Cold Rock Management Pty Ltd v Maerceci Pty Ltd (No 2)
[2011] FCA 977
•11 August 2011
FEDERAL COURT OF AUSTRALIA
Cold Rock Management Pty Ltd v Maerceci Pty Ltd (No 2) [2011] FCA 977
Citation: Cold Rock Management Pty Ltd v Maerceci Pty Ltd (No 2) [2011] FCA 977 Parties: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326 v MAERCECI PTY LTD ACN 093 099 891 (ADMINISTRATORS APPOINTED) and AURUMINE PTY LTD ACN 106 082 400 (ADMINISTRATORS APPOINTED) File number: VID 452 of 2011 Judge: LOGAN J Date of judgment: 11 August 2011 Corrigendum: 25 August 2011 Catchwords: CORPORATIONS – external administration – stay of proceedings – application for leave to continue proceedings – where applicant sought to continue respondents’ cross-claim in order to seek summarily dismissal of it – whether leave required – where proceeding was one in relation to the companies’ property – leave required and granted – cross-claim summarily dismissed – claim adjourned to after second creditors’ meeting Legislation: Competition and Consumer Act 2010 (Cth)
Corporations Act 2001 (Cth) ss 436A, 440DCases cited: Southern v Heartwood Architectural Timber & Joinery Pty Ltd [2008] QSC 354 followed Date of hearing: 11 August 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 17 Counsel for the Applicant: Mr I Upjohn Solicitor for the Applicant: ComLaw Barristers and Solicitors Solicitor for the Respondents: Harding Richards Lawyers as town agents for Boulton Cleary and Kern FEDERAL COURT OF AUSTRALIA
Cold Rock Management Pty Ltd v Maerceci Pty Ltd (No 2) [2011] FCA 977
CORRIGENDUM
1.On the front cover in the catchwords, in the fourth sentence, the word “summarily” should read “summary”.
2.On the Orders page, the word “it” should be removed and the sentence should read “Insofar as the same may be necessary, leave is granted to the applicant to proceed with the cross-claim.”
I certify that the preceding two (2) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 25 August 2011
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
VID 452 of 2011
BETWEEN: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326
ApplicantAND: MAERCECI PTY LTD ACN 093 099 891 (ADMINISTRATORS APPOINTED)
First RespondentAURUMINE PTY LTD ACN 106 082 400 (ADMINISTRATORS APPOINTED)
Second Respondent
JUDGE:
LOGAN J
DATE OF ORDER:
11 AUGUST 2011
WHERE MADE:
BRISBANE
THE COURT ORDERS THAT:
1.Insofar as the same it may be necessary, leave is granted to the applicant to proceed with the cross-claim.
2. The cross-claim is dismissed.
3. Save as aforesaid, the proceedings are adjourned to a date to be fixed.
4. Costs are reserved.
5. Liberty to apply is granted to each party.
THE COURT DIRECTS THAT:
1.The names of each of the respondents be amended so as to show, after the Australian Company Number, “(Administrators Appointed)”.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
VID 452 of 2011
BETWEEN: COLD ROCK MANAGEMENT PTY LTD ACN 078 334 326
ApplicantAND: MAERCECI PTY LTD ACN 093 099 891 (ADMINISTRATORS APPOINTED)
First RespondentAURUMINE PTY LTD ACN 106 082 400 (ADMINISTRATORS APPOINTED)
Second Respondent
JUDGE:
LOGAN J
DATE:
11 AUGUST 2011
PLACE:
BRISBANE
REASONS FOR JUDGMENT
These proceedings were originally instituted in the Court’s Victorian District Registry. They were transferred to Queensland for trial. They arise out of franchise agreements in respect of “Cold Rock” ice cream franchise businesses conducted in Townsville, at Thuringowa, a town near Townsville, and on Magnetic Island. In the proceedings the applicant, Cold Rock Management Pty Ltd, seeks declaratory and injunctive relief arising out of alleged breaches of the franchise agreements and, in particular, the restraint of trade clauses in those agreements, which are in like form, together with alleged breaches of copyright, alleged contraventions of the Competition and Consumer Act 2010 (Cth), and related conduct in passing off on the part of each of the respondents.
In short, the gravamen of the foundation for the causes of action asserted by Cold Rock Management is the cessation of operation by the respondents of businesses under the Cold Rock name, but the commencement of, so it is said, like businesses in the retailing of ice cream from the same premises. There is a cross-claim made in the proceedings by the respondents. That cross-claim asserts a wrongful denial on the part of the applicant of the respondents’ right to trade in the retail sale of ice cream and, more particularly, and based on the franchise agreements, a failure to account properly for marketing contributions or, alternatively, a wrongful refusal to pay the 80% rebate of marketing contributions referred to in the franchise agreement. On the strength of that, the respondents seek a declaration that the restraint of trade provisions are not enforceable and an order for an independent audit. They do not, in terms, seek a refund of the marketing rebate or damages.
