Cascade Group Limited v Carlton United Breweries Ltd (ACN 004 056 106)
[1992] FCA 148
•17 MARCH 1992
Re: CASCADE GROUP LIMITED and WILSON NEILL LIMITED
And: CARLTON AND UNITED BREWERIES LIMITED
No. N G604 of 1991
FED No. 148
Practice and Procedure
(1992) 14 ATPR 41-172
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Sheppard J.(1)
CATCHWORDS
Practice and Procedure - cross-vesting - application to transfer matter to Supreme Court of Victoria - action for breaches of Trade Practices Act 1974 and for breach of contract - proceeding instituted by respondent and other parties in Supreme Court of Victoria to recover damages from applicants and other parties for breaches of same contract - whether in the interests of justice that the matter be determined by the Supreme Court of Victoria.
Jurisdiction of Courts (Cross-vesting Act) 1987, s.5(4)
Jurisdiction of Courts (Miscellaneous Provisions) Act 1987, The Schedule Trade Practices Act 1974, ss. 52, 82 and 87
HEARING
SYDNEY
#DATE 17:3:1992
Counsel and Solicitors : Mr D.J. Hammerschlag
for the Applicants instructed by Cowley Hearne
Counsel and Solicitors : Mr N. Mukhtar
for the Respondent instructed by Corrs Chambers Westgarth
ORDER
1. The first paragraph of the respondent's Notice of Motion of 24 January 1992 be dismissed.
2. The matter stand over to 26 March 1992 at 9.30 a.m. for directions.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
By its notice of motion filed on 24 January last, the respondent in this matter seeks to have this proceeding transferred to the Supreme Court of Victoria, pursuant to subsec.5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987. Alternatively, it seeks an order, in the event that that application is not granted, under s.48 of the Federal Court of Australia Act 1976 and rule 10 of this Court's rules that this proceeding be transferred to and conducted in the Victorian Registry of this Court.
The application brought by the applicants was filed on 30 September last. However, it was not served until 20 December and the first directions hearing took place on 7 February this year. The relief sought in the application is, firstly, a declaration that the respondent has, in trade or commerce, engaged in conduct that is misleading or deceptive or is likely to mislead or deceive, in contravention of s.52 of the Trade Practices Act 1974. Also sought is a declaration that the condition precedent contained in clause 2.1(b) of an agreement, described as an establishment agreement, made between the first applicant and the respondent on 6 August 1990, has not been fulfilled in relation to certain companies referred to in the twelfth schedule to that agreement. A declaration is also claimed that, in the events that have happened, the first applicant is not obliged to complete the acquisition of certain companies described in the agreement as the Victorian Hotel Owning Companies. In para. 4 of the application relief is claimed under s.87 of the Trade Practices Act varying the terms of an agreement known as, Heads of Agreement, between the first applicant, the second applicant and the respondent, dated 17 June 1991. Finally, there are claims for damages, both under s.82 of the Trade Practices Act and at common law for breach of contract.
The statement of claim is to a degree complex. I need to refer to the essential allegations which it makes. In para. 4 it is alleged that on or about 6 August 1990 the first applicant and the respondent entered into the Establishment Agreement pursuant to which the first applicant and the respondent agreed to restructure a selected portfolio of Australian hotel owning companies in which the respondent and the first applicant were each to own directly or indirectly 50 per cent of the equity. Paragraph 5 alleges that on the same date the first applicant and the respondent and various other companies related to the first applicant and the respondent respectively, entered into further written agreements for the purpose of bringing about the transaction envisaged in the Establishment Agreement. There are then particularised a number of agreements, to the detail of which I need not refer. Paragraph 6 pleads that the transaction contemplated in the agreements referred to in paras. 4 and 5 contemplated the acquisition by the first applicant and companies associated with it of interests in hotels owned and operated by the respondent and companies associated with it in New South Wales, Queensland and Victoria. The paragraph goes on to say that the agreements, insofar as they relate to hotels in Queensland and New South Wales, have been performed and executed.
