Mahoney v AGD Mining Ltd
[2002] FMCA 237
•11 October 2002
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| MAHONEY v AGD MINING LTD & ORS | [2002] FMCA 237 |
| TRADE PRACTICES – Jurisdiction – whether claim relates to provision of financial service – whether s.51AF of Trade Practices Act 1974 applies – Federal Magistrates Court Jurisdiction. |
R v Justices of Tyrone (1917) IR 437
Rainsford v State of Victoria [2001] FMCA 115
Grassby v The Queen (1989) 168 CLR 1
Levy v Moylan (1850) 10 CB 189, 138 ER 78
Fencott v Muller (1983) 152 CLR 570
Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457
Burgundy Royale Investments v Westpac Banking Corporation (1987) 76 ALR 173
McIntosh v National Australia Bank (1988) 80 ALR 47
Trade Practices Act 1974, ss.4, 51AF, 52, 52(1), Part 5
Corporations Act 2001, ss.995(2), 999, 1041E, 1041H, Part 9.6A, ss.1137B(1), 1337B(2)
Federal Magistrates Act 1999, s 10, 18, 39
Federal Magistrates Court Rules 2001, r 13.01
Acts Interpretation Act 1901, s.15C
Fair Trading Act 1999, s.9(1)
Financial Services Reform Act 2001
Financial Services Reform (Consequential Provisions) Act 2001 Items 364, 364D
Australian Securities and Investments Commission Act 2001, s 12BA(1)
| Applicant: | TERENCE ANTHONY MAHONEY |
| First Respondent: | AGD MINING LIMITED (ACN 005 482 815) |
| Second Respondents: | PETER GEORGE HINNEBERG, PETER EDWARD MAHER, ROGER MARSHALL and IAN LESLIE PRICE |
| File No: | MZ 269 of 2002 |
| Delivered on: | 11 October 2002 |
| Delivered at: | Melbourne |
| Hearing Date: | 3 May 2002 |
| Judgment of: | McInnis FM |
REPRESENTATION
| Counsel for the Applicant: | Mr M Klemens |
| Solicitors for the Applicant: | Goldsmiths |
| Counsel for the Respondent: | Mr D Gilbertson |
| Solicitors for the Respondent: | Corrs Chambers Westgarth |
ORDERS
All times be abridged to enable the application of the Respondent filed 2 May 2002 to be heard on 3 May 2002.
The application of the Respondents filed on 2 May 2002 be dismissed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MZ 269 of 2002
| TERENCE ANTHONY MAHONEY |
Applicant
And
| AGD MINING LIMITED (ACN 005 482 815) |
First Respondent
And
| PETER GEORGE HINNEBERG, PETER EDWARD MAHER, ROGER MARSHALL and IAN LESLIE PRICE |
Second Respondents
REASONS FOR JUDGMENT
Introduction
TERENCE ANTHONY MAHONEY (the Applicant) by an application filed 18 March 2002 has sought orders set out in an attached Statement of Claim against AGD MINING LIMITED (AGD) and four other Respondents (the Respondents). The Respondents are said to have been directors of AGD at all material times.
The claim by the Applicant against the Respondents as set out in the original Statement of Claim arises out of a presentation on or about
1 November 2000 conducted by the Respondents and it is alleged that representations and warranties were made concerning investment in the United States in a company referred to as IP Services Inc (IP). It is not necessary to refer to the representations in detail save and except that the Applicant alleges that representations were made concerning the wisdom of investing in IP and that although reference was made to litigation being a normal risk in business undertaken in the United States, that there had been no disclosure that IP was then involved in litigation. It is claimed that the representations induced the Applicant to purchase shares in AGD as that company was said to be a major shareholder in IP.
As a consequence of the alleged representation it is claimed that the Applicant purchased 6,500 shares in AGD and that subsequently the Applicant discovered that IP had been involved in litigation since 1999 which it is alleged was known to the Respondents and that indeed a judgment was obtained against IP with damages assessed in the sum of $1,000,000 together with an injunction restraining IP from participating in a particular telephone market. That judgment was entered on or about 12 January 2001.
It is claimed by the Applicant that had he known of the litigation in IP then he would not have purchased the shares in AGD. This was claimed to be misleading and deceptive conduct and in breach of
s.52(1) of the Trade Practices Act 1974 (the TPA).
In an Amended Statement of Claim filed on 22 April 2002 the Applicant further relies upon an alleged breach by the Respondents of
ss.995(2) and 999 of the Corporations Act 2001 which relate respectively to engaging in conduct that is misleading or deceptive or likely to mislead or deceive or disseminating information that was false and materially misleading inducing the Applicant to purchase securities.
