FEDERAL COURT OF AUSTRALIA

JFTA Pty Limited (In Liquidation) v John Holland Pty Limited [2014] FCA 760

THE COURT ORDERS THAT:

1.    The originating application be dismissed.

2.    The applicant pay the respondent’s costs of defending the originating application as agreed or taxed and also the costs of the interlocutory application, the latter in the sum of $1020.

3.    The cross-claim be dismissed with no order as to costs.

4.    The parties have liberty to apply within seven (7) days to vary order 3.

5.    The respondent notify the applicant through Jirsch Sutherland by 5 pm today of these orders.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    The applicant (JFTA) installs petrochemical facilities. The respondent (John Holland) was the head contractor at the RAAF airbase in Amberley in Queensland where large-scale infrastructure works for the Commonwealth were being carried out. John Holland sub-contracted with JFTA for the supply and installation of a new fuel hydrant line. JTFA began to install the pipeline progressively but problems developed. Ultimately, John Holland directed JFTA to remove and replace all the sections of the pipeline.

2    On 23 December 2010 JFTA filed an application in this Court seeking various forms of relief, including damages, based on allegations made in the accompanying statement of claim. Its primary contention was that John Holland had engaged in misleading or deceptive conduct contrary to the Trade Practices Act 1974 (Cth) and the sub-contract should be set aside. Alternatively, it made various claims under the terms of the sub-contract. On 21 April 2011 John Holland filed a defence and cross-claim. John Holland now seeks the summary dismissal of JFTA’s proceedings for want of prosecution.

3    The matter was before the Court for directions on several occasions in 2011 but nothing has happened since. Indeed, no substantive step in the proceedings has been taken since orders for mutual discovery were made on 26 September 2011. On 8 November 2011 JFTA was placed into voluntary administration and the discovery orders were vacated by consent. While the company was in administration the proceeding could not proceed without the administrator’s written consent or the leave of the Court: Corporations Act 2001 (Cth), s 440D.

4    On 20 February 2012 JFTA went into liquidation. Section 471B of the Corporations Act relevantly provides that, while a company is being wound up in insolvency by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with a proceeding in a court against the company. In this case that meant that the cross-claim could not proceed without the leave of the Court, although at the time the parties apparently believed the section operated to stay the entire proceedings.

5    John Holland relies upon an affidavit sworn on 10 July 2014 by Gerard Kodomichalos, its Executive Manager of Legal and Contract Infrastructure, which sets out the history of the proceedings.

6    The application invokes s 37P(6)(a) of the Federal Court of Australia Act 1976 (Cth) (“FCA Act”) and rr 5.22(d) and 5.23(1)(b)(i) of the Federal Court Rules 2011 (Cth).

7    Section 37P(6)(a) appears to be inapplicable. It allows the Court to dismiss a proceeding for want of prosecution where a party fails to comply with a direction. John Holland’s submissions, however, were directed to r 5.23.

8    Rule 5.23(1)(b)(i) provides that where an applicant is in default (defined in r 5.22(d) to include failing to prosecute a proceeding with due diligence), a respondent may apply to the Court for an order that the proceeding be stayed or dismissed in whole or in part immediately. The Court’s power to make such an order derives from s 23 of the FCA Act (the power to make such orders, including interlocutory orders, as it thinks appropriate in relation to matters within its jurisdiction) or r 1.32 to the same effect. The discretion to exercise the power is unlimited, save that the Court is enjoined by s 37M of the Act to do so in the way that best promotes the overarching purpose of the civil practice and procedure provisions of the Act and Rules, that is, the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. That includes the just determination of all proceedings before the Court, the efficient use of the judicial and administrative resources available for the purposes of the Court, the efficient disposal of the Court’s overall caseload, the disposal of all proceedings in a timely manner, and the resolution of disputes at a cost which is proportionate to the importance and complexity of the matters in dispute. For reasons to which I will come shortly, I am satisfied that JFTA has failed to prosecute its proceedings with due diligence and is therefore in default. The question, then, is how the discretion is to be exercised.