The case has been set down for trial for four days to commence today. That listing has been in place for many weeks. Indeed, the listing was arranged in conjunction with the then docket judge in Victoria so as to afford the parties an early hearing in respect of a commercial impasse which had arisen in the relationship between Cold Rock Management and the respondents.
As a result of a communication earlier this week to the registry, which gave an indication that the respondents’ position in terms of the control of the company by its directors and its legal representation might change, I convened yesterday a mention of the case by telephone. At that time Mr Bailey, a director of the respondent companies, was granted leave to appear. There was also in place a communication from the solicitors who had hitherto acted for the respondents, Messrs Cleary Hoare, which stated that their instructions had been withdrawn. Mr Bailey made reference at the mention of the case by telephone that he had given instructions in relation to external administration of the company. The position, though, was not completely clear at that stage. I therefore did not make any orders other than to leave in place the trial listing for today.
When the case was called on for trial, Cold Rock Management appeared by counsel and its solicitors. The respondents appeared by the administrators. It transpired that yesterday the directors of the company had resolved to appoint Mr Richard William Buckby and Mr Robert William Hudson of KordaMentha to be the joint and several administrators of each of the respondents pursuant to s 436A of the Corporations Act 2001 (Cth) (Corporations Act). The administrators, very properly, gave instructions for an appearance to be made on behalf of the company in administration by a town agent for their Townsville solicitors. The town agent, understandably, having regard to s 440D of the Corporations Act, sought the adjournment of the proceeding to a date to be fixed pending the conduct, in accordance with Pt 5.3A of the Corporations Act, of the investigation of the company’s affairs by the administrators, the preparation of their report and the convening of the requisite creditors’ meetings. The position of Cold Rock Management came to be that it did not seek to press its claims proper having regard to s 440D, but rather sought the dismissal of the cross-claim. In so doing, Cold Rock Management sought such leave as was necessary for that course to be followed. An affidavit was read on behalf of Cold Rock Management in support of that application. That affidavit charted the course of correspondence which had passed prior to the appointment of administrators between the solicitors for Cold Rock Management and the then solicitors for the respondent companies.
This correspondence exhibited to the affidavit is open correspondence. By that, I mean that it is not, on its face, correspondence which has been sent on the basis that there is “without prejudice”. Included in that correspondence is an email of 2 August 2011 from Mr Collie, a member of Cleary Hoare, the then solicitors for the respondents, to Mr Leonidas, a member of the firm ComLaw, which acts for Cold Rock Management. In the correspondence, there is reference to an intention not to press the cross-claim:
Our clients will not be pursuing any element of the cross-claim –
(exhibit CL-9 to Mr Leonidas' affidavit)Other subjects of the correspondence which passed between the parties concerned bases upon which the principal proceeding as brought by Cold Rock Management might be resolved
Section 440D of the Corporations Act has not been the subject of a great deal of material judicial consideration. Perhaps that is because on its face it has a sterilising effect in terms of subsisting litigation such that it does not often prove necessary to consider its terms in detail. Through the diligence of counsel for Cold Rock Management, my attention has, though, been drawn to an unreported judgment in the Supreme Court of Queensland which is pertinent: Southern v Heartwood Architectural Timber & Joinery Pty Ltd [2008] QSC 354 per Wilson J. In that case, it fell to her Honour inter alia to consider the effect of s 440D in relation to a proceeding which had been brought by a company prior to the appointment of administrators. Her Honour observed at p 1-4:
It is clear that under the Corporations Act, section 440D, the proceeding is not automatically stayed. That provision relates only to proceedings against the company. It does not relate to proceedings brought by the company. It is a matter for the administrators whether they continue with the litigation.
I respectfully agree with her Honour’s observation. That, though, is not a complete answer to the application for dismissal and associated grant of leave made by Cold Rock Management in relation to the cross-claim. Understandably, the administrator’s position was, given the recency of their appointment, that the proceeding should be adjourned to a date to be fixed to enable an assessment to be made by them as part of their overall investigation of the company’s affairs of the worth, if any, of that cross-claim. As against that, the following was highlighted on the part of Cold Rock Management:
(a) the length of time in advance of today that this case had been listed for trial;
(b) the late appointment by the directors of the company of administrators;
(c)the continuance before then of negotiations in relation to an informal resolution of the proceedings;
(d)as part of those negotiations, the open signification in the communication to which I have referred of a disposition on the part of the company not to press any element of the cross-claim;
(e)the absence when one has regard to the filed summary of the respondent's evidence of any particular evidentiary foundation for the cross-claim in terms of the evidence that the respondents had proposed to lead at trial; and
(f)the impact commercially on Cold Rock Management, having regard to the terms of the Franchising Code, of a need to disclose to prospective franchisees of the existence of litigation against Cold Rock Management in the form of the cross-claim.