Paragraph 7 of the statement of claim alleges that pursuant to a clause of the establishment agreement (clause S(vii)), a nominated subsidiary of the first applicant was to acquire 50 per cent of the existing shares in certain companies listed in the twelfth schedule to the agreement and also in companies, AVS East Doncaster Hotels Pty Limited and AVS Mill Park Hotels Pty Limited, which are collectively referred to as the Victorian Hotel Owning Companies or the Companies. Paragraph 8 refers to clause 2.1(b) of the Establishment Agreement and alleges that the obligations of the parties under that clause were subject to the first applicant and the respondent procuring funding for each of the Victorian Hotel Owning Companies so as to affect an initial gearing ratio of approximately 50 per cent external debt to 50 per cent fixed assets, the debt component to be procured on a non-recourse basis.
Paragraph 9 of the statement of claim refers to clause 10 of the Establishment Agreement in which are contained a number of warranties and pleads some of these, namely, those dealing with books of account, ledgers, financial and other records of the companies, material change in the nature of the business assets or liabilities of the company since 30 June 1990 and that the only assets and liabilities contingent or otherwise or howsoever arising of the company as at the completion date, which was apparently to be about September 1991, should be land, buildings and plant, furniture and equipment, licence and cash and long term debt equal to 50 per cent of the value of the assets. Paragraph 10 is in the following terms:
"Prior to entering into the agreements referred to in paragraphs 4 and 5 above, the Respondent, with the intention of inducing the First Applicant to enter into the agreements, provided the Applicant with written valuations of the assets of the Victorian Hotel Owning Companies."
Particulars of those valuations are given and I need not refer to them. Paragraph 12 says that during October 1990 the respondent obtained valuations, described as "the McGee Valuations", which had been commissioned by its associate, Carlton Finance Limited, showing that the value of the hotels referred to was - and then there are stated a number of hotels and the value of each of them.
Paragraph 13 of the statement of claim pleads that the McGee valuations were procured by the respondent for the purposes of inducing the bankers to the Victorian Hotel Owning Companies to provided finance to such companies as is envisaged in clause 2.1(b) of the establishment agreement. Paragraph 14 says:-
"The valuations so procured were, to the knowledge of the Respondent, inaccurate, in that they materially overstated the value of the hotels concerned. PARTICULARS The valuations were prepared by McGees on the basis of information provided by the Respondent and contained information concerning operating expenses which to the knowledge of the Respondent was incomplete, understated and wrong."
Paragraph 15 alleges that, as at 16 January 1991 and at all material times thereafter the long term debts have, in breach of clause 10(3)(a) of the establishment agreement, been in excess of 50 per cent of the value of the assets. The particulars say that the value of the assets is not more than $25.61 million and the long term debts are not less than $45.06 million so that the warranty has been breached to the extent of $64.51 million.
Paragraph 16 of the statement of claim makes reference to a supplemental agreement entered into on 24 December 1990. Paragraph 17 refers to clause 3 thereof in which it is said the respondent took upon itself the primary responsibility for ensuring that the requirements of clause 2.1(b) of the Establishment Agreement were met. Paragraph 18 pleads that during or about January 1991 the respondent procured a loan finance facility from the State Bank of New South Wales and other banks forming a syndicate on the basis of the McGee valuations and informed the first applicant of the amount thereof. Paragraph 19 is as follows:-
"In so informing the First Applicant of the loan finance facility so obtained the Respondent represented to the First Applicant that:
(a) the value of the Victorian Hotel Owning Companies was at least twice the amount of the Facility obtained from the State Bank of New South Wales.
(b) The Victorian Hotel Owning Companies were able to service the said loan finance facility."
Paragraph 20 of the statement of claim alleges that the representation referred to in para. 19 was made in trade and commerce and was misleading and deceptive or likely to mislead and deceive in contravention of s. 52 of the Trade Practices Act in that the value of the Victorian hotel owning companies was materially less than that represented and the Victorian Hotel Owning Companies were in fact incapable of servicing the loan finance facility.
