he had never abandoned that request. She said that because someone says they do not want to deal with a matter at a particular stage that should not be presumed as abandonment.
453 She said that Mr McNamara’s deposition as to his genuine position ought to be accepted by the Court.
454 Mrs Shaw then addressed the respondents’ applications for various costs orders. Mrs Shaw addressed Mr Doyle’s submission that if the application to dismiss was unsuccessful and the extensions of time sought by the applicant were successful the trial would have to be adjourned and in those circumstances the applicant should pay the respondents’ costs on an indemnity basis forthwith.
455 Mrs Shaw did not contend that the applicant would not be liable for the respondents’ costs in those circumstances but she did argue that the applicant should not be called upon to pay those costs forthwith because the respondents had not identified any prejudice that they might suffer by not being able to tax the costs prior to the determination of the principal proceedings.
456 She also said there was no evidence before the Court to indicate that any of the work which the respondents would have to undertake would have to be undertaken again, or that any work which had been undertaken would have been rendered useless.
457 She then turned her attention to answering Mr Ben Doyle’s argument in relation to security for costs. She did not complete her submissions in answer to Mr Ben Doyle’s submissions.
458 At the close of that day’s hearing, and following a discussion on the security for costs application, the following exchange occurred:
MRS SHAW: Your Honour, can I come to, then, firstly, the threshold question. My submission about that, your Honour, is fairly succinct, I hope. Is your Honour planning to sit until we finish, or---
HIS HONOUR: Well I’m happy to do so if that suits the parties. Does that suit you?
MRS SHAW: Your Honour, can I make this submission, and then perhaps I’d, if I had some time, I’d be, if your Honour would give me half an hour or something in the morning, I’d be able to complete it.
459 She was there referring to her submissions on security for costs and the threshold question in s 1335 of the Corporations Act. All parties agreed it would also be convenient to wait and see what order was made in the Supreme Court the following day as to the winding up of Smart Company. Mrs Shaw then addressed the Court briefly on security for costs and the proceedings were adjourned.
460 At the hearing on 27 May 2010 the following orders were made:
1. The trial date on 19 July 2010 be vacated.
2. The respondents’ costs of the adjournment be reserved.
3. The proceeding be adjourned to Friday, 28 May 2010 at 12.00noon.
461 On Friday 28 May 2010 an order was made in the Supreme Court of South Australia for the winding up of the applicant in insolvency. Mr Andrejs Strazdins and Mr Nicholas Cooper of BRI Ferrier were appointed as liquidators. An application was made in the Supreme Court for a stay of Judge Withers’ orders but no order was ever made. Because of the provisions of s 471B of the Corporations Act, Judge Wither’s order for the winding up of the applicant meant that the first and second respondents could not continue its counterclaim against the applicant without leave of the Court.
462 At 11.38am on 28 May 2010 after Judge Withers had made his order and 22 minutes before the Court was due to resume, my associate received an email sent from Mr McNamara’s email address but apparently signed by Ms Tomazos. The email read:
Please find attached a copy of the assignment of the chose in action in the matter of Smart v Clipsal from the The Smart Company Pty Ltd to myself.
Kind regards
Dorothea Tomazos
463 Attached to the email was a copy of a deed of assignment dated 6 April 2010 (the first deed). The deed purported to assign the chose in action in these proceedings from The Smart Company to Ms Tomazos for $1 and 10 per cent of the benefit of the action if it were successful. Ms Tomazos signed the deed as Director and Secretary of The Smart Company, and as assignee. The deed does not say that it has been executed in accordance with any resolution of the applicant’s Board. Ms Tomazos’ fellow director, Mr Clift, was not a signatory to the deed. The deed is witnessed by Matthew Deller, a solicitor who was apparently acting for the applicant at the time when the deed was executed and was acting for the applicant in the winding up proceedings in the Supreme Court.
464 Neither the applicant’s nor the respondents’ counsel had any knowledge of the existence of the deed prior to receiving a version via email on the morning of 28 May. I was also told that Mr McNamara was unaware of the existence of the deed until shortly before it was provided to my associate.
465 It is warranted in clause 6 of the deed:
Smart hereby warrants that:
6.1 Smart has been properly authorised to execute this Deed;
6.2 Smart has full corporate power and lawful authority to assign the chose in action to Tomazos in the terms set out herein and to otherwise perform its obligations under this Deed; and
6.3 The assignment of a chose in action is taken by Tomazos free of any encumbrances or claims or interests of any other person.
466 That was not the last document which purportedly dealt with the chose in action in these proceedings but the first of three deeds.
467 It is clear from a reading of Judge Withers’ reasons in the Supreme Court of South Australia that the deed was not before him, notwithstanding that Mr Deller who witnessed Ms Tomazos’ signature appeared for the applicant before him on the application for winding up at the time that he made the winding up order on 28 May 2010.
468 At 12 noon the application which had been adjourned the previous day resumed. Mrs Shaw appeared with Mr Blue in this Court on limited instructions from Mr James Neate, of Lynch Meyer solicitors, who were acting for the liquidators who had been appointed that morning.
469 Mr Sam Doyle argued in light of the deed that the application for costs need not be decided, but that the application for dismissal ought to be reserved rather than adjourned regardless of the existence of the deed and the liquidation of the company. He said that the respondents would make a further application for dismissal based on the existence of the deed.
470 Mrs Shaw said that she had not completed her submissions from the previous day. She sought an opportunity for the liquidators to consider their positions and complete any argument on the existing application to dismiss. The transcript shows:
HIS HONOUR: …Mrs Shaw, you’re appearing on behalf of the liquidator. What do you want to do?
MRS SHAW: The liquidator’s position is this: first of all, Mr Neat has instructed me that the liquidator knows nothing about the company at all. It would be wrong for a pre-emptive decision until the liquidator has had the opportunity to look at these matters and in addition, the liquidator’s position might very well be that the document is a sham; that on its face it’s clearly invalid because it’s not signed and sealed by the company to be an authorised document. If the document is a sham then Smart still owns the assets and is still entitled to continue its position which I had not completed my submissions, your Honour. In fact, I’d had a schedule prepared overnight to address some of the matters.
Your Honour asked for a chronology from the respondents. I considered that it was important therefore that I also put in a chronology in anticipation of the matters your Honour was concerned about and I’d not addressed your Honour on a number of topics that I specifically reserved until today. So insofar as The Smart Company is concerned I have not completed my submissions. The liquidator instructs that he requests an adjournment to assess the situation of the company and most importantly, to assess whether this document he would contend was a sham and that in fact the assets are still owned by The Smart Company…
471 Although this development which was caused by the execution and the provision of the deed would put the respondents to extra expense and delay, the following orders were made:
1. The applicant’s and respondent’s notices of motion be adjourned to Friday, 4 June 2010 at 10.00am.
2. Costs be reserved.
472 On 3 June 2010 Mrs Shaw emailed Mr Neate, the liquidators’ solicitors.
Dear James,
If it is not perfectly clear from what Malcolm Blue QC has said, I make it plain that because of the history of this matter, there are no circumstances under which I would appear for anyone who had any part in the assignment. Because you have now retained Dick Whitington QC to appear for the liquidator, there is noone and no entity that I would be willing to appear for.
Kind regards,
Marie Shaw
473 On 2 June 2010 Mr Kennett swore an affidavit to which he exhibited the orders made in the Supreme Court and a copy of Judge Wither’s reasons. The reasons show that Mr Deller was the applicant’s solicitors in the winding up proceedings.
474 On 4 June 2010 Mr Whitington QC appeared for the applicant. He sought an adjournment of the application to dismiss the proceedings for four weeks. He said that the liquidators needed some further time to consider the two issues that arose as a result of the deed of assignment: first, whether it was valid; and secondly, what recourse the liquidators might have if it were. He said that the liquidators had not yet fully informed themselves of the company’s circumstances and financial position. The respondents argued that the appointment of liquidators and the existence of the deed had only caused further delay to the proceedings, and that the liquidators must take the proceedings as they find them. On that occasion the following exchange occurred:
HIS HONOUR: Well, Mrs Shaw said on 27 May that she’d concluded her submissions in relation to dismissal, and the matter was adjourned till the 28th so that she might make her submissions in relation to Mr Ben Doyle’s arguments on security for costs. When the matter resumed on the 28th she indicated that there were some other things she wished to say on the question of dismissal, but didn’t identify what those matters were.
MR WHITINGTON: Yes, that’s been reported to me, but I don’t know in any way which could assist your Honour what those matters might be.
475 The following orders were made:
1. The applicant pay the respondents’ costs of the proceeding since 24 December 2009 save those costs which relate to discovery and inspection since that date on a solicitor and client basis.
2. The applicant pay the respondents’ costs thrown away by reason of the adjournment of the trial which was to recommence on 19 July 2010 on a solicitor and client basis.
3. Pursuant to O 62 r 4(2)(c) of the Federal Court Rules, the costs in paragraphs 1 and 2 above be fixed in the sum of $200,000.
4. Pursuant to O 62 r 3(2) the costs in paragraphs 1 and 2 and fixed at $200,000 in paragraph 3 be paid forthwith notwithstanding that the proceeding is not concluded.
5. The liquidator’s application for the adjournment of the hearing of the respondents’ application to strike out the applicant’s proceeding be dismissed.
6. The affidavit of Mr Robert Lindsay Kennett sworn on 2 June 2010 be received.
7. The respondents’ application for further security for costs be adjourned sine die.
8. Judgment be reserved in relation to the respondents’ application to strike out the proceedings.
476 EGR was the sole shareholder in the applicant: see [61] above. On 9 June 2010 EGR entered into a deed with Ms Tomazos. This deed was also executed on behalf of EGR by Ms Tomazos both as director and secretary. She executed the deed on her own account and Mr Deller again witnessed her signature. The recitals of the deed stated:
A. EGR is the sole trustee of a certain Deed of Settlement made the 8th April 2002 whereby Stephen John Smith of c/- Thomson Playford 101 Pirie Street Adelaide in the State of South Australia (“the Settlor”) settled the sum of ten dollars ($10.00) pursuant to the terms of the said Deed of Settlement (“the Deed of Settlement”) creating the trust known as the Smartcard Trust (“the Trust”).
B. Clause 25.1 of the Trust Deed provides:-
“25.1 Appointments and Removals
The power to appoint a new or additional Trustees hereof and to remove any Trustee or Trustees shall be exerciseable by Deed by the Trustee for the time being and from and after the death of the Trustee his or her legal personal representatives provided that the Settlor shall not at any time be eligible for appointment as a trustee”.
C. Pursuant to Deed of Assignment of Chose-in-Action between The Smart Company Pty Ltd (ACN 061 975 344) (“the Smart Company”) (now “The Smart Company Pty Ltd (ACN 061 975 344) (In Liquidation”) and Tomazou dated the 6th April 2010 (“the Deed of Assignment of Chose-in-Action”), the Smart Company assigned absolutely all of its rights, title and interest in a certain Chose-in-Action against Clipsal Australia and other parties which is presently the subject of Federal Court of Australia South Australia District Registry Action No. WAD132/2004.
D. Tomazou, in entering into the Deed of Assignment of Chose-in-Action, did so exclusively in her capacity as a new or additional Trustee for and on behalf of the Trust for that part of the property of the Trust which was then proposed to be constituted by the Chose-in-Action.
477 Clause 3 of that deed provides:
The parties hereto declare that Tomazou, in entering into the Deed of Assignment of Chose-in-Action on 6th April 2010 with the Smart Company, did so exclusively pursuant to an appointment by EGR of Tomazou on that date as an additional trustee for and on behalf of the Trust as a separate trustee of the Trust for that part of the property of the Trust which was then proposed to be constituted by the Chose-in-Action.
478 Apparently by this second deed Ms Tomazos was appointed a trustee of the trust of which EGR is also a trustee as and from 6 April 2010, and the deed records she entered into the deed of assignment on 6 April 2010 and took the assignment of the chose in action as trustee on behalf of the beneficiaries of Smartcard Trust.
