First Netcom Pty Ltd v Telstra Corporation Ltd

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FEDERAL COURT OF AUSTRALIA

First Netcom Pty Ltd v Telstra Corporation Ltd [2000] FCA 1269

EQUITY – interlocutory injunctions – undertaking as to damages – nature of – security for contingent liability under an undertaking – whether condition of injunction requiring security may be imposed retrospectively

EQUITY – asset preservation orders – whether such orders may give the successful applicant priority in the event of bankruptcy or winding up

WORDS & PHRASES – “usual undertaking as to damages”

Federal Court Rules Os 32, 34

Telstra Corporation Ltd v First Netcom Pty Ltd (1997) 19 ATPR 41-574 referred to
Telstra Corporation Ltd v First Netcom Pty Ltd (1997) 19 ATPR 41-575 referred to
Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 considered
National Australia Bank v Bond Brewing Holdings Ltd (1990) 169 CLR 271 referred to
Select Personnel Pty Ltd v Morgan & Banks Pty Ltd (1988) 12 IPR 167 referred to
Commodity Ocean Transport Corporation v Basford Unicorn Industries Ltd (“The Mito”) [1987] 2 Lloyds Rep 197 considered
Tucker v New Brunswick Trading Company of London [1880] 44 Ch D 249 considered
F-Hoffman-La Roche & Co AG v Secretary of State for Trade and Industry (1975) AC 295 referred to
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 cited
Jackson v Sterling Industries Ltd (1986) 162 CLR 612 considered

FIRST NETCOM PTY LIMITED v TELSTRA CORPORATION LIMITED
N 543 OF 2000

BEAUMONT, BURCHETT & EMMETT JJ
8 SEPTEMBER 2000
SYDNEY


IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

 N 543 OF 2000

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:

FIRST NETCOM PTY LIMITED
APPELLANT

AND:

TELSTRA CORPORATION LIMITED
RESPONDENT

JUDGE:

BEAUMONT, BURCHETT & EMMETT JJ

DATE OF ORDER:

8 SEPTEMBER 2000

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1.        Orders 1 and 2 made on 17 March 2000 by Einfeld J be set aside;

2.Order 1 made on 4 May 2000 by Einfeld J be varied by deleting the words “and the payment by the respondent of security for an undertaking as to damages given on 26 June 1997 in the amount of $400,000”;

3.Upon Telstra Corporation Ltd giving the usual undertaking as to damages, First Netcom Pty Limited be restrained until further order from dissipating, selling, charging, mortgaging or otherwise dealing with the whole or any part of its assets without the prior written consent of Telstra Corporation Ltd otherwise than in the ordinary course of paying its ordinary trade creditors for the purpose of conducting its business;

4.Liberty be granted to the parties to apply on 3 days’ notice for any variation of order 3 above;

5.The cross-claim be stayed;

6.The stay referred to in order 5 above (but not any other stay) be dissolved upon First Netcom Pty Limited paying into Court the sum of $400,000 such sum to be held by the Court pending the determination of the amount of compensation, if any, that the…

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Details
Case
[2000] FCA 1269
Decision Date

CaseChat Overview and Summary

First Netcom Pty Ltd, the plaintiff, contested a decision made by the Primary Judge in Telstra Corporation Ltd, the defendant. The dispute revolved around the granting of a stay of the cross-claim and the requirement for security for costs and damages. The case was brought before the court to address the legal issues concerning the stay of the cross-claim and the appropriateness of the security requirements imposed by the Primary Judge.

The court examined the legal issues pertaining to the granting of a stay of the cross-claim and the security requirements. The main legal issue was whether the Primary Judge's decision to grant a stay of the cross-claim and require security for costs and damages was appropriate, given the precedent set by Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd. The court also considered the nature of the undertaking as to damages and its purpose in preventing injustice in the interim grant of injunctions.