An Amended Defence was filed which denies the allegations and further added that the Statement of Claim does not disclose a cause of action and should be struck out.
When the matter was before the Court on 19 April 2002 it was further listed for mention and directions on 3 May 2002. The Respondents filed an Application on 2 May 2002 seeking orders pursuant to Rule 13.09 of the Federal Magistrates Court Rules 2001 that the Application filed by the Applicant be wholly stayed or dismissed on the basis that it did not disclose a reasonable cause of action and/or the Application was an abuse of process of the Court.
Respondents’ submissions
In support of the Application to dismiss the Respondents submitted that the Federal Magistrates Court (the FMC) does not have jurisdiction to hear and determine the Application and nor does it have power to transfer the proceeding to the Federal Court under s.39 of the Federal Magistrates Act 1999 (the Federal Magistrates Act).
In support of its submissions it was contended on behalf of the Respondents that the FMC is created by s 8 of the Federal Magistrates Act 1999 (the Federal Magistrates Act). It was noted that the Federal Magistrates Court is a Court of record and a court of law and equity and that as a court of record its records are conclusive evidence of the acts and proceedings of a court (See R v Justices of Tyrone (1917) IR 437).
It was submitted that the FMC is however a court of limited jurisdiction. Reference was made to s.10 of the Federal Magistrates Act and to the decision of this Court in Rainsford v State of Victoria [2001] FMCA 115. Section 10 of the Federal Magistrates Act which provides that the FMC has such original jurisdiction vested in it by laws made by the Parliament by express provision or by application of s.15C of the Acts Interpretation Act 1901 to a provision that, whether expressly or by implication authorises a civil proceeding to be instituted in the FMC in relation to a matter.
It was submitted the FMC is an inferior Court having regard to the features of the Court including its jurisdiction and avenues for appeal (See Grassby v The Queen (1989) 168 CLR 1; Levy v Moylan (1850) 10 CB 189; 138 ER 78).
It is conceded in the submissions by the Respondents that the FMC has associated jurisdiction (see s.18 of the Federal Magistrates Act).
Counsel for the Respondents referred to the claim by the Applicant that the Respondents had engaged in conduct in trade and commerce that was misleading or deceptive or likely to mislead or deceive in breach of s.52 of the TPA (and/or s.9(1) of the Fair Trading Act1999). That claim was characterised by the Respondents as being a claim in or in connection with dealings in securities. Reference was made to the alleged breaches of ss.995(2) and 999 of the Corporations Act.
It was submitted on behalf of the Respondents that those sections of the Corporations Act were contained in Part 7.11 of that Act. Amendments to the Act and the Australian Securities and Investments Commission Act 2001 were made by the Financial Services Reform Act 2001 which received royal assent on 27 September 2001. Most of the amendments it was submitted and I accept that were made by the Financial Services Reform Act took effect from 11 March 2002. There are however equivalent sections to s.995 and s.999 which are set out in ss.1041H and 1041E respectively in Part 7.10 of the Corporations Act2001.
Consequential amendments to the TPA which were made by the Financial Services Reform (Consequential Provisions) Act2001 with effect from 11 March 2002. I was referred in particular to Items 364 and 364D of Schedule 1 to that Act.
It is common ground that the complaint relied upon by the Applicant occurred prior to the commencement of the Financial Services Reform Act2001 and the Financial Services Reform (Consequential Provisions) Act 2001. The Application it is submitted needs to then be determined on the law as it stood prior to the commencement of those Acts. It was noted therefore that under Part 9.6A of the Corporations Act 2001 as it stood prior to 11 March 2001 that jurisdiction in relation to civil matters arising out of corporations was conferred on the Federal Court of Australia [s.1337B(1)] and the Supreme Court of each State and Territories [s.1337B(2)]. It was submitted and I accept that jurisdiction under that legislation was not conferred on the FMC.
I was referred to Part 5 of the TPA and in particular s.51AF of that Act as it stood prior to 11 March 2002 which provided:-
(1)This part does not apply to supply, or possible supply, of services that are financial services.
(2)Without limiting subsection (1):
(a)Sections 52 and 55A do not apply to conduct engaged in relation to financial services.
The Respondents referred to the definition in s.4 of the TPA of “financial service” as having the same meaning as in Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001. In that legislation prior to 11 March 2002 “financial service” was defined in s.12BA(1) to mean a service that:
“(a)Consists of providing a financial product; or
(b)Is otherwise supplied in relation to financial product.”