479 On 17 June 2010 Mr Kennett swore an affidavit in support of the respondents’ application to dismiss the proceedings. In that affidavit he deposed to the non-payment of costs ordered to be paid forthwith on 4 June 2010 and asked that the evidence contained in the affidavit be taken into consideration when deciding the respondents’ application to dismiss. His affidavit exhibited a demand on the liquidators’ solicitors on 4 June 2010 and a further demand on 15 June 2010. On 15 June 2010 the liquidators’ solicitors responded asking for time to reply. On 16 June 2010 the liquidators wrote to the respondents’ solicitors:
We refer to your two letters of 15 June 2010 and your earlier letter of 10 June 2010 and now respond as follows.
Funding – the Liquidators have not at this stage finalised any formal or informal arrangements concerning funding although these negotiations continue.
Notice of Acting – pending formal confirmation by Ms Tomazos or Court Order, that the purported Deed of Assignment is void as against the Liquidators, it is not our intention to file a Notice of Acting.
Deed of Assignment of Chose in Action – our clients are confident that this issue will be resolved with certainty in their favour, by formal Court Order within the next few days.
Payment of $200,000.00 – the Liquidators are not in a position to cause the company to meet this Costs Order. Your client will take such steps as it may be advised in this regard but we do note that there is considerable security for costs held in Court, which may respond to this Order. In any event, until such time as His Honour has delivered his final reasons on the strike out Application, we consider any further Application concerning the Costs Order to be premature.
480 On 18 June 2010 the applicant’s liquidators brought an action in the Supreme Court of South Australia seeking to have the first deed which purportedly assigned the applicant’s chose-in-action to Ms Tomazos declared invalid and void ab initio.
481 On 21 June 2010 the Court reconvened to determine whether the respondents’ application to dismiss ought to be re-opened. On 21 June Mr Neate of Lynch Meyer appeared for the liquidators. At that hearing Mr Hoile QC appeared on behalf of EGR, the sole shareholder of the applicant. He sought leave to intervene in the proceedings under s 236 of the Corporations Act which allows for shareholders to intervene in proceedings where the company is a party for the purpose of taking responsibility on behalf of the company for those proceedings. Neither the Court nor the parties were aware of the application before the morning of the hearing.
482 Ms Tomazos was the sole director of EGR, and one of two directors of The Smart Company when the first deed was executed. Mr Hoile was asked to indicate whether his client claimed there had been a valid assignment, because if the applicant as a result of the assignment had no further interest in the proceedings there would be no reason to allow EGR to intervene. Mr Hoile said he did not have instructions as to that matter.
483 Mr Hoile said that EGR wanted to intervene in order to put submissions on behalf of the applicant that the liquidators were unable to put. On 4 June 2010 I had refused the liquidators’ application to re-open the dismissal proceeding had been requested and Mr Hoile was asked why EGR, if successful in their application to intervene, ought to have that opportunity.
MR HOILE: My instructions are these, and this is no criticism of the liquidator or their representatives, they came into it very late and at short notice, but my information is that it may not have been articulated to your Honour just what were the submissions that were to be completed, particularly on the dismissal point. I understand the question was raised. My understanding is that on the Thursday of the hearing Mrs Shaw initially said she’d completed her submissions on that aspect of the matter.
HIS HONOUR: That’s right.
MR HOILE: Then on the Friday some overarching events occurred, particularly obviously the winding up of the company and the knowledge of this assignment. My information is that on the Friday morning Mrs Shaw did say that overnight on reflection there were some further submissions that she wanted to put and complete on the question of dismissal.
HIS HONOUR: That’s right.
MR HOILE: My instructions are that Mr Whitington just simply may not have had the time to be fully aware of that and to put that submission to your Honour.
484 The following orders were made:
1 Paragraph 8 of the orders made on 4 June 2010 reserving judgment in relation to the respondents’ application to strike out the applicant’s proceedings be revoked.
2. The respondents have leave to file and serve the affidavit of Mr Robert Lindsay Kennett sworn on 17 June 2010.
3. The applicant file and serve its affidavit evidence in reply within 7 days.
4. If Enterprise Global Resources Pty Ltd pays into Court as security for costs the amount of $15,000 within 7 days, then Enterprise Global Resources Pty Ltd’s application to intervene in the proceeding be listed for hearing on Tuesday, 6 July 2010 at 10.00am.
5. The proceeding generally be adjourned for hearing on Tuesday, 6 July 2010 at 10.00am.
485 On 26 June 2010 Ms Tomazos entered into yet another deed with EGR. This deed was also executed on behalf of EGR by Ms Tomazos both as director and secretary and executed on her own account. The recitals to the deed are:
A. Pursuant to a certain Deed of Assignment of Chose-in-Action between The Smart Company Pty Ltd (ACN 061 975 344) (“the Smart Company”) (now “The Smart Company Pty Ltd (ACN 061 975 344) (In Liquidation”) and Tomazou dated the 6th April 2010 (“the Deed of Assignment of Chose-in-Action”), the Smart Company assigned absolutely all of its rights, title and interest in a certain Chose-in-Action against Clipsal Australia and other parties which is presently the subject of Federal Court of Australia South Australia District Registry Action No. WAD132/2004.
B. Pursuant to a Deed of Appointment dated 9 June 2010 EGR and Tomazou jointly declared that Tomazou, in entering into a certain Deed of Assignment of Chose-in-Action on 6 April 2010 with the Smart Company did so exclusively pursuant to an appointment by EGR of Tomazou on that dated as an additional trustee for and on behalf of the Trust as a separate trustee of the Trust for that part of the property which was then proposed to be constituted by the Chose in Action, and to the extent necessary ratified the said appointment of Tomazou as a new additional trustee of the Trust aforesaid with such appointment taking effect as from 6 April 2010.
C. EGR is a trustee and Tomazou is an additional trustee of a certain Deed of Settlement made the 8th April 2002 whereby Stephen John Smith of c/-Thomson Playford 101 Pirie Street Adelaide in the State of South Australia (“the Settlor”) settled the sum of ten dollars ($10.00) pursuant to the terms of the said Deed of Settlement (“the Deed of Settlement”) creating the trust known as the Smartcard Trust (“the Trust”).
D. Clause 26 of the Trust Deed provides:
“26 Resignation of Trustee
Any Trustee and any person who may by succession become a Trustee may resign or renounce such position by notice in writing to the Trustee and forthwith upon the giving of such notice the person giving the same shall for all purposes hereunder cease to be a Trustee or to be a person who may by succession become a Trustee (as the case may be) but any such person shall remain eligible to be appointed a Trustee pursuant to the powers of appointment contained herein provided that a sole surviving Trustee shall not resign except upon appointing a new Trustee or new Trustees in his or its place.”
E. Tomazou as an additional trustee of the Trust and to the extent necessary if an assignment has not already been completed, wishes to assign to EGR as trustee of the Trust all rights title and interest in the Chose-in-Action absolutely.
F. Following the completion of the assignment referred to in Recital E above Tomazou desires to retire as an additional trustee of the Trust.
486 Clauses 3, 4 and 4 (sic) provides:
3. ASSIGNMENT OF CHOSE-IN-ACTION
Tomazou as an additional trustee of the Trust for that part of the property of the Trust which is constituted by the Chose-in-Action (and to the extent necessary if such assignment has not already been completed), hereby assigns and transfers to EGR as trustee of the Trust all rights title and interest in the Chose-in-Action absolutely.
4. PERMISSION TO USE NAME IN FEDERAL COURT ACTION
Tomazou as an additional trustee of the Trust for that part of the property of the Trust which is constituted by the Chose-in-Action (and to the extent necessary if permission has not already been granted), hereby authorises EGR without restriction whatsoever to use the name of the Smart Company in the Federal Court Action and any other action associated with the Chose-in-Action.
4. (sic) RETIREMENT OF TRUSTEE
Forthwith upon the completion of the assignment of the Chose-in-Action referred to in clause 3 above, Tomazou hereby resigns as a trustee of the Trust.
487 The effect of the three deeds was, if they were valid, that the applicant’s sole shareholder, which was a trustee company, assigned to Ms Tomazos the chose in action in these proceedings. That was the effect of the first deed. The second deed recognised that she took that chose in action as joint trustee for EGR’s beneficiary. The third deed had the effect of transferring the chose in action to EGR. The end result was, assuming all of these deeds to be valid, instead of the applicant having the chose in action the applicant’s shareholder became entitled to the chose in action.
488 On 29 June 2010 EGR filed an affidavit of Mr McNamara sworn on 28 June 2010 of some 64 pages together with 1,482 pages of exhibits in accordance with the leave given in paragraph 3 of the orders made on 21 June 2010. The affidavit was filed one day later.
489 The affidavit was filed by EGR which was the sole shareholder of the applicant. Mr McNamara and his firm were the solicitor and solicitors for the applicant. He said in his affidavit that he had the care and conduct of the matter on or about 12 October 2009 until 28 May 2010 when the applicant went into liquidation.
490 It is not clear whether the applicant authorised Mr McNamara to make the affidavit but in any event the affidavit is argumentative and unhelpful. For example, he said in paragraphs 5 and 6:
5. With reference to the $200,000.00 Costs Order for costs thrown away for the adjournment of the trial I say that it should be recalled and review on grounds that the trial would have been delayed in any event because:
5.1 The Respondents have failed to comply with Smart’s requests for discovery (repeated in Smart’s notice of motion dated 28 April 2010) which failures have impacted upon and, if not remedied, will continue to impact upon, the Applicant(s)’ ability to finalise expert reports (see Section 1 below);
5.2 The contents of various of the Respondents’ discovered documents have a direct bearing upon pleadings (including issues in relation to estoppel) directly contradict many allegations made by the Respondents’ in their Defences to the Fourth Further Amended Statement of Claim (“FFASOC”);
5.3 The contents of various of the Respondents’ discovered documents have led to counsel for the Applicant(s) having to consider whether Smart ought to apply to amend its pleadings;
5.4 The discovery made by the Respondents is demonstrably incomplete and time is required to remedy the deficiencies and then to provide the further documents which the Respondents should discover to both expert and lay witnesses of the Applicant(s) so as to update the lay witness statements and prepare the experts reports; and
6. Further, as regards the $200,000.00 Costs Order I say that the figure of $250,000.00 referred to in the Thanissorn 20 May 2010 Affidavit is open to challenge because the Thanissorn 20 May 2010 Affidavit:
6.1 admits at paragraph 23 the Respondents have yet to liaise with experts in relation to the preparation of experts reports, review Smart’s witness statements, prepare and/or finalise the Respondents’ witness statements and prepare court books or generally prepare for trial. Given that no work has been undertaken in relation to these items, no costs could have been incurred in relation to these items, no costs could have been incurred in relation to these items over the period 23 December 2009 to the end of May 2010;
6.2 says that an amount of $331,606.17 has been incurred from 24 December 2009 up to 20 May 2010 of which $75,000.00 relates to discovery and inspection with counsel fees and disbursements for the period amounting to $73,047.71;
6.3 at paragraph 28 of the Thannisorn 20 May Affidavit it is alleged without any substantiation that other than the costs relating to discovery, the costs incurred by the Respondents during the period 24 December 2009 to 20 May 2010 relate to applications concerning Smart’s non-compliance with the Court’s directions and costs which will be wasted because the work will need to be re-done. However, Ms. Thannisorn fails to take into account that a significant portion of the costs claimed to have been thrown away relate to matters which formed part of the trial and the only real costs thrown away relate to the issue of non-compliance by Smart to submit lay witness statements within the time prescribed; and
6.4 No explanation is provided by Ms. Thannisorn as to the work which would have to be redone which could therefore properly constitute costs thrown away.
491 I did not admit the affidavit at the hearing.
492 On the same day EGR filed an affidavit of Cynthia Hynes, solicitor for EGR, sworn on 28 June 2010. In that affidavit she deposed to a history of the applicant and the more recent history in relation to the deed of assignment executed on 6 April 2010, the deed of appointment executed on 9 June 2010 and the deed of assignment of chose in action and resignation of trustee executed on 25 June 2010. She said:
5.4 the submissions made by Smart on 27 May 2010 were not completed as Smart went into liquidation on 28 May 2010. EGR seeks to complete those submissions and seeks leave to rely and be heard upon an affidavit of Stephen Patrick McNamara which its (sic) understand was sworn on or about 28 June 2010.