Paragraphs 21 and 22 plead a case based on s.52 on a different basis. It is alleged in para. 21 that in all the circumstances the respondent was under a duty to disclose to the first applicant the existence of and contents of the McGee valuations and that the finance which had been obtained for the Victorian hotel owning companies at the instance of the respondent had been obtained on the basis of the said valuations which were inaccurate. Paragraph 22 is as follows:-
"The failure by the Respondent to so disclose to the First Applicant constituted conduct, in trade and commerce, which was misleading or deceptive or likely to mislead or deceive in contravention of Section 52 of the Act."
A further breach of s.52 is alleged in para. 23 which says:-
"The conduct of the Respondent in providing wrong information to the State Bank of New South Wales and the other syndicate members constituted conduct, in trade and commerce, which was misleading or deceptive or likely to mislead or deceive in contravention of Section 52 of the Act."
Then in para. 24 reference is made to the Heads of Agreement. It is alleged to have been entered into on 17 June 1991. Paragraph 25 says:-
"Had the First Applicant been aware of the said matters in respect of which the Respondent was under a duty to disclose, it would not have entered into the Supplemental Agreement dated 24 December 1990 and Heads of Agreement dated 17 June 1991."
Paragraph 26 of the statement of claim pleads that each valuation, which was a record of the company concerned, contained material inaccuracies and discrepancies that did not give a true and fair view of the said companies and of their assets and liabilities and constituted a breach of the warranties. Paragraph 27 alleges that in all the circumstances finance as envisaged in clause 2.1(b) of the Establishment Agreement had not been procured.
A defence has been filed. It contains a series of admissions and denials but is otherwise not relevant to the present problem.
I should make some reference to the terms of the Establishment Agreement, a copy of which, or at least a copy of part of which, is in evidence. It opens with a number of recitals. Recital A says that the respondent and the first applicant have agreed to restructure a selected portfolio of Australian hotel owning companies in which they each are to own, directly or indirectly, 50 per cent of the equity. Recital B says that a company to be known as the Australian Pub Company Pty Limited, is a company incorporated in the Australian Capital Territory. Its capital is referred to and it is said that that company is to be appointed as manager and agent of a joint venture to be established between a subsidiary of the respondent and a subsidiary of the first applicant with respect to the hotels referred to in recital A. I do not find it necessary to refer to the balance of the recitals which are quite numerous.
The operative part of the agreement opens with a clause dealing with interpretation and then in clause 2 one comes to conditions precedent. There is to be found clause 2.1(b) which is referred to in the statement of claim. In essence it provides that all obligations of the parties in respect of the matters set out in clause 3 of the agreement are subject to:-
"(b) Subject to Clause 17, the first applicant and the respondent procuring funding for each of the Hotel Owning Companies so as to effect an initial gearing ratio of approximately 50 percent external debt to 50 per cent fixed assets, the debt component to be procured on an interest only, non-recourse basis,"
I should also refer to clause 2.3 which is again a condition precedent. It provided that the first applicant and the respondent should take all such practical steps as might reasonably be within their power to enable the conditions precedent referred to in Clause 2.1(b) and (d) to be fulfilled as soon as possible.
Clause 3 of the agreement refers to acquisitions. There one sees the detail of the various acquisitions which are to be made. I do not find it necessary to refer to the detail of clause 3. Clause 4 deals with completion and it is unnecessary to refer to the detail of that clause. Clause 10 contains the warranties to which I have already referred. Clause 14 provides as follows:-
"Save as herein provided and as contemplated in any of the agreements referred to in this Agreement, this Agreement constitutes the entire agreement of the parties (and in to which all prior negotiations commitments representations and undertakings with respect to the subject matter hereof are merged) and there are no other oral undertakings or agreements between the parties hereto relating to the subject hereof and this Agreement is not based on any representations as to profit or worth nor has representation been made (whether by this Agreement or otherwise) to induce any party to accept and execute this Agreement, or subscribe for or acquire shares, to enter into a lease, to enter into the Shareholders Agreement and/or to enter into the Operating Agreement."
