CATCHWORDS
PRACTICE AND PROCEDURE - anti-suit injunction - applicants sue New York law firm "S" arising out of same facts as those which had given rise to these proceedings - respondents join S as cross respondents in this Court claiming contribution or indemnity - S moves for dismissal or stay of New York action on ground of forum non conveniens - S's motion in New York fails at first instance and on appeal - S then applies to this Court for injunction restraining applicants from pursuing the action against it in New York - S having said that if it fails it will wish to cross claim in New York against respondents and another cross respondent to these proceedings, they seek injunction restraining S from impleading them in New York - basis of jurisdiction to grant anti-suit relief - factors relevant to exercise of discretion - scope of the "matter" over which this Court has jurisdiction.
Federal Court of Australia Act 1976 (Cth) s 22.
Trade Practices Act 1974 (Cth), s 86.
Bank of Tokyo Ltd v Karoon [1987] 1 AC 45 note (CA).
Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538.
National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 (Gummow J).
Amchem Products Inc v British Columbia (Workers' Compensation Board) [1993] 1 RCS 897.
Societe Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 (PC).
Cigna Insurance Australia Ltd v CSR Ltd, unreported, Supreme Court of New South Wales/Rolfe J, 15 August 1995.
McHenry v Lewis (1882) 22 Ch D 397 (CA).
Peruvian Guano Co v Bockwoldt (1882) 23 Ch D 225 (CA).
Hyman v Helm (1883) 24 Ch D 531 (CA).
The Sentry Corporation v Peat Marwick Mitchell & Co (1990) 24 FCR 463 (FC).
Re Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25 (McLelland J). CSR Ltd v New Zealand Insurance Co Ltd (1994) 36 NSWLR 138 (Rolfe J).
ALLSTATE LIFE INSURANCE CO & ORS v AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED & ORS (No 22)
Nos NG 381 of 1994, NG 523 of 1991, NG 622 of 1991 and NG 635 of 1991.
Lindgren J
Sydney
19 January 1996
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY)
GENERAL DIVISION )
No NG 381 of 1994
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 523 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 622 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 635 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
CORAM: Lindgren J
PLACE: Sydney
DATE: 19 January 1996
MINUTE OF ORDERS
THE COURT ORDERS:
1. THAT any party wishing to make further submissions in relation to the two issues identified in Reasons for Judgment (No 22) dated 19 January 1996 do so in writing, to be filed and served by 4.00 pm on Monday 29 January 1996.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA)
NEW SOUTH WALES DISTRICT REGISTRY)
GENERAL DIVISION )
No NG 381 of 1994
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 523 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 622 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
No NG 635 of 1991
BETWEEN:
ALLSTATE LIFE INSURANCE CO and the parties listed in Annexure A to the third further amended statement of claim.
Applicants
AND:
AUSTRALIA & NEW ZEALAND BANKING GROUP LIMITED ACN 005 357 522 and the parties listed in Annexure B to the third further amended statement of claim.
Respondents
CORAM: Lindgren J
PLACE: Sydney
DATE: 19 January 1996
REASONS FOR JUDGMENT (No 22)
(anti-suit injunctions)
NATURE OF PROCEEDINGS
The partners in the New York law firm, Skadden, Arps, Slate, Meagher and Flom ("Skadden"- Skadden has an office in Sydney but its principal place of business is in New York) are cross respondents to various cross claims in these proceedings. They are also cross claimants in several cross claims. Skadden is not a respondent. Yet by notice of motion filed on 21 September 1995, Skadden seeks the following "anti-suit injunction" against the applicants:
"3. The
Applicants be restrained from taking any
further step directly or indirectly in proceedings in the Supreme Court of the
State of New York captioned Ithaca
Partners LP and Gabriel Capital LP
v Skadden, Arps, Slate, Meagher &
Flom (Index # 110552/94), Executive
Life Insurance Company Trust et al v Skadden,
Arps, Slate, Meagher & Flom (Index # 128800/94), Scheiber v Skadden, Arps, Slate, Meagher & Flom (Index No
128343/94), Colonial Intermediate High
Income Fund v Skadden, Arps, Slate, Meagher & Flom (Index No
132616/94), Ithaca Partners LP and
Gabriel Capital LP v United States
Trust Company of New York (Index # 133276/94), and Ariel Fund Ltd et al v Bear Stearns & Co Inc (Index No.
12153/94)."
On 21 September 1995, Skadden applied ex parte for interlocutory relief against the applicants pending the hearing of its application for that relief. The primary purpose of the ex parte application was to ensure that the applicants did not obtain from the Supreme Court of the State of New York an injunction restraining Skadden from pursuing its application for the anti-suit injunction referred to above. (I will refer to that Court as "the New York court" and references to litigating "in New York" are references to litigating in that Court, not the United States District Court, Southern District of New York referred to later.) On 21 September I granted the interlocutory relief ex parte in the following terms:
"Upon Skadden Arps by their Counsel giving the usual undertaking as to damages, order that the Applicants be restrained until 5.00 pm on 25 September 1995 from taking any step directly or indirectly to obtain from the Supreme Court of the State of New York or from any other court an order restraining or purporting to restrain Skadden Arps from proceeding to seek the relief referred to in paragraph 3 of the Notice of Motion filed in Court today."
The next day, 22 September 1995, I published written reasons for the granting of that interlocutory injunction.
Various other parties to these proceedings have filed notices of motion seeking anti suit injunctions in the nature of "anti-joinder injunctions" against other parties. This arose from the fact that Skadden made it clear that if it was forced to defend an action brought against it by the applicants in the New York court, it would wish to implead (join as third party cross defendants) those parties. The first of such applications against Skadden for an anti-suit injunction was made as early as 22 September 1995, when Skadden's own motion was before the Court. On that occasion I made the following order:
"Upon the 1st and 3rd to 11th (inclusive) and 54th respondents by their respective counsel giving the usual undertaking as to damages, order that until 5.00 pm on Monday 25 September 1995, the parties listed in the schedule hereto ('Skadden Arps') and United States Trust Company ('USTC') be restrained from taking any steps or continuing to take any steps to join any of such respondents in any of the proceedings pending in the Supreme Court of New York and referred to in paragraph 3 of Skadden Arps' Notice of Motion of 21 September 1995."
United States Trust Company of New York ("USTC"), referred to
in that order, is the tenth applicant in these proceedings and is also being
sued in New York court by some of its co-applicants. It had also threatened to implead other
parties in New York. USTC is a
corporation organised under the laws of New York which maintains its principal
place of business in
New York. Other interlocutory
anti-joinder injunctions were made on subsequent occasions. All the interlocutory injunctions referred to
have been extended from time to time.
All the various motions for anti-suit injunctions were heard on Monday
13 November and Tuesday 14 November. In
all cases I ordered on Monday 13 November that upon the moving parties, through
their legal representatives, giving the usual undertaking as to damages, the
existing interlocutory injunctions be continued until the conclusion of the
hearing and the determination of the motions.
It is convenient now to set out in tabular form particulars of the motions for anti-suit injunctions which I heard on 13 and 14 November:
Dates
Moving Respondents to Motions
Parties on the Motions the Motions Filed
1st, 7th, 8th, 9th & 11th Skadden, and the other 25.9.95
respondents ("Allens' Banks"). applicants.
2nd respondent ("BNZ"). Skadden and USTC. 5.10.95
3rd respondent ("Barclays"). Skadden and USTC. 25.9.95
4th respondent ("Chase"). Skadden and USTC. 25.9.95
5th and 6th respondents Skadden and USTC. 25.9.95
("Citibank").
10th respondent ("Sumitomo" Skadden and USTC. 22.9.95
and "SIFA").
49th and 53rd respondents Skadden, USTC and the 15.11.95
("Messrs Blood and Gale"). other applicants.
51st respondent ("Mr Deans"). Skadden, USTC and the 15.11.95
other applicants.
52nd respondent ("Sir Max Skadden, USTC and the
Dillon"). other applicants. 13.10.95
54th respondents ("Freehills"). Skadden, USTC and the 26.9.95
other applicants. 27.9.95
29.9.95
1st to 187th cross respondents The applicants. 21.9.95
("Skadden").
207th cross respondents ("Price Skadden and USTC. 25.9.95
Waterhouse").
GENERAL BACKGROUND
Facts and parties
There are 17 applicants. With one exception they are substantial American investors which hold debentures issued by Linter Textiles Corporation Limited ("Linter Textiles"). The exception is the 10th applicant, USTC, which is a trustee for the other applicants (see later). Some, but not all, of the applicants have their principal place of business in New York and some but not all of these are formed under the laws of New York.
The current pleading of the applicants' case
against the respondents is found in a third further amended statement of claim
which was filed on 3 October 1995. With
the exception already noted of USTC, the applicants are the holders of
US$200,000,000 13.75% "senior subordinated debentures" issued by
Linter Textiles, a corporation formed under the laws of New South Wales. The words "senior subordinated"
signify that in the event of the insolvency of Linter Textiles, the holders of
the debentures are to be paid only after all other creditors of Linter Textiles
are paid in full. The debentures were
issued on 13 October 1988 and do not fall due until 1 October
2000. The relatively high interest rate
of 13.75% p.a. reflects the high risk associated with such long term senior
subordinated debentures. In fact such
debentures are referred to as "junk bonds".
One might expect that two things, at least, would have been of interest to prospective investors in such debentures: the existence, nature and extent of any existing liabilities, including any liabilities under guarantees, of Linter Textiles or of its subsidiaries ("the Subsidiaries"); and the possibility that Linter Textiles or the Subsidiaries might incur liabilities after the issue of the debentures which would rank "senior" to them.
The debentures were issued pursuant to an amended registration statement ("the Registration Statement") incorporating a prospectus dated 6 October 1988 ("the Prospectus") which was filed with the Securities and Exchange Commission of the United States of America ("the SEC") on about 6 October 1988. The debentures were to be delivered and paid for on or about 13 October 1988 at the office of the underwriter of the issue, Drexel Burnham Lambert Incorporated ("Drexel"), in New York.
The debentures were in fact issued in New York pursuant to an Indenture dated as of 1 October 1988 entered into between Linter Textiles and USTC ("the Indenture"). As noted earlier, USTC is an applicant only in its role as trustee for debenture holders. It is being sued by some of them in New York. It is, however, convenient to conceive and speak of "the applicants" as if they were all debenture holders but it will be understood that USTC is not.
Not all applicants subscribed for debentures. Some are successors in title to subscribers. The applicants complain that they or their predecessors in title were induced to subscribe by misleading and deceptive conduct.
In summary, and with some oversimplification, their case is that they or their predecessors were led to believe that, subject to an exception not presently relevant, the debentures would not be subject to any senior indebtedness, whereas in truth they would be and, in the event, were. According to the applicants' case, prior to the debenture issue, Linter Textiles and the Subsidiaries had given guarantees to certain banks in respect of financial accommodation provided by them to Linter Group Ltd ("Linter Group"), the parent company of Linter Textiles, a company also incorporated under the laws of New South Wales. Those banks are the 1st to 11th respondents and are called "the Initial Banks" or "the Initial Participant Banks". I will use the former expression.
The applicants complain that although the Initial Banks released their guarantees shortly prior to the issue of the debentures, this was on the basis of an arrangement with each Initial Bank which included undertakings by Linter Textiles that when the funds raised by the issue of the debentures were received, they would be paid immediately to Linter Group on account of an indebtedness of Linter Textiles to Linter Group, and that guarantees would then be given by Linter Textiles and the Subsidiaries to the Initial Bank in place of those released ("the release and reinstatement arrangement"). It is put by the applicants that the promoters of this scheme had in mind that they could say to the world that there was no senior indebtedness (save for a limited amount not presently relevant) at the time when the debentures were issued, yet not disclose that arrangements were in place for the giving of new guarantees immediately after the debenture issue, which would, in effect, "reinstate" the senior indebtedness to the Initial Banks.
The applicants also complain that the giving of the "substituted guarantees" was in breach of a term of the Indenture designed to protect debenture holders against the incurring, subsequent to the issue of the debentures, of indebtedness ranking senior to them.
In the Equity Division of the Supreme Court of New South Wales, Linter Group was ordered to be wound up on 12 April 1991, Linter Textiles was ordered to be wound up on 19 August 1991, the Subsidiaries, with the exception of Formfit Holdings Pty Ltd, were ordered to be wound up on 24 or 26 September 1991, and Formfit Holdings Pty Ltd was ordered to be wound up on 24 February 1992. Linsay Phillip Maxsted and John Beresford Harkness ("the Liquidators") were appointed liquidators in each case.