5.5 EGR says that the manner in which the discovery process has taken place in this matter has severely prejudiced the conduct of Smart’s case in that Smart did not have time to adequately put all relevant documents discovered by the Respondents to its witnesses (expert or otherwise) before Smart’s witness statements were to be filed and served;
5.6 The documents discovered by the Respondents show:
5.6.1 On their face that Smart has a good cause of action;
5.6.2 The Respondents appear to have breached the Heads of Agreement referred to in the pleadings;
5.6.3 A technical expert report on behalf of Smart was not required to fairly inform the Respondents of Smart’s case;
5.6.4 That the proceedings should not be struck out on the grounds advanced by the Respondents;
5.6.5 That a security for costs order against Smart or EGR should not be made in the terms sought by the Respondents; and
5.6.6 That the Respondents have not discovered all documents relevant to the issues in the proceedings.
493 On 5 July 2010 the liquidators filed an interlocutory process in the Supreme Court seeking summary judgment on the original application and an urgent hearing for that application. The matter was set for hearing on 23 July 2010.
494 On 6 July 2010 I heard EGR’s application to intervene in the proceedings. Mr Wells QC appeared for the liquidators. Mr Hoile appeared for EGR.
495 It was accepted by EGR that s 236 of the Corporations Act did not apply where the applicant was a company in liquidation. However, EGR sought to intervene on two other grounds: first, by reason of the purported assignment of the chose in action on 6 April 2010 of which this Court became aware on 28 May 2010; secondly, under the implied jurisdiction of the Court to grant leave to a contributory to permit the proceedings to be continued on behalf of the company in liquidation. Both the liquidators and the respondents opposed EGR’s application. I reserved my judgment but later dismissed the application: The Smart Company Pty Ltd (In Liq) v Clipsal Australia Pty Ltd [2011] FCA 35. The surrounding circumstances are set out more fully in my reasons on that application.
496 During the same hearing Mr Wells made an oral application for the liquidators to be given the opportunity to be heard on, and to put submissions in opposition to, the applicant’s application to dismiss. At that time the application to dismiss had only been reopened for the purpose of tendering Mr Kennett’s affidavit of 17 June 2010 and any evidence in reply. Mr Wells sought to have the application reargued on the understanding that the liquidators were seeking to clarify the issue of the assignment to EGR as a matter of urgency.
497 Mr Wells contended that the appointment of liquidators represented a change in the control and management of the proceedings. He further argued that if litigation funding were secured it would have a significant bearing on the matters before the Court.
498 It was accepted by Mr Wells that the liquidators would need to succeed in the Supreme Court action challenging the assignment of the chose in action, and would need to identify litigation funders. He said that the liquidators were seeking an urgent resolution in the Supreme Court, and that the liquidators would have information about funding in four to five weeks.
HIS HONOUR:…the application which is made by the respondents is to reopen but limited to the tender of Mr Kennett’s affidavit to establish that your client hadn’t paid the respondents’ costs as I had ordered.
MR WELLS: Yes, yes.
HIS HONOUR: I suppose you meet that by asking that the whole matter be reopened.
MR WELLS: Well we would ask your Honour to retain the present position, which is that your Honour has recalled the reserving of judgment.
HIS HONOUR: Yes.
MR WELLS: We would simply ask, your Honour – we’re very willing to make the application by notice of motion but we wondered whether your Honour mightn’t simply, just for the moment, consider holding the present position which is that the matter is not reserved for judgment, but your Honour would know that that is on the basis that the liquidators are seeking to pursue the assignment issue and clarify that as a matter of urgency.
HIS HONOUR: Well, Mr Whitington made an application some time ago for an adjournment for the purpose of considering whether an application would be made of the kind that you mention.
MR WELLS: Yes.
HIS HONOUR: Now, I refused that at the time because he was, because of the time when he made the application, not able to articulate exactly what he wanted, I think, at that stage. But, I think, if you’re going to make an application of the kind you should make it formally and you should support it with an affidavit that addresses the matters which we’ve addressed in our exchange
499 The respondents argued that nothing that Mrs Shaw, EGR, or the liquidators had put indicated there was anything concrete to put in the way of further submissions. They argued that the matter of the assignment in the Supreme Court could take months to resolve, and that the liquidators may not be in a position to resume substantive steps in the proceedings until that time.
500 On 6 July 2010 the following orders were made:
1. Leave be given to the liquidators in these proceedings to use the affidavit of Ms C P Hynes sworn on 29 June 2010 and filed in this Court on 29 June 2010 in the Supreme Court of South Australia proceedings 782 of 2010.
2. The application by Enterprise Global Resources contained in paragraphs 1 and 2 of the notice of motion of 28 June 2010 be reserved for consideration.
3. Unless an application is brought by the applicant by 16 July 2010 seeking an order to re-open the respondents’ application to dismiss the applicant’s proceedings identifying the issues and submissions which have not been put and could not have been put as at 27 and 28 May 2010, judgment be reserved on the respondents’ application for an order that the applicant’s proceeding be dismissed.
501 The liquidators made inquiries in order to determine what it was that Mrs Shaw had left unsaid on 27 May 2010 and what needed to be put in opposition to the respondents’ application to dismiss.
502 On 13 July 2010 the liquidators’ solicitor Mr Hayes telephoned Mrs Shaw but was informed that she would not be available until 16 July because of other commitments in various local and interstate courts. On 15 July 2010 Mrs Shaw informed Mr Hayes that she would not be able to meet with him until the weekend.
503 On Sunday, 18 July 2010 Mr Hayes met with Mrs Shaw to discuss the respondents’ application to dismiss proceedings and the further submissions that Mrs Shaw proposed making on behalf of the Company. Mr Hayes said that Mrs Shaw informed him that after the adjournment on 27 May she formed the view that she wished to make more submissions than those she had contemplated at the close of the proceedings on 27 May and that they would take longer than an half an hour so to do. She further told him that she had requested during the course of the evening of 27 May and the next morning of Mr McNamara that he prepare various schedules and obtain documents relevant to the submissions that she wished to make on 28 May 2010.
504 Mr Hayes said in the course of meeting with Mrs Shaw she told him she would be in a position to prepare the remaining submissions she intended to make on behalf of the application but would need the weekend of 24/25 July 2010 so to do. She told Mr Hayes that she had the necessary materials to enable her to prepare the remaining submissions. She also told him she would be available on Friday, 6 August 2010 to attend Court to put those submissions. She would also provide Mr Hayes with copies of the materials that she previously provided to Mr McNamara during the course of 27 and 28 May 2010. She told Mr Hayes she would be prepared to provide her further submissions without raising a fee.
505 Mr Hayes said that later that day he received five separate emails from Mrs Shaw between 9.45pm and 10.53pm. He did not exhibit those emails because they were the subject of legal professional privilege “being correspondence between Mrs Shaw QC and the solicitor and other counsel formerly retained by the applicant in these proceedings”.
506 On 19 July 2010 consent orders were sent to my Chambers, signed by all parties to the proceedings, extending the time within which the applicant had to comply with paragraph 3 of the orders made on 6 July 2010 from 16 July until 19 July 2010. The order was as follows:
1. The day mentioned in the order made on 6 July 2010 within which the applicant is to bring an application seeking an order to re-open the respondents’ application to dismiss the applicant’s proceedings identifying the issues and submissions which have not been put and could not have been put as at 27 and 28 May 2010, be varied to 19 July 2010.
507 The respondents signed the consent order on the condition that the liquidators file an amended notice of appearance that same day.
508 The liquidators complied and filed a notice of appearance on 19 July 2010. They also filed their notice of motion seeking a re-opening of the respondents’ application to dismiss. The notice of motion was as follows:
1. The Applicant be granted leave to reopen the Respondents’ application to dismiss the Applicant’s proceedings to enable the Applicant to put the issues and submissions:
1.1. That in the exercise of the Court’s discretion, the Court should not dismiss the proceedings but should stay the proceedings until further order on the following grounds:
1.1.1. The Applicant was placed in liquidation on 28 May 2010.
1.1.2. The liquidators have received proofs of debt from unsecured creditors for an amount in excess of $10 million.
1.1.3. On the information presently available to the liquidators, the persons who have lodged proofs of debt are not any of Ms Dorothea Tomazou, Mr Sotiri Portellos, or any company of which those persons are a director.
1.1.4. The liquidators are not in a position to make a decision as to whether to adopt the proceedings until the issue of ownership of the causes of action the subject of these proceedings which is the subject of Supreme Court Action Number 782 of 2010 has been determined.
1.1.5. The liquidators are using their best endeavours to obtain an early determination of Supreme Court Action Number 782 of 2010.
1.1.6. The liquidators are not in a position to make a decision as to whether to adopt the proceedings until they have come to an arrangement as to funding these proceedings, including as to satisfying existing orders against the company.
1.1.7. If Supreme Court Action Number 782 of 2010 is determined in favour of the liquidators and arrangements as to funding are made, the liquidators will need time to consider their decision as to the adoption of the proceedings.
2. The Applicants have leave to notify the Respondent of such further matters as it wishes to raise in respect of paragraph 1.1 above by close of business Tuesday, 27 July 2010.
509 Mr Strazdins said in his affidavit of 19 July 2010 that the liquidators were experiencing difficulties in obtaining the books and records of the applicant. They had sought assistance from ASIC for the applicant’s failure to comply with the Corporations Act by providing a Report of Affairs and the books and records of the applicant. ASIC had issued warning notices directed to the two directors of the Smart Company, Ms Dorothea Tomazou and Dean Clift. Mr Strazdins identified the potential assets of the Smart Company and said that he had received Proofs of Debt from parties claiming to be creditors in the total sum of $10,476,575.30.
510 Mr Strazdins said the hearing of the application in the Supreme Court for summary judgment was set down for 23 July 2010.
511 Mr Strazdins said that litigation funding was being pursued and that the liquidators anticipated being able to make a decision regarding the availability of such funding within 3 to 4 weeks. He indicated they would not be in a position to make a decision as to whether to adopt the Federal Court proceedings until such funding arrangements were made.
512 Mr Strazdins asked that the liquidators be given until 27 July 2010 to put before the Court the further matters that Mrs Shaw would wish to put.
513 The liquidators’ notice of motion of 19 July 2010 seeking re-opening of the respondents’ application to dismiss the proceedings was set down for 27 July 2010.
514 On 19 July 2010 the respondents’ solicitors sent a letter to the liquidators’ solicitors setting out the applicant’s current and contingent debts arising out of the proceedings. The respondents noted the existing debt of $200,000 pursuant to the order of 4 June 2010. The respondents alerted the liquidators to their interest as creditors under the cross claim in the proceedings. The respondents further set out a table of the costs awarded against the applicant throughout the proceedings, and indicated that those costs would be quantified once the proceedings were concluded. That table showed;
Date | Order |
| 4 May 2005 | The Applicant to pay the Respondents’ costs of and incidental to the motion filed on 26 October 2004, including costs of the hearing on 4 May 2005, insofar as those costs relate to security for costs. |
| 26 April 2006 | (Applicant discontinues its application for leave to appeal the decision of Lee J handed down on 29 March 2006) The Applicant pay the Respondents’ costs of the application thrown away to be taxed or agreed. |
| 17 July 2006 | (Security for costs application adjourned) The Applicant pay the Respondents’ costs thrown away by reason of the adjournment. |
| 3 October 2006 | The order pronounced by Lander J on 17 July 2006 for costs thrown away be vacated in lieu thereof that the Applicant pay the Respondents’ costs of and incidental to their motion of security for costs filed on 26 October 2004 that have been incurred since 6 March 2006, as agreed or taxed. |
| 11 October 2006 | (Directions hearing adjourned) The Applicant pay the Respondents’ costs thrown away by reason of the directions hearing. |
| 12 July 2007 | The Applicant pay the Respondents’ cost of the Applicant’s notice of motion (leave to amend TFASOC) dated 12 June 2007 to date. |
| 20 September 2007 | (Applicant’s notice of motion seeking leave to amend TFASOC dismissed) The Applicant pay the Respondents’ costs of and incidental to the notice of motion. |
| 27 November 2007 | The Applicant pay the Respondents’ costs of the application for leave to amend up to and including today. |
| 3 July 2008 | 1. The Applicant pay the Respondents’ costs of the hearing of 7 November 2007. 2. The Applicant pay the Respondents’ costs including costs thrown away by reason of the amendments to the third further amended statement of claim filed 20 May 2005 (TFASOC), on a party and party basis as agreed or taxed, which for the avoidance of doubt includes the costs: (a) thrown away by reason of the amendments to the Statement of Claim filed on 18 June 2004 (SOC) reflected in the Amended Statement of Claim filed 10 August 2004 (ASOC); (b) thrown away by reason of the amendments to the Amended Statement of Claim reflected in the Further Amended Statement of Claim filed 13 October 2004 (FASOC); (c) thrown away by reason of the amendments to the FASOC reflected in the Second Further Amended Statement of Claim filed 7 January 2005 (SFASOC) and the particulars of confidential information and source material filed 16 February 2005; (d) thrown away by reason of the amendments to the SFASOC reflected in the TFASOC; and (e) of and incidental to the Respondents’ notice of motion filed 26 April 2007 to strike out paragraphs of the Reply filed 1 February 2007; but does not include costs: (f) of and incidental to the Respondents’ application, made by notice of motion filed on 26 October 2004, to strike out paragraphs of the FASOC, including the costs of the hearing on 14 December 2004; (g) of and incidental to the Respondents’ application to strike out paragraphs of the SFASOC, including the cost of the hearing on 4 May 2005; (h) of and incidental to the preparation of lists of documents for discovery by reference to the TFASOC and the Defence.