This clause was not referred to in argument, probably for the reasons that the misrepresentions upon which the applicant rely were made after the Establishment Agreement had been signed.
Finally, I should refer to clause 20.2 which provides:-
"This Agreement and the rights and obligations of the parties shall be construed in accordance with the laws of Victoria and the parties irrevocably submit to the jurisdiction of the Courts of that State."
The Supplemental Agreement was, as I have indicated, dated 24 December 1990. It was made between the respondent and the second applicant which was not a party to the Establishment Agreement. The second applicant is a New Zealand company. I do not find it necessary at this stage otherwise to refer to the Supplemental Agreement. There is then the document headed Heads of Agreement and I do not need to refer further to it. It is to be noted that there is no equivalent of clause 20.2 in either the Supplemental Agreement or the Heads of Agreement.
On 20 December 1991, the same day as the application and statement of claim in this matter were served on the respondent, the respondent commenced proceedings in the Supreme Court of Victoria. The statement of claim filed in that matter is in evidence. The plaintiffs comprise six companies including the respondent. The defendants comprise four companies including the first and second applicants. They also include Australian Pub Company (Vic) Limited which is named as the fourth defendant. The Victorian action is for breach of contract. In para. 11 it is pleaded that in breach of the establishment agreement the first applicant failed to procure by the due date the purchase of shares referred to in para. 9(a) of the statement of claim, that is the Victorian statement of claim, or of the stock in trade referred to in para. 9(b) thereof and the loan moneys referred to in para. 9(c).
Paragraph 12 of the Victorian statement of claim pleads that, by reason of the breach by the first applicant of the Establishment Agreement referred to in para. 11, the transferors of the shares, namely the second to sixth plaintiffs, were not paid the moneys referred to in para. 10 of the statement of claim. Paragraph 13 pleads that in order to provide the second to sixth plaintiffs with the moneys referred to in para. 10(a) of the statement of claim on or about 16 January 1991 the respondent made short term interest free loans to each of them amounting to $15.148 million. Paragraph 14 alleges that by reason of the matters so alleged the respondent has suffered loss and damage being loss of interest on the short term loans to the second to sixth plaintiffs. Paragraph 15 of the Victorian statement of claim is as follows:-
"Further, by reason of Cascade's breach of the Establishment Agreement as alleged in paragraph 11(b) hereof, in lieu of Cascade procuring the said loan pursuant to the Establishment Agreement as alleged in paragraph 9(b) hereof, on or about 16 January 1991, CUB made interest free loans to the AVS companies amounting to $8,666,383.00 million to enable them to discharge their then existing loans to their related companies."
Paragraph 16 claims damages in the form of loss of interest on those loans.
Paragraphs 20 to 23 plead matters which lead to an allegation of breach of contract by a company Lamicroft Pty Limited which is another of the companies named as defendant and the Pub Company.
As I have said, the causes of action which are relied upon in the Victorian statement of claim are all causes of action based on breaches of various provisions of the contractual documents.
Sub-section 5(4) of the Jurisdiction of Courts (Cross-vesting) Act provides as follows:-
"(4) Where:
(a) a proceeding (in this subsection referred to as the 'relevant proceeding') is pending in the Federal Court or the Family Court (in this subsection referred to as the 'first court'); and
(b) it appears to the first court that:
(i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court;
(ii) having regard to:
(A) whether, in the opinion of the first court, apart from this Act and any law of a State relating to cross-vesting of jurisdiction, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Supreme Court of a State or Territory;
(B) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-subparagraph (A) and not within the jurisdiction of the first court apart from this Act and any law of a State relating to cross-vesting of jurisdiction; and
(C) the interests of justice; it is more appropriate that the relevant proceeding be determined by that Supreme Court; or
(iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of a State or Territory; the first court shall transfer the relevant proceeding to that Supreme Court."
