FEDERAL COURT OF AUSTRALIA

Thunder Studios Inc (California) v Kazal (No 9) [2020] FCA 846

ORDERS

THE COURT ORDERS THAT:

1.    The respondents’ interlocutory application filed on 24 April 2020 be dismissed.

2.    The respondents pay the applicants’ costs of the interlocutory application and those costs be payable forthwith.

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

REASONS FOR JUDGMENT

REVISED FROM TRANSCRIPT

RARES J:

1    This interlocutory application of the respondents, Charif and Adam Kazal seeks, in the alternative, orders under r 30.11 of the Federal Court Rules 2011 that this proceeding (NSD850 of 2014, the Thunder proceeding), either be stayed pending the determination of two proceedings docketed to Perram J or alternatively, be transferred to his Honour’s docket. Those two proceedings are, first, one brought by KTC, a Cayman Islands company controlled by Charif and other members of his family or in which the Kazal family (collectively the Kazal parties) have an interest, against Rodric David, the second applicant in the Thunder proceeding and others (NSD555 of 2019, the KTC proceeding), Naveen David Singh and secondly, another proceeding brought by Re.Group Pty Limited and Mr Singh against Adam, Charif and Tawfik Elgazzar (NSD 2080 of 2016, the Re.Group proceeding).

2    Perram J has currently reserved his decision in the KTC proceeding on whether to strike out or allow to be pleaded, parts of a proposed amended statement of claim on issues against solicitors who acted for Mr David and his company, RAAL Limited, in 2010 in relation to a commercial transaction that spawned a farrago of litigation across the world between Mr David, Mr Singh and companies that they control, on the one hand, and members of the Kazal family and companies that they control, on the other. The issues concerning the solicitors are unrelated to the present question before me.

3    Subsequently to the events of 2010, Mr David incorporated his company, Thunder Studios Inc (California). He and Thunder have been embroiled in litigation with various members of the Kazal family and KTC in Australia, the Cayman Islands, the United Arab Emirates, the United States of America and possibly elsewhere since at least 2010.

The issues

4    The interlocutory application is based on the proposition that the issues raised in the Thunder proceeding may or will give rise to the possibility of inconsistent findings or judgments if Perram J decides the KTC or Re.Group proceedings differently to how the Thunder proceeding is decided. The Kazal parties argue that all three proceedings arise out of common transactions or a common substratum of facts and, therefore, constitute part of the one matter within the Constitutional concept of a “matter”: Re Wakim; ex parte McNally (1999) 198 CLR 511.

The Thunder proceeding

5    The Thunder proceeding commenced in August 2014. It is now ready for trial. The amended statement of claim in the Thunder proceeding relies on three causes of action, namely, misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law in Sch 2 of the Competition and Consumer Act 2010 (Cth), the tort of injurious falsehood and defamation based on a number of publications made, allegedly, by Charif and Adam.

6    In the Thunder proceeding, the statement of claim alleges that the matters complained of, relevantly, conveyed representations that were false or defamatory or were such as amounted to the tort of injurious falsehood on the basis that they conveyed that Thunder is controlled by Mr David and he:

    is a corporate criminal who had run away to California after being convicted of a breach of fiduciary duty;

    is a corporate thief;

    was convicted of breach of fiduciary duty as a result of not fulfilling his partnership obligations to the Kazal family;

    is so lacking in integrity that he paid a journalist to … publish deliberately invented lies in The Sydney Morning Herald about the Kazal family and their business dealings;

    paid [that] journalist … to smear the Kazal family in an attempt to cover up his own criminal theft; and

    [was a person with whom] anyone doing business … ran the risk of physical injury if they did not go along with him.

7    Although the representations pleaded in respect of other matters complained of differ in some respects, in substance, all conveyed the same substantive subject matter that will go to trial in this proceeding, as both sides acknowledged in the way they conducted the argument.