3. The Applicant pay the Respondents’ costs of the Applicant’s application for leave to amend subsequent to 27 November 2007 up to and including the costs of the hearing on 20 February 2008, on a party and party basis as agreed or taxed. --- |
| 12 May 2009 | (Directions re timetable) The Applicant pay the Respondents’ costs of today’s hearing. |
| 27 October 2009 | (Application to dismiss or comply with schedule) The Applicant pay the Respondents’ costs of today’s attendance. |
| 9 November 2009 | The Applicant pay the Respondents’ costs of today’s attendance. |
| 9 November 2009 (2) | The Respondent pay the Applicant’s costs of the application (by Amended Notice of Motion filed 4 November 2009). |
| 23 December 2009 | No order as to costs of the Respondents’ application or the Applicant’s application. |
| 29 April 2010 | The Applicant pay the Respondents’ costs thrown away by reason of the adjournment (of the Respondents’ Notice of Motion filed on 19 April 2010 and the Applicant’s Notice of Motion filed on 28 April 2010). |
| 27 May 2010 | The Respondents’ costs of the adjournment (of the trial?) be reserved. |
| 28 May 2010 | Costs reserved. |
| 4 June 2010 | The Applicant pay the Respondents’ costs of the proceeding since 24 December 2009 save those costs which relate to discovery and inspection since that date on a solicitor and client basis. The Applicant pay the Respondents’ costs thrown away by reason of the adjournment of the trial which was to recommence on 19 July 2010 on a solicitor and client basis. Pursuant to O 62 r 4(2)(c) of the Federal Court Rules, the costs in paragraph 1 and 2 above be fixed in the sum of $200,000. Pursuant to O 62 r 3(2) the costs in paragraphs 1 and 2 and fixed at $200,000 in paragraph 3 be paid forthwith notwithstanding that the proceeding is not concluded. |
515 On 21 July 2010 Mr Hayes informed Mrs Shaw of the hearing set down for 27 July 2010.
516 On 22 July 2010 the respondents’ solicitors sent a letter to Mr Hayes indicating that they would not oppose a reopening of the respondents’ application to dismiss the applicant’s proceedings for the limited purpose of enabling the applicant to tender Mr Strazdins’ affidavit of 19 July 2010 and make further submissions indicated in the notice of motion and affidavit. They indicated however that they expected the submissions to be made on 27 July and would oppose any application to adjourn the application so that submissions may be put at a later date.
517 It is necessary to have regard to a series of affidavits to understand the events that preceded the next hearing on 27 July 2010. In an affidavit sworn 2 August 2010 Mr Hayes deposed to the events leading up to 27 July 2010:
20. On 22 July 2010, I telephoned Mrs Shaw QC on her mobile to offer assistance regarding the preparation of her further submissions. During that telephone conversation, Mrs Shaw QC informed me that she was not in a position to prepare further submissions and suggested that Stephen McNamara and I should prepare the further submissions and provide them for her to settle. I informed Mrs Shaw QC that it was inappropriate for Mr McNamara to prepare such submissions and that I did not have the background or documents to prepare the further submissions. Mrs Shaw QC then suggested that a first year solicitor at the Firm should take the material which she had previously provided to us on 18 July 2010 and prepare the further submissions and then provide those further submissions to her to settle. I informed Mrs Shaw QC that I would seek instructions from the liquidators of the Company regarding that proposal.
Senior Counsel declines to prepare further submissions
21. On 23 July 2010, I met with the managing partner of the Firm, Michael Hutton to discuss my telephone conversation with Mrs Shaw QC the previous evening. At that meeting it was resolved to appoint two solicitors to consider the material that Mrs Shaw QC had provided to the Firm and prepare draft submissions and provide the draft submissions to Mrs Shaw QC
22. At 6.11pm on 23 July 2010, I caused an email to be sent to Mrs Shaw QC enclosing so much of the draft submissions as could be prepared having regard to our understanding of these proceedings. Now produced and shown to me and marked “MAH-11” is a true copy of my email of 23 July 2010 to Mrs Shaw QC.
Senior Counsel declines to act further
23. At 1.09pm on 25 July 2010, I received an email from Mrs Shaw QC informing me, in part, that there were a number of incorrect assumptions in my earlier e-mail to her and that she had not been briefed in this matter and further that she did not agree with the course of action taken by the liquidators of the company.
518 The email to which Mr Hayes referred was exhibited to the affidavit:
Hi Mike,
I am concerned there are a number of incorrect assumptions referred to in your email in relation to my role in this matter. I am willing to help with input in relation to the outline of submissions I would have made. I have not agreed to make any further oral submissions at a future date because firstly, I am not briefed in the matter. Other counsel has been briefed. Secondly, I do not necessarily agree with the course that is being taken by the liquidator. My views are irrelevant because I am not briefed. Alternative counsel has been briefed. Accordingly not only have I not accepted a brief to make further submissions but if further submissions are to be made, they need to be made by the counsel who has been briefed. I have taken the very limited step – which I have misgivings about – of giving you information as to the topics I would have made submissions on. That is as far as I am willing to go bearing in mind that my advice has not been sought since I learnt indirectly, that the liquidator did not wish to continue my limited instructions. I consider it completely unsatisfactory to require new solicitors to obtain information from previous counsel briefed to reconstruct what they intended to say, in this environment, for the purpose of making final decisions about a proposed billion dollar claim. My attempt to reconstruct is therefore heavily qualified because I do not have the time or resources to go back and familiarize myself with the brief and provide all information that I would have presented. No doubt counsel briefed in the matter could present this information by reference to my outline and with the appropriate and necessary time.
Yours truly,
Marie Shaw QC
519 Mr Hayes continued:
24. On the basis of the events that I have outlined in this affidavit I cannot with respect agree that any of the assumptions identified by Mrs Shaw QC were incorrect. In particular, it was my clear understanding that Mrs Shaw QC had accepted a brief to appear for the Applicant (now controlled by the Liquidators) to conclude her submissions.
520 On 25 July 2010 at 8.23pm Mr Hayes received an email from Mrs Shaw which attached the topics which Mrs Shaw said she intended to canvass and the materials she had requested Mr McNamara prepare in support of her oral submissions:
From: “Marie Shaw”
To: “Mike Hayes”
Date: 25/07/2010 8:23 PM
Subject: Smart submissions lynch meyer51406-1
Attachments: Smart submissions lynch meyer51406-1.doc
Dear Mike,
I spent 3 hours on my earlier emails to you endeavouring to set out my recall of the topics I was going to address. Your draft seems to be based on McNamara’s affidavit not on my emails to you about what I intended to say. Therefore, I spent 4 hours today but lost part of what I had typed so am left to refer back to my earlier email and the attachments- all of which were the foundation for my further submissions. Clearly I do not have the administrative assistance to correct what I have typed myself so that needs to be addressed. You need to put in submission form what I have told you I proposed to say. I do not believe it is appropriate that I sign off on it. Rather that you depose that I have informed you as best I can of the topics I intended to canvass and the materials that I had prepared and instructed McNamara to compile in a compendious schedule to support my oral submissions, and the security of costs material that Malcolm was putting together. As I have indicated, although at the end of Thursday prior to the liquidator beign appointed, I thought I might be only half on hour or so, on reflection about his Honor’s comment in relation to the status of the McNamara affidavit, I intended to go thoroughly through the history referring to all necessary documents and transcripts to support my submissions.
Yours truly,
Marie Shaw
The attachments to the email were not exhibited to Mr Hayes’ affidavit because they are the subject of legal professional privilege.
521 Mr Hayes summarised those topics in his affidavit of 27 July 2010:
18. On Sunday, 25 July 2010 Mrs Shaw QC informed me that she wished to address the following further topics in her submissions:
18.1 by reference to a detailed chronology, the Applicant’s attempts to obtain discovery and the Respondents’ delays in providing discovery in response to the Applicant’s requests for discovery;
18.2 by reference to a detailed chronology, the accuracy of an affidavit sworn by Mr McNamara in these proceedings;
18.3 the Respondents’ challenges on the clarity of the Statement of Claim and the effect on discovery;
18.4 the relevance of documents discovered by the Respondents’, after witness statements and expert reports were in train, in respect of the Respondents:
18.4.1 alleged lack of understanding of the terms of the Heads of Agreement;
18.4.2 request for further particulars before discovery;
18.4.3 request for expert reports before discovery;
18.4.4 conduct in respect of the Heads of Agreement;
18.5 the Respondents’ failure to provide to the Applicant documents in the agreed categories of documents, including the Schneider documents and the HSP documents and the prejudice to the Applicant’s case and the unnecessary expense to the Applicant;
18.6 by reference to the Solomon outline from 2009, earlier delays were not necessarily all of the fault of the Applicant and that the subsequent delays due to the security for costs application the expert report (sic) was not the fault of the Applicant;
18.7 the effect of the court timetable and the Applicant filing all statements without the benefit of discovery;
18.8 the Respondents’ conduct during the proceedings and various acknowledgement by the Respondents in respect of the proceedings; and
18.9 by reference to a schedule of costs, the reasonableness of the Respondents’ claim for costs, or said to be thrown away, as a result of the adjournment of the trial.
522 In Mr Hayes’ affidavit of 27 July 2010 he said that the Supreme Court proceedings were set down for 6 August 2010.
523 He further stated that he had drawn Mrs Shaw’s attention to the transcript of 27 May which recorded that Mrs Shaw stated that she expected to be a further half hour in making submissions.
524 On 27 July 2010 Mr Dal Cin appeared for the liquidators. The following exchange occurred:
MR DAL CIN: Your Honour has before you – before the Court today my client’s notice of motion filed on 19 July. Your Honour, we seek today a timetable for the notice of motion to be set down for argument.
HIS HONOUR: But hasn’t my previous order now come to terms? Hasn’t it operated in its own terms, and the matter is reserved?
MR DAL CIN: Your Honour, I am aware of your Honour’s previous order, but I hadn’t read it in that way.
HIS HONOUR: Well, paragraph 3 of my orders on 6 July:
Unless an application is brought by the applicant by 16 July 2010 seeking an order to re-open the respondents’ application to dismiss the applicant’s proceedings identifying the issues and submissions which have not been put and could not have been put as at 27 and 28 May 2010, judgment be reserved on the respondents’ application for an order that the applicant’s proceeding be dismissed.
That was extended by a day, I think, to the Monday. No application was brought in the time.
MR DAL CIN: Your Honour, my client’s notice of motion of the 19th was filed on the Monday.
HIS HONOUR: Yes, but does that identify the issues and submissions which have not been put?
MR DAL CIN: Your Honour, it doesn’t. At subparagraph 1.1 they are matters that have not been put. They are not matters which are extant at the time of the argument.
HIS HONOUR: Well, they might not have been extant on 28 May – well, 1.1.1. Are they the matters you say Mrs Shaw wanted to put?
MR DAL CIN: No, your Honour.
HIS HONOUR: Well, that was what the purpose of the order was, so that you could identify by 19 July those matters which the applicant said had not been put at the previous hearing, when Mrs Shaw was counsel.