I have some reservation whether this case falls within the first limb of para. (b) of subsec. 5(4). No argument was addressed in relation to that matter. My reservation arises because of doubts I have whether the matter is within para. (B) of subpara. 5(4)(b)(ii). Be that as it may, it seems to me that the primary matter which concerns me is whether or not it is in the interests of justice that this proceeding be transferred to the Supreme Court of Victoria. Whether the matter is under the first or second limb or both, the interests of justice are the prime consideration. It is that matter which formed the subject of the submissions which were made to me by the parties during the argument and it is that matter which I have concentrated upon in my consideration of the matter. I should emphasise that in my view, in the way that this section should be applied, no party carries any onus and there is no presumption in favour of or against any party.
There are some matters that I should refer to first of all which I think are trite. These are:-
(a) the applicants in the proceeding in this court have invoked federal jurisdiction for the purpose of prosecuting claims which arise under federal law. Their claim is substantially based on alleged breaches of s.52 of the Trade Practices Act. There are other causes of action for breach of contract but it seems to me that the principal relief which they claim is based on their allegations that s.52 has been breached in the ways that their statement of claim sets out;
(b) the relief sought is provided for in a federal statute; I refer to ss. 82 and 87 of the Trade Practices Act. Pursuant to the latter section the applicants seek relief which, if granted, would have the effect of materially altering the rights and obligations of the parties under the agreements;
(c) this Court has exercised jurisdiction under Division 1 of Part V of the Trade Practices Act since it was established. Notwithstanding that jurisdiction under Division 1 was conferred on State courts by the Jurisdiction of Courts (Miscellaneous Provisions Act 1987 (see section 86), this Court has continued to be the court in which large numbers of Division 1 cases have been instituted. In the 15 years or so in which the Court has exercised that jurisdiction it has developed a substantial body of doctrine and principles which give guidance as to how the Division, particularly s.52, is to be interpreted and applied. These principles have brought about a substantial degree of certainty and predictability concerning the way in which the division is administered;
(d) the Court is a federal court. It has registries in each capital city. It is able to hear cases in any part of Australia. If it is appropriate, it can sit to take part of the evidence in one place and other parts of the evidence in other places. Its procedures provide for early and extensive directions hearings designed to meet the needs of each case. It requires continuous supervision of cases and as necessary directions hearings are heard by telephone link or in appropriate cases by video link.
The matters upon which the respondent relies in support of its application to transfer may I think be summarised as follows:-
(1) the terms of the Cross-vesting Act itself;
(2) the fact that the Victorian proceeding has been pending for as long, in effect, as the proceeding in this Court. Both the Victorian writ and the application in this Court were served on the same day. Neither proceeding is very far advanced;
(3) the provisions of clause 20(2) of the Establishment Agreement to which I have referred and to which I shall again make reference in a moment;
(4) the proceedings in this Court should be seen as a defensive response to the proceedings brought by the respondent in the Victorian Supreme Court;
(5) the two proceedings are inextricably intermingled;
(6) the most material and closest connection which the proceeding has is to Victoria. In this respect it was said, inter alia, that the case involved the valuation of shares in companies incorporated in Victoria and of assets of those companies, hotels, situated in Victoria. The companies were Victorian companies, the establishment agreement had been executed in Victoria. There were other matters mentioned but I need not go to the detail of these;
(7) the evidence in the case was more available in Melbourne then it was in Sydney.
I think I should put out of the way the considerations relied upon in paragraphs 6 and 7. These relate entirely to the question of the appropriate place where the case should be heard. If that place is Melbourne, the case can be tried as conveniently by this Court as it can by the Supreme Court.
I do not agree that the facts of the two proceedings are inextricably intermingled. The respondent's action is for breach of contract. The applicant's action is substantially based upon the applicants having been led to act in a particular way by alleged misleading or deceptive conduct engaged in by the respondent. To the extent that they rely on breach of contract, the contract is the same as that upon which the respondent, along with others, sues. The transactions may be to a degree complex, but the factual matrix of the case is not unusual. Undoubtedly there is a commonality about the facts of the two cases, but this is not a matter which I think can have great weight in the circumstances of the case.