8    The statement of claim alleged that each imputation or representation was false and that, relevantly, for the two torts, the Kazal parties were actuated by malice in causing their publication. The particulars of falsity set out the following as facts that appear to be not in dispute, although, no doubt, there is a greater history behind those facts that is likely to be the subject of all three proceedings to differing degrees. The particulars of falsity allege that:

    Charif commenced criminal proceedings against Mr David in the United Arab Emirates alleging that Mr David had obtained money illegally from a Cayman Islands company, Emergent Capital Limited, and another company;

    the Abu Dhabi Court appointed a forensic auditing expert to review Charif’s allegations. It subsequently issued a judgment in favour of Mr David and acquitted him of all the charges finding them baseless;

    Charif appealed, but his appeal was dismissed and the acquittal was affirmed;

    Emergent was a joint venture vehicle in which KTC held a 50% interest;

    Charif and his brother, Tarek Kazal, claimed to be KTC’s sole shareholders;

    RAAL, of which Mr David was director and shareholder, held the other 50% interest in Emergent;

    Charif and Tarek had failed to honour an obligation in 2009 to provide half of Emergent’s capital needs with the result that Mr David had had to bear the whole burden of financing the joint venture business through RAAL;

    Mr David convened a board meeting of Emergent that diluted KTC’s interest in it from 50% to 0.01%;

    that action led to Charif and another brother, Karl Kazal causing KTC to begin proceedings in the Grand Court of the Cayman Islands;

    Charif alleged in the Grand Court that he had forged Karl’s signature on a KTC share transfer to avoid his brother honouring his commitment to contribute to the Emergent joint venture;

    on 23 November 2011 the Grand Court ordered that the register of Emergent be rectified to reflect a 50% shareholding of each RAAL and KTC; and

    Mr David was not charged with, nor found guilty, nor convicted, of breach of fiduciary duty or any other offence, whether in the Grand Court or elsewhere.

9    In the Cayman Island proceeding, Jones J found that Mr David, as a director of Emergent, had committed a breach of his fiduciary duty by using his power as a director to dilute KTC’s interest in, and part ownership of, Emergent. His Honour did not make any findings about corporate fraud or enter a conviction of any kind.

10    Adam never filed a defence to the statement of claim in the Thunder proceeding, but his brother, Charif, did. On 23 May 2017 Charif filed a cross-claim that alleged that Mr David had published matter on the internet that conveyed four allegedly defamatory imputations of a serious nature against Charif.

11    On 16 June 2017 Adam filed an application seeking leave to file a defence. At the time Adam was serving a sentence of imprisonment for contempt of court that I had imposed on him in February 2017 and which the Full Court substantially affirmed on 31 July 2017: Kazal v Thunder Studios Inc (California) (2017) 256 FCR 90. On 18 August 2017, I dismissed Adam’s application for leave to file a defence: Thunder Studios Inc (California) v Kazal (No 3) [2017] FCA 1170.

12    On 11 September 2017, Charif filed an amended cross-claim. Charif defaulted on three occasions to comply with orders that he give proper answers to interrogatories. On 7 September 2017, because of his default in complying with the second of those orders, I made a self-executing order that, if he defaulted again in answering the interrogatories, his defence would be struck out on 15 September 2017, which is what occurred.

13    Charif subsequently applied to have the self-executing order set aside, and I refused to do so on 8 December 2017: Thunder Studios Inc (California) v Kazal (No 5) [2017] FCA 1572. On 26 April 2018 Bromwich J refused Charif’s application for leave to appeal from that decision: Kazal v Thunder Studios Inc (California) [2018] FCA 593.

14    In those circumstances, the allegations in the statement of claim are undefended, and r 16.07(2) of the Federal Court Rules provides:

Allegations that are not specifically denied are taken to be admitted.

15    On 7 August 2018, I rejected an interlocutory application by Thunder and Mr David for a separate trial of the cross-claim and said in the course of doing so (Thunder Studios Inc (California) v Kazal (No 8) [2018] FCA 1995 at [6]):

The applicants’ claim is therefore one, effectively, requiring only proof of the publication of the matters complained of, their defamatory quality and evidence going to the damages to be assessed.

16    When that interlocutory application was heard, the Kazal parties were represented by their former lawyers who did not inform me that any issue arose about the KTC proceeding that Charif, among others, had caused KTC to commence just days before, on 25 July 2018, through their current solicitor Evan Stents, in the Supreme Court of New South Wales against, relevantly, Mr David.