MR DAL CIN: Your Honour, as at the 19th the position my client or the liquidators are faced with as to Mrs Shaw is deposed during the affidavit of Mr Hayes – of the liquidator, Mr Strazdins, of 19 July, and that is that Mrs Shaw, at that stage, hadn’t yet been available, but would be available on the most recent weekend, so would be available this weekend just passed. Your Honour, I have an affidavit that will depose to the matters I am proposing to tell your Honour, as I’m not wishing to give evidence from the bar table. But the answer to your Honour’s question is as at today, the position now reached with Mrs Shaw is that she’s not in a position to put them, and we don’t, therefore, will not be putting – you know, we had expected to be in a position to put them. We are not in a position and we can’t advise those matters to your Honour.
…
MR DAL CIN: Your Honour, can I deal with it in two ways. The first is I’m instructed that the topics that Mrs Shaw had identified to us were matters she wished to raise, have been identified in an affidavit prepared by my instructor this morning, which is not before the Court, and I can take your Honour to that, which identifies the topics. It does not, however, set out, as it were, the detail of the submissions, or develop them in any more elaborate way. So if your Honour is ---
…
HIS HONOUR: Well, it was. It was the only way in for your client at that stage. But what I’ve wanted your client to do – there’s been this claim that Mrs Shaw hadn’t finished her submissions when she said she had finished. But she said on the next day, after the company went into liquidation, there are other things she wanted to put. But nobody has ever articulated what those matters are. And this matter has been delayed while your client has failed to be able to articulate it. I can’t stop you making applications, of course, Mr Dal Cin. But if this application fails, the liquidators will have to pay the costs personally. The company can’t pay the costs. I can’t keep putting Clipsal to the costs of these applications. If the liquidators want to pursue this, they’ll pay them, if they fail
525 Later in the hearing after a short adjournment Mr Dal Cin informed me that the liquidators would no longer be in a position to put the submissions from Mrs Shaw that they believed would be available.
MR DAL CIN: …We won’t be in a position to put the submissions that we had believed were going to become available.
HIS HONOUR: Why is that?
MR DAL CIN: Because we don’t – I’m sorry, your Honour. Because we don’t have the information from Mrs Shaw.
HIS HONOUR: And you won’t get it?
MR DAL CIN: Your Honour, as I presently stand, my instructions are we won’t and so we then won’t be relying on those submissions as a substantive matter.
HIS HONOUR: So you are now not going to rely on her claim that she failed to put all of her argument.
MR DAL CIN: In fact - thank you, your Honour. We won’t be putting to your Honour that the matter should be reopened to permit us to put matters that she was going to put and didn’t put.
HIS HONOUR: So you will be applying to have it reopened to put the matters in paragraph 1.1 of your notice of motion.
MR DAL CIN: Yes, your Honour.
526 Mr Doyle argued in opposition to the applicant’s application to re-open, that the matter should be considered to be currently reserved due to the self executing nature of the orders of 6 July. He further argued that the application by Mr Dal Cin to reopen to put the matters outlined in paragraph 1.1 of the applicant’s notice of motion of 19 July 2010 be dismissed, or in the alternative reopened simply to receive the affidavits of Mr Strazdins and Mr Hayes of 19 July and 27 July respectively, and then closed immediately. Mr Doyle put that the applicant should not be given another opportunity to put any submissions in support of an application to reopen. He argued that the respondents by their letter of 22 July had indicated their agreement to reopen and deal with the matter at the hearing of 27 July, if the liquidators were able to put at that time the material relating to the further submissions of Mrs Shaw which they had indicated they would be putting. He opposed any further application to reopen given that the liquidators had not been able to comply either with the court orders or the position offered by the respondents’ letter. He also noted the “elusive nature of Mrs Shaw’s mysterious submissions.”
527 Mr Doyle did not object to Mr Hayes’ affidavit of 27 July 2010 being received in Court, but said that the respondents considered that it only had the effect of updating the Court as to the status of the proceedings in the Supreme Court, and was otherwise irrelevant given the liquidators’ abandonment of the suggestion that an opportunity was required for Mrs Shaw to put further submissions.
528 The following orders were made:
1. The applicant provide written submissions in relation to paragraph 1 of the notice of motion of 19 July 2010 including any submissions as to costs of the application in the event that the application were successful by Monday, 2 August 2010.
2. The respondents, if so advised, file written submissions by Thursday, 5 August 2010.
529 On 2 August 2010 the liquidators filed submissions in accordance with the above orders. In those submissions the liquidators sought leave to file two affidavits, sworn by Mr Strazdins and Mr Hayes on 2 August 2010.
530 The liquidators submitted that they were the new controlling mind of the applicant. They argued that if the liquidators were to adopt the Federal Court proceedings they could, as officers of the Court, be expected to comply with any orders of the Court and to cooperate with both the Court and the respondent to have the matter ready for trial within an acceptable period. They stated that a number of steps needed to be taken before the liquidators could fairly assess the value of the action and their ability to conduct it.
531 They identified the steps the liquidators had already taken in relation to their duties as liquidators to preserve the chose in action in both the Supreme Court and the Federal Court. The affidavit of Mr Strazdins provided further evidence of the actions taken by the liquidators to recover the books and records of the applicant and to obtain litigation funding.
532 The liquidators submitted that they had acted diligently in carrying out their statutory duties and seeking to obtain the books and records of the applicant and a report as to the affairs from the directors. Mr Strazdins’ affidavit shows that the liquidators have attempted to obtain information from Ms Tomazos but she has failed to submit a return as to the affairs of the applicant. The liquidators anticipated that ASIC would prosecute Ms Tomazos for her failure to comply.
533 The liquidators said they have attempted to obtain the books and records of the applicant that are in the custody of Mr McNamara but Mr McNamara had refused to supply the applicant’s books and records to the liquidators.
534 The liquidators had engaged the National Complaint Division of ASIC seeking assistance in obtaining the books and records from Mr McNamara and the liquidators had requested ASIC to continue action against him.
535 In relation to the chose in action the liquidators said they had numerous meetings with various parties including Ms Tomazos, her solicitor, Mr Matthew Deller and her counsel, Mr Stephen McNamara and Mr Blue.
536 The liquidators identified the steps which they had taken in the Supreme Court for the purpose of obtaining a declaration that the deed of assignment entered into on 6 April 2010 be declared void.
537 The liquidators have also identified the steps taken to obtain litigation funding. They approached five litigation funders and have provided those litigation funders with copies of the pleadings and an opinion of senior counsel as to the merits of the claim. At the time of the making of the submissions the liquidators did not know whether they would secure litigation funding but expected to know within one month.
538 The liquidators also referred to the efforts they had made to obtain from Mrs Shaw the submissions which she said she wished to make. They also addressed the question of costs submitting that if their application were unsuccessful no order for costs should be made against them personally. Their submissions relied heavily upon the two affidavits sworn on 2 August 2010.
539 On 5 August 2010 the respondents emailed a letter to my associate stating that they did not wish to file any further submissions in reply to the applicant’s notice of motion of 19 July 2010, save for the matters outlined in their letter. In that letter, the respondents argued that the Court should not have regard only to, or even focus upon, the future conduct of the matter. They argued that the conduct of the applicant historically must be taken into account and that consideration must also be had to case management considerations. They submitted that delays and defaults should be viewed in the context of the entire period of delay, which in these circumstances also meant the delay between the occurrence of the relevant events in 1995 and the institution of proceedings in 2004.
540 They further put that the additional affidavits filed by the liquidators only indicated that there would be further delay in the proceedings, as the liquidators would need time to resolve the Supreme Court proceedings, obtain suitable litigation funding, consider the merits of the litigation and whether or not to adopt it, and if it were adopted to familiarise themselves with the proceedings and potentially revisit issues of pleadings, discovery and expert reports. They argued that such a delay would be intolerable for the respondents, and would tend to bring the administration of justice into disrepute.
541 On 9 August 2010 Mr Hayes emailed my associate, attaching a copy of a letter that his firm had received by fax from Mrs Shaw on the same date, and which she had requested they place before the Court. The contents of the letter were as follows:
Dear Mr Hayes, Re Smart Company (in liquidation) and Clipsal
I have read your affidavit of 2nd August 2010 and I do not agree with the interpretation you place on my assistance that I provided to you (without fee) since my retainer to act in this matter was terminated on (at the latest) 3rd June 2010.
On that date I made it clear that I was not prepared to accept a further retainer to act for the liquidators, or for that matter, any other entity or person involved in these proceedings.
Your affidavit describes the events of the 13/7/10 to the 25/7/10, during which I endeavoured to provide limited assistance to you and your firm, without fee, and certainly not on the basis of accepting any retainer from your firm to do so.
My assistance was as I made clear to you, both orally and in my emails, limited to setting out what would have been the substance of my submissions, had I been able to complete them.
I have never accepted a retainer from your firm to act in this matter; I have never agreed to appear in this matter since the 3/6/10 when I made it clear that I would not appear in the future.
The paragraphs in your affidavit where you assert that I declined to prepare further submissions and that I declined to act further are mischevious and misleading. I repeat, I have never accepted a brief from your firm to appear before the court and conclude the submission that I would have made had the company not gone into liquidation.
I require your confirmation that you will place my letter before the court by 5.00pm Monday the 9th August 2010, failing which I propose to inform the court of the contents of the letter so I can correct the impression you have endeavoured to convey in your affidavit.
Yours truly,
Marie Shaw QC
542 On 27 August 2010 Mr Hayes emailed my associate enclosing a copy of the reasons of Judge Withers which were handed down that day in relation to the liquidators’ application to have the deed of assignment dated 6 April 2010 declared void. On that day his Honour made that declaration and consequential orders.
543 On 23 September 2010 the liquidators’ solicitors emailed my associate advising her that the notice of appeal from Judge Withers’ orders had been filed on Friday, 17 September 2010 and enclosing that notice of appeal.
544 Most recently on 27 April 2011 the liquidators’ solicitors wrote advising that the appeal had lapsed.
545 They also advised that on 7 December 2010 Judge Withers had made orders for the production to the liquidators of the applicant’s books and records held in storage. The order was amended on 8 March 2011.
546 On 2 February 2011 the following orders in relation to EGR’s application were made:
1. Enterprise Global Resources Pty Ltd’s amended notice of motion be dismissed.
2. Enterprise Global Resources Pty Ltd pay the applicant’s liquidators’ costs of Enterprise Global Resources Pty Ltd’s motion.
3. Enterprise Global Resources Pty Ltd pay the respondents’ costs of Enterprise Global Resources Pty Ltd’s motion.
4. Of the sum paid into Court by Enterprise Global Resources Pty Ltd pursuant to paragraph 4 of the orders of 21 June 2010:
(a) the sum of $7,500 be paid out of Court to the respondents as payment towards their costs; and
(b) the sum of $7,500 be paid out to the liquidators of the applicant as payment towards their costs.
547 The liquidator’s application of 27 July is for leave to reopen the respondents’ application to dismiss the applicant’s proceeding to enable the liquidators to put the submission that the Court should in exercise of the Court’s discretion not dismiss the applicant’s proceedings but should stay the applicant’s proceedings until further order.
548 The liquidators implicitly accept that this Court’s jurisdiction under O 35A r 3 has been enlivened, and that it would be appropriate to stay the proceedings until further order. The orders made on 27 July 2010 had the effect of allowing the liquidators to put their submissions which are addressed above. The liquidators thereby have been given the opportunity of putting their submissions for an order for a stay.
549 The question then as the liquidators acknowledge is whether the proceedings should be dismissed or stayed. Both applications can therefore be considered together.
550 Nothing that has been said or that follows should be understood to be any criticism of the liquidators. However, it must be accepted that they inherited the proceedings with all of the history to which I have referred.
551 The respondents’ application relies on alternative bases. First, s 31A of the Federal Court Act and secondly, O 35A of the Federal Court Rules.
552 Section 31A permits the Court to make an order giving judgment for a respondent against an applicant in relation to a proceeding if the Court is satisfied that the applicant has no reasonable prospect of successfully prosecuting the proceeding: s 31A(2). In making that assessment, the Court need not be satisfied that the proceeding is hopeless or bound to fail for it to have no reasonable prospects of success: s 31A(3).