I do not regard the applicants' case as defensive only. It is a common enough proceeding. The applicants seeks damages as a consequence of the respondent's alleged misleading and deceptive conduct. They also seek the relief under s.87 of the Trade Practices Act to which I have referred. If they are successful, it will be the respondent's position which will materially alter. I think the applicants' proceedings must be looked at as they are and for their own sake. The applicants seek relief; the respondent as its defence shows, denies that the applicants are entitled to it. That is the contest which has to be resolved. Once it is resolved, it seems to me not unlikely that there will be a resolution of all matters in dispute between the parties. That may not be the case, but I think it is the likelihood.
I have given some thought to the provisions of clause 20(2) of the Establishment Agreement. The important point to emphasise is that the agreement which it reflects provides, firstly, that the rights and obligations of the parties shall be construed in accordance with the laws of Victoria. That is its first limb. The applicants have invoked federal law. It may be that the clause should be construed so as to include federal law as well as State law. If that be correct, that part of the clause does not change anything so far as this case is concerned. If, on the other hand, the reference to the laws of Victoria is a reference to the laws of the State of Victoria, which I think is the better view, the provision is irrelevant because it is federal law which is involved. The clause can have nothing to say about that.
Superficially the second part of the clause may be thought to have more significance. It provides, "... the parties irrevocably submit to the jurisdiction of the Courts of that State" i.e. Victoria. But what is it that is submitted to those courts? The subject matter must be in the opening words of the clause, namely, "This Agreement and the rights and obligations of the parties". The latter words mean, in my opinion, the rights and obligations of the parties arising under the agreement. The rights which the applicants claim they have in this case do not for the main part arise under the agreement. They are said to arise because of conduct engaged in by the respondent prior to the Supplemental Agreement and the Heads of Agreement being entered into; they are said to have been induced by it. In my opinion the clause can have no relevance to a situation such as this.
That however leaves the causes of action for breach of contract. They are in my opinion within the clause. The existence of those causes of action therefore needs to be taken into account. Unquestionably this proceeding in its entirety is a proceeding which could have been instituted in the Supreme Court of Victoria. It would have been within the jurisdiction of that court to entertain it; see section 86 of the Trade Practices Act. That is, in my opinion, an important consideration but it cannot be conclusive of what I should do. It was not submitted by counsel that it was. The provision nevertheless was relied upon by him as a matter which should weigh with me heavily in the overall resolution of what order I should make in this present application. That, I agree, is particularly so when one takes into account the fact that the establishment agreement and the other agreements are commercial agreements made between substantial commercial organisations.
On the other hand, it needs to be borne in mind, as I was reminded by counsel for the applicants, that the Supplementary Agreement to which the second applicant is a party contains no comparable provision. Despite the terms of the Supplementary Agreement it was not, as I have said, a party to the Establishment Agreement.
In the end, as is so often the case in matters of this kind, one has to engage in a balancing exercise. I think the matters relied upon by the respondent in paras. (1) and (2) above are important and need also to be borne in mind when one is considering what should be done. On the other hand, the matters that I specified at the beginning of these reasons in the lettered paras. (a) to (d) are, in my view, of essential importance. I think, having reflected on the matter, that they outweigh the matters upon which I think the respondent may properly rely. Having given the matter due consideration, I have reached the conclusion that, in all the circumstances, it is not in the interests of justice to transfer this matter to the Supreme Court of Victoria and I decline to make that order.
I should make some reference to s.86A of the Trade Practices Act which would also have enabled this Court to transfer this proceeding to a Supreme Court. That was not the subject of argument and I have not given it any consideration.
The alternative limb of the application before me was that the case should be transferred to the Victorian Registry of this Court. As I indicated during argument, I am not prepared to deal with that part of the application at this stage. It will be stood over for the time being. It will be more appropriate to make a decision about that aspect of it when the matter is closer to readiness for hearing and one will have a much better idea of the convenient place or places at which the matter should be tried.
In the result, para. 1 of the notice of motion of 24 January 1992 is dismissed. The balance of the application is stood over to the next directions hearing which I should fix. (Discussion ensued). The matter is stood over for directions to 26 March 1992, at 9.30 a.m. before me.
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