The KTC proceeding

17    In the KTC proceeding KTC seeks final relief based on allegations that relevantly Mr David engaged in a dishonest breach of his fiduciary duties as a director of Emergent. That breach allegedly consisted of Mr David participating in a dishonest and fraudulent design to act contrary to the interests of KTC in exercising his director’s powers in the management of Emergent, in which Mr David, as well as KTC and the Kazal family, were also interested. In effect, the allegation was that Mr David breached his director’s fiduciary duties by bringing about an almost total dilution of KTC’s previous 50% shareholding to 0.1%. KTC claims that Mr David became a constructive trustee of his or RAAL’s shareholding and is liable for an account of profits and or equitable compensation or, alternatively, that KTC has an equitable lien over Mr Singh’s or Re.Group’s shareholding.

The Re.Group proceeding

18    On 18 March 2019 Kunc J decided to cross vest the KTC proceedings to this Court: KTC v David (No 1) [2019] NSWSC 281. His Honour found, after a two day hearing, that the main allegation in the Re.Group proceeding was that the Kazal parties had made false representations to the public about Re.Group’s principal, Mr Singh, arising from events that gave rise to the KTC proceeding. Kunc J found that all parties before him recognised that the claims and the proposed defence of Charif and Adam in the KTC proceeding would involve consideration of many of the same events as were in issue in the Re Group proceeding and that most, if not all, of the events that informed the KTC proceeding also had been considered in the Cayman Islands proceeding. His Honour said that “a multiplicity of proceedings traversing the same facts [was] undesirable, including the expense to the parties, the possibility of inconsistent findings and using up the valuable public resource of access to courts more than once”. He accordingly cross-vested the KTC proceeding so that it could be managed with the Re Group proceeding by Perram J, who has been case managing it ever since.

The Kazal parties’ submissions

19    The Kazal parties argued that the fundamental consideration in this application was whether there was a real risk of inconsistent findings being made on common disputed questions of fact if this proceeding were heard in isolation from the other two proceedings or before they were heard. I note that there is an obvious inconsistency in that argument with their application for a stay of the Thunder proceeding and the proposition that it should not be heard together with the others.

20    The Kazal parties relied on the reasons given by Maxwell P and Kaye JA in National Builders Group IP Holdings Pty Limited v ACN 092 675 164 Pty Limited (In Liq) [2015] VSCA 260 and, in particular, at [55]–[57]. Their Honours found that it would be “inimical to the proper and orderly administration of justice” for a corporate defendant, whose defence had been struck out, to have judgment entered against it while it was still possible for the remaining defendant, its corporator, who was entitled to defend in the same proceeding, to secure a finding that would conflict with the judgment against the company that the trial judge had entered when striking out its defence. Their Honours noted that that possibility existed because of alternate allegations as to who was the owner of copyright in some plans. The default judgment entered by the trial judge against the company necessarily would be inconsistent with a finding, if the personal defendant succeeded in his defence, that he, and not the plaintiff, owned the plans.

21    The Kazal parties argued that key witnesses in the Thunder proceeding would also be key witnesses in the other two proceedings, that there was a prospect of multiple appeals and substantial delays if the three proceedings were heard separately. They made that submission without any sense of irony or insight, despite the fact that their very application seeks to delay the hearing of the Thunder proceeding that is otherwise ready for hearing, once the current public health restrictions to deal with the COVID-19 pandemic are eased and in-person court hearings can occur once more.

22    The Kazal parties pointed to the fact that all parties to the three proceedings have common representation. They asserted that the Re.Group and KTC proceedings raised similar issues to the Thunder proceeding. They asserted that any prejudice to Thunder and Mr David was outweighed by the interests of justice in granting the orders that the Kazal parties now seek. They contended that, by reason of the decision of the Full Court in MY Distributors Pty Ltd v Omaq Pty Ltd (1992) 36 FCR 578 on the provisions of O. 11 r 13 of the Federal Court Rules 1979, the absence of a defence did not constitute an admission of the allegations made in a statement of claim or that, alternatively, I was not bound to act on any such deemed admissions in the absence of a defence.

23    They contended that even in the absence of any defence, it would still be incumbent upon Thunder and Mr David to satisfy the Court, on the balance of probabilities, that each of their respective causes of action was established and that they were entitled to the relief sought and that the common substratum of facts in each proceeding would be relevant to that exercise. They contended that any damages to which Mr David was entitled ought not be assessed in a “blinkered” manner, relying on what May LJ had said in Burstein v Times Newspapers Ltd [2001] 1 WLR 579 at 598–601.