553 Parliament intended by enacting s 31A to lower the bar for obtaining summary judgment or summary dismissal below the level which had been fixed by authorities such as Dey v Victorian Railways Commissioners (1949) 78 CLR 62 and General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125: Deckers Outdoor Corporation Inc v Farley (No 2) (2008) 176 FCR 33 at 3; Dandaven v Hanbeth Holdings Pty Ltd [2008] FCA 955 at [5].
554 However, the Court has said that the Court should be slow to dismiss a claim under s 31A in case such an order would create a miscarriage of justice. There is a continuing reluctance to deprive a person of that person’s right to seek to have the Court adjudicate on an existing dispute. However, the section must be applied when the circumstances contemplated in the section exist.
555 Section 31A is a power given to the Court, relevantly for the purpose of this application, where the Court is satisfied that the applicant has no reasonable prospect of successfully prosecuting the proceeding in the sense that the applicant will not be able to establish a claim made in the application and does not serve to empower the Court to dismiss the proceeding for procedural defects or faults. On a respondent’s application, s 31A requires the Court to consider whether the cause of action or causes of action identified in the proceeding has or have a reasonable prospect of being made out.
556 It is not possible on this application for the Court to reach any conclusion as to the applicant’s prospects of making out any of the claims which it has raised. Indeed the respondents did not argue that the causes of action raised on the statement of claim were not maintainable or that the applicant had no reasonable prospect of successfully prosecuting those causes of action.
557 However, the respondents relied upon s 31A because the applicant was at the time of the hearing of the respondents’ application without any evidence to support its case. It had no admissible expert evidence and had not complied with the Court’s orders in relation to the filing of its lay evidence. Therefore they argued the applicant had no reasonable prospect of prosecuting the proceedings. The success of that argument necessarily relied upon the applicant not being granted any further indulgences in relation to the conduct of the proceedings. That it seems to me means that the applicant’s conduct in the proceedings must be examined. If it is not to be granted any further indulgences then it will not be able to prosecute the proceedings and the proceedings will have to be dismissed because of the applicant’s failure to comply with the Court’s orders and the Rules of Court.
558 The question therefore on this application is whether the applicant’s behaviour in the proceedings means that the proceedings should be dismissed. Order 35A rule 3 provides the Court with the discretion where an applicant is in default to stay or dismiss the whole or any part of the relief claimed by the applicant.
559 Order 35A r 2(1) provides for when an applicant is in default:
(1) For this Order, an applicant is in default if the applicant:
(a) fails to comply with an order of the Court in the proceeding; or
(b) fails to attend a directions hearing; or
(c) fails to file and serve a pleading as required by Order 11; or
(d) fails to serve a list of documents or an affidavit or other document, or does not produce a document as required by Order 15; or
(e) fails to do any act required to be done by these Rules; or
(f) fails to prosecute the proceeding with due diligence.
560 The jurisdiction to make an order under O 35A r 3 is enlivened by the respondents establishing any one or more of the sub-paragraphs of O 35A r 2(1). On this application the respondents rely on paragraphs (a) and (f) of sub-rule 1 of O 35A r 2.
561 Insofar as the claim is based on a failure to comply with paragraph (a) the jurisdiction is not exercised in every case where a respondent is able to establish a failure to comply with an order of the Court.
562 It is not possible to lay down a universal test for the exercise of the jurisdiction under O 35A r 3 when the respondent relies upon O 35A r 2(1)(a) but an ordinarily a respondent would have to establish a serious breach or a number of breaches which are of a kind that should lead to the result that the applicant should not be entitled to prosecute the proceeding in the Court. That result would again ordinarily only come about if the Court were of the opinion that the applicant’s failure to comply with an order or orders of the Court meant that it was in the interests of justice that the applicant not be permitted to prosecute the proceeding.
563 Usually a respondent would have to not only establish the failure to comply with an order or orders but some sort of prejudice occasioned to the respondent by reason of the failure. If for example, a respondent was able to show that the failure meant that any trial could not be fair then ordinarily the respondent would have discharged the onus which the respondent undoubtedly bears on an application of this kind. The respondent might also be able to satisfy the Court that an order should be made if by reason of the applicant’s failure to comply with an order or orders of the Court the respondent has been put to very great expense which is irrecoverable. A respondent might discharge the onus is if the respondent could show that paragraph (1) (a) of O 35A r 2 has been enlivened and that it is unlikely, in the sense of being more probable than not, that the applicant will be able to prosecute the proceeding to a conclusion.
564 In this case, the respondents rely on all of those matters for the orders sought.
565 The respondents also rely as I have said on paragraph (f) of O 35A r 2(1). An applicant has an obligation to prosecute the applicant’s proceeding diligently. An applicant who fails to comply with that obligation runs the risk of having the proceeding struck out or stayed especially where the failure to prosecute the proceeding has caused prejudice to any other party to the proceeding. The failure to prosecute a proceeding diligently amounts to an abuse of the Court’s processes against which the Court must guard.
566 A failure to prosecute a proceeding with due diligence means in my opinion a failure to prosecute the proceeding with appropriate expedition or as efficiently as possible.
567 All parties to a proceeding in this Court must conduct the proceeding as quickly, inexpensively and efficiently as possible: s 37N and s 37M of the Federal Court Act. The parties’ lawyers must assist the parties to comply with that duty: s 37N(2). The Court may adopt procedures to ensure that the overarching purpose of the Court processes defined in s 37M is met: s 37P. In particular, the Court may waive or vary any provision of the Rules of Court in their application to the proceeding: s 37P(3)(f).
568 Whether a party has prosecuted a proceeding diligently is a matter of judgement but it is a judgement that will not be arrived at lightly because a finding to that effect will deprive an applicant of the right to approach the Court to have the Court adjudicate on a dispute with the respondent to the proceeding.
569 In determining whether an order should be made for the failure to prosecute a proceeding with due diligence, the Court will have regard to the length of the delay, the reasons for the delay, whether the fault lies with the applicant or the applicant’s legal advisors, whether the delay has caused prejudice which is irremediable and whether if properly managed the proceeding could still proceed to trial which is fair and any other relevant circumstance.
570 At the time the respondents made this application the proceedings had been extant for six years and because of the applicant’s conduct could not go to trial in the foreseeable future even if the applicant were granted all the indulgences if sought. The proceedings have not been prosecuted quickly, inexpensively or efficiently. The applicant has failed to comply with the overarching purpose in s 37M of the Federal Court Act in so far as these proceedings have continued after Part VB of the Federal Court Act was enacted in 2009.
571 Although the pleadings had apparently closed on 4 December 2008, an application was made on 26 March 2010 to amend the statement of claim by deleting Schedule C. The application was opposed and by the time of the hearing of the respondents’ application the applicant had not made up its mind whether to proceed with the application or not. To that extent the pleadings remain unsettled. If the applicant were given leave to delete Schedule C, the respondents would undoubtedly seek further and better particulars.
572 An application for further and better particulars would be difficult to deny because without Schedule C it would be almost impossible to understand the products which the applicant claims were manufactured by the respondents in breach of the respondents’ obligations to the applicant. Therefore, if the applicant were given leave six years after the proceedings commenced, further delay would be experienced whilst the applicant provided sufficient particulars to give the respondents notice of the products to which its claim relates. If on the other hand the applicant were not to pursue its application, about which as I say it is quite undecided, the continuing difficulties with the applicant’s statement of claim would mean further delays.
573 The respondents claim, rightly in my opinion, that the applicant’s statement of claim remains hopelessly confused and poorly particularised. The addition of Schedule C to the FFASOC greatly expanded the case which was pleaded in the original statement of claim.
574 The original statement of claim filed on 18 June 2004 was a 23 page document with no attachments. There were then only two respondents CA and CIS.
575 In the first statement of claim, The Smart Integrated Systems Solution was pleaded as a technically sophisticated and superior expandable and flexible product for building systems automation, monitoring, scheduling and control which could respond to a number of existing electronic communications systems. The System was able to integrate the site’s control systems in order to control and monitor all electrical and electronic devices and their functions.
576 It was also pleaded that the applicant and CA entered into a Collaborative Agreement to make available all information required to develop an interface between Clipsal’s C-Bus System and the Smart Integrated Systems Solution. Those parties and HSP entered into a Heads of Agreement that provided for Clipsal to manufacture and market a range of Smart Products so that Smart could concentrate on its technology development while taking advantage of Clipsal’s ability to manufacture more cost effectively and to market and distribute at optimum levels. The HOA provided for redesign of Smart Products and the pooling of information for the purposes of redesign and improvement, reduction of manufacturing costs and implementation of measures designed to keep Smart Products as market leaders. It provided for the grant by the applicant to CA of various licences and rights of sub-licence, and the right to use the applicant’s intellectual property in relation to the Smart Products. It provided for the holding by CA of various source and object codes, and it provided for various marketing and manufacture licences and agreements. It allowed for the provision of one full-time engineer.
577 In the original pleading, Smart products were those which fell within two definitions in the HOA. “Smart Software” meant all existing and future firmware, software, computer programs and associated technology in any form or medium developed by or on behalf of Smart, and any rights to software items acquired by the applicant. It included all future modifications or developments or replacements of the Smart Software. “Smart Hardware” meant the items listed in schedule 1 of the HOA and all future hardware items developed by or on behalf of Smart, or any rights to hardware items.
578 Smart Knowledge was all of the applicant’s knowledge, information, know-how and intellectual property in relation to the Smart Integrated Systems Solution and all of the Smart Products.
579 Five separate causes of action were pleaded.
580 First, a breach of the HOA for failure by CA to pay licence fees on sales of Smart Products by CA, or in the alternative for failure to achieve sales of Smart Products required in the terms of the HOA. The applicant sought the payment of the licence fees. Secondly, a further breach of the terms of the HOA for failure by CA to use all reasonable endeavours to maximise the market share of Smart Products and to ensure that Smart Products remained as technological and market leaders: Further or in the alternative, a breach by CA of an implied term of the HOA by using the Smart Knowledge and Source Material for purposes other than the development of Smart Products. Thirdly, breach of confidence in contract and in equity. The applicant alleged that CA agreed to keep both the Smart Knowledge and Source Material confidential and owed Smart a duty so to do. Fourthly, a breach of the fiduciary duty by which the Clipsal Group owed the applicant not to prefer its interests to the applicant’s interests. Fifthly, a breach of s 52 of the Trade Practices Act.
581 The damages sought by the applicant for the second to fifth causes of action were the same. In relation to the failure to maintain the applicant’s position as a market leader, the applicant sought loss and damage for the deprivation of its ability to earn future revenue in the amount of at least A$1,514,633,405.39. In relation to CA’s use of Smart Knowledge to develop products other than Smart Products, Smart sought an account of profits in accordance with a formula set out in the HOA, totalling $569,299,344.91.
582 That pleading might be contrasted with the complexity of the FFASOC which is not only poorly particularised in relation to the causes of action but is hopelessly under particularised in relation to the applicant’s claim for damages.
583 After Mr McNamara commenced acting for the applicant the applicant has pursued a claim to be entitled to damages based upon the sale of Clipsal’s EWDIS business to Schneider together with some consequential damages in relation to further transactions entered into by Schneider after that time. There is no evidence before the Court that those transactions which the applicant relies upon for proof of its damages have any relevance whatsoever to the causes of action pleaded in the FFASOC.
584 There is evidence to the contrary, albeit hearsay evidence contained in the affidavit of Ms Thanissorn of 20 May 2010. In that affidavit Ms Thanissorn referred to the information which she had received from the Commercial Financial Controller at Clipsal (Mr Freeman) that the products the subject of the applicant’s claim comprised less than 5% of the business referred to as EWDIS.
585 The respondents have consistently maintained that the transactions upon which the applicant would wish to rest its claim for damages have no relevance to these proceedings. The applicant has never attempted to identify the relevance but only to assert it.
586 More particularly however, the claim for damages bears no relationship to the claims for damages in the FFASOC. The claims for damages are identified earlier in these reasons and it can be seen that none of them rest upon the sale of the EWDIS business and the further Schneider transactions.
587 The applicant continues to maintain that it is entitled to prove its damages by reference to facts and circumstances not pleaded. After six years the applicant’s statement of claim is still so deficient, both in respect to its causes of action and in that respect by identification of the particular products, and in relation to damages, that any trial would be likely to be unmanageable.