9    Before considering that question, however, a threshold question arises: that is, whether, having regard to the terms of s 471B of the Corporations Act, the application for summary dismissal can be brought without the leave of the Court.

10    In BPM Pty Ltd v HPM Pty Ltd (1996) 14 ACLC 857 at 859 Anderson J (Kennedy and Ipp JJ agreeing) expressed the opinion that an application for security for costs is not a proceeding in a court against a company within the meaning of s 471B. The section was concerned with proceedings brought against companies, not with procedural applications by defendants in actions begun by companies. His Honour continued:

If it was intended that the section should operate to cut down the defensive procedural measures that would otherwise be available to a defendant in an action brought by the company, thereby reducing the defendant's normal rights in the litigation whilst leaving the company's rights intact, much clearer language would have been used in the legislation.

11    In reliance on this decision, White J held in Dealquip Australia Pty Ltd v 33 Electra Pty Ltd (No. 2) (2013) 31 ACLC 13-049; [2013] NSWSC 1382 at [21] that an application for summary dismissal for want of prosecution was not a proceeding against a company within the meaning of the section and leave was not required. I respectfully agree.

12    I now turn to the substantive question. It is well-established that the power to order the summary dismissal of proceedings for want of prosecution is not to be exercised lightly: Van Reesma v Giameos (1979) 41 FLR 86 at 90; [1979] FCA 108 at [20]. Indeed, it has been described as a draconian: Hughes v Australian Competition and Consumer Commission [2004] FCA 1271 at [9]. That is as it should be. It is a serious matter to deprive a party of a hearing of its case on the merits.

13    In Dealquip, which was concerned with an application for summary dismissal of the respondent’s cross-claim, White J declined to order summary dismissal but acceded to the applicant’s alternative claim for security for costs. Here, however, I am persuaded that an order for summary dismissal should be made.

14    On 19 June 2014 Mr Kodomichalos wrote to TressCox Solicitors, who are the solicitors on the record for JFTA, foreshadowing this interlocutory application. As the letter sets out the factual basis for the relief sought, it is convenient to reproduce its substance in full:

I have recently reviewed John Holland's files with respect to the above proceedings. It is apparent that the applicant has not taken any steps in the proceedings since 8 November 2011, when the applicant entered voluntary administration and the proceedings were stayed under section 440D of the Corporations Act. By consent, the court ordered that previous orders be vacated and the matter be listed for directions on 14 February 2012.

On 21 November 2011, you advised John Holland that your client was considering whether or not the applicant should be subject of a Deed of Company Arrangement and that applications were being prepared to litigation funders for the continuation of the proceedings.

On 31 January 2012, John Holland through its lawyers, Thomson Geer, sought an update from you on the status of litigation funding. On 2 February 2014, you advised John Holland that it was premature for the administrators to respond to John Holland's enquiry.

On 8 February 2012, TressCox sought a further adjournment of the directions hearing to 13 March 2012 so that it could take place after the second creditors' meeting. John Holland consented to those orders.

On 20 February 2012, the applicant entered in to liquidation.

On 7 March 2012, you proposed on behalf of the applicant that orders be made by consent noting that the proceedings are stayed by operation of s471B of the Corporations Act and that the parties have liberty to apply within 7 days' notice, preserving the parties' right to either continue the proceedings or have them dismissed. John Holland provided such consent on 13 March 2012.

Application for dismissal of proceedings for want of prosecution

It has now been more than two years since John Holland has received any communication from the applicant, including any communication regarding these proceedings from the applicant's lawyers, administrators or liquidators.

It is reasonable to infer that the applicant has failed to procure litigation funding and does not intend to prosecute its claim and continue the proceedings.

Accordingly, John Holland intends to make an application that the proceedings be immediately dismissed under r5.23{1)(b)(i) on account of the applicant's failure to prosecute the proceeding with due diligence under r5.22(d).

Your client is invited to advise John Holland of:

(a)    its intentions with respect to the continuation of the proceedings; and

(b)    any grounds your client believes it has to resist the proposed dismissal application.