Section 12BA(1) also defined ‘financial product’ to include a “security”.
It was therefore submitted on behalf of the Respondents that an analysis of the Amended Statement of Claim reveals that the conduct alleged by the Applicant amounts to services supplied in relation to financial product namely shares. Having regard to s.51AF of the TPA it was submitted that s.52 of that Act has no application to the proceeding and nor can there be any issue of associated jurisdiction arising under s.18 of the Federal Magistrates Act.
In support of the submissions, Counsel for the Respondents argued that a proper reading of the pleadings reveals reliance upon representations at the briefing referred to in those pleadings to the extent that the Applicant purchased shares in the First Respondent. It is said that the Applicant then relied upon the conduct, that is the representation in relation to the acquisition of shares in the First Respondent. It was conceded by Counsel for the Respondents that if the Applicant had simply conducted himself in a way that resulted in the pursuit of a joint venture following the representations then that would not be defeated by s.51AF of the TPA as it could not then be regarded as conduct engaged in in relation to financial services.
It was argued that the Corporations Act clearly provides that that legislation should be the sole repository of claims for misleading and deceptive conduct in relation to the issue or acquisition of shares. There is no dispute that the FMC does not have conferred upon it specific jurisdiction to deal with either the Corporations Act or the Financial Services Act.
As I understood it during the course of submissions Counsel for the Respondent accepted that the representations as pleaded were not representations made in relation to the shares of AGD but rather representations made in relation to the company of which it was a major shareholder namely IP.
Counsel for the Respondent emphasised during the course of submissions that the Court should consider the broad purpose behind the Financial Services Act and Corporations Act and to interpret the pleadings in a manner which would fall within the broad definition of “financial services”. Reference was made to paragraph 10(b) of the Amended Statement of Claim where it is pleaded that the “Firstnamed Respondent and/or the Secondnamed Respondent in or in connection with dealings in securities engaged in conduct that was misleading or deceptive”. That pleading it was submitted indicates the true nature of the claim and the misrepresentations alleged. Essentially it is argued by the Respondents that if the Court were to find that the pleading of a breach of the Corporations Act succeeds then the particulars subjoined to that pleading which refer to dealings in a security support the proposition that s.51AF of the TPA applies and that there is no possibility of the Court then having jurisdiction under s.52 which in turn means it cannot rely upon associated or accrued jurisdiction in order to provide a basis for jurisdiction.
The accrued jurisdiction it was submitted by the Respondents in this application succeeds or fails entirely on the ruling on the s.51AF issue. It was submitted that the Corporations Act provisions can only become relevant if the Court forms the view that there is jurisdiction under the TPA.
Applicant’s submissions
It was submitted on behalf of the Applicant that the Court does have jurisdiction and that the pleadings in the present case is not confined to the supply or possible supply of financial services as defined by s.4 of the TPA which in turn adopts the definition in the Australian Securities and Investment Commission Act 1989. The Applicant also made reference to the definition at s.12BA which I have already recited. He then referred to the further definition of ‘financial product’ and noted it included ‘security’ which is not defined.
Counsel for the Applicant referred to the representations and/or warranties in paragraph 5 of the Amended Statement of Claim which provides as follows:
“(a) IP was currently the only true internet protocol exchange carrier operating in the United States communications market;
(b)That IP will build its network by targeting smaller cities in the United States and under-serviced regional areas which have been neglected by the major carriers in favour of the larger metropolitan areas and as a consequence competition is low and margins are high in these areas;
(c)IP will provide long distance telephone calls on an interstate and intrastate basis as well as dial up internet access, dedicated internet access, private data and voice networks, Centex Service (PBX) high speed dedicated internet access (DSL), unified message service and eventually custom call features;
(d)IP has a high quality management team with a great deal of experience in the telecommunication industry;
(e)The risks associated with the implementation of a new technology is minimized with the support provided by the Cisco Partnership. Normal business risks still apply, mainly associated with the speed with which the company can design and roll out new networks;
(f)Litigation is considered a normal risk of doing business in the United States.”
It is submitted that that pleading simply represents an introduction to IP by AGD who of course has an interest in IP. It was submitted therefore that it is not pleaded that the issue of shareholding or the discussion of shares or a security in IP was ever canvassed and certainly not pleaded as being a representation that was made in any way. It was not a presentation by sharebrokers and not suggested or set out in the pleadings that AGD through the other Respondents was in a position to advise on shares or recommend the purchase or sale of shares to those attending the presentation including the Applicant. The presentation did not involve discussions it was submitted of any share transactions in AGD or receipt of share orders.