24    I should note that the Kazal parties accepted, as part of their argument, that there would be inevitable delay and prejudice to Thunder and Mr David if the Thunder proceeding is stayed or transferred and its hearing delayed until it can be heard with or after Re.Group and KTC proceedings. But, they argued that, in some way, any such prejudice could be compensated potentially, if Mr David succeeded, by an award, or an increased, award of aggravated damages.

25    I attempted to explore with senior counsel for the Kazal parties how that could be if the Court’s decision to stay or transfer the Thunder proceeding was made on the basis of their submissions. It is difficult to conceive of a reasoning process as to how Mr David’s damages from the publication of a defamatory matter could be affected by the conduct of the Kazal parties in obtaining the order for stay or transfer that they seek, on the basis that their application could be said to be improper, unjustifiable or lacking in bona fides so as to entitle him to an award of aggravated damages: see Triggell v Pheeney (1951) 82 CLR 497 at 514 per Dixon, Williams, Webb and Kitto JJ. Senior counsel for the Kazal parties did not enlighten me further.

Consideration

26    In Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589, Gibbs CJ, Mason and Aickin JJ discussed consequences that could arise from the potential inconsistency of judgments in different actions, giving rise to what is now known as the principle of an Anshun estoppel. They said (147 CLR at 602–604):

we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. See the illustrations given in Cromwell v. County of Sac [(1876) 94 US [24 Law. Ed at 199]

It has generally been accepted that a party will be estopped from bringing an action which, if it succeeds, will result in a judgment which conflicts with an earlier judgment….

The likelihood that the omission to plead a defence will contribute to the existence of conflicting judgments is obviously an important factor to be taken into account in deciding whether the omission to plead can found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding. By "conflicting" judgments we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction.

(emphasis added)

27    The potential for there to be conflicting judgments is, as their Honours said, an important factor. However, in my opinion, in the present proceedings, there is no substantive risk of there being conflicting judgments. The findings that Thunder and Mr David seek to obtain in the Thunder proceeding relate to the existence of the pleaded defamatory meanings or representations conveyed by the publications complained of that are said to be false, and awards of damages as the relief for those claims.

28    The possible findings in the KTC or Re.Group proceedings which the Kazal parties argued could conflict with those meanings or representations could only be that Mr David was in breach of a fiduciary duty owed to Emergent, albeit that the breach was of his having knowingly assisted in a dishonest and fraudulent design: Barnes v Addy (1874) LR 9 Ch App 244.

29    In my opinion, none of the pleaded meanings or representations could conflict with a finding of a breach of fiduciary duty in the event that it is made in the KTC or Re.Group proceedings. That is because the meanings or representations in the Thunder proceeding do not allege that Mr David was in breach of his fiduciary duties.

30    Moreover, the situation in which Charif, Adam and the other Kazal parties find themselves in the Thunder proceeding, and the KTC proceeding, that Charif has caused to be initiated, is one entirely of their own making. Any difficulty caused by the existence of the KTC proceeding exists for reasons that are completely unexplained, other than through the failure by Charif, at least, to give instructions about the existence of the Thunder proceeding to their current solicitor, Mr Stents, at the time Charif caused the KTC proceedings to be commenced in the Supreme Court. Neither of Charif or Adam has a defence in the Thunder proceeding because of his failure to comply with the requirements of the Court’s Rules and its orders.

31    Crucially, the purpose of the power to strike out a defence, which I exercised, is contained in Pt VB of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) and, in particular, in s 37P(6)(b). That Part seeks to give effect to the overarching purpose of the civil practice and procedure provisions, namely to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible (s 37M). Thus, the Court’s power to strike out a defence is given statutory force as a means for it to achieve the overarching purpose.

32    I am of opinion that the decision in MY Distributors 36 FCR 578 does not govern the construction of r 16.07(2) in the present Rules. A number of judges have taken the view that the proper construction of rule 16.07(2) that I did in Kazal (No 8) [2018] FCA 1995 at [6] (see [15] above): see Sony Corporation v Costaneo [2012] FCA 153 at [15] per Yates J; Sampson v Taboada [2016] FCA 926 at [11] per Burley J; Michell, in the matter of Aizome1 Pty Ltd (in liq) v Millar [2019] FCA 2169 at [19] per O’Bryan J and Jiangyin Yinying Goods and Materials Trade Co Ltd v Australia Victoria Capital Pty Ltd [2012] FCA 274 at [12]. In Jiangyin [2012] FCA 274 at [12], Gray J (on whose reasons in MY Distributors 36 FCR at 588 the Kazal parties relied) said that where a respondent was in default of an order to file her defence, r 16.07(2) allowed “the applicant to rely on deemed admissions of all the facts pleaded in the statement of claim”.