If John Holland does not receive a satisfactory response from your client by 4 July 2014, John Holland will proceed with its application and provide your client 7 days' notice of the hearing date.

15    Mr Kodomichalos deposes that by 8 July 2014 there had been no response to this letter. The next day he instructed a colleague, Antoine Smiley, to try to make contact with TressCox. Mr Smiley spoke to Matthew Butt of the firm who told him that the letter of 19 June 2014 had been immediately forwarded to Sule Arnautovic of Jirsch Sutherland, an appointee of the liquidator, Roderick Mackay Sutherland. Mr Butt said he had no instructions to act, was not authorised to discuss the proceedings and suggested that John Holland contact the liquidators directly through its representative, Liam Bellamy. Mr Smiley telephoned Mr Bellamy, who told him to speak to George Simos of Jirsch Sutherland but it appears that Mr Smiley was unable to do so and left a voicemail message asking him to return his call so that they could discuss the proceedings. It does not appear that the call was returned.

16    Mr Kodomichalos then emailed Messrs Simos and Bellamy. He informed them that he had not received a response to his letter to TressCox, which he was told had been forwarded immediately to the firm, and his attempts to make contact by phone were unsuccessful. Accordingly, he advised that he would file an application for dismissal of the proceedings and indicated that if consent was forthcoming, no order for costs would be sought. Two days later, Mr Kodomichalos did just that.

17    It seems tolerably clear that the liquidator has no interest in pursuing the proceedings. He has had ample opportunity to provide any reason why the matter should remain on foot and has responded with silence. The inference Mr Kodomichalos invited in his letter of 24 June 2014, namely that JFTA had failed to obtain litigation funding and did not intend to prosecute its claim is, indeed, a reasonable one. When the interlocutory application was duly made on 11 July 2014, I made orders listing it for hearing today and for JFTA to file and serve any evidence and submissions. No evidence or submissions were filed and JFTA elected not to appear. I was informed that JFTA neither consents to, nor opposes, the orders sought.

18    As long as the present state of affairs continues, John Holland has a potential liability. While the remedy it seeks is a drastic one, after nearly three years of inactivity, and where JFTA has shown by its conduct that it has no intention of reviving the litigation, John Holland should be able to free itself from that potential liability.

19    In the circumstances of the present case, making an order for summary dismissal would best serve the overarching purpose of the civil practice and procedure provisions in the FCA Act and Rules. There is no injustice in disposing of a proceeding in this way when the applicant chooses not to litigate.

20    John Holland also seeks costs, both of its interlocutory application and of the proceeding generally. With respect to the interlocutory application, it seeks an order for fixed costs of $1020, being only the interlocutory application filing fee. With respect to the originating application filed by JFTA, it seeks costs fixed at $30,000, which I was informed represents approximately 60 per cent of its legal costs. John Holland submitted that those costs are set out in seven invoices from its solicitors and total $49,726.63, but there is no evidence before me to support that submission and, in the circumstances, I am not prepared to make an order in those terms.

21    That leaves the cross-claim.

22    I was advised that John Holland does not now wish to prosecute the cross-claim and intended, if successful on the interlocutory application, to apply for an order that it be dismissed with no order as to costs. Notice was not given to JFTA of this proposal. There is, however, no utility in running up unnecessary additional costs. It is inconceivable that JFTA would object to an order dismissing the cross-claim. I could make such an order and reserve the question of costs. Alternatively, I could make an order in the terms John Holland desires and give the parties liberty to apply to have the order varied.

23    It seems to me that in the interests of the efficient and inexpensive disposition of the proceedings, I ought to adopt the latter course. The orders of the Court will therefore be:

(1)    The originating application be dismissed.

(2)    The applicant pay the respondent’s costs of defending the originating application as agreed or taxed and also the costs of the interlocutory application, the latter in the sum of $1020.

(3)    The cross-claim be dismissed with no order as to costs.

(4)    The parties have liberty to apply within seven (7) days to vary order 3.

(5)    The respondent notify the applicant through Jirsch Sutherland by 5 pm today of these orders.

Associate:

Dated:    22 July 2014