It was submitted that the presentation was simply about the company IP albeit that the presentation was by its major shareholder AGD.
It was said that the representations made at the presentation were simply a way for AGD to present itself and in particular its major shareholding in IP. That may have resulted in the purchase of shares as in the case of the Applicant or the pursuit of joint ventures or indeed other business activities including consulting work. Whilst it was accepted that the presentation may have been a means of raising the profile of IP by its local shareholder AGD and that one of the reasons might be to encourage shareholdings in AGD, that the presentation did not consist of providing a financial product. It was submitted that ‘financial service’ means a service that consists of providing a security or as otherwise supplied in relation to a security which on the pleadings had not occurred in the present case. Whilst AGD may be seeking to attract investors and/or interest in its company, it was submitted that it was not the case of a broker for example, promoting shares but rather a promotion which had a multitude of potential possibilities. It was submitted that it goes no further than that and in the circumstances it is not confined to the suggestion of the provision of a financial service including a financial product.
It was therefore submitted that s.51AF does not apply and the Court has jurisdiction. As a second limb of the argument it was submitted the Court has associated or accrued jurisdiction and the Applicant relied upon s.18 of the Federal Magistrates Act. So long as a claim is properly brought under Divisions 1 or 1A of Part 5 of the TPA then by virtue of s.18 of the Federal Magistrates Act the Court has jurisdiction. Counsel referred to the authority of Fencott v Muller (1983) 152 CLR 570 and in particular p 610 of the joint judgment of Mason, Murphy, Brennan and Deane JJ as follows:
“The question – hopefully amenable to summary disposition – is whether the claim under the relevant federal law is a substantial part of a controversy the whole of which would be appropriately and conveniently determined by the Court vested with jurisdiction in matters arising under that law.”
The Court was further referred to the decision of the High Court in Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 and the decision of Gibb CJ which appears at p 494-495 where it was held that if the party claimed substantially the same relief on two different legal grounds then the facts on which relief is sought on each ground are identical there is but one matter. The majority in the Philip Morris case took the view that a “matter is a justiciable controversy which must either be constituted by or must include a claim arising under a federal law but which may also include another cause of action arising under another law provided it is attached to and is not severable from the former claim.” In the present case the Applicant’s Counsel argued that although the High Court had been dealing in the cases to which I have referred with State and Federal laws the same principles could be applied to the associated or accrued jurisdiction of another Federal Court namely the Federal Magistrates Court.
Counsel referred to further cases. The first was the matter of Burgundy Royale Investments v Westpac Banking Corporation (1987) 76 ALR 173 which dealt with a damages claim under the TPA and a claim in negligence, breach of warranty and breach of contract. It was held that the claims constituted a matter under the Act. At page 180 the Court stated:
“In our opinion, the claims under the Act against the territory and the corporation and the common law claims together constitute a matter arising under the Act. Both the federal claims and the common law claims attach to the federal law claims so depend upon common transactions and facts that they arise out of a ‘common substratum of facts’”.
Counsel referred to the further passage from the same judgment at
p 181 where the Court states,
“The court’s jurisdiction is to determine each of the claims which together constitute a federal ‘matter’. That jurisdiction cannot be limited, as the argument of the second and third respondents would suggest, to the determination of only those claims, federal or attached, which are successfully maintained. On the contrary, the jurisdiction is to entertain and determine, all claims constituting a ‘matter’ whatever their ultimate fate. Any other approach would involve the extremely inconvenient result that the existence of absence of jurisdiction to deal with a particular claim would depend upon the substantive result of that claim …”
The second case referred to was the decision of Gummow J in McIntosh v National Australia Bank (1988) 80 ALR 47 where at page 50 the Court states,
“Once federal jurisdiction has been attracted it will not be lost because the claim or assertion which attracted it has not or cannot be substantiated or has been displaced by some counter veiling claim or assertion.”
I was further referred to the decision at p 49 where the Court states,
“Plainly enough, although it will not always be so (Felton v Mulligan (1971) 124 CLR 367) federal jurisdiction may be attracted upon the institution of proceedings rather than at some later stage.”
It was submitted in the light of those authorities that in the present case if the Court were to find that it did not have jurisdiction by virtue of s.51AF of the TPA defeating the claim, after the evidence is heard and considered, then the facts of the application are still the same and the FMC would have jurisdiction to still consider the matter in the light of any claimed breach under the provisions referred to pursuant to the Corporations Act. It was suggested that even if the Court were to ultimately find on the evidence that what had been provided was financial services and that s.51AF of the TPA applies then the Court could simply apply the misleading and deceptive conduct provisions of the Corporations Act and decide the matter as federal jurisdiction had been attracted and would not have been lost because the claim attracting it has not or cannot be substantiated according to the principles set out in the McIntosh case.
It is convenient to add at this stage that when this submission was made for and on behalf of the Applicant Counsel for the Respondent joined issue and asserted that the McIntosh case was authority for the proposition that the Court should determine the jurisdiction issue at an early stage and once it has been determined it would not be lost if later on the evidence suggests the claim is not maintained or there is an answer to it. It should not however be determined simply on the basis of an arguable question and that the Court has jurisdiction.
Reasoning
In this matter the Court is entitled to consider the pleadings as they appear in the Amended Statement of Claim. There is a specific reference in those pleadings to the representations and it is not for the Court to make a final determination of the facts. In my view it is sufficient for the Court to conclude that the pleadings as presently drawn appear to at least raise an allegation of a breach of s.52 of the TPA and in doing so has relied upon representations that were made which clearly relate to a company of which the First Respondent was a major shareholder namely IP. Although the pleadings in paragraph 10(b) relate to a breach of the Corporations Act and specifically refer to “dealings in securities”, it is my view that that pleading is an alternative pleading designed to raise the possibility of misleading and deceptive conduct pursuant to the Corporations Act which as an alternative pleading may be acceptable provided the Court is satisfied that it falls within its associated or accrued jurisdiction.
In the present case I do not need to consider in detail the associated or accrued jurisdiction as the pleading before me of the representation said to constitute misleading and deceptive conduct for the purposes of s.52 of the TPA are not sufficiently narrow to be confined to the meaning of financial services as defined in s.12BA of the Australian Securities and Investments Commission Act 1989 adopted by s.4 of the TPA. Whilst I am satisfied that the representations on a proper reading may be said to relate to the financial standing of IP in the context of AGD being a major shareholder of that overseas based company, I do not accept for the present purposes that the claim as pleaded is confined to the financial services including as it does “financial product” and of course what is commonly understood by the meaning of “security”. In my view the Respondents’ submissions would be more likely to succeed had the Applicant purchased shares in AGD at a presentation design to simply promote that company and the purchase of shares in that company rather than a presentation designed to promote and attract interest in the overseas based company IP of which AGD was a major shareholder.
It is important to note that the pleadings do not suggest that there was any presentation and/or representations made during the course of the presentation which could be said to be restricted to shareholdings or the issue of security in IP or indeed AGD. Of course the Applicant claims that as a result of the representation he was induced to purchase shares in AGD but it is not pleaded that this was the purpose of the presentation but rather the consequence to this particular Applicant as alleged. It is important to stress that it is merely an allegation at this time but based upon the pleading which set outs the allegation it is my view that that pleading is not a kind which would attract the operation of s.51AF of the TPA.
In my view the purpose of s.51AF is to ensure that where there is a misleading and deceptive conduct in relation to financial services which includes securities and obviously reliance upon those representations to the extent that misleading and deceptive conduct can be established then it is appropriate that the specific securities legislation and corporations law should apply rather than the TPA. I am not satisfied that the matter as presently pleaded should be necessarily confined in the manner submitted by Counsel for the Respondents as it seems to me that the purpose of s.51AF is to eliminate from the consideration of the Trade Practices legislation those matters which could clearly be regarded as the provision of financial services. This would include the issue of a prospectus and meetings designed to provide potential investors with a presentation that would encourage those investors to purchase shares in a particular company and/or otherwise take advantage of financial services then being offered in the context of those representations. At present I do not believe that the pleadings should be so restricted and accordingly I find the Court does have jurisdiction to hear the claim.
I should further add that in the circumstance of the present case where representations were made of the kind alleged and that in reliance upon those representations the Applicant purchased shares the jurisdiction of the Court is not to be taken as having arisen from the consequences of the misleading and deceptive conduct but rather the nature of that conduct which in this case involved general representations of a kind which I do not believe are subject to the operation of s.51AF of the TPA.
Accordingly it is appropriate that the application of the Respondents filed on 2 May 2002 be dismissed after I abridge all times to permit it being heard on 3 May 2002.
It is appropriate that I make further directions in relation to the conduct of this application so the matter may be listed for final hearing.
I certify that the preceding forty five (45) paragraphs are a true copy of the reasons for judgment of McInnis FM
Associate:
Date: 11 October 2002
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