33    In one sense, of course, Div 16 of the Rules contemplates that there will be a joinder of issue on pleadings and rr 16.32 and 16.33 provide for parties to file defences and any replies. Nonetheless, r 16.07(2) does not expressly require there to be a pleading in order for its deeming to operate. Rather, r 16.07(2) operates according to its terms. In its ordinary and natural meaning, the rule allows a party to choose not to deny any part of an applicant’s claim or to file a defence, and to enable the Court to act on the basis that matters are admitted if they are not denied.

34    In my opinion, having regard to the provisions of Pt VB, one purpose of the power to strike out a defence in aid of achieving the overarching objective is to enable a proceeding to be dealt with on the basis of the deemed admissions that r 16.07(2) brings into existence. That is because s 37M(3) provides that the civil practice and procedure provisions must be interpreted and applied, and any power conferred, or duty imposed, by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose, and those provisions include, relevantly, the Rules of Court.

35    Since MY Distributors 36 FCR 578 was decided, the Federal Court Act has been amended, in particular by the insertion of Pt VB and the conduct of litigation has changed significantly through the construction of analogous provisions in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Limited (2013) 250 CLR 303.

36    In any event, in the Thunder proceeding, it will still be a question for trial to determine whether or not the matters complained of conveyed the imputations or representations alleged (there can be no real dispute that they were published) and to assess whatever damages might be appropriate to award to Thunder and Mr David on the basis of the issues in that undefended proceeding.

37    One matter that I do take into account is the fact that, while both sets of parties in the Thunder proceeding have been responsible for the extraordinary delay in its being not ready for trial, most recently, the substantial reason for the delay has been the default by one or other or both Charif and Adam that I have had to deal with over the course of 2016, 2017 and 2018.

38    In my opinion, it would not be in the interests of justice to stay the Thunder proceeding pending the hearing of the other two. There is no real likelihood of the risk of conflicting judgments. While there may be a possibility that some finding or findings are made that could be inconvenient to one or other party in the other two proceedings before Perram J, in essence, the questions for trial here are whether what was published conveyed the meanings or representations complained of and, if they did, those meanings were false and caused damage. Those pleaded meanings or representations do not cover the same issues as in the KTC or Re.Group proceedings.

39    I cannot accept that Mr David’s damages could be open to be assessed on a false basis or that the proper grant of a stay or transfer causing delay could justify any aggravation of damages. Once a judge has been persuaded that an application for stay or transfer was properly made and ought to be acceded to, it is difficult to see why the conduct of the Kazal parties in bringing that about could ever be characterised as improper or unjustifiable or lacking in bona fides. As Dixon, William, Webb and Kitto JJ said in Triggell 82 CLR at 514:

It is no doubt true that the jury cannot take into consideration as a ground for giving or increasing damages, whether exemplary or compensatory, conduct of the ·defendant which was not merely bona fide but was justifiable or proper. A bona-fide defence raised properly or justifiably in the circumstances known to the defendant and evidence honestly given in support of such a defence doubtless cannot be used for such a purpose.

(emphasis added)

40    The situation that has come about is one entirely of the Kazal parties’ own making. As I have said, Charif chose not to inform their solicitor, Mr Stents, about the existence of either the Thunder proceeding or the Re.Group proceeding when he instructed Mr Stents to commence the KTC proceeding, even though Charif was a party to both those proceedings and Adam was party to the Re.Group ones. They have given no explanation for that conduct which, in my opinion, is a matter that weighs heavily against them.

Conclusion

41    The overarching purpose in Part VB of the Federal Court Act would not be achieved by staying or transferring the Thunder proceeding to the docket of Perram J to be dealt with together with the other two proceedings, one of which is still yet to advance beyond arguments about the pleading of the statement of claim, and the other is presumably being held in abeyance while that occurs.

42    For these reasons, I am of opinion that the interlocutory application should be dismissed with costs. Given the apparent impecuniosity of Charif and Adam, those costs should be payable forthwith.

Associate:

Dated:    16 June 2020