The court found that the Primary Judge's orders were not in accordance with the legal principles established in Air Express and other cases. The court held that the primary issue on the appeal was whether the Primary Judge had erred in refusing to vacate or rescind the orders of 17 March 2000 and 4 May 2000. The court held that the orders should have been rescinded or vacated when the matter came before the Primary Judge again, in the continued absence of any proffered undertaking as to damages even at that stage. The court held that the Primary Judge's orders were not appropriate and should be set aside.

The court made the following orders: 1) Orders 1 and 2 made on 17 March 2000 by Einfeld J be set aside; 2) Order 1 made on 4 May 2000 by Einfeld J be varied by deleting the words "and the payment by the respondent of security for an undertaking as to damages given on 26 June 1997 in the amount of $400,000"; 3) Upon Telstra Corporation Ltd giving the usual undertaking as to damages, First Netcom Pty Limited be restrained until further order from dissipating, selling, charging, mortgaging or otherwise dealing with the whole or any part of its assets without the prior written consent of Telstra Corporation Ltd otherwise than in the ordinary course of paying its ordinary trade creditors for the purpose of conducting its business; 4) Liberty be granted to the parties to apply on 3 days’ notice for any variation of order 3 above; 5) The cross-claim be stayed; 6) The stay referred to in order 5 above (but not any other stay) be dissolved upon First Netcom Pty Limited paying into Court the sum of $400,000 such sum to be held by the Court pending the determination of the amount of compensation, if any, that the Court may consider should be paid to any party adversely affected by the interlocutory injunctions ordered on 16 July 1997.

Orders

Orders of the court

1. Orders 1 and 2 made on 17 March 2000 by Einfeld J be set aside;

2. Order 1 made on 4 May 2000 by Einfeld J be varied by deleting the words “and the payment by the respondent of security for an undertaking as to damages given on 26 June 1997 in the amount of $400,000”;

3. Upon Telstra Corporation Ltd giving the usual undertaking as to damages, First Netcom Pty Limited be restrained until further order from dissipating, selling, charging, mortgaging or otherwise dealing with the whole or any part of its assets without the prior written consent of Telstra Corporation Ltd otherwise than in the ordinary course of paying its ordinary trade creditors for the purpose of conducting its business;

4. Liberty be granted to the parties to apply on 3 days’ notice for any variation of order 3 above;

5. The cross-claim be stayed;

6. The stay referred to in order 5 above (but not any other stay) be dissolved upon First Netcom Pty Limited paying into Court the sum of $400,000 such sum to be held by the Court pending the determination of the amount of compensation, if any, that the Court may consider should be paid to any party adversely affected by the interlocutory injunctions ordered on 16 July 1997.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

The Primary Judge then made the following orders on 4 May 2000:“1.[Telstra’s] application for a stay of the cross-claim in these proceedings is granted pending the payment by [First Netcom] of security for [Telstra’s] costs on the cross-claim in the amount of $50,000 and the payment by First Netcom of security for an undertaking as to damages given on 26 June 1997 in the amount of $400,000, in a form and manner satisfactory to a Registrar of the Court.2.[First Netcom] is granted leave to appeal from the judgments of 17 March 2000 and 4 May 2000.”CONCLUSIONS ON THE APPEAL The practice is settled that, not only on ex parte applications but on a motion on notice, in seeking an injunction which is to operate until the determination of the action or further order, the plaintiff should give an undertaking as to damages – see Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1979) 146 CLR 249 (“Air Express”) per Aickin J at 260. The origin of this remedy is equitable (per Aickin J at 262). In Air Express (above) Gibbs J said (at 311):“The object of requiring a plaintiff who seeks an interlocutory injunction to enter into an undertaking of this kind is to attempt to ensure that a defendant will receive compensation for any loss which he suffers by reason of the grant of the injunction if it appears in the event that the plaintiff was not entitled to obtain it. The insistence upon the giving of an undertaking is a very important, if not an essential, means of preventing injustice from being done by the court when it makes an order at an interlocutory stage, before the rights of the parties have been finally determined.” Stephen J said (at 318-319):“What occurs when such an undertaking [for damages] is extracted from a plaintiff is that the court, as a condition of its grant of interim or interlocutory injunctive relief, has ensured that, should it turn out that that relief should never have been granted, it will have the power, so far as monetary compensation allows, to make good the harm which the grant has done to the defendant. The court acquires powers to do justice between the parties which it would not otherwise possess. As North J. said in Attorney-General v Albany Hotel Co:‘If it should subsequently appear that such an order had been improvidently made, it is difficult to see how, in the absence of such an undertaking, the defendant could recover from the plaintiff the damages which were really sustained by him by reason of the improper order of the Court.’Damages awarded under such an undertaking are, therefore, of a rather different nature from those awarded at common law. Their special character appears from the fact that their source lies in the plaintiff’s own voluntary undertaking, given as the price of obtaining an injunction.” [Emphasis added] To similar effect were observations made by Mason CJ, Brennan and Deane JJ in National Australia Bank Ltd v Bond Brewing Holdings Ltd (1990) 169 CLR 271 at 277:“…the primary issue on the appeal to the Full Court was whether the primary judge had been in error in refusing to vacate or rescind the orders of 29 December 1989 appointing receivers. Those orders had been made ex parte and without any undertaking as to damages being proffered or required. It is clear that they should not have been made in those circumstances. The orders should have been rescinded or vacated when the matter came again before the learned primary judge, in the continued absence of any proffered undertaking as to damages even at that stage.”