Understandably, particular emphasis was placed on the latter consideration in the context of the potential it might have for prospective franchisees to be apprehensive in relation to the taking up of a commercial relationship by franchise with Cold Rock Management. One answer to that, of course, is an ability on the part of Cold Rock Management to point to the fate of the present litigation which, but for the application made by today, could only be, in the circumstances of the administration, an adjournment of the whole of the proceeding, including the cross-claim, to a date to be fixed. That said, there is a difference, I am quite sure, between the impression first created by the need to disclose the existence of litigation and the difficulty which might then attend having to explain away the absence of any particular commercial concern arising from the existence of that litigation having regard to its fate.
In essence, this aspect of the case involves a submission that Cold Rock Management, as a matter of discretion, ought not to have that particular commercial burden and risk in respect of a claim which, prior to administration, had been the subject of a signification that it was not proposed to press it. In my opinion, a grant of leave would be required for Cold Rock Management to secure the order that it seeks. The opening part of s 440D is cast in the alternative. The alternatives are a proceeding in a court against the company or a proceeding in a court in relation to any of its property. The intent of each of these alternatives, consistent with the overall purpose of Pt 5.3A, is to preserve a position which can then be the subject of investigation by the administrators pending reporting and consideration at a creditors meeting.
In this instance, the cross-claim is, in my opinion, on analysis, a proceeding in relation to its property. That is so because the foundation of the cross-claim as pleaded is to be found in rights allegedly enjoyed by the respondent companies under the franchise agreement. That agreement is a chose in action. The cross-claim is a proceeding in relation to company property, namely, the chose in action. What then arises is whether Cold Rock Management, as the applicant in this proceeding, needs leave as opposed to whether the administrators on behalf of the company would need leave to press the cross-claim. There is no consent from the administrators in terms of s 440D(1)(a). There can be no criticism of the administrators for the absence of any such consent given the recency of their appointment. It does seem to me that the application for dismissal is capable of being regarded as an endeavour by Cold Rock Management to proceed with the cross-claim even though it is a respondent to that cross-claim. I accept that there is an alternative construction which would not require either administrator’s consent or the leave of the court, because the cross-claim is not that of Cold Rock Management but rather the respondent companies. If only out of an abundance of caution though, I proceed to consider whether leave should be granted.
There are powerful considerations competing. One is the duty of the administrators to which I have already made reference, the others are each of the factors to which attention was drawn on behalf of Cold Rock Management. What particularly influences me to grant leave, insofar as to say it may be necessary, is the open signification prior to the appointment of administrators by the respondent companies, by their solicitors, of an absence of desire on the part of those companies to proceed with the cross-claims. That consideration, coupled with what I accept to be a real burden in the marketplace in relation to disclosure obligations arising under the Franchising Code, persuades me that there ought to be, insofar as the same may be necessary, a grant of leave to Cold Rock Management to proceed with the cross-claim.
Manifestly, the cross-claim is not one which the respondent companies wish to prosecute. That was made clear prior to the appointment of the administrators. Cold Rock Management, but for the appointment of administrators, could in my opinion on the strength of the communication which I have quoted, have moved at the commencement of trial for the dismissal of the cross-claim in light of that communication. Against that background and perhaps exceptionally in the context of the administration, I do not see that it should be disadvantaged by the course which the companies, by their directors, chose to take.
I am not persuaded at present that there ought to be any costs order accompanying the order of dismissal, rather that is a subject which ought to be reserved. The fate of that ought to await the course of the administration. There will though, be a benefit to Cold Rock Management in an order of dismissal of the cross-claim of the kind which I have mentioned. Thus, while s 440D(1) does not automatically relate to any proceeding brought by a company, and I agree with Wilson J in that regard, it does in this instance relate to a proceeding in relation to corporate property. There are though, reasons to grant leave insofar it may be necessary and I grant that leave. The orders then that I make are as follows:
1.Insofar as the same may be necessary, leave is granted to the applicant to proceed with the cross-claim.
2.The cross-claim is dismissed.
3.Save as aforesaid, the proceedings are adjourned to a date to be fixed.
4.Costs are reserved.
5.Liberty to apply is granted to each party.
I will make this further observation. Though, prima facie in the ordinary course of events, the applicant Cold Rock Management would seem to me to be otherwise entitled to an order for costs in its favour, I deliberately refrain from making such an order having regard to the recency of the appointment of the administrators and the effect of s 440D in terms of the restriction it places on a proceeding against a company.
I also make the observation that, having regard to the original institution of the proceeding in the Victorian District Registry, I would not, as I might otherwise be disposal to do in the context of making any order as to costs, give a direction to the registrar that on any taxation there ought to be no allowance for the costs of and incidental to travel by counsel or solicitors to Brisbane for the purposes of the trial. In other words, I regard that as something which, subject to discretionary judgments of the taxing officer, could be claimed in the event of a taxation which followed any order that might be made in favour of Cold Rock Management for its costs.
I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. Associate:
Dated: 24 August 2011
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