588 The respondents are not to be criticised for failing to seek further and better particulars of the applicant’s claims. The respondents made a calculated decision to defend the proceedings on the contents of the FFASOC. That decision was in my opinion not unreasonable having regard to the number of versions and the time it had taken the applicant to gel the FFASOC in order. The respondents have consistently tried to get these proceedings to trial. They have cooperated fully in meeting all timetables. They could well have thought further and better particulars would only come at too high a price.
589 The applicant refused to co-operate in relation to a regime whereby the respondents would not be put to inordinate expense.
590 On 8 April 2009 the applicant was ordered to provide the assumptions which it would want its expert on liability to make within 28 days. The purpose of that order was to identify more precisely the products which were the subject of the applicant’s claim and thereby provide a structure for discovery which the pleadings were unable to do.
591 The applicant did not comply with that order but sought an extension, which was granted but not complied with until shortly after the date for compliance had passed.
592 Shortly after the order was made the parties were advised that the trial would commence on 31 May 2010, a year away. If the applicant had proceeded diligently and in conformity with the Court’s orders that date would have allowed the parties to be ready for trial in good time.
593 Instead, the applicant made one of its frequent changes of solicitors on 3 August 2009 with the result that the proceedings did not progress at all between 3 August and 9 November 2009. Three months of the period allowed for the parties to be ready for trial were lost because of the applicant’s inaction. The applicant was only provoked into action by the respondents’ application to dismiss the proceedings.
594 On 9 November 2009 I made a suite of orders for all relevant interlocutory processes to take the proceedings to trial. Because the applicant had been unrepresented during the preceding three months that was the first available opportunity to make those orders.
595 Paragraph 2 of those orders required the applicant to present its expert reports on liability by 4 December 2009. The expert then retained was Mr Seeger-Snowden who had been retained in July and who, on the applicant’s evidence, had been working on the report since he was first retained. The date for compliance was more than two months after the applicant had been required to provide their assumptions to the expert.
596 Mr McNamara who was then acting for the applicant contacted Mr Seeger-Snowden on 12 November 2009 and advised him that his report had to be filed by 4 December 2009. On that day Mr McNamara was told that Mr Seeger-Snowden could not comply with the order but might be able to provide the report by the end of December 2009.
597 It is clear from both Mr McNamara’s affidavit of 8 December 2009 and Ms Tomazos’ affidavit of 18 December 2009 that they both knew as early as 12 November 2009 that Mr Seeger-Snowden’s report could not be provided within the time required in paragraph 2 of the 9 November orders. Moreover it is clear from Mr McNamara’s affidavit that on 14 November 2009 he knew that Mr Seeger-Snowden could not provide the report by the end of December and not before 12 February 2010. On 23 November 2009 Mr Seeger-Snowden signed a document which was in affidavit form in which he said that the report could not be available until the end of February 2010.
598 Notwithstanding the applicant was aware that the order could not be complied with no notification was given to the respondents before 2 December 2010 and no application was made before the time for provision of the report expired for an extension of time in which to provide the report. No satisfactory explanation has ever been given for the applicant and its lawyers’ failure to advise the respondents and the Court on 12 or 14 November 2009 or shortly thereafter that Mr Seeger-Snowden could not deliver his report until mid February 2010.
599 The information which the applicant had on 14 November 2009 meant that the applicant must have known that the trial could not commence on 31 May 2010. The Court and the respondents should have been advised immediately.
600 In the end result because the Court had no alternative, except than to dismiss the proceedings, the time within which the applicant had to comply with the provision of the expert report on liability was extended until 1 March 2010.
601 Because of the time which had been lost between August and November 2009 and by reason of the failure to provide Mr Seeger-Snowden’s report on 4 December 2009 the applicant was also ordered on 23 December 2009 to provide all of its expert reports by 1 March 2010.
602 In the orders of 9 November 2009 the applicant had been required to provide the expert report which contained the assumptions by 4 December 2009 and any other expert evidence by 12 February 2010: paragraphs 2 and 8 of the orders of 9 November 2009.
603 The effect of the orders made on 23 December 2010 was to give the applicant an extension of time not only in respect of the report which was to contain the assumptions on liability but also the other expert reports including any expert report on damages.
604 Contrary to the submissions made by Mrs Shaw the applicant was thereby granted two indulgences. The expert evidence apart from evidence on liability was not in any way dependant upon the expert report based upon the assumptions and so effectively the applicant was granted an indulgence in respect of the expert report on damages.
605 Contrary to Mr McNamara’s assertions, the applicant could not reasonably have believed that the applicant had any entitlement to present by way of its case-in-chief any expert reports which were not delivered by 1 March 2010. The orders of 9 November 2009 and 23 December 2009 are unambiguous and required in the end result all of the applicant’s expert reports to be filed and served by 1 March 2010.
606 The suggestion in the minutes of order in the email sent by Mr McNamara on 3 March 2010 that the applicant could provide an expert report from Mr David Richards nearly four weeks after 3 March 2010 is an unreasonable understanding of the orders made and can not be accepted. The application to provide such a report was never pursued.
607 The applicant complied with the orders of 23 December 2009 in relation to expert reports, and served their experts reports by 1 March 2010, though the expert report of Mr Reid was not filed until 11 March 2010.
608 However, its failure to comply with paragraph 2 of the 9 November 2009 orders meant that the trial had to be adjourned and on 29 January 2010 the commencement of the trial was adjourned until 19 July 2010 to allow for the extended timetable. That adjournment was solely as a result of the applicant’s failure to comply with the Court’s orders.
609 On receipt of the applicant’s expert reports the respondents made it clear that they believed the reports were inadmissible in that they did not comply with s 79 of the Evidence Act. Nor did they comply with the Federal Court Practice Note in that they did not indicate the assumptions on which the opinions were based or the reasons for the opinions.
610 The respondents had either the choice of obtaining admissible expert reports or seeking a ruling as to the admissibility of the applicant’s expert reports. They chose the latter procedure no doubt for the reasons they expressed that the costs of expert reports would be very great and the respondents should not be put to those costs if the applicant’s reports were not admissible.
611 The ruling on admissibility could not be given in a vacuum because to do so might disadvantage the applicant. A ruling on admissibility is not in my opinion an order from which leave to appeal might be sought but simply part of a trial process.
612 If the Court were to make the ruling without the trial commencing the applicant would be left with no redress either at that time or later. It would not be an order from which leave to appeal could be sought and it would not be a ruling in the trial which could be complained of after the trial had completed.
613 For that reason the trial was called on but only as a formality for the purpose of making a ruling within the trial to protect both parties in the conduct of the trial and to protect the unsuccessful party who would wish to complain about the ruling after the trial. The hearing was a voir dire hearing to determine the admissibility of critical evidence in the trial.
614 Contrary to the submissions made by Mr McNamara and Mrs Shaw, the procedure did not disadvantage the applicant in any way. What it told the applicant was that it could not reply on the existing expert evidence in the trial so in that regard it had advance notice of the ruling when the trial proper commenced on 19 July 2010.
615 If the proceedings had simply been allowed to go to trial on 19 July 2010 with all the attendant costs upon the applicant and the respondents the applicant would have been told in the first few days of the trial that the tender of the reports was rejected. The applicant’s case would have immediately collapsed. The procedure which was adopted gave the applicant the chance to obtain admissible expert evidence in advance of the commencement of the trial proper. It also saved the respondents from retaining experts to address reports which were not admissible.
616 At the conclusion of the hearing on 26 March 2010 the applicant was told that the Court would consider any application for the filing of alternative expert reports if such reports were first provided to the respondents and the Court. The applicant has been aware since the ruling that Court would not make an order for the filing and serving of any alternative expert reports which might have required the respondents to respond, without first seeing the reports and being satisfied that they were admissible. As it happens the applicant has not been able to obtain any further expert reports notwithstanding that from time to time the respondents and the Court have been told that experts are available to write reports. The failure to obtain those reports lies at the feet of the applicant. There has been nothing to prevent the applicant obtaining those reports except the applicant’s own inaction.
617 Because the applicant has no experts reports it cannot successfully prosecute these proceedings. There is no argument but that it needs experts to give opinions on liability and damages.
618 Paragraph 7 of the orders of 9 November 2009 required the applicant to file and serve a list of witnesses to be called at trial and an outline of the evidence of each witness upon which the applicant proposed to rely at trial by 12 February 2010.
619 The applicant did not comply with that order and on 15 February 2010 the respondents wrote complaining. Mr McNamara’s response that he thought that the orders made on 23 December 2009 extended the time in which the applicant had to comply with paragraph 7 of the 9 November 2009 to 1 March 2010 orders is unreasonable. The 23 December 2009 orders did not address paragraph 7 and so he could not reasonably have been of that opinion. It is quite unreasonable having regard to Mr McNamara’s statement on 21 December 2009 to the Court that the applicant was in a position to provide the witness statements by 12 February 2010.
620 But in any event his suggestion in his letter of 16 February 2010 that “we are aiming to deliver it to you sometime toward the end of next week” is inconsistent with such an understanding.
621 The applicant failed to comply with paragraph 7 of the 9 November 2009 orders and remained non-compliant at the time the applicant was wound up and has remained non-compliant ever since.
622 On 22 February 2010 the applicant purportedly served a list of witness which the applicant said contained an outline of their evidence. That list and outline of their evidence is at [231] above. On no understanding of the Court’s orders did that list contain an outline of the evidence which paragraph 7 of the orders of 9 November 2009 required. To merely indicate the paragraphs of the FFASOC the lay witnesses’ evidence would address is not an outline of the witnesses’ evidence. But “the outline” did not even do that. It said “the witnesses may give evidence … but not limited to the paragraphs”. The document provided the respondents with no information except the names and occupations of the witnesses. The “outline” did not amount to an attempt to comply with the Court’s orders.
623 Mr McNamara was advised as much by the Court on 4 March 2010 when Mr McNamara said that the applicant would be able to provide witness statements within 21 days.
624 An order was made that day that the applicant provide the witness statements which would form the evidence-in-chief of the witnesses at trial within the 21 days which Mr McNamara sought. That order was another instance of the order being forced upon the Court. As on that date the respondents had no idea what evidence the witnesses would give. The respondents could not complete their witness statements in advance of the applicant’s witness statements. The trial was due to commence on 19 July 2010.
625 The applicant did not comply with that order.
626 On Friday 26 March 2010 the applicant sought an extension until 31 March 2010 because as Mr McNamara said “they were going to be ready today but I have been in Court all day and all of pretty much yesterday, I would ask for an extension until Wednesday to get the witness statements in because I do need to read them.” No order was made but contrary to Mr McNamara’s later evidence, he could not reasonably have understood that he was entitled to deliver the statements when it suited him or the applicant. Mrs Shaw rather suggested in her submissions on 29 April 2010 that Mr McNamara thought he was entitled to deliver the statements when I returned from leave six weeks later. That is not a reasonable understanding of what Mr Doyle said on 26 March 2010 or my statement to Mr McNamara.
627 No order was made extending time but the exchange to which reference is made at [285] and [286] above could have left no misunderstanding in the applicant’s or Mr McNamara’s mind that if the applicant complied with Mr McNamara’s statement an order would be made nunc pro tunc. It would appear from Mr McNamara’s later affidavit of 27 April 2010 that to this point in time he had not read the witness statements critically, although he had said that he had been informed at the time of his appointment as the applicant’s solicitor that counsel had settled the major witness statements. The witness statements had not been filed or served when the respondents made this application. In those circumstances when this application was made the applicant had no evidence at all to present at trial.
628 The respondents’ application was heard urgently even though I was on leave at the time because it appeared that there was little prospect of the matter going to trial on 19 July 2010 in view of the state of preparedness of the applicant’s case. The respondents were entitled to know three months before the trial whether a trial which would take three months would start. The respondents also had an obligation to provide their witness statements and they were entitled to know whether they had to meet their own timetable. Moreover the Court was entitled to know whether the three months it had set aside to hear these proceedings would be used for that purpose or whether the Court might be left in circumstances that due to the shortness of time no other proceedings could be listed.
629 Notwithstanding that Mrs Shaw had been briefed a week before the proposed hearing on 29 April 2010 and had worked on her brief for that week, she said she was not able to argue the matter even with the assistance of Mr McNamara who was in Court. Mrs Shaw requested that the application be adjourned to 12 May 2010 so that Mr Blue could argue the matter. Due to other commitments the Court and the respondents were not available until 27 May 2010. That meant another month was lost.