Ratio Decidendi

Legal Principle Established

Similar observations might be made concerning the orders of 17 March 2000 and 4 May 2000. However, it must be remembered that, by that stage, the Court was not concerned with security for compensation that the Court might think just in respect of the future or prospective operation of an injunction. Rather, the Court was concerned with the effective enforcement of the undertaking, which had already been given, to pay such compensation as the Court thought fit in relation to the past operation of the injunction. The injunction had operated from the date of its order on 16 July 1997 to the date of dissolution by the Full Court on 2 September 1997. Thus, at that stage, his Honour was concerned with the preservation of the assets of First Netcom to ensure that, if First Netcom is to be called upon to pay compensation pursuant to the undertaking, it will have assets sufficient to enable it to comply with the undertaking. In other words, his Honour was concerned with a situation analogous to that involved when a court is asked to make a “Mareva order” – see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 and Jackson v Sterling Industries Ltd (1986) 162 CLR 612. A “Mareva order” is to prevent a defendant from disposing of his assets (including claims and expectancies) so as to frustrate the process of the Court by depriving a claimant of the fruits of any judgment obtained in his favour. It is confined to preserving assets until after judgment or, arguably, until there has been an opportunity to seek execution – see Jackson v Sterling Industries Ltd (above) at 625-626. Such a principle can be applied by analogy to the circumstances where, as a condition of obtaining equitable relief, a claimant has given an undertaking as to damages. The order would then be designed to prevent frustration of the process of the Court by the party obtaining the injunction depriving any party adversely affected by it of the benefit of any compensation that the Court thinks just in the circumstances. In a rare case, it might be appropriate that such an order require the defendant actually to deliver assets to a named person or even to the Court itself. In a most exceptional case, the power of the Court may extend to the appointment of a receiver of all or part of the assets of a defendant company – see Jackson v Sterling Industries Ltd (above) at 625. It may be that, by making Order 1 of 17 March 2000 and Order 1 of 4 May 2000, his Honour was intending to exercise the rarely exercised discretion to require First Netcom to deliver assets to the Court for their better preservation. However, his Honour made no finding to that effect. Counsel for Telstra referred to evidence before his Honour demonstrating that very substantial assets of First Netcom had been paid away, partly in making advances to related companies and partly for other purposes. That evidence would clearly have justified the making of an order in the nature of a “Mareva order”. Indeed, senior counsel for First Netcom indicated that First Netcom did not oppose the making of an order restraining First Netcom from dealing with its funds and other assets, subject to an appropriate exception to enable it to expend moneys in getting in its assets, which comprise, in the main, debts owing by its customers.