There are 54 respondents in these proceedings. As noted earlier, the first to 11th respondents are the Initial Banks and each is said to have been parties to a release and reinstatement arrangement.
The 12th to 28th respondents are 17 "Subsequent Banks". They provided financial accommodation, in some cases to Linter Textiles and in others to Linter Group, and in all cases well after the release and reinstatement arrangement had been implemented. The applicants no longer seek relief against them, but the Subsequent Banks wish to file cross claims against various respondents.
The 29th to 44th respondents are the Subsidiaries, the 45th respondent is Linter Textiles, and the 46th respondent is Linter Group. I will refer to the 29th to 46th respondents as "the Linter Companies".
The 47th respondents are the Liquidators.
The 48th to 53rd respondents are former directors and officers of various of the Linter Companies and are called "the Linter Officers". I will call the 29th to 53rd respondents "the Linter interests".
Finally, the 54th respondents are Freehill Hollingdale & Page, a firm of solicitors practising in Sydney, who provided legal services and advice in connection with the issue of the debentures ("Freehills").
Skadden and the Australian firm of chartered accountants, Price Waterhouse, were also retained to provide professional services and advice in connection with the issue of the debentures. The applicants have not joined the partners of those firms as respondents, but several respondents have joined them as cross respondents. For example, each of the Initial Banks, Freehills and the Linter Companies have filed cross claims against Skadden seeking indemnity or contribution in the event of those respondent-parties being held liable to the applicants. Similarly, the Initial Banks have filed cross claims against Price Waterhouse seeking indemnity or contribution. In addition to those cross claims against Skadden and Price Waterhouse, there are numerous cross claims for indemnity or contribution by Skadden and Price Waterhouse. There are also cross claims for indemnity or contribution as between respondents themselves.
Legal bases of liability pleaded by the applicants against respondents
The legal bases of the liability asserted by the applicants vary as between respondents. Against Linter Textiles, the applicants seek relief based on contraventions of s 52 of the Trade Practices Act, 1974 (Cth), common law deceit under the law of New South Wales, common law fraud under the law of New York, breach of contract, and violations of the US Securities Act, 1933. The applicants seek generally similar relief against Linter Group, the Subsidiaries and the Linter Officers.
In relation to the Initial Banks, the applicants allege that by failing to advise the applicants or their predecessors in title of the release and reinstatement arrangement, they
(a) were knowingly involved in misleading and deceptive conduct of Linter Textiles in contravention of s 52 of the Trade Practices Act 1974 (Cth);
(b) were knowingly involved in the commission by Linter Textiles of fraud under New South Wales law;
(c) committed fraud under New South Wales law; and
(d) committed fraud under New York law.
The applicants seek damages against the Initial Banks.
The applicants seek damages against Freehills for aiding and abetting contraventions of s 52 of the Trade Practices Act and of s 42 of the Fair Trading Act, 1987 (NSW), common law deceit under the law of New South Wales and common law fraud under the law of New York, as well as for tortious negligence.
The applicants lodged proofs of debt in the liquidations of the Linter Companies. The proofs have been accepted. The windings up (in the Equity Division of the Supreme Court of New South Wales) have not yet been completed.
HISTORY OF LITIGATION
The applicants commenced proceedings in this Court on 17 September 1991. But they were begun to safeguard the applicants' position against the background that the applicants' preferred forum was the District Court of the United States of America, Southern District of New York ("the US District Court"). The applicants had commenced proceedings in the US District Court but there were motions in that Court for their dismissal. It was against the possibility that those motions for dismissal might succeed, that the applicants commenced the proceedings in this Court.
It is necessary, in connection with the present motions, to understand the history of the litigation which has been the aftermath of the issue of the debentures, and the best way to understand it is to follow it chronologically.
1. On 8 March 1991 some of the applicants, as plaintiffs, commenced proceedings in the US District Court against Linter Group, Linter Textiles, the Subsidiaries, some Linter Officers and the Liquidators (as receivers and managers of Linter Group and Linter Textiles appointed by the Supreme Court of Victoria on 26 January 1991). They sought declaratory relief and damages (including exemplary damages) alleging violations of the US Securities Act of 1933 and Securities Exchange Act 1934 and various State and common law bases of liability, including fraud and breach of contract. The plaintiffs' claims were based on alleged misrepresentations in the Registration Statement, the Prospectus and Linter Textiles' Annual Report filed on 14 September 1989. These proceedings were Allstate Life Insurance Co et al v Linter Group Limited et al 91 Civ 1655 (SDNY) and are referred to as "Linter I".
Three obvious points should be noted for present purposes; firstly, Skadden was not a defendant; secondly, all the defendants were Australian residents; thirdly, the US District Court was the plaintiffs' first choice of forum for litigating their claims arising out of the events surrounding the debenture issue.
On 12 December 1991 various defendants moved the US District Court to stay or dismiss Linter I on the ground of comity having regard to the ongoing liquidation proceedings in New South Wales, or alternatively, on the ground of forum non conveniens. As will be seen later, the motions were successful and Linter I was dismissed on 1 June 1992.
2. On 26 April 1991 the same applicants commenced additional proceedings in the US District Court against Linter Group, Linter Textiles, one Linter Officer, the Liquidators (as receivers and managers of Linter Group and Linter Textiles appointed by the Supreme Court of Victoria on 26 January 1991) ("the Linter defendants") and the 1st to 4th and 7th to 11th respondents, that is to say, nine of the eleven Initial Banks (the two omitted being the 5th and 6th respondents to these proceedings, Citibank Ltd and Citibank NA respectively). The proceedings were Allstate Life Insurance Co et al v Linter Group Limited et al 91 Civ 2873 (SDNY) and are referred to as "Linter II". In Linter II the plaintiffs alleged that the bank defendants had aided and abetted as well as conspired with the Linter Companies to defraud them, in violation of s 10 (b) of the Securities Exchange Act 1934 and Rule 10b-5 promulgated thereunder.
Again, Skadden was not joined as a defendant, all the defendants were Australian residents, the US District Court was the plaintiffs' preferred forum, and there were motions for dismissal. The Linter defendants moved for dismissal of the claims against them as a matter of comity in favour of the ongoing liquidation proceedings in New South Wales. The bank defendants moved for dismissal on the ground of forum non conveniens. As will be seen, both motions were decided on 21 December 1992 in favour of dismissal.
3. Some five months later, on 17 September 1991, certain of the present applicants commenced proceedings No NG 523 of 1991 in this Court against the 1st to 45th respondents (the Initial Banks, the Subsequent Banks, the Subsidiaries and Linter Textiles) and USTC. Linter Group, the Liquidators, the Linter Officers and Freehills were joined later. On 24 June 1994 USTC ceased to be a respondent and became the 10th applicant (I have used and will use the parties' numerical ranking as it exists today.)
4. On 4 October 1991 others of the present applicants commenced proceedings No NG 622 of 1991 in this Court against the same respondents and against others who subsequently ceased to be parties.
5. On 11 October 1991 others of the present applicants commenced proceedings No NG 635 of 1991 in this Court against the same respondents as those in proceedings No NG 622 of 1991.
The result of proceedings Nos NG 523, 622 and 635 of 1991 was that, inter alia, 14 of the present 17 applicants were suing in Australia.
6. On 9 January 1992, the US District Court denied the motion by the bank defendants for dismissal of Linter II on the ground of forum non conveniens (782 F Supp 215 (SDNY), 1992)). Accordingly, on 14 February 1992, the bank defendants answered the plaintiffs' complaint in Linter II and asserted cross claims for contribution and indemnity against the Linter Companies.
7. On 1 June 1992, District Judge Patterson dismissed Linter I in favour of the liquidation proceeding as a matter of comity ([1992] Fed Sec L Rep (CCH) 96,864 (SDNY)). In opposing dismissal, the plaintiffs had submitted that the Supreme Court of New South Wales would probably permit the separate prosecution of the plaintiffs' claims in this Court and that the defendants' comity motion was really a forum non conveniens motion in disguise and should be treated as such. District Court Judge Patterson disagreed, saying this:
"That the Australian bankruptcy court may, as a matter of procedural efficiency, defer to another tribunal more suited to adjudicate Plaintiffs' complex claims does not mean that this is a forum non conveniens motion. The Court grants comity to the Australian bankruptcy proceedings not because it believes that the Australian Federal Court is a more convenient forum, but because it recognises and respects the policy rationale in deferring to foreign insolvency proceedings." (at 93, 520)
Because the District Court dismissed the action on the ground of comity, the alternative forum non conveniens ground did not have to be addressed in Linter I.
8. Predictably, following the dismissal of Linter I, the Linter Companies moved for dismissal of Linter II on the ground of comity. As well, the bank defendants filed a second motion for the dismissal of Linter II on the ground of forum non conveniens. On 21 December 1992 District Court Judge Patterson granted both motions in Linter II ([1992] Fed Sec L Rep (CCH) 97,317 (SDNY)).
The plaintiffs accepted that the same principles of comity that had led to dismissal of Linter I, called for dismissal of Linter II with regard to the Linter defendants. But they asked the Court to deny the Linter defendants' motion in order that they might be able to obtain discovery from the Linter defendants, since no Linter Officers were parties to Linter II (it will be recalled that Linter Officers had been parties to Linter I). The Court was not persuaded.
For their part, the bank defendants asked the Court to reconsider its ruling on 9 January 1992 on the basis of the intervening decision of the Court on 1 June 1992 dismissing Linter I.
District Court Judge Patterson granted both the Linter defendants' motion for dismissal on the basis of comity and the bank defendants' motion for dismissal on the ground of forum non conveniens. Accordingly, Linter II was also entirely dismissed.
One factor which persuaded his Honour to grant the bank defendants' motion was that former officers and employees of the Linter Companies were central witnesses in the action, but were not parties to it and were beyond the subpoena power of the District Court. Another factor was that the ongoing nature of the liquidation had necessitated the dismissal of the Linter defendants from Linter I and Linter II on the ground of comity, and that that dismissal had, in turn, eliminated the bank defendants' opportunity to pursue cross claims for contribution or indemnity against them.
District Court Judge Patterson, quoting from authority, said that "the inability to implead other parties directly involved in the controversy is a factor which weighs against the retention of jurisdiction in the Southern District of New York". He added:
"If the Bank Defendants must defend themselves in this forum and then go to Australia to seek contribution for any damages assessed, they risk inconsistent judgments as to the extent of the plaintiffs' losses and of the Linter Defendants' responsibility for those losses." (at 95, 608)
As will be seen later, Skadden relies heavily on its possible inability to cross claim for contribution or indemnity in the New York court and the risk of inconsistent judgments, in support of its motion for anti-suit relief.
9. There was an appeal from District Court Judge Patterson's judgments in Linter I and Linter II to the United States Court of Appeals for the Second Circuit. On 2 June 1993, that Court, in a short opinion, affirmed Judge Patterson's decisions (994 Fed 2d 996 (2d Cir) (1993)).
10. The present matter was next before this Court on 20 August 1993 when the applicants were directed to serve their draft amended statement of claim and application by 1 October 1993. As at 20 August 1993 the only respondents were the Initial Banks, the Subsequent Banks, the Subsidiaries, Linter Textiles and USTC. This was the first active step taken in these proceedings in preparation for trial. Previously the matter had been adjourned pending developments in the US District Court and Court of Appeals. From August 1993 to date, there have been many directions hearings and motions hearings in these proceedings (see later).
11. The applicants appealed to the Supreme Court of the United States against the dismissal of their appeal by the Court of Appeals for the Second Circuit, but certiorari was denied on 1 November 1993 (114 S Ct 386 (1993)). By 2 June 1993 probably, and by 1 November 1993 for certain, the applicants knew that their preferred forum was to be denied them.
12. In April 1994, the 6th, 11th, 12th, 13th, 14th and 15th applicants, known collectively as "the Ariel Entities", filed a complaint (Index No 110552/94) in the New York court against Skadden seeking damages for fraud and for aiding and abetting fraud pursuant to the common law of New York. Thus, Skadden first became involved in litigation arising out of the debenture issue in that (New York) proceeding rather than in these (Federal Court) proceedings and at the instance of some of the applicants rather than at the instance of any of the respondents (see later).
13. In July 1994 Skadden moved for dismissal for "failure to state a claim". According to the evidence before me, the effect of this was that pre-trial procedures were automatically stayed without the necessity of Skadden's moving for a stay.
Four of the six plaintiffs "withdrew" on 20 August 1994 leaving the 14th applicant (Ithaca Partners LP) and the 15th applicant (Gabriel Capital LP) remaining as plaintiffs. They are limited partnerships organised according to the laws of Delaware and having their principal place of business in New York. By their amended complaint, they pleaded that Skadden's fraud arose out of its involvement in the issue by Linter Textiles of the senior subordinated debentures. This particular New York proceeding has been called, and I will call it, "the Ithaca action".
14. On 24 June 1994 all 17 of the present applicants commenced a new proceeding No NG 381 of 1994 in this Court against the respondents which were parties to proceeding No NG 523 of 1991, the Liquidators, and the Linter Officers. The 54th respondent, Freehills, was joined on 11 October 1994 in all proceedings in the Court.
15. On 25 July 1994, all six Ariel Entities commenced an additional action in New York (Index No 121513/94) against various entities including predecessors in title to their debentures and securities dealers. These proceedings were directed to establishing that the plaintiffs were the beneficial owners of all rights, claims and causes of action in connection with the transfer of the debentures which they had purchased in the secondary market.
Four of the Ariel Entities are limited partnerships with principal places of business in New York and the other two, Ariel Fund Ltd and Carmel Fund Ltd, are Cayman Island corporations with their principal place of business in the Cayman Islands. The first named defendant was a securities dealer, "Bear Stearns & Co, Inc", and I will refer to this action as "the Bear Stearns action". As will be noted below, Skadden has intervened in this action.
16. Progressively in the period September 1994 to February 1995, the Initial Banks filed cross claims against Skadden in these present proceedings (Freehills, not having been joined as a respondent until 11 October 1994, did not file its cross claim against Skadden until 11 July 1995). When the first cross claim was filed against Skadden in September 1994, it was already being sued in the Ithaca action by two of the Ariel Entities as noted above. Skadden submitted to the jurisdiction of this Court and subsequently invoked that jurisdiction by filing cross claims against various respondents seeking indemnity or contribution, and, as will be seen, at the same time sought to extricate itself from the New York proceedings. Perhaps it assumed that it would have little difficulty in doing so in view of what had happened in Linter I and Linter II. Whatever the reason may have been, it committed itself to the course of litigating in this Court and seeking to escape from litigation in the New York court.
17. On 5 October 1994, David Scheiber, the 17th applicant and, apparently, a resident of California, filed a complaint (Index No 123343/94) virtually identical to that in the Ithaca action, against Skadden in New York ("the Scheiber action").
18. On 11 October 1994, a further six applicants, namely the 3rd, 4th, 5th, 7th, 8th and 9th applicants, all of which maintained principal places of business in States other than New York, filed a complaint (Index No 128800/94), virtually identical to that in the Ithaca action, against Skadden in New York. The first named plaintiff is "Executive Life Insurance Company Trust" and the second named plaintiff is "Executive Life Insurance Company." I will call this action "the Executive Life action".
19. On 22 November 1994, the 2nd applicant, Colonial Intermediate High Income Fund of Massachussetts, filed a complaint (Index No 132616/94), virtually identical to that in the Ithaca action, against Skadden in New York ("the Colonial action").
20. By 22 November 1994, all of the applicants except the 1st applicant, Allstate Life Insurance Co, the 10th applicant, USTC, and the 16th applicant, First Stratford Life Insurance Co, were suing Skadden in New York (in saying this I assume that one of the plaintiffs "Prospect Street High Income Fund" in the Executive Life action is one and the same as the 7th applicant, Prospect Street High Income Portfolio Inc, and that "First Stratford Stockholder Liquidation Trust", which is a plaintiff in that action, is a not identical with the 16th applicant, First Stratford Life Insurance Co).
21. In December 1994 the 14th applicant (Ithaca Partners LP) and the 15th applicant (Gabriel Capital LP) commenced further proceedings, this time against the 10th applicant, USTC, (Index No 133276/94) in New York ("the USTC action"), alleging, inter alia, that USTC was negligent in performing the obligations which it owed to debenture holders as trustee for them under the Indenture and was therefore in breach of the Indenture.
22. Skadden had filed motions in New York, on 30 September 1994 and 23 November 1994 seeking to have, respectively, the Ithaca action and the Executive Life action dismissed. The parties to the Colonial action and the Scheiber action agreed to be bound by the orders to be made on those two motions. USTC also moved for dismissal of the USTC action. In the Bear Stearns action, Skadden moved to intervene. Justice Cahn heard all four of these motions on 16 December 1994.
23. On 18 April 1995 Justice Cahn denied Skadden's motions and USTC's motion for dismissal on the ground of forum non conveniens. His Honour granted Skadden's motion for leave to intervene in the Bear Stearns action in which it was therefore added as a defendant. His Honour's orders were entered on 21 April 1995. I say more of his Honour's reasoning below. According to the evidence before me, Skadden's motion for dismissal for "failure to state a claim" remained on foot as did the concomitant automatic stay of proceedings.
24. Skadden appealed to the Appellate Division of the New York court against Justice Cahn's refusal to dismiss the Ithaca action and the Executive Life action, and moved for an expedited hearing of the appeal in June 1995. The motion for expedition was denied.
25. Skadden filed a motion dated 26 May 1995 to renew and reargue its motions for dismissal on the ground of forum non conveniens. It withdrew its motion for dismissal for "failure to state a case" and so the automatic stay which had accompanied that motion came to an end. Accordingly, Skadden sought in the alternative to renewal and re-argument, a stay of the Ithaca action and the Executive Life action.
26. Skadden's motion to renew and reargue was before Justice Cahn on 12 June 1995. In support of its motion Skadden relied on a 16 page affirmation in chief and a 21 page affirmation in reply of its attorney, Victor A Kovner, which strongly put the case for a dismissal or a stay, referred to authorities, and dealt with developments since his Honour's dismissal of Skadden's and USTC's motions on 18 April 1995. Skadden was able to point out that the trial of the issue of reliance in these (Federal Court) proceedings was then due to commence in only three weeks' time, on 3 July 1995. Justice Cahn noted that Skadden was to comply with the plaintiffs' document requests and told Skadden's counsel that he would consider its motion for renewal and re-argument promptly but that if he denied it, he would expect the case to move forward.
27. On 27 June 1995 Justice Cahn denied Skadden's motion for renewal and re-argument. The order denying the motion was entered on 29 June 1995.
28. On 5 July 1995 Skadden filed the "record on appeal" and its "appeal brief" and moved the Appellate Division for a stay pending that Division's determination of Skadden's appeal.
29. The Appellate Division granted a stay of "any trial, hearing or dispositive motion" in the Ithaca action, the Executive Life action and the USTC action.
30. On 18 July 1995 counsel for Skadden informed Justice Cahn that if it failed in its pending appeal, it would file its Answer and implead other parties. Justice Cahn made orders for discovery of documents and interrogatories but declined the plaintiffs' request that the taking of depositions proceed, noting that the subsequent impleading of other parties would make it "very possible" that the transcript of depositions taken in the meanwhile could not be tendered at the trial.
31. On 9 September 1995 Justice Cahn informed the parties that if Skadden's appeal was dismissed by the Appellate Division, the case would "move" and "go forward".
32. On 19 September 1995, the Appellate Division dismissed Skadden's appeal. Accordingly, the stay which the Appellate Division had granted came to an end. Skadden accepts that it would be fruitless for it to seek leave to appeal from that dismissal. Not surprisingly, the successful respondents (appellees) to that appeal do not contend otherwise.
33. Having exhausted attempts to extricate itself from the various actions against it in New York, as noted earlier, on 21 September 1995, Skadden filed in these proceedings its notice of motion for anti-suit relief with which these Reasons for Judgment are concerned, and was granted ex parte relief on the same day.
The applicants have submitted that the course of events before Justice Cahn outlined above shows that Skadden had given them and his Honour to understand that if it failed in its appeal, it would proceed without further delay to comply with the pre-trial procedures in New York. It is clear that they first knew of Skadden's proposal to apply for an anti-suit injunction in this Court after it was granted by me ex parte on 21 September 1995. Skadden accepts that it gave no forewarning of its intention and says that if it had done so it is "on the cards" that an anti-anti-suit injunction would have been sought by the applicants from, and perhaps granted by, the New York court (see my Reasons for Judgment No 16 dated 22 September 1995 in these proceedings).
34. On 22 September 1995 the New York proceedings were again before Justice Cahn at the applicants' request, when certain directions were given. His Honour was informed of the granting of the ex parte injunction by this Court on 21 September and of the fact that Skadden's motion for anti-suit relief was returnable before this Court on the following Monday, 25 September.
35. Subsequently, Skadden has filed and served its Answer and Affirmative Defences in the New York proceedings. It has also, pursuant to a direction of Justice Cahn on 21 September 1995, filed a notice that but for this Court's injunctions against it, it would have filed and served with its Answer and Affirmative Defences, third party complaints (cross claims) against the eleven Initial Banks, Linter Group, Linter Textiles, the Liquidators, Freehills and Price Waterhouse. In effect, Skadden says that it wished to claim contribution or indemnity from those parties in respect of any judgment which may be awarded against it in New York. Those parties resist joinder in New York, seek from this Court injunctions against Skadden to that end, and say that if they fail they will oppose joinder before the New York court.
THE JUDGMENTS IN THE NEW YORK COURT
Although the principles applicable to an application to a domestic court for a dismissal or stay on the forum non conveniens ground differ from those which govern an application to a domestic court for anti-suit relief in respect of proceedings in a foreign court, no doubt there is overlap between the submissions which Skadden made to Justice Cahn in support of its forum non conveniens motion and the submissions which it now makes to this Court in support of its motion for anti-suit relief.
In his Opinion dated 18 April 1995, Justice Cahn reviewed the factual background, the nature of the claims made in the Ithaca action, the Executive Life action, the Bear Stearns action and the USTC action and noted the competing submissions of Skadden and USTC in favour of dismissal on the ground of forum non conveniens and of the plaintiffs in opposition. His Honour's succinct opinion dealing with the motions deserves to be quoted at length:
"Skadden,
Arps argues that the events placed at issue in the complaints occurred
primarily in Australia and that plaintiffs must prove the primary fraud
violation by Linter before it can prove aiding and abetting liability against
Skadden. It contends that the fraud
claims against Linter are currently pending in Australia after the Southern
District dismissed them on comity grounds.
It claims that there is the possibility of inconsistent judgments. It also asserts that it will be subjected to
hardship because it will be unable to implead
foreign third parties such as the Creditor Banks and Linter officers and
employees on claims for contribution and indemnification. It contends that Australia is an appropriate
alternative forum. It further contends
that fifty key witnesses including Linter and Bank employees are residents of
Australia and outside this Court's subpoena power. Finally, it asserts that the Australian
action is still at the pleading stage and discovery is continuing.
In opposition, plaintiffs urge that as New York residents in actions involving a complaint of fraud by Skadden, Arps in New York and a breach of the Indenture by USTC in New York, both of which defendants are New York residents, plaintiffs' choice of forum should not be disturbed. They argue that the relevant documents and witnesses are in New York: (i) with regard to Skadden, Arps, the acts were perpetrated by Skadden, Arps in New York and the issue is the knowledge and intent of Skadden, Arps as a primary violator and an aider and abettor; (ii) with regard to USTC, the issue is whether USTC failed to take adequate action in New York to protect the interests of the bond holders in response to a breach of contract by the issuer. Plaintiffs assert that they suffered the harm here in New York and that New York law applies to the fraud claims. They claim that Indenture trustee, defendant USTC, is a New York resident as is the underwriter, Drexel. The Indenture was executed in New York and is by its terms governed by New York law. They claim the majority of the material witnesses who will be called upon to testify as to the knowledge and intent of Skadden, Arps and as to USTC's failure to take adequate action, are American not Australian. They assert New York's interest in maintaining its status as the preeminent commercial and financial center of the nation and in controlling the activities of its licensed professionals and companies operating within its borders whose conduct is regulates.
Plaintiffs assert that Australia is not an appropriate alternative forum for these claims because: (i) the Australian action is well along, discovery is nearly completed with trial scheduled for July 1995; (ii) there is no right to a jury trial on the fraud claims in Australia; and (iii) there is no deposition discovery there. They assert that defendants will be able to obtain documents from Australia because it is a Hague Convention signatory. They further assert prejudice because the statute of limitations may have already expired as to fraud claims in Australia.
Under the rule of forum non conveniens, now codified in CPLR 327, a court in its discretion may stay or dismiss an action even through it is jurisdictionally sound when the action would be better adjudicated elsewhere. (Islamic Republic of Iran v Pahlavi, 62 NY2d 474, 478-79 [1984], cert. denied 469 U.S. 1108 [1985]; Corines v Dobson, 135 AD2d 390, 391 [1st Dept 1987]). 'A defendant has a heavy burden in attempting to establish that New York is an inappropriate forum before plaintiff's choice of forum is disturbed.' (Highgate Pictures, Inc. v DePaul, 153 AD2d 126, 129 [1st Dept 1990]). This burden is even more onerous where the plaintiff is a New York resident. (Id.; see also Kastendieck v Kastendieck, 191 AD2d 328 [1st Dept 1993] [plaintiff's residence is a most significant factor]; Cadet v Shortline Terminal Agency, Inc., 173 AD2d 270 [1st Dept 1991]; cf. Westwood Assocs. v Deluxe General. Inc., 53 NY2d 618 [1981]. Unless the balance is strongly in defendant's favor, particularly where the action is commercial in nature, plaintiff's choice should not be disturbed. (Bata v Bata, 304 NY 51 [1952]; World Point Trading Pte. Ltd. v Credito Italiano, ___ Misc.2d _____, 622 NYS2d 862 (1994); see also Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574 [1980] [New York's interest as commercial and financial nerve center of the motion in providing a convenient forum is least subject to challenge when transaction is centered here and is wholly commercial in character]).
The Court has considered and balanced the following relevant factors, among others: the burden on the New York courts posed by this action, the situs of the transaction out of which the litigation arose, the residence of the parties, the potential hardship to the defendants, the availability of an alternative forum (Islamic Republic of Iran v Pahlavi, supra at 479; see Varkonyi v Varig, 22 NY2d 333 [1968]) and the location of material witnesses (Continental Ins. Co. v Polaris Industries Partners, L.P., 199 AD2d 222 [1st Dept 1994]). Choice of law is also a consideration. (Hormel International Corp. v Arthur Andersen & Co., 55 AD2d 905 [2d Dept 1977]). No one factor is controlling and the application of the rule of forum non conveniens rests on considerations of justice, fairness and convenience. (Silver v Great Amer. Ins. Co., 29 NY2d 356, 361 [1972]).
Defendants Skadden, Arps and USTC have not met their heavy burden. Several of the plaintiffs are New York residents. Defendants also are New York residents. Both of these are important factors in favor of retaining jurisdiction. (See Highgate Pictures, Inc. v DePaul, supra; Yoshida Printing Co. v Aiba, ____ AD2d ____, NYLJ March 23, 1995, p. 26 col. 4 [1st Dept] [defendant's residence is an important factor]).
Moreover, the claims in the complaints have a substantial nexus with New York. The bond offering was made in New York through the commercial markets centered here. A New York based underwriter presented them to the financial world. The Prospectus and Registration Statement with its amendments were drafted and disseminated in New York by Linter's New York attorneys, Skadden, Arps. The issues raised by the complaints against Skadden, Arps involve Skadden, Arps' professional conduct here: what did Skadden, Arps do in reference to the alleged Guaranty Replacement Scheme, what did it know about the Scheme and when did it know it. Most of the witnesses who would testify about the knowledge and intent of Skadden, Arps in drafting the Prospectus, the Registration Statement and any opinion letters reside in the United States. (See Dept. of Economic Dev. v Arthur Andersen & Co., 683 F. Supp 1463, 1484 [SDNY 1988]). In addition, the documents drafted by Skadden, Arps and the correspondence are located in New York.
Similarly, USTC's actions in discovering or failing to discover the breach of the Indenture by Linter Textiles and in failing to protect the interests of the bond holders occurred in New York. These issues can be proven by plaintiffs or disproven by defendants with witnesses and documents here. While it is true that both parties will no doubt offer testimony of foreign witnesses pertaining to the claimed fraudulent scheme by Linter Textiles and the Creditor Banks, the testimony of defendants' personnel is likely to be of greater importance to the case. (Id). The Court recognizes that defendants may be inconvenienced in obtaining the testimony from the foreign witnesses, however, plaintiffs would be similarly inconvenienced by the denial of the access to our courts to redress their grievances: (See Slaughter v Waters, 41 AD2d 810 [1st Dept 1973]; Sullivan v J. V. McNicholas Transfer Co., 93 AD2d 527 [4th Dept 1983]). Dismissal is not warranted simply because some of the issues involve activities in Australia. (See Reaves v Exxon Corp., 90 Misc2d 980, 984 [Sup Ct NY Co 1977] [w]hile many of the issues in this lawsuit involve activities in Venezuela, many also involve actions taken by defendant Exxon from its New York office.])
Skadden, Arps' argument that it will not be able to implead other potential defendants, who are not amenable to suit in New York, is unavailing (Neville v Anglo American Management Corp., 191 AD2d 240 [1st Dept 1993]). Plaintiffs are not seeking to hold the defendant vicariously liable for their its [sic] acts, but rather by reason of its claimed knowledge, intent and active assistance in perpetrating a fraud in the actions against Skadden, Arps, and, in the action against USTC, by reason of its action or lack thereof in protecting bondholders when it became aware of Linter's breach of the Indenture. The absence of other potential defendants will not substantially impair defendants' ability to defend. Defendants, if held liable to plaintiffs, are entitled to seek any remedy available to them by way of an action for indemnity, in Australia. (Dept. of Economic Dev. v Arthur Andersen & Co., supra [forum non conveniens dismissal denied notwithstanding defendants' claim of inability to implead other parties directly involved in controversy]).
Plaintiffs' contentions regarding the inadequacy of the Australian forum further persuades the Court that dismissal would impose a greater hardship on plaintiffs than failure to dismiss will on defendants. If plaintiffs are required to litigate their fraud claims against Skadden, Arps in Australia, there is no right to trial by jury. (See Gyenes v Zionist Organization of Amer., 169 AD2d 451, 452 [1st Dept 1991]). The Court also notes that pursuant to the choice of law provision in the Indenture, New York law applies to the claims against USTC and will likely apply to the fraud claims against Skadden, Arps, providing further reasons for retaining jurisdiction.
The dismissal by the federal district court for the Southern District of New York of plaintiffs' actions against the Linter companies and the Creditor Banks does not warrant dismissal here. Those decisions do not bind this Court or require it to force plaintiffs to pursue these New York defendants in Australia for actions they took in New York in connection with a New York commercial transaction. Defendants came to the New York capital markets to borrow money; plaintiff, holder of some of the debt, should be permitted to sue here on the transactions.
The Court further notes defendants' concern about inconsistent judgments, a risk present whenever several lawsuits on the same transaction proceed simultaneously in different forums, but finds that the countervailing factors discussed above warrant the retention of jurisdiction. Therefore, the branch of the motions of defendants Skadden, Arps and USTC for dismissal of actions 1 through 3 [the Ithaca action, the Executive Life action and the USTC action] on forum non conveniens grounds is denied." (judgment transcript at pp 9-16)
The judgment of the Appellate Division of the New York court is so short that it is convenient to repeat it (omitting only the formal introductory paragraph and final paragraph):
"The claims in this case concern allegations that defendant, a New York law firm, committed various acts of fraud and misrepresentation in connection with a bond offering of its client, an Australian company, in the New York financial markets. All of defendant's actions concerning such offering were performed in New York. The main issues raised involve New York law and concern defendant's conduct in New York. Much of the relevant testimony will likely come from witnesses who reside in the United States. Most of the relevant documents are located in New York or can be produced here. Under these circumstances, on this record, the IAS court properly determined that defendant failed to sustain its significant burden of proving that any alleged prejudice to it in defending this action here outweighs plaintiff bondholders' right of access to the New York courts (see, Islamic Republic of Iran v Pahlavi, 62 NY2d 474, cert denied 469 US 1108; Silver v Great Am. Ins. Co 29 NY2d 356, 361). While a related action is pending in Australia, a majority of defendants in that case are from Australia or New Zealand, and the complaint in this case clearly alleges a New York based fraud."
INTRODUCTION TO CONSIDERATIONS RELEVANT TO THE INCONVENIENCE OF THE CONCURRENCE OF THESE PROCEEDINGS AND THOSE IN NEW YORK
If the New York
proceedings continue, "inconvenience" of three kinds will or may
result: administrative burden including labour and cost; possible interference
with the processes of this Court and even contempt of this Court; and possible
conflicting results with an adverse impact on Skadden's claim for contribution
or indemnity. I will give an account
here only of the first of these.
Administrative burden including labour and cost.
The hearing is fixed to commence on 18 March 1996. The hearing time has been estimated at a minimum of six months, and periods of 12 months and 18 months have been mentioned. There are 73 named parties or groups of parties. The evidence will cover the making of the investments in the debentures held by the 17 applicants, their title to the debentures and the loss allegedly suffered from the making of the respective investments. The applicants claim against 12 independently represented respondents or groups of respondents. There are two additional independently represented cross respondents or groups of cross respondents. The issues, particularly the legal issues, are of considerable complexity. The pleadings are voluminous. For example, the applicants' third further amended statement of claim comprises 165 paragraphs with two annexures and occupies 92 pages. There are over 30 cross claims.
It is inevitable that
an enormous amount of time and energy is being, and will continue to be,
devoted by the parties between now and 18 March 1996 in preparing for the
hearing and after that date in the conduct of the hearing. To date, there have been over 100 Court
appearances in the proceedings and 21
judgments have been delivered. The week
from Monday 13 November to Friday 17 November was devoted to the hearing of 41
motions (including those the subject of these Reasons for Judgment). There is a strong interest in the retention
of the trial date of 18 March, 1996.
If all injunctive relief is refused, Skadden and its advisers will devote time, energy and expense in the first instance in seeking to join the parties mentioned earlier as cross defendants in the New York proceedings and then in defending those proceedings. The proposed cross defendants will devote time, energy and expense, in the first instance in resisting joinder and, if joined, in defending Skadden's cross claims against them.
Both Skadden and the various respondents which seek injunctions against it and USTC have read affidavit evidence establishing the heavy burden which would fall upon them if the New York proceedings were to continue in the ordinary way.
The potential for interference with the processes of this Court and even for contempt of this Court.
There is the potential for the exercise of procedural rights in the New York actions, namely the procedures of discovery of documents common to both Courts and the pre-trial taking of witness depositions ("deposition discovery") known to the New York court but not to this Court, to constitute an interference with the processes of this Court and even contempt of this Court. This is discussed under "REASONING" later.
The potential for conflicting results and their impact on Skadden's claims for contribution or indemnity.
If Skadden is found liable in New York, "conflicting" results in these proceedings could raise difficulties for it. This possibility is also discussed under "REASONING" later.
SUMMARY OUTLINE OF PARTIES' SUBMISSIONS
(USTC made no submissions in response to the motions seeking relief against it.)
Summary outline of Skadden's submissions
(i) Basis of jurisdiction to grant an anti-suit injunction
The basis of the Court's jurisdiction is the broad equitable one founded upon the jurisdiction of the old Court of Chancery to enjoin the unconscientious exercise of legal rights. Section 23 of the Federal Court of Australia Act 1976 also confers jurisdiction.
While the exercise of the discretion is a matter of fact and degree varying from case to case, it is possible to classify the cases in which Courts have in fact granted anti-suit relief to date as follows:
(i) cases where the pursuit or continuation of the foreign proceedings would be vexatious or oppressive;
(ii) cases where the conduct of the foreign proceedings would interfere with the processes or jurisdiction of the domestic court; and
(iii) cases where the conduct of the foreign proceedings would have the effect that not all matters arising out of the dispute between the parties would be determined in one jurisdiction at one time.
An anti-suit injunction operates in personam and not against the foreign court. "Comity" is recognised as follows:
(i) a stringent test must be satisfied for the grant of an anti-suit injunction and the domestic court does not grant such an injunction simply because it disagrees with the foreign court's assumption of jurisdiction;
(ii) there is a general practice that the foreign court is afforded the opportunity to rule on the issue before the domestic court considers granting injunctive relief;
(iii)the obligation of the domestic court to disclose its reasoning assures the foreign court that no disrespect is being shown to it.
Societe Nationale Industrielle Aerospatiale v Lee Kui Jak [1987] 1 AC 871 (PC) ("Aerospatiale"), in which anti-suit relief was granted, shares with this case the features that the party seeking the injunction (a) might not, if the foreign proceedings had continued, have been able to cross claim against a third party in those proceedings and (b) had unsuccessfully applied to the foreign court for a dismissal or stay on forum non conveniens grounds.
(ii) Considerations relevant to the exercise of discretion in this case.
The grant of relief would not impinge on comity because:
(i) the injunction would not be granted for reasons of lack of confidence in the ability of the New York court to do justice;
(ii) similar anti-suit relief is available in the United States of America;
(iii)any offence taken by a foreign court is proportionate to the time and resources invested in the case by that Court, and comparatively little time and resources have been invested to date by the New York court in the proceedings before it.
In terms of the first limb of Aerospatiale, this Court has become the "natural" forum for the trial of the applicants' claim against Skadden, taking into account the whole of the dispute between all parties and all the circumstances as they exist at the present time. The US District Court has already decided that, as a matter of comity, the Linter Companies should be sued only in Australia because the forum of their liquidations is here. Accordingly, the Linter Companies, at least, will probably successfully resist Skadden's attempt to join them as cross defendants in New York. The other proposed cross defendants may also succeed in resisting joinder. If joinder were not to occur, this Court would be the only one in which the entire dispute could be resolved. The applicants' claim against Skadden arises out of the same factual circumstances and depends on the same evidence as their claims against the Linter interests and the Initial Banks. They can join Skadden as a respondent.
In terms of the second limb of Aerospatiale, the continuation of the New York proceedings is "vexatious" and "oppressive" due to the substantial duplication and expense involved and the inevitable delay which would be involved in the resolution of the dispute and in the winding up of the Linter Companies. These circumstances give rise to a sufficient equity to support an injunction.
An injunction would not deprive the applicants of any legitimate juridical advantages. Firstly, the availability of a jury trial in New York (relied on by the applicants) cannot be taken into account as a juridical advantage because this presumes that a jury would be more likely to decide favourably to the applicants than a judge would yet there is no evidence supporting this proposition. Secondly, the question of costs (relied on by the applicants) is a neutral factor: if the applicants lose in New York, they will not be required to pay Skadden's costs there but if they succeed they would not be entitled to an award of costs as they would in Australia. Thirdly, the availability of punitive damages in New York (relied on by the applicants) is also neutral, given the availability of exemplary damages in Australia. In any event punitive damages are in the nature of a punishment and should not be taken into account as a juridical advantage.
The proceedings in New York constitute an interference with the processes of this Court. Even though the hearings here and in New York would not be simultaneous, and even if Skadden is not able to join all Australian respondents in New York, the taking of depositions from witnesses would interfere with Skadden's preparation for, and conduct of, the proceedings in this Court.
Summary outline of submissions of applicants (as respondents to Skadden's motion)
(i) Basis of jurisdiction to grant an anti-suit injunction.
The applicants accept the equitable basis of the Court's jurisdiction but submit that the jurisdiction is not invoked merely by the fact that the entirety of a dispute cannot be resolved in one jurisdiction at one time.
Consistently with Aerospatiale, Skadden must establish first that Australia is the "natural" forum for the resolution of the applicants' claim against it in the sense of the forum having the closest connection with the action and with the parties, and secondly, that the continuation of the proceedings in New York would be vexatious and oppressive.
There are two categories of case in which an equity sufficient to warrant the grant of an anti-suit injunction has been found, namely:
(i) cases where the injunction is necessary to protect the processes or jurisdiction of the domestic court; and
(ii) cases where the parties have agreed to submit to the exclusive jurisdiction of a particular forum.
While injunctions may be granted in cases falling outside the two categories, vexation and oppression in the form of an unconscionable assertion of a legal right must be established.
(ii) Considerations relevant to the exercise of discretion in this case.
Australia is not the "natural" forum for the resolution of the claims. The applicants have brought proceedings against Skadden not in two courts but in one: that in New York. The factual circumstances of their claim against Skadden differ from those of their claims against the respondents.
The continuation of the proceedings in New York is not vexatious or oppressive. The fact that there are parallel proceedings with additional costs does not, of itself, justify the granting of an injunction. The possibility that Australian parties against which Skadden would wish to cross claim in New York may successfully resist joinder arises from the fact that Skadden chooses to carry on business in New York and is therefore amenable to the jurisdiction of the courts there, whereas, if it prove to be the case, the Australian parties are not.
By contrast, the grant of an anti-suit injunction in the present case would deprive the applicants of legitimate juridical advantages, namely, the right to a jury trial, the availability of punitive damages and the absence of costs awards. Further, the applicants may be prevented from claiming against Skadden in Australia by reason of the Limitation Act 1969 (NSW) - a juridical disadvantage. An undertaking by Skadden not to plead the limitation provision may not overcome the problem, as the Act extinguishes causes of action.
There has not been to date, and may never be, any interference with this Court's processes.
Although an anti-suit injunction operates in personam, it interferes indirectly with the foreign court's jurisdiction. The fact that the New York court has already concluded that it is an appropriate forum to hear the applicants' claim against Skadden indicates that the granting of anti-suit relief by this Court would be inconsistent with the principle of comity. This Court should not enjoin the applicants unless it decides that the New York court could not reasonably have reached the conclusion which it did.
Summary outline of submissions of proposed cross defendants (as applicants on motions against Skadden and USTC)
Skadden should be granted anti-suit relief. The applicants have invoked federal jurisdiction and so submitted to the Court's jurisdiction and powers the entire "matter" or "controversy" which includes the question of Skadden's liability to them. Section 22 of the Federal Court of Australia Act 1976 requires the Court to resolve that question in order to avoid multiplicity of suits.
Alternatively, Skadden should be restrained from cross claiming in New York against the proposed cross defendants. Such cross claims would be vexatious and oppressive, as there are already cross claims as between Skadden and those parties in these proceedings relating to the same issue, namely the appropriate apportionment of any liability to the applicants. Skadden submitted to and invoked the jurisdiction of this Court for the determination of that issue, with knowledge that applicants were suing it in New York. It would be contrary to the public policy of avoiding multiplicity of proceedings to allow Skadden's proposed cross claims in New York to proceed.
Since the proceedings here will probably be determined earlier than those in New York, the outcome of the Australian proceedings may give rise to issue estoppels and estoppels per rem judicatam in respect of Skadden's threatened claims against the proposed cross defendants.
The threats to implead in New York show that it is not premature to grant the anti-suit injunctions sought against Skadden and USTC.
Skadden urged upon Justice Cahn its inability to implead in New York as a reason why he should dismiss the New York proceedings against it, and Skadden cannot, in the light of this, properly invite this Court to accept that it has a proper claim to implead, since this constitutes approbation and reprobation by Skadden.
Summary outline of submissions of Skadden (as respondent to motions and in reply)
The consideration of "comity" is weakened by the fact that the American courts have not spoken with one voice, the US District Court having dismissed Linter I and Linter II and the New York court having refused Skadden's and USTC's motions for dismissal.
In relation to Skadden's having submitted to this Court's jurisdiction, by reason of the existence of its office in Sydney in 1994 it had no alternative but to do so and it was pointless for it not then to invoke this Court's jurisdiction by itself filing cross claims.
REASONING
(i)Basis of jurisdiction to grant an anti-suit injunction
Introduction
The High Court has not had occasion to enunciate the basis of this Court's jurisdiction to restrain the commencement or prosecution of proceedings in foreign courts.
The jurisdiction to enjoin a party from litigating in a foreign court has assumed particular importance over the last 15 years in sizeable and complex international commercial disputes. The subject has generated a body of academic analysis; cf Baer, "Injunctions Against the Prosecution of Litigation Abroad; Towards a Transnational Approach" (1984) 37 Stanford Law Rev 155; Hartley, "Comity and the Use of Antisuit Injunctions in International Litigation" (1987) 35 Am J of Comp Law 487; O'Brien, "Stays of Proceedings and Transnational Injunctions" (1989) 12 Adel LR 201 at 217-224); Richard W Raushenbush, "Antisuit Injunctions and International Comity" (1985) 71 Virginia L Rev 1039; L A Sheridan, Injunctions in General (Barry Rose Law Publishers Ltd, 1994) at 66-71; Jonathon Hill, The Law Relating to International Commercial Disputes (Lloyds of London Press Ltd, 1994) ch 22, "Antisuit Injunctions"; Lawrence Collins, Essays in International Litigation and the Conflict of Laws (Clarendon Press, Oxford, 1994) at 107-117. It is still true to say, as the Privy Council said in Aerospatiale, that "the law on the subject is in a continuous state of development" (at 896D).
The anti-suit injunction and dismissal or stay on the ground of forum non conveniens
A domestic court may be asked to dismiss or stay proceedings before it in favour of proceedings before a foreign court. The principles governing such a forum non conveniens application differ from those governing an application to the domestic court for an injunction restraining a person from commencing or pursuing foreign proceedings: Bank of Tokyo Ltd v Karoon [1987] 1 AC 45 note (CA) ("Bank of Tokyo") at 63; Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538 ("Voth") at 572 (Brennan J); Aerospatiale at 896 A,B; Amchem Products Inc v British Columbia (Workers' Compensation Board) [1993] 1 RCS 897 ("Amchem") at 913; National Mutual Holdings Pty Ltd v The Sentry Corporation (1989) 22 FCR 209 (Gummow J) ("National Mutual") at 230-231.
An order of the former kind is self-denying; an order of the latter kind, while addressed to a person over whom the domestic court has jurisdiction and not to the foreign court, in fact interferes, and is perceived to interfere, with the ordinary course of the administration of justice by the foreign court. Accordingly, considerations of comity have shaped the principles governing the jurisdiction to enjoin the commencement or pursuit of foreign proceedings. Clearly, only in an exceptional case should a domestic court restrain a person from exercising a right given by foreign law to invoke the jurisdiction of a foreign court. It seems to be accepted that ordinarily the foreign court should have the opportunity of adjudicating upon an application for a dismissal or stay on the forum non conveniens ground before the domestic court is approached; Bank of Tokyo at 63 (Robert Goff LJ); Amchem at 931.
According to Voth, an Australian court will decline to exercise jurisdiction in favour of a foreign court only if the Australian court is a "clearly inappropriate" forum. Consistently with this test, it is to be expected that Australian and foreign courts will be found dismissing forum non conveniens motions and exercising jurisdiction in respect of the same disputes, notwithstanding the duplication of effort and expense that this involves. An Australian court is not "clearly inappropriate" merely because proceedings arising out of the same dispute are pending in a foreign court which has declined to stay the proceedings before it; Rocklea Spinning Mills Pty Ltd v Consolidated Trading Corporation [1995] 2 VR 181 (SC).
History of the jurisdiction
The origin of the jurisdiction has been noted elsewhere; cf Bank of Tokyo at 60 (Robert Goff LJ) Re Maxwell Communications plc (No 2) [1992] BCC 757 (Hoffmann J) at 762; Aerospatiale at 892; National Mutual at 231-232. The earliest form of anti-suit injunction was the common injunction granted by the Court of Chancery to prevent the unconscionable bringing of actions in the English courts of common law. In the first half of the nineteenth century, the remedy was extended to proceedings in Scotland, Ireland and the British colonies (many of the cases are reviewed in The Carron Iron Co v Maclaren (1855) 5 HL Cas 416 (10 ER 961); and see Logan v Bank of Scotland (No 2) [1906] 1 KB 141 (CA) in which, in special circumstances, domestic proceedings were stayed in favour of the Court of Session although proceedings had not yet been commenced in that Court).
Then there was a group of cases of an English court's administration of estates, bankruptcy, or the winding up of companies, in which a person was restrained from proceeding in a foreign court on the ground that such litigation would or could "interfere with the processes of" the English court (cf Graham v Maxwell (1849) 1 Mac & G 71 (41 ER 1189); Hope v Carnegie (1866) 1 Ch App 320; In re Distin; Ex parte Ormiston (1871) 24 LT 197; In re the North Carolina Estate Co Ltd (1889) 5 TLR 328; In re Derwent Rolling Mills Co Ltd; York City and Country Baking Co Ltd v Derwent Rolling Mills Co Ltd (1904) 21 TLR 81 (Kekewich J) and 701 (CA); Heilmann v Falkenstein (1917) 33 TLR 383 (Astbury J)).
There were cases in which the pursuit of foreign proceedings was restrained on the basis of a contractual undertaking (cf Pena Copper Mines Ltd v Rio Tinto Co Ltd (1911) 105 LT 846 (CA); Lett v Lett (1906) 1 Ir 618; for more recent illustrations, see The "Tropaioforos" (No 2) [1962] 1 Lloyd's Rep 410; The "Angelic Grace" [1995] Lloyd's Rep 87 and Cigna Insurance Australia Ltd v CSR Ltd, unreported, Supreme Court of New South Wales/Rolfe J, 15 August 1995 ("Cigna")).
Finally, there were matrimonial cases in which a party before the English court was restrained from pursuing proceedings in a foreign court on the ground that they were "purely vexatious" (Armstrong v Armstrong [1892] P 98) or as apt to interfere with the processes of the domestic court (Moore v Moore (1896) 12 TLR 221 (CA)).
Cases lying outside the foregoing particular categories have a more direct link to the modern jurisdiction. Of particular interest is a trilogy of cases reported in three successive volumes of reports of cases determined in the Chancery Division. The first, McHenry v Lewis (1882) 22 Ch D 397 (CA), concerned proceedings by A against B in both England and America. There was a motion for a stay of the domestic proceedings. Lord Jessel MR drew a distinction. First, he said that it was prima facie vexatious for A to sue B in two of the Crown's courts (cf Slough Estates Ltd v Slough BC [1968] Ch 299 at 314-315, The Christiansborg (1885) 10 PD 141 (CA) at 148 (Lord Esher MR); Moore v Inglis (1976) 50 ALJR 589 (Mason J)). But he said that it was not prima facie vexatious for A to sue B in a court of the Crown and a foreign court, because in such a case the procedures and remedies of the two courts are different. In such a case the defendant would have to prove that the defendant was being "improperly vexed" before the English court would stay the proceedings before it. (McHenry v Waters was followed in Carter v Hungerford (1915) 59 SJ 428 (CA) in which the Chancery Division refused a stay.)
The second case in the trilogy, Peruvian Guano Co v Bockwoldt (1882) 23 Ch D 225 (CA), was generally similar, although the relief sought was neither a stay of the domestic proceeding nor an injunction in respect of the foreign (French) one, but an order that the plaintiff elect which to pursue. Relief was refused. The judgments emphasise the need for proof that it would be "oppressive" or "vexatious" for the plaintiff to pursue both proceedings, and acknowledge that the domestic court cannot know what advantages the plaintiff may expect to derive in the foreign forum.
In the third case, Hyman v Helm (1883) 24 Ch D 531 (CA), the plaintiffs, residents of San Francisco, sued the defendants, residents of Manchester, in the Chancery Division, and the latter threatened to sue the former in a court in San Francisco. The American plaintiffs moved for an anti-suit injunction alleging that the contract was an English one, that the performance took place in England and that the witnesses were in England. The motion was refused and an appeal from that refusal dismissed. Brett MR said that inconvenience falls short of the vexation which McHenry v Lewis requires to be proved.
It is convenient to note here the Australian case, Morgan v Higginson (1897) 13 WN (NSW) 146 in which A sued B in both the Supreme Court of New South Wales and the Civil Court of Noumea. The suit was for a declaration that the defendant held certain foreign property on trust for the plaintiff. The motion sought a stay of the suit or in the alternative an order that the plaintiff elect between the two jurisdictions. A H Simpson J refused the motion, saying that the evidence did not show that the plaintiff could obtain the same remedies in Noumea as in the domestic court.
Following the notable failures of applications for anti-suit relief in the three English cases referred to, there were few reported applications in England for such relief until the 1980s. In Re Conolly Brothers Ltd [1911] 1 Ch 731 (CA) ("Conolly") relief was granted and in Cohen v Rothfield [1919] 1 KB 410 (CA) it was refused. In Conolly the Master of the Rolls said that the jurisdiction applied wherever the Court holds that "the conduct of the plaintiff in the foreign action, the defendant in the High Court action, is such that it is right and just and equitable that an injunction should be granted" (at 744). He added that this condition was satisfied where, as in the instant case, the person had acted vexatiously in instituting the foreign proceedings. In Cohen v Rothfield the English Court of Appeal discharged the trial judge's injunction, noting that although the person rather than the foreign court is restrained, "as the effect is to interfere with proceedings in another jurisdiction, this power should be exercised with great caution to avoid even the appearance of undue interference with another Court" (at 413, per Scrutton LJ).
Aerospatiale
It is convenient to come immediately to Aerospatiale on which Skadden heavily relies, in which the Privy Council, on 14 May 1987, reversed a decision of the Court of Appeal of Brunei Darussalam.
A successful Brunei businessman was killed when he was a passenger in a helicopter manufactured by a French company (F), owned by an English company (B) and operated and serviced by its Malaysian subsidiary (BM), which crashed in Brunei. The deceased's widow and the administrators of his estate commenced proceedings on the same date against, relevantly, F and BM in each of Brunei and Texas. It was said that the Texas court had jurisdiction over F because it did business there. The plaintiffs sued in Texas because of more favourable Texas law on product liability and the higher level of damages awarded in the United States. The plaintiff settled with BM.
F moved for dismissal in Texas on the ground of forum non conveniens. This was opposed on two grounds: first, that under the Texas Wrongful Death Statute, the ground is not available; secondly, that the Court should, in the exercise of its discretion, refuse the motion. The motion was refused. But in accordance with the practice in Texas, no reasons were given. Moreover, no appeal lay from the decision. F sought to overcome its setback by way of various petitions but these were also unsuccessful.
F then applied to the Brunei Court for an injunction restraining the plaintiffs from continuing the Texas proceedings. Undertakings were given by both sides with a view to eliminating disadvantages which their preferred courts had for the opposing side. Thus, the plaintiffs undertook to consent to trial in Texas by judge alone rather than by jury and agreed that since the law of Brunei governed both liability and quantum they had no claim against F based on strict liability or for punitive damages. For its part, F proffered numerous undertakings, including, for example, undertakings that the Texas proceedings be permitted to continue to completion of pre-trial discovery, and that it would cooperate with the plaintiffs for the purpose of securing an early hearing and the ad hoc admission to the bar of Brunei Darussalam of the plaintiff's Texas attorneys.
Importantly, F served a contribution notice on BM (during the hearing before the Court of Appeal). BM indicated its willingness to accept service within the jurisdiction of the Brunei Court and to submit to that Court's jurisdiction, but its vigorous resistance to Texas jurisdiction on the ground that it had never done business there.
F was unsuccessful at first instance and on appeal in Brunei. On further appeal, the judgment of the Privy Council was delivered by Lord Goff of Chieveley. Because of the importance which this case has assumed in connection with the motions before me, I must note the judgment in some detail. His Lordship first noted the "protection of the jurisdiction" class of case. In South Carolina Insurance Co v Assurantie Maatschappij "de Zeven Provincien" NV [1987] AC 24 ("South Carolina") at 45 Lord Goff had favoured the view that this purpose generally underlay the anti-suit jurisdiction, but he recorded that the Privy Council thought this view "too narrow" (at 893B). I interpolate to note that, the expression "protection of the jurisdiction" was being used by Lord Goff to refer to the "administration of estates/ bankruptcy/winding up" class of case noted earlier. So viewed, this category is a narrow one. The possibility remains, however, that the jurisdiction exists to protect from interference the administration of justice by the domestic court in a broader sense.
The second category of case noted by his Lordship is that where X sues Y in respect of the same subject matter in the domestic and foreign courts and Y asks the domestic court to compel X to elect - a course which that court will follow if the pursuit of the foreign proceedings is regarded as vexatious or oppressive. The premise is that, as in the case before the Privy Council, "the plaintiff has commenced proceedings against the defendant both in this country and overseas" (at 893B). That is not the case before me.
The Privy Council rejected the proposition that an injunction will lie wherever the domestic court decides that it is the natural forum (at 895C-896C). The basis on which the Privy Council thought that an injunction should be granted was expressed as follows:
"In the
opinion of their Lordships, in a case such as the present where a remedy for a
particular wrong is available both in the English (or, as here, the Brunei)
court and in a foreign court, the English or Brunei court will, generally
speaking, only restrain the plaintiff from pursuing proceedings in the foreign
court if such pursuit would be vexatious or oppressive. This presupposes that, as a general rule, the
English or Brunei court must conclude that it provides the natural forum for
the trial of the action; and further, since the court is concerned with the
ends of justice, that account must be taken not only of injustice to the
defendant if the plaintiff is allowed to pursue the foreign proceedings, but
also of injustice to the plaintiff
if he is not allowed to do so. So the
court will not grant an injunction if, by doing so, it will deprive the
plaintiff of advantages in the foreign forum of which it would be unjust to
deprive him." (896F-H)
The words "in a case such as the present where a remedy for a particular wrong is available both in the English (or, as here, Brunei) court and in a foreign court ..." signify that Lord Goff was contemplating in personam proceedings by X against Y in both courts for the same remedy arising out of the same facts. That is not the present case. It is possible, however, that the passage is appropriately applied to a case such as the present one. The parties before me assumed that it is. If it is, the fact that the New York plaintiffs do not seek a remedy against Skadden in this Court will be a consideration relevant to the application of the passage to the facts of the case. I will assume, without deciding, that the passage is applicable to this case in which the applicants do not sue Skadden in two courts.
In Aerospatiale,
the Brunei Court of Appeal considered that Texas had "become" the
natural forum by reason of the extent to which the case had progressed
there. This expression refers to the
forum with which the action and the parties have the closest connection (cf The
Abidin Daver [1984] AC 398 (HL) at 415 F (Lord Keith of Kinkel); Amchem
at 930-931; Bank of Tokyo at 55 (Ackner LJ)). While the Privy Council rejected the Court of
Appeal's conclusion that Texas had become the natural forum, it did so on the
basis of the facts of the case
and without suggesting that a forum which had not been the natural forum
initially could not become it.
Similarly, I proceed on the basis that the time at which the
"natural forum" is to be determined is the time of the hearing of the
motion for anti-suit relief.
Their Lordships' decision that pursuit of the Texas action was oppressive and could lead to injustice to F turned on F's desire to claim contribution or indemnity from BM. In this regard, the Privy Council noted three matters. First, it was at least possible that F would not succeed in joining BM as a party to the Texas proceedings and would have to sue it separately, presumably in Brunei. Secondly, BM might wish to rely on its settlement with the plaintiffs, and, if so, it was desirable that the point be taken in proceedings to which all three of F, BM and the plaintiffs were parties. Thirdly, under the relevant legislation, F would have to prove in its claim against BM that BM was a "tortfeasor who is, or would if sued have been, liable in respect of the same damage, whether as a tortfeasor or otherwise ..." (s 5 of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) is relevantly similar). The difficulty which was perceived to arise in the light of this provision is expressed by Lord Goff as follows:
"Now,
let it be supposed that the proceedings in Texas against S.N.I.A.S. [the Privy Council's
form of reference to F, the French manufacturer of the helicopter] are allowed to continue to proceed, and that
in those proceedings S.N.I.A.S. are held liable to the plaintiffs. Then let it be further supposed that
S.N.I.A.S. claim contribution or indemnity from
Bristow Malaysia [BM] in Brunei,
relying upon a judgment of the Texas court as showing that they, S.N.I.A.S.,
were liable in respect of the relevant damage. Would that judgment provide conclusive
evidence that S.N.I.A.S. were so liable?
Or would S.N.I.A.S. have to satisfy the Brunei court, independently of
that evidence, that they were in law liable for such damage? If the latter were the case, S.N.I.A.S. would
be exposed to two sets of proceedings in which the same issue of liability would have to be tried, and so would be
exposed to the danger of inconsistent conclusions on that issue, with the conceivable
result that they might be held liable to the plaintiffs in Texas without any
right over against Bristow Malaysia in that court, and might be held not liable
to the plaintiffs in Brunei, in which event they would have no claim over
against Bristow Malaysia, even though negligence on the part of Bristow
Malaysia may in fact have been a substantial cause of the accident." (at
901E-G)
In support of the existence of the difficulty, their Lordships referred to Comex Houlder Diving Ltd v Colne Fishing Co Ltd, ("The Times", 20 March 1987), a decision on the differently worded Scottish provision, holding that the provision relates to liabilities in domestic courts and says nothing to foreign judgments.
The Privy Council's judgment concludes as follows:
"So S.N.I.A.S. are now, it appears, in the unenviable position that, if the plaintiffs are not restrained from continuing their proceedings in Texas, S.N.I.A.S. may well be unable to claim over against Bristow Malaysia in those proceedings; and that, if held liable to the plaintiffs in the Texas court, they may have to bring a separate action in Brunei against Bristow Malaysia in which they may have to establish their own liability to the plaintiffs before they can be entitled to claim contribution from Bristow Malaysia, with all the attendant difficulties which this would involve, including the possibility of inconsistent conclusions on the issue of liability.
Their Lordships are of the opinion that for the plaintiffs to be permitted to proceed in a forum, Texas, other than the natural forum, Brunei, with that consequence, could indeed lead to serious injustice to S.N.I.A.S., and that the plaintiffs' conduct in continuing with their proceedings in Texas in these circumstances should properly be described as oppressive. Furthermore, no objection to the grant of an injunction to restrain the plaintiffs from continuing with these proceedings can be made by them on the basis of injustice to them, having regard to the undertakings given by S.N.I.A.S. It follows that, in their Lordships' opinion, an injunction should be granted." (at 902D-G)
Skadden relies heavily on these passages.
Australian cases since Aerospatiale
In Australia, Aerospatiale has been referred to in National Mutual; The Sentry Corporation v Peat Marwick Mitchell & Co (1990) 24 FCR 463 (FC) ("Sentry"); Re Siromath Pty Ltd (No 3) (1991) 25 NSWLR 25 (McLelland J) ("Siromath"); CSR Ltd v New Zealand Insurance Co Ltd (1994) 36 NSWLR 138 (Rolfe J) ("CSR"); and Cigna.
Before referring to these cases, I note that an extensive review of the jurisdiction in England, the United States, Australia and Canada is contained in the judgment of the Supreme Court of Canada in Amchem, in which that Court concluded that the principles outlined in Aerospatiale "should be applied [in Canada] having due regard for the Canadian approach to private international law" (at 930).
The only substantial Australian comment on the jurisdiction is that of Gummow J in National Mutual. In that case, the first respondent, an American corporation ("Sentry"), applied in New York for an injunction restraining the solicitors ("Mallesons") which represented the first applicant ("National Mutual") in the Federal Court proceedings from continuing to do so "with respect to matters on which defendants have rendered legal advice and counsel to [Sentry]". As well, Sentry sought against Mallesons damages and costs. It is not necessary for me to discuss the case in detail. Gummow J had before him motions by National Mutual and the solicitors for injunctions restraining Sentry from pursuing the New York action.
His Honour described the power which the motions sought to invoke as "the power of the Court, as a court of equity, to enjoin resort to vexatious and oppressive foreign suits" (at 230). His Honour's judgment emphasises that there is an affinity, between the modern jurisdiction and that of the old Court of Chancery to enjoin "unconscionable or otherwise improper exercise of legal rights" (at 232-233). His Honour continued:
"The
modern jurisdiction like much of the equity jurisdiction, thus operates upon
legal entitlement and to prevent unconscientious assertion or exercise of that
entitlement: cf Muschinski v Dodds (1985) 160 CLR 583 at 619-620,
per Deane J. The jurisdiction also
illustrates (as is indicated by the United States Supreme Court in Cole
v Cunningham and by the treatment in F T White and O D Tudor, A
Selecting [sic] of Leading Cases in Equity (9th ed), Vol 1, pp 631-636) the force of the precept
that equity acts in personam.
Accordingly, it is rather beside the
point, as their Lordships recognised in Aerospatiale at 892-893, to seek
to divide into categories the cases in which the jurisdiction may be
exercised. I mention these matters
because the juridical root of this well established jurisdiction has perhaps
not been appreciated as well as it might have been in the recent British
decisions.
However, as their Lordships in Aerospatiale indicate, one tendency manifest in the decisions which indicate what provides sufficient equity to found the injunction, is a concern with the protection of the integrity of the processes of the domestic court. The conduct of foreign proceedings which have a tendency to interfere with the due process of the domestic court may, in the circumstances of a particular case, generate the necessary equity to enjoin those foreign proceedings as vexatious or oppressive: South Carolina Insurance Co v Assurantie Maatschapij 'De Zeren Provincien' NV [1987] AC 24 at 41. In Australia, there is the further consideration that where a court has begun to exercise the judicial power of the Commonwealth in relation to a particular matter, it has the exclusive right to exercise or control the exercise of the functions which form part of that power or are incidental to it: cf Pioneer Concrete (Vic) Pty Ltd v Trade Practices Commission (1982) 152 CLR 460 at 471-473, 474. It is also to be asked whether effectual relief can be obtained in the course of the foreign country, a question of some importance in the present dispute given the evidence of Mr Knake as to the likely attitude of the New York court to the grant of relief sought: cf White and Tudor, A Selection of Leading Cases in Equity, p 635-636. A relevant consideration is the existence of substantial reasons of benefit for the plaintiff in bringing the foreign proceedings: Aerospatiale at 893-894."
The passage quoted highlights the breadth and variety of the considerations which may properly be taken into account on an application such as the present one.
In Sentry, Sweeney J (with whom Ryan J agreed) treated Aerospatiale as having made it clear that it must be shown that to allow the two proceedings to continue would be "vexatious, oppressive or an abuse of process" (at 473).
In Siromath, McLelland J described the juridical basis of the jurisdiction as being that the applicant "has an equity sufficient to justify the court preventing the enjoined party from exercising its legal right to institute or continue proceedings in the foreign court" (at 29C). His Honour enjoined a Pennsylvanian corporation, which had been served with the New South Wales court's process and was therefore subject to its jurisdiction, from further prosecuting proceedings begun by it in Pennsylvania against the provisional liquidator and liquidator of a company being wound up in New South Wales. His Honour had no hesitation in holding that "control by the court over the circumstances in which, and the extent to which, its own officers are to be subjected to personal pecuniary liability in respect of their activities in the course of the performance of their official duties falls clearly within the concept of the protection by the court of its own processes." (at 29E)
In CSR, CSR Ltd ("CSR") and one of its subsidiaries sought against two insurers, New Zealand Insurance Co Ltd and NZI Insurance Australia Ltd, declarations that they were entitled to be indemnified by the insurers in respect of claims made on them for damages for illness, injury and death from asbestos-related diseases contracted by employees of the subsidiary. The parties to the Australian proceedings were companies incorporated here; the contracts of insurance were entered into here and were governed by Australian law; the evidence of the parties' relevant conduct towards each other was in Australia; and the proceedings were major and complex, incorporated all disputes between the parties, and had been and were being intensively "case managed". The proceedings had been commenced on 1 May 1992 and certain issues were fixed for a hearing due to commence on 1 August 1994, when, on 6 June 1994, CSR commenced proceedings in the Superior Court of New Jersey against some of the defendants making the same claims. The effect of this would be to abort the hearing date and to impose substantial financial and work burdens on the defendants. Rolfe J made many additional findings of fact (at 149-151) and concluded (at 152A) that there was an overwhelming factual case for injunctive relief and that he would withhold it only if authority required him to do so. Upon a review of the authorities, his Honour concluded that they did not.
In Cigna, Rolfe J had to deal with an application by Cigna Insurance Australia Ltd ("Cigna") and other insurers, for interlocutory relief against CSR in respect of proceedings brought by it in New Jersey, in circumstances in which the same parties were litigating the same issues in New South Wales. The grounds relied on were a contractual undertaking by CSR; estoppel; and "vexation, oppression and harassment". His Honour referred to his discussion in CSR of the relevant principles and held that there was a serious question to be tried as to the first and third ground and that the balance of convenience favoured the granting of interlocutory relief.
Conclusion on basis of jurisdiction
The Court has jurisdiction to grant the injunctive relief sought by Skadden against the applicants and that sought by the proposed cross defendants against Skadden and USTC since all parties to the motions are subject to the Court's jurisdiction in these proceedings.
The anti-suit injunction is not granted in aid of a substantive legal right of the applicant for it (cf the power to grant a Mareva injunction). In Associated Newspapers Group plc v Insert Media Limited [1988] 2 All ER 420, Hoffmann J said that an applicant for an anti-suit injunction asserts "a right not to be sued in the foreign court" (at 425) but his Honour was not referring to a substantive legal right.
Although the right to invoke the jurisdiction of the foreign court is given by foreign law and not by the domestic law, I accept that the jurisdiction to enjoin foreign suits has, to use Gummow J's term in National Mutual, an "affinity" with the broad equitable jurisdiction to restrain the unconscientious exercise of domestic legal rights.
In the case of this Court, the nature of the jurisdiction may also be affected by the vesting in it of exclusive jurisdiction in respect of the "matter" the subject of the federal claims and the Court's powers and obligations may be affected by s 22 of the Federal Court of Australia Act 1976 (see later).
(ii) Considerations relevant to exercise of discretion in this case
I will consider the position of Skadden first, postponing until later, consideration of the position of those parties which it would wish to join in New York.
"Natural forum"
This Court would not grant anti-suit relief in respect of a foreign proceeding which, if brought in it, would be stayed on the forum non conveniens ground. In accordance with Voth, the forum non conveniens test is not a stringent one: it is whether the Australian court is "a clearly inappropriate forum" for the determination of the claim in question.
Over and above this, however, the relative closeness of the connection between the respective courts and the foreign action and the parties to it is relevant to the exercise of discretion. In this respect, the question is whether the domestic court or the foreign court has the closer connection with that action and the parties to it. Skadden accepted that the "natural forum" criterion laid down in Aerospatiale applies and raises the question whether this Court or the New York court has the closer connection with the actions in New York and the parties to them.
When the complaint in the Ithaca action was filed in April 1994, the New York court clearly had the closer territorial connection with the plaintiffs in that action and Skadden and with the factual events giving rise to the action. Following the filing of that complaint, the applicants were proceeding, albeit reluctantly, against some alleged Australian wrongdoers (the sixth respondent, Citibank NA, is an exception) in this Court and some of the applicants were proceeding against an alleged American wrongdoer in the New York court, in respect of broadly the same factual circumstances. Such duplication of effort and cost no doubt seems wasteful but is an ordinary result of the autonomy and territorial sovereignty of States.
Skadden has suggested that the applicants kept their potential cause of action against it "up their sleeves" against the possibility that their appeals against the dismissals of Linter I and Linter II in the US District Court might fail. The applicants have responded by putting to me that proceedings were not commenced against Skadden earlier than April 1994, and in particular that Skadden was not named as a defendant in Linter I or Linter II, because the applicants did not become aware until just before April 1994 that they had a right of action against that firm. There is no direct evidence before me on the question.
Several considerations lead me not to draw the inference which Skadden suggests. The explanation offered by the applicants is not improbable. The Linter interests and the Initial Banks would have been more obvious targets than Skadden. Although Skadden's name and role appeared in the Prospectus, this alone does not suggest involvement by it in the wrongdoing alleged against those parties. In any event, the respondents and cross respondents have made it clear that there is a substantial issue whether the subscribers for the debentures relied on the Prospectus. Moreover, many of the applicants bought their debentures from subscribers or from intervening holders subsequently.
No doubt the initial plaintiffs in the Ithaca action became aware of their potential right of action against Skadden at a time somewhat prior to April 1994 but I do not infer that they became aware of it so much earlier that it was somehow incumbent upon them to commence proceedings against Skadden earlier than April 1994.
When the Ariel Entities became aware of their potential cause of action against Skadden, a court sitting in New York was, geographically, the "natural" forum in which they might be expected to sue. They were American investors; Skadden was a New York law firm; the cause of action arose out of Skadden's conduct in New York allegedly in contravention of New York law in respect of debentures issued in New York; and at the time Skadden was not a party to proceedings anywhere else in the world arising out of the same events.
What is to be made of the progress of these proceedings and the "freezing" of those in New York from their commencement down to the present time? Skadden's submission that this has led to this Court's becoming "the natural forum" does not give due weight to the fact that if it has, there has been time for this to occur due to Skadden's unsuccessful motions in New York. Skadden and others point to the imminence of the trial and to the intensity of effort and burden of cost currently being expended in preparation for the trial. But this unfortunate contemporaneity is the result of Skadden's motions now shown by the decisions of the New York court to have been ill-founded. At least vis-a-vis Skadden, prima facie the applicants should not suffer by any changes in circumstances since the Ithaca action was launched in April 1994. Skadden correctly pursued its forum non conveniens motions in New York before moving this Court for injunctive relief, but because the result in New York has been adverse to Skadden, it is not entitled to say, as between itself and the applicants, that the developments in the meanwhile have caused this Court to become "the natural forum".
Administrative burden including labour and cost
I gave an account of the detail of this factor earlier. I accept that the applicants' pursuit of the New York proceedings will result in the imposition on Skadden and USTC and, if they are joined, other parties as cross defendants in those proceedings, of a heavy burden of effort and cost. Much work and paper will be duplicative. This feature has a plus and minus aspect: on the one hand the cost second time round should not be so great; on the other hand the duplication highlights the waste and inefficiency of not having all claims decided in these proceedings which are so far progressed.
In no case of which I am aware has the burden of effort and cost alone been found to constitute vexation and oppression. In CSR, in which the plaintiff in the domestic court launched proceedings against the same defendants in the foreign court just before the trial in the domestic court was to begin, understandably much was made of that factor, because the imposition on the defendants just prior to the trial in New South Wales was the direct and natural result of the plaintiff's conduct. But here, 20 months ago some of the applicants commenced proceedings in New York against a New York law firm which they had not joined here. Again, the concurrence of burden results from the delay in progress of the New York actions caused by Skadden's unsuccessful motions for dismissal. Absent those motions, there would still be duplication of effort and cost, but what the impact of that in the New York actions would have been on these proceedings cannot be known. Perhaps the New York actions would have been heard and determined by now. Perhaps the hearings would have been contemporaneous. The reason why it cannot be known what the impact would have been again lies at Skadden's door.
I do not regard the impact of burden of effort and cost resulting from the New York proceedings, although regrettable and although arising at a time when the trial of these proceedings is only two months off, as sufficient to establish vexatious and oppressive conduct by the applicants or interference with the processes of this Court. It is, however, conceivable that a particular development in the New York actions would directly affect some aspect of the conduct of these proceedings. Against that possibility, there could be liberty to apply in any event. The mere progressing of motions by Skadden to implead other parties in New York would not fall into that category.
The potential for interference with the processes of this Court and even for contempt of this Court.
There is an implied undertaking by the parties to these proceedings not to use the information obtained upon their inspection of documents discovered by other parties to these proceedings for any purpose other than proper purposes associated with this litigation, except with the consent of the discovering of party or the leave of this Court (Harman v Secretary of State for the Home Department [1983] 1 AC 280 (HL); Holpitt Pty Ltd v Varimu Pty Ltd (1991) 29 FCR 576 (Burchett J); Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 (Wilcox J); Esso Australia Resources Ltd v Plowman (1995) 128 ALR 391 (HCA) at 403 (Mason CJ)). The potential for contempt could perhaps be disregarded if it were known that all the documents discoverable in these proceedings are or will be discoverable in New York (clearly many of them will be) but I do not know this to be the case.
Similarly, under the system according to which the trial of these proceedings will be conducted, although the parties will be served with copies of statements of the witnesses to be called by other parties, in advance of the trial they will not be entitled to hear the oral evidence of each other's witnesses or to cross examine each other's witnesses prior to the trial. In ways which may not be obvious at present, situations could arise in which opposing parties' access to witnesses in the deposition-taking process of the New York court may constitute an interference with the administration of justice in these proceedings (cf Sentry at 485-486 (Lockhart J)).
The evidence does not show, however, that any particular event about to occur in, or as a result of, the New York actions will interfere with the processes of this Court. Again, there could be liberty to apply in any event.
The potential for conflicting results and their impact on Skadden's claims for contribution or indemnity
As I understand him, senior counsel for Skadden submits that this is the most substantial consideration favouring his client. I agree. It was this factor which led to the granting of the injunction in Aerospatiale. It was also one factor which persuaded Medhurst J to grant an injunction in Allied Signal Inc v Dome Petroleum Ltd (1988) 67 Alta L R (2d) 259; [1989] 5 WWR 326. On the other hand, in Avenue Properties Ltd v First City Development Corporation (1986) 32 DLR (4th) 40 (BC/CA); (1986) 7 BCLR (2d) 45, the risk of inconsistent decisions alone was not regarded as a matter of substantial injustice sufficient to overcome the natural forum factor.
Skadden's submission in this respect includes the following:
"36. The inevitable resistance of other parties to being joined to the proceedings in New York also highlights the invidious situation which Skadden could find itself in unless the anti-suit relief which it seeks is granted. The following plausible scenario must be assumed:
(a) the Australian proceedings are heard first;
(b) Skadden is successful in defending the cross-claims brought against it in those proceedings but as no claim has been brought directly against Skadden by the Applicants, the Applicants may argue that no res judicata arises as between the Applicants and Skadden in the New York proceedings;
(c) avoiding a res judicata finding, the Applicants are permitted to proceed to trial in New York with the result that Skadden has to retry the issues litigated in Australia, incurring tremendous expense in the process;
(d) the Applicants succeed against Skadden in New York in circumstances where none or at least not all of the parties are before the Court;
(e) Skadden is forced to seek contribution in a third set of proceedings in Australia or some other jurisdiction(s) to which various parties not before the Supreme Court of New York are amenable;
(f) Skadden must establish that it is a tortfeasor in those proceedings but may be either:
(i) required to prove its liability as the New York verdict may not bind the parties from whom contribution is being sought; or
(ii) met with an argument that Skadden has no liability and is estopped from contending otherwise by virtue of the Federal Court proceedings."
The submission's premise is that Skadden fails in its attempt to join as third party cross defendants in New York, those parties against which it wishes to claim contribution or indemnity. There are other possible courses of events dependent on the same premise, for example:
(a)The respondents succeed here and in consequence all cross claims (excluding any "cross claims" by the Subsequent Banks) are dismissed.
(b)Later the applicants succeed against Skadden in New York.
(c)Then Skadden launches a third proceeding in Australia seeking contribution or indemnity.
(d)It is argued against Skadden that the previous dismissal of its cross claims gives rise to an issue estoppel with the result that Skadden cannot claim contribution or indemnity.
(e)If that argument fails, the present respondents
must
defend for a second time the claim, this time made by Skadden, that they are
liable to the applicants, although they had previously successfully defended
that claim when made by the applicants themselves.
No-one can doubt the desirability of claims for contribution and indemnity being determined in the same court as that which determines the existence of the primary liability. That ideal result can be achieved only if issue is joined as between all relevant parties in the one court, be it this Court or the New York court.
This aspect of the case has caused me anxious consideration. Aerospatiale is distinguishable on two bases: first, the plaintiffs sued the same defendant in both the domestic forum and the foreign forum; secondly, the proposed third party cross defendant had apparently not acted in Texas at all and the Privy Council proceeded on the basis that the attempt to join it might well be unsuccessful. Although the US District Court dismissed Linter I and Linter II on grounds previously noted against some of the parties which Skadden would wish to join in New York, I do not know how the New York court would respond to Skadden's motion and the opposition to it. Questions governing the practice of the New York court and, no doubt, factual questions as to the extent of involvement of the proposed third party cross defendants in the background facts in New York are raised.
If Skadden had not pursued its unsuccessful motions for dismissal in New York, it is possible that by now the result of the New York actions would be known. In that case, if the result had been adverse to Skadden, Skadden would have been able to seek to recover, in the forthcoming hearing of these proceedings, contribution or indemnity in respect of the amount of the judgment against it in New York. Skadden has deprived itself of the opportunity to do so by its course of seeking dismissal of the New York actions. The possibility of Skadden's being liable to the applicants as plaintiffs in New York without being able to claim contribution or indemnity may, however, seem an untoward and unduly harsh consequence of its having pursued a particular forensic strategy. I deal with this issue further below.
Juridical advantages
Deprivation of juridical advantages of the foreign jurisdiction (or the existence of juridical disadvantages of the domestic jurisdiction) are very important considerations, but one can imagine a juridical advantage (or disadvantage) of so little significance that it should not prevent the grant of injunctive relief by the domestic forum. Thus, in Aerospatiale Lord Goff spoke of juridical advantages "of which it would be unjust to deprive" a party (at 896H).
The applicants rely on their right to a jury trial, the availability of punitive damages and the absence of costs awards in New York. As well, they submit that there is a juridical disadvantage if they were to join Skadden as a respondent to these proceedings for which they would not suffer in New York, namely the availability to Skadden of a defence under the Limitation Act 1969 (NSW).
The right to a trial by a jury is given by Art I s 2 of the Constitution of the State of New York and s 4101 of the New York State Civil Procedure Law and Rules which gives a right to have issues of fact tried by a jury in actions which "would permit a judgment for a sum of money only" (s 4101.1). It is inappropriate, in considering whether the right to a jury trial counts as a juridical advantage, to speculate whether the applicants might fare better or worse before a judge alone or whether it is desirable in the interests of the administration of justice that a jury rather than a judge try the issues of fact in complex commercial litigation of the present kind. In my view it suffices that the law of New York gives the applicants the right to a trial by jury, and that (apparently) they do not intend to waive it.
It is possible, on the motion of a party supported by affidavit, for a jury to be empanelled to try issues of fact in this Court: Federal Court of Australia Act 1976 (Cth) s 40; Federal Court Rules, O 31. The parties have proceeded on the assumption that such a motion would not succeed. That assumption can be safely made. This complex commercial case is not an appropriate one in which the Court might, for the first time in the Court's history, order a jury trial.
Prima facie, the applicants should not be deprived of the juridical advantage of trial by jury in New York.
The availability of punitive damages in New York is, on the other hand, not persuasive. Exemplary damages are available in Australia in cases of deceit: Musca v Astle Corporation Pty Ltd (1988) 80 ALR 251 (FCA/French J).
In relation to costs, I do not regard the fact that the New York court does not order unsuccessful parties to pay the cost incurred by successful parties in respect of professional legal representation as a juridical advantage. Rather, it is a neutral fact for the reasons advanced by Skadden in its submissions noted earlier.
Finally, in relation to the possible limitation defence, Skadden's undertaking is as follows:
"[Skadden] would not take any limitation point in respect of any cause of action alleged against Skadden ... by the bondholders in the current proceedings, be that limitation point 1 which is available under Australian law or American law, or whatever, and the only exception to that is ... any limitation point [Skadden is] legitimately entitled to take at the moment under American law and to the extent to which, of course, this court, if it was the local forum, would enforce such American law." (at Tr 40)
In my view, this undertaking neutralises the suggested juridical disadvantage of this Court. Although s 63 of the Limitation Act 1969 (NSW) is expressed to extinguish causes of action on the expiration of the relevant limitation period, the extinguishment is not absolute and depends on a pleading of the bar: sub-s 68A (1) of the Limitation Act 1969.
My conclusion that the availability to the applicants of trial by jury in New York is a legitimate juridical advantage of which they would be deprived if the injunction sought by Skadden were granted does not signify that the persuasive of that factor cannot be outweighed by other considerations.
Positions of parties which Skadden (and USTC) might apply to join as third party cross respondents in New York
As noted earlier, if permitted, Skadden would cross-claim in New York against the 11 Initial Banks, Linter Group, Linter Textiles, the Liquidators, Freehills and Price Waterhouse. The first cross claim by any of these parties was filed against Skadden in September 1994. It was submitted that Skadden had submitted to the jurisdiction of the Court and, indeed invoked it by filing cross claims. The submission was intended to imply criticism of Skadden for not having resisted jurisdiction. Skadden's reply that it had no option but to submit to jurisdiction because it had an office in Sydney in September 1994 makes it impossible to level blame at either Skadden or the parties which joined it as a cross respondent. Further, the joinder of Skadden as a cross respondent naturally led to its own cross claiming for contribution or indemnity.
Unlike Skadden, the proposed cross defendants are not responsible for the delay which has attended the New York actions against Skadden and USTC. Yet it is perhaps unduly harsh on Skadden to determine the position as between it and the applicants on the assumption, against it, that it is not entitled to the benefit of changes in circumstances arising on account of the delay caused by it, yet to determine the position as between it and the proposed cross defendants on the assumption, also against Skadden, that the cross defendants are entitled to the benefit of such changes in circumstances. The point is that if Skadden had not moved for dismissal of the New York actions and had promptly gone about defending them and moving to join the proposed cross defendants, the latter would not have been in a position to say, in opposition to joinder, that there was already issue joined between them and Skadden in these present proceedings.
I do not know the extent to which, if at all, the proposed cross defendants have involved themselves in the events in New York which have given rise to the claims by the debenture holders. I do not know what the outcome of an application by Skadden to join the proposed cross defendants in New York would be. Apparently the 6th respondent (Citibank NA) at least, would be joined since it, alone of the Initial Banks, is shown as having a foreign address and, indeed, an address in New York.
It may be that the New York court, unlike the US District Court would order that all of the proposed cross defendants be joined. If all were joined, at least Skadden's potential inability to seek contribution or indemnity would not arise. If none were joined, the proposed cross defendants' fear would not materialise. If only some were joined, the position would be unsatisfactory.
In accordance with the practice usually followed as revealed by the cases (cf Bank of Tokyo at 63 (Robert Goff LJ); Amchem at 931), prima facie, and subject to two matters discussed below, it would be desirable that the New York court have the opportunity of deciding the proposed cross defendants' objections to joinder, prior to this Court's determination of their motions for anti-suit relief.
Invocation of federal jurisdiction in respect of a "matter"
The applicants make claims under the Trade Practices Act 1974 (Cth), ("the TP Act") ss 52 and