630 When the matter came on on 27 May 2010 although Mr Blue was present he did not argue the matter and Mrs Shaw advanced the applicant’s arguments.
631 It is clear from what Mrs Shaw said at the hearing that no counsel had then been retained for a trial which was then due to commence on 19 July 2011. Mr Blue had indicated many months before that he was available. The failure to have retained counsel at that time was consistent with the applicant having no intention of going to trial at that time.
632 On 29 April 2010 the applicant attempted to lodge five witness statements with the Court but they were refused. They were not served on the respondents’ solicitors.
633 Mrs Shaw said that when Mr McNamara said on 26 March that the witness statements could be filed within five days he did not appreciate the enormity of the task of cross-referencing them to discovery or issues of admissibility. Whilst that might be so the fact is that the applicant did not seek an extension of time in which to comply with the orders of 4 March 2010 and the applicant remained in default.
634 At the hearing on 27 May 2010 the applicant said that the witness statements were ready for filing and service.
635 The question of discovery has never been properly addressed by the applicant and discovery on the applicant’s contentions remains unresolved.
636 In Mr McNamara’s affidavit of 8 December 2009 he identified in paragraph 18 the documents the applicant required. The applicant had been on notice since 4 December 2008 that the respondents objected to making discovery of many of those documents mainly on the ground of relevance.
637 Notwithstanding that the applicant says that the documents are necessary for the purpose of the applicant’s case the applicant has done little or nothing to obtain any orders for the discovery of the documents.
638 At the hearing of 14 December 2009 Mr McNamara was asked directly what orders he wanted in addition to the extension of time for the provision of the expert report, and he said none. Later at the same hearing he said that the expert could provide the report without the documents. He was directly asked whether he wanted any orders for discovery and he said no.
639 At the hearing of 21 December 2009 he said that the applicant did not require any further documents from the respondents apart from those contained in paragraph 18…and he again referred to the reports relating to the EWDIS sale which the respondents had said more than 12 months before were not relevant. Later he said, referring again to paragraph 18 “we think we’re on the sort of periphery of what’s required so we’re happy to proceed and give discovery pursuant to the agreed categories”: see [212] and [213].
640 The orders that were made on 23 December 2009 were that the applicant make discovery in accordance with the agreed categories by Friday 22 January 2010 and that the respondents make their discovery in accordance with the agreed categories except for the document identified in paragraph 6 of those orders.
641 There was no suggestion by Mr McNamara that those orders would not provide appropriate discovery to his client or that the orders would in any way impede upon the provision of the expert reports which by virtue of the same orders were due on 1 March 2010.
642 Both parties complied with their discovery obligations. Later Mr McNamara in his affidavit of 13 May 2010 said that his reference to periphery could not reasonably be interpreted as meaning that the documents were peripheral to the exercise of discovery or preparation of the experts’ evidence, rather that we “were only at the edge of what would ultimately be required.”
643 I reject Mr McNamara’s ex post facto rationalisation of what passed at the hearings on 14 and 21 December 2009 because it is inconsistent with what he said at those two hearings; inconsistent with his acquiescence in the orders of 23 December 2009; inconsistent with the provision of the expert reports on 1 March 2010; and inconsistent with the applicant’s failure to press any claim for discovery. It is also inconsistent with the orders sought by the applicant in its notice of motion of 28 April 2010 for an extension of time to file its witness statements until after discovery was made, and the subsequent statement by Mrs Shaw on 29 April 2010 and 27 May 2010 that the witness statements were ready for filing.
644 The applicant would have the Court believe now that it has been seriously disadvantaged in not obtaining the appropriate orders for discovery. That contention must be rejected having regard to the history mentioned above.
645 The end result of the matters to which I have referred means that after six years the pleadings are not settled, the applicant requires further discovery, the applicant cannot file any expert reports until such time as further discovery is made and the applicant had not filed its witness statements. Moreover the applicant has not complied with paragraph 11 of the orders of 9 November 2009.
646 In those circumstances it would appear on the applicant’s contentions that these proceedings are no further advanced than they were perhaps four years before this application was made.
647 The respondents’ application has to be considered in view of the further following circumstances.
648 The conduct of Ms Tomazos since 6 April 2010 has been extraordinary. As a Director of the company she executed a deed whereby the company purportedly transferred to her its most significant asset at a time when she said in her affidavits filed in this Court and shortly after filing an affidavit in the Supreme Court on 26 March 2010 that the company was solvent. There is also Mr McNamara’s evidence in his affidavit of 24 May 2010 that he was told by Ms Tomazos that the applicant was solvent. It was wound up in insolvency in the same week as that assertion.
649 Ms Tomazos has not been heard in relation to these matters and so caution should be exercised in relation to any findings. But it is difficult to understand how the assignment of the chose-in-action of 6 April 2010 could have been in the best interests of the applicant.
650 The two further deeds which she executed appear to be as a result of the conflict in which she was placed by reason of the execution of the first deed.
651 Again a judgement should not be made in the absence of Ms Tomazos being heard but it’s not unreasonable to infer that the transactions were designed to avoid these proceedings becoming subject to the winding up order of the Supreme Court.
652 Mrs Shaw has claimed that she still had further submissions to make when the Court adjourned on 27 May 2010. She has not been able to identify those submissions and after a number of months of waiting for her to do so, the submissions were never put.
653 The applicant is insolvent and hopelessly so. Its liabilities exceed its assets by about $10,500,000. It is under the administration of liquidators who are receiving no cooperation from the applicant’s former directors or indeed the applicant’s former solicitors or former counsel. The liquidators have substantial difficulty in obtaining access to the company’s books and records and have needed to call upon ASIC to assist in that regard. In the end they have obtained a Court order which has allowed them access to archived books and records.
654 The order for costs which was made on 4 June 2010 to compensate the respondents for the costs thrown away by reason of the adjournment of the trial. The trial was adjourned twice because of the applicant’s failure to comply with the Court’s orders. There is no prospect of the applicant meeting these costs. Nor is there any prospect of the applicant meeting the numerous orders for costs made prior to that order and identified at [514].
655 It is reasonable to infer that because the liquidators have not said otherwise since filing the affidavits of 2 August 2010 and making their submissions that day that they do not have litigation funding. That inference arises because the liquidators have advised of other relevant circumstances since that time. Having regard to the history of this matter, the conduct of at least one of the applicant’s directors, the previous history of litigation funding which terminated and the applicant’s existing exposure to costs, it would be most unlikely that the applicant could obtain such funding.
656 If the applicant were allowed to prosecute the proceedings by the liquidators, the respondents would inevitably seek a further order for security for costs which could not be met and would probably lead to a stay.
657 If the proceedings were not to be dismissed or stayed, then it is likely that a new regime would have to be put in place in relation to pleadings, discovery and expert evidence before any trial could be resumed. It is likely that that would take many months and perhaps years and mean that the trial could not occur until possibly some time in 2013.
658 The respondents have not been guilty of any delay whatsoever in the proceedings. Whatever delay occurred prior to the submissions being made was the fault of the applicant. The applicant has consistently failed to comply with directions and orders of the Court.
659 A number of the excuses and explanations have been put forward especially after Mr McNamara became the applicant’s solicitor. He has claimed on oath that he has misunderstood a number of the orders that were made by the Court, especially in relation to the provision of witness statements.
660 For the reasons already given, I do not accept that a solicitor could reasonably misunderstand the orders which were made and the effect of those orders in relation to the provisions of witness statements. I reject his excuses and explanations especially in circumstances where, when the orders were made, he said that the witness statements could be available by 12 February 2010.
661 The applicant claimed that Mrs Shaw had further submissions she wished to make after she apparently concluded her submissions in relation to the application to dismiss the proceedings on 27 May 2010.
662 Since that time considerable effort has been made by the liquidators and the liquidators’ solicitors to identify those issues and to have Mrs Shaw argue them. They have not been successful in that regard and the result is most unsatisfactory.
663 The respondents have as Ms Thanissorn’s affidavit of 20 May 2010 shows expended more than $3 million on the defence to this claim by 20 May 2010. Clearly they would have expended a significant sum of money after that time. She also said that she estimated the costs of trial at $900,000.
664 Of course, as Ms Thanissorn herself admits, not all of those costs would be recoverable on a party and party basis, but that is not so much to the point in my opinion. The fact is that the respondents have been put to very great expense and would, if these proceedings were allowed to continue, to be put to very great future expense in defending these proceedings. A good deal of the expense to which they have been put has been the fault of the applicant.
665 The trial has had to be adjourned on two occasions because of the applicant’s default. On the second occasion on 4 June 2010 I ordered the applicant to pay the respondents’ costs thrown away fixed at $200,000 and made the order that the costs be payable forthwith. Those costs have not been met.
666 When the applicant got itself in a position where it could not comply with directions which had been made to which no objection was taken, the applicant complained about the regime which was put in place in relation to the provision by the applicant of its expert report on liability and generally the management of the proceedings.
667 If the applicant objected to any of the directions which had been given at any time the applicant could have sought leave to appeal. If the regime caused the injustice which the applicant now claims, it is surprising that the applicant did not seek leave.
668 Therefore the respondents’ application has to be considered in circumstances where the applicant is in liquidation, hopelessly insolvent, unfunded and under-resourced and unable to comply with the Court’s directions.
669 In my opinion, the respondents have made out a case under both paragraphs (a) and (f) of Order 35A r 2(1) and they are entitled to an order under Order 35A r 3. In respect of Order 35A r 2(1)(a) the respondents have established that the applicant has failed to comply with orders made on 9 November 2009, 23 December 2009 and 4 March 2010. In respect of Order 35A r 2(1)(f) the respondents have established that the applicant has failed to prosecute the proceedings with due diligence.
670 The respondents have established that the probabilities are that if allowed the applicant could not prosecute the proceedings to conclusion. The respondents have satisfied the Court that they have suffered prejudice which cannot be compensated for in costs.
671 The liquidators argue that the proceedings should be stayed rather than dismissed, until further order so that the liquidators might consider whether they should adopt the proceedings. They need however to make further enquiries before they make that decision and need to secure funding. The applicant’s defaults to which I have referred are now so egregious that a stay would not be an appropriate remedy especially in circumstances when there is no evidence as to when the liquidators might be in a position to consider adopting the proceedings. The liquidators have not proffered any regime whereby the respondents might be paid the $200,000 costs order thrown away by reason of the adjournment of the trial on 19 July 2010 or the other costs orders or how the liquidator might address any application for security for costs. The order sought by the liquidators is for a stay until further order. The respondents would be left in a position that they would not know whether the liquidators intended to adopt and prosecute the proceedings.
672 The applicant has had its chance to invoke the Court’s jurisdiction and has squandered that chance. The respondents should not be put to the continuing expense which would be occasioned by a stay. Nor should the respondents have to remain under the commercial uncertainty which would be associated with a stay. The liquidator’s submission that the Court order a stay and not dismiss the proceedings is rejected. In doing so I have received the affidavits of 2 August 2010 relied upon by the liquidators and given consideration to the submissions proffered.
673 There is no need to make any orders on that notice of motion because it only sought leave to reopen to put the submission which has been allowed.
674 In view of my conclusion that the respondents are entitled to relief under O 35A r 3 it is unnecessary to decide whether the respondents would for the same reasons be entitled to an order under s 31A of the Federal Court Act.
675 In all those circumstances it would be appropriate to dismiss the proceedings and there will be an order accordingly. The applicant must pay the respondents costs of the proceedings.
676 An order dismissing the applicant’s proceedings does not impact upon the respondents’ cross claim which subject to leave being granted the respondents would be entitled to pursue: s 471B of the Corporations Act. However, I offer no opinion in advance of any application being made whether this would be an appropriate case for leave.
677 After the time for appeal has expired or if an appeal has been brought and dismissed, I will order the respondents in their capacity as cross-claimants to either bring an application pursuant to s 471B of the Corporations Act or seek leave to discontinue.
678 I will also hear the respondents on any application for the payment out of the moneys paid into Court as security for costs.
I certify that the preceding six hundred and seventy-eight (678) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander. |
Associate:
