State of Western Australia v Bond Corporation Holdings Ltd and ors

[1992] FCA 447

Re: STATE OF WESTERN AUSTRALIA; JAMES PHILIP YONGE and WARDLEY AUSTRALIA
SECURITIES LTD
And: BOND CORPORATION HOLDINGS LTD; WARDLEY AUSTRALIA LTD; LAWRENCE ROBERT
CONNELL; ROTHWELLS LTD; (IN LIQUIDATION); STATE OF WESTERN AUSTRALIA; KMG
HUNGERFORDS; PETER KENNETH LUCAS; PETER ROBERT GALLAGHER; JOHN MICHAEL HILTON
and DAVID GEORGE HURLEY
Nos. WA G115, 116 and 118 of 1990
FED No. 447
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - claim for damages - cross-claim for contribution - service out of jurisdiction - criteria - prima facie case - contribution claimed under Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 - whether contribution in respect of liability for damages under Trade Practices Act 1974 available - question open - prima facie case - leave granted.

Trade Practices Act 1974

Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 s.7

Federal Court Rules

Tycoon Holdings Ltd v. Trencor Jetco Inc and Others (unrep., Federal Court, 5/2/1992)

Merpro Montassa Limited v. Conoco Speciality Products Inc. (1991) 28 FCR 387

State of Western Australia v. Vetter Trittler Pty Ltd (In Liquidation) (1991) 30 FCR 102

John Robertson and Co. Ltd (In Liquidation) v. Ferguson Transformers Pty Ltd (1973) 129 CLR 65

Grollo and Co. Pty Ltd v. Nu-Statt Decorating Pty Ltd (1980) 47 FLR

Trade Practices Commission v. Manfal Pty Ltd (1990) 97 ALR 231

Bond Corporation Pty Ltd v. Thiess Contractors Pty Ltd (1987) 71 ALR 125

Blomme v. Sutton (1989) 52 SASR 576

Mathieson v. Workers' Compensation Board of Queensland (1987) 2 Qd R 57

Australia and New Zealand Banking Group Limited v. Turnbull and Partners Ltd (1991) 106 ALR 115

Re La Rosa Ex parte Norgard v. Rodpat Nominees Pty Ltd (1991) 104 ALR 237

Lezam Pty Ltd v. Seabridge Australia Pty Ltd (unrep, Federal Court Full Court, 13/5/1992)

HEARING

PERTH

#DATE 19:6:1992

Counsel for Wardley Australia Ltd and Wardley
Australia Securities Ltd: Ms A. Kennedy

Solicitors for Wardley Australia Ltd and Wardley
Australia Securities Ltd: Northmore Hale Davy and Leake

Counsel for James Philip Yonge: Mr G. Deane

Solicitors for James Philip Yonge: Bennett and Co.

ORDER

THE COURT ORDERS THAT:

A. On the motion of Wardley Australia Limited and Wardley Australia Securities Limited filed 12 June 1992:

1. That Wardley Australia Limited and Wardley Australia Securities Limited have leave to serve their cross-claim against John Michael Hilton herein outside the Commonwealth at Taman Metro, Alam Kau Park, Pondok Indah, Jakarta, Indonesia or elsewhere in Indonesia.

2. The costs of the motion be in the cause. B. On the motion of James Philip Yonge filed 17 June 1992:

1. James Philip Yonge have leave to serve his cross-claim against John Michael Hilton herein outside the Commonwealth at Taman Metro, Alam Kau Park, Pondok Indah, Jakarta, Indonesia or elsewhere in Indonesia.

2. The costs of the motion be in the cause.

Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

In these proceedings, the State of Western Australia sues a number of parties, including Wardley Australia Limited, Wardley Australia Securities Limited and James Philip Yonge for damages under s.82 of the Trade Practices Act 1974 arising out of alleged misleading or deceptive conduct in contravention of s.52 of the Act. Damages are also claimed for negligent mis-representation. The action arises out of a decision, said to have been made by the State on 26 October 1987, to support the financial rescue of the merchant bank, Rothwells Limited, by executing an indemnity to the extent of $150 million in favour of the National Australia Bank. The State alleges that it was induced to provide the indemnity by representations made to at least one of its ministers and other officials at meetings held on 24 and 25 October 1987. The State also says that in order to resolve a disputed liability under the indemnity it paid $33 million to Rothwells' provisional liquidators on 30 May 1989 and received $10.5 million from the National Australia Bank on 8 December 1989. It claims the difference of $22.5 million and the loss of interest.

1. Wardley Australia, Wardley Securities and Yonge dispute the claim but sought and obtained leave to cross-claim against John Michael Hilton, a director of Rothwells at the time of the rescue. The cross-claims are for indemnity and contribution from Hilton in respect of any liability that Wardley Australia and Wardley Securities and Yonge might have to the State. In addition, Wardley Australia and Wardley Securities claim that Hilton is liable to them for damages in any event.

2. The Wardley cross-claim alleges that Rothwells' Annual Report published in September 1987 contained false statements as to its financial position, that the State relied upon those statements in deciding to execute the indemnity and that they constituted misleading or deceptive conduct in contravention of s.52 in which Hilton was involved as a person knowingly concerned in or party to the contravention. Reliance is placed upon his participation in a statement by the directors of Rothwells contained in the annual report to the effect that the profit and loss accounts were drawn up to give a fair and true view of the company's profit for the year ended 31 July 1987 and that the balance sheets were also drawn up to give such a view of the state of affairs as at that date. It is also said that at Rothwells' office on 24 October 1987, Yonge and Bond referred to the annual accounts in Hilton's presence and he remained silent thereby impliedly representing that they were true. The representation attributed to him in the annual report and the implied representation at the meeting of 24 October 1987 are respectively designated the Hilton Representation Number 1 and the Hilton Representation Number 2.

3. Facts are pleaded to establish a duty of care on the part of Hilton to the State and the allegation made that in breach of that duty he was negligent in making the representations. Paragraphs 16 and 17 of the cross-claim then allege:
   

"16. If the State suffered loss and damage as it claims in the Statement of Claim, then it did so as a result of the matters aforesaid. 17(a) By reason of the matters set out in paragraphs 1 to 16 Hilton would, if sued by the State, be liable to the State in respect of the same damage in respect of which the State claims against Wardley.

(b) Hilton and Wardley would therefore be tortfeasors within the meaning of Section 7 of the Law Reform (Contributory Negligence and Tortfeasors Contribution) Act 1947 and Wardley would then be entitled to indemnity or contribution from Hilton."

1. The two Wardley companies go on to allege in the cross-claim that, acting on the faith of the Hilton Representations, Wardley Securities entered into an underwriting agreement with Rothwells under which Rothwells would offer its shareholders the right to purchase shares in Rothwells with a total value of $150 million and that if all or any of the issued shares were not subscribed for by 14 January 1988, Wardley Securities would subscribe and pay for or alternatively procure subscription and payment for those issued shares on that date. Sub-underwriting agreements were to be entered into between Wardley Securities and third parties which together would discharge its liability to subscribe and pay for all but approximately $2,500,000 in value of the issued shares. Pursuant to the sub-underwriting agreement under which it was to receive a fee of $4.5 million, Wardley Securities says it performed its obligations and entered into a number of sub-underwriting agreements. The upshot of this transaction was that it claims to have suffered a total loss of $4,180,247. Wardley Australia says that relying upon the Hilton Representations it advanced to Rothwells the sum of $7.5 million under a loan agreement which was to be repaid in or about June 1989. It has been obliged to prove in the liquidation of Rothwells in respect of that loan agreement and claims to have suffered loss and damage in the amount of $7,571,064.90. In addition a shortfall of $1.5 million due in respect of fees under the underwriting agreement is alleged. Wardley Australia refers to the allegations made by the State to the effect that it made representations and engaged in conduct which was misleading or deceptive and negligent and says that if the Court finds those allegations to be true and that the two Wardley companies are liable to the State, then the representations were made and the conduct occurred by reason of their reliance on the Hilton Representations and that in the premises they are entitled to be indemnified by Hilton. The relief claimed is expressed at para.28 of the cross-claim in the following terms:
   

"28(a) Wardley claims indemnity or contribution from Hilton.

(b) Wardley Securities claims damages for negligent misrepresentation in the sums of:

(i) $4,180,247 plus compound interest thereon by way of damages and in the alternative interest pursuant to Section 51A of the Federal Court of Australia Act; and

(ii) $1.5 million and interest thereon pursuant to Section 51A of the Federal Court of Australia Act;

(c) Wardley Australia claims damages for negligent misrepresentation in the sum of $7,571,064.90 plus compound interest thereon by way of damages, and in the alternative interest pursuant to Section 51A of the Federal Court of Australia Act."

Wardley Australia and Wardley Securities seek leave to serve the cross-claim against Mr Hilton at Taman Metro, Alam Kau Park, Pondok Indah, Jakarta, Indonesia or elsewhere in Indonesia. The application is supported by two affidavits sworn by Ms Kennedy, a solicitor employed by their solicitors. It appears from the affidavit that the last known address for Hilton was 6 Renown Avenue, Claremont in Western Australia. Now, however, it appears that he resides at Taman Metro, Alam, Kau Park, Pondok Indah, Jakarta in Indonesia and intends to reside there indefinitely.

1. The application is made pursuant to O.8 of the Federal Court Rules. Order 8 r.1 authorises the service of originating process outside the Commonwealth in a number of cases including:
   

(a) where the proceeding is founded on a cause of action arising in the Commonwealth; .

.

.

(ac) where the proceeding is founded on a tort committed in the Commonwealth; .

.

.

(b) where the proceeding is founded on a breach of an Act, where the breach is committed in the Commonwealth;

(c) where the proceeding is founded on a breach, wherever occurring, of an Act, and is brought in respect of, or for the recovery of, damage suffered wholly or partly in the Commonwealth;

(d) where the proceeding is for contribution or indemnity in respect of a liability enforceable by a proceeding in the Court.

Order 8 r.2 conditions the validity of service of originating process outside the Commonwealth upon the grant of leave by the Court, confirmation after the event or waiver of objection by entry of an appearance by the person served. Order 8 r.2(2) and 2(3) provide:

"2(2) Where the Court is satisfied of the following matters-

(a) that the proceeding is a proceeding in which the Court has jurisdiction;

(b) that the proceeding is a proceeding to which rule 1 applies; and

(c) that the applicant has a prima facie case for the relief which he seeks, the Court may, by order, grant leave to serve originating process outside the Commonwealth under this Order.

2(3) The evidence on a motion for leave under sub-rule

(2) shall include evidence showing in what country or place the person to be served is, or probably may be found."

1. The cross-claim is in part for contribution or indemnity in respect of a liability enforceable by a proceeding in this Court. The claim for damages for negligent mis-representation falls into the category of a proceeding founded on a tort allegedly committed in the Commonwealth. I am also satisfied that the evidence establishes that Mr Hilton probably may be found in Indonesia.

2. The question remains whether Wardley and Wardley Securities have a prima facie case for the relief which they seek. That requirement applies to the relief sought on each cause of action Tycoon Holdings Ltd v. Trencor Jetco Inc and Others (unrep., Federal Court, 5/2/92, Wilcox J.). The nature of the prima facie case contemplated by the rule does not require consideration of whether a no case submission would succeed at this stage - Merpro Montassa Limited v. Conoco Specialty Products Inc. (1991) 28 FCR 387. The determination that there is such a case must leave open the possibility that the respondent, once served, could move to strike out the statement of claim or invoke other provisions of the Rules relating to summary disposition - State of Western Australia v. Vetter Trittler Pty Ltd (In Liquidation) (1991) 30 FCR 102 at 110.

3. The claim for indemnity or contribution as pleaded, relies upon the proposition that if Hilton were to be sued by the State he would be liable to it in respect of the same damages which the State claims against Wardley Australia and Wardley Securities. Hilton, Wardley Australia and Wardley Securities, it is said, would therefore be tortfeasors within the meaning of s.7 of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 and Wardleys would be entitled to indemnity or contribution from Hilton. Sub-section 7(1)(c) of that Act provides:
   

"7(1) Where damage is suffered by any person as the result of a tort -

.

.

.

(c) any tortfeasor liable in respect of that damage may recover contribution from any other tortfeasor who is or would if sued have been liable in respect of the same damage whether as a joint tortfeasor or otherwise but so that no person shall be entitled to recover contribution under this section from any person entitled to be indemnified by him in respect of the liability for which contribution is sought."

Relief by way of contribution or indemnity is plainly open in respect of the State's claim for damages for negligent mis-statement on the part of Wardley. The question whether the provisions of the Act can be applied to contraventions or involvement in contraventions of the Trade Practices Act 1974 may be more difficult. On one view, it can be argued that the direct application of the State law is foreclosed upon considerations similar to those applied to limitations statutes, the leave requirements of corporations law in relation to insolvent corporations or the provisions of State arbitration legislation John Robertson and Co. Limited (In Liquidation) v. Ferguson Transformers Pty Ltd (1973) 129 CLR 65 at 87 and 93; L Grollo and Co. Pty Ltd v. Nu-Statt Decorating Pty Ltd (1980) 47 FLR 44 at 47; Trade Practices Commission v. Manfal Pty Ltd (1990) 97 ALR 231 at 241 and 248; Bond Corporation Pty Ltd v. Thiess Contractors Pty Ltd (1987) 71 ALR 125 at 137. On the other hand, it may be said that the State contribution legislation creates a regime of rights which does not, in any sense, interfere with or impinge on the Court's jurisdiction. That answer would not dispose of the question of indirect inconsistency posited on the basis that the Trade Practices Act creates a comprehensive system of rights, liabilities and remedies. The translation of the State Act, if that be open, into proceedings in this Court via s.79 of the Judiciary Act 1903 would leave open the question of inconsistency, but as a matter of statutory construction rather than one of constitutional conflict. All of these questions would leave unresolved the issue whether persons under related or co-ordinate liabilities arising from contraventions of the Trade Practices Act can be described as "tortfeasors" within the meaning of s.7(1)(c) of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act.

1. There is authority for the proposition that the provisions of similar statutes in other States may apply to liabilities for civil wrongs which are purely the creation of statute Blomme v. Sutton (1989) 52 SASR 576 at 582 where King C.J. said:
   

"Tort is one of the broad categories under which legal rules are classified. It is concerned with civil wrongs arising under the general law whether statutory or common law, and the remedies therefor. In principle any action for a remedy conferred by law for the redress of a civil wrong should be regarded as an action in tort. If a right of action at common law for a remedy for a civil wrong consisting of infringement of rights created by statute, is a right of action in tort, I can see no reason in principle why a right of action conferred by statute for a remedy for such a wrong should not be so regarded."

See also the extensive discussion by Legoe J. in the same case which concerned the application of the Survival of Causes of Action Act 1940 to a cause of action brought under the Wrongs Act 1936, the South Australian equivalent of Lord Campbell's Act.

1. In Mathieson v. Workers' Compensation Board of Queensland (1990) 2 Qd R 57, the Full Court of the Supreme Court of Queensland was concerned with the application of the Law Reform (Tortfeasors Contribution, Contributory Negligence and Division of Chattels) Act 1952 (Qld) to liabilities imposed on an insurer by the Motor Vehicles Insurance Act 1936 and upon the Workers Compensation Board by the Workers Compensation Act 1916. Ryan J., with whom Kelly S.P.J. and McKenzie J. agreed, characterised the liabilities as tortious and held that the legal liability of the Board rendered it a tortfeasor in the sense used in the Law Reform Act. His Honour observed at 61:
   

"The question...is whether the character of the legal liability imposed on the Board and on the licensed insurer is tortious, since if it is the Board and the licensed insurer will be tortfeasors. It is true that the cause of action of the injured plaintiff against the Board and against the licensed insurer is a statutory cause of action, but in my view delictual liability may arise from statute as well as being imposed by the common law."

In Australia and New Zealand Banking Group Limited v. Turnbull and Partners Ltd (1991) 106 ALR 115, Sheppard J. was concerned, inter alia, with the question whether liability for damages under the Trade Practices Act would give rise to rights of contribution under s.5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW). His Honour, incidentally, rejected the notion that s.87 of the Trade Practices Act could provide a basis for contribution and in this respect his views coincide with my own expressed in Re La Rosa Ex parte Norgard v. Rodpat Nominees Pty Ltd (1991) 104 ALR 237 at 242. This view also now has the authority of the Full Court in Lezam Pty Ltd v. Seabridge Australia Pty Ltd (unrep, Federal Court Full Court, 13/5/1992) at 40-41 per Sheppard J., Hill J. agreeing. But in relation to the claim for contribution based upon the Law Reform (Miscellaneous Provisions) Act 1946 (NSW), his Honour said at 127:

"In my opinion the claim for contribution made by the cross-claimant in this case cannot succeed if it is based on s.5. There are at least two reasons for this. The first is that the damage which is alleged was not suffered by the applicants as a result of a tort. The action is for damages for breach of an obligation imposed by the statute itself (s.52) not to engage in misleading or deceptive conduct. The cause of action is entirely statutory; the right to bring it is conferred by s. 82 and, perhaps, s.87. It is to be distinguished from other causes of action mentioned in argument. The cause of action in a case based on fatal accidents legislation is usually negligence. The right of action is conferred on the estate of a deceased person or upon a dependant but it will only succeed if there is tortious conduct on the part of the defendant. In a case based on breach of statutory duty, the cause of action is again tortious. The statute does not in terms confer a cause of action. Rather the court determines that, on the proper construction of the statute, the legislature intended a person within its purview who is injured as a result of its breach to have a right of action."

Notwithstanding the view that his Honour had formed, however, he declined to strike out the cross-claim on that basis. He observed:

"In ordinary circumstances I would take this course, but two matters, operating together, have persuaded me that I should not do so. First, so far as I am aware, this is the first case in which the possible application of s.5 of the Law Reform Act (and similar provisions contained in other State Acts) has arisen for consideration; no authority on the point was referred to by counsel. There have been cases in which orders for contribution have been made, but, so far as I am aware, in none of these cases has there been argument about the basis for the making of the order. A case in point is Dennison v. Ace Shohin

(Australia) Pty Ltd (1987) ATPR 40-793 at 48,662. The point is thus one of general importance. "

His Honour also concluded that striking out the claim of contribution would not achieve much in the overall management of the case. If the claim for contribution had been the only matter, he would have had a different view as the case would have been clear cut and his decision could be tested quickly on appeal. But in a case with as many issues as that before his Honour, the better course, in his view, was to leave the claim in and dispose of it along with all other issues at the conclusion of the case.

1. The question of the application of the Law Reform (Contributory Negligence and Tortfeasors' Contribution) Act 1947 to support a claim for contribution or indemnity is, in my opinion, open and does not prevent me from concluding that there is a prima facie case for a cross-claim made by Wardley Australia and Wardley Securities against Hilton. The evidentiary basis for the case is adequately disclosed by supporting affidavits sufficient to allow me to conclude that there is a prima facie case in the sense contemplated by O.8 r.2.

2. Yonge's claim for contribution or indemnity from Hilton is almost identical to that made by Wardley Australia and Wardley Securities, and I am satisfied that it is appropriate in that case also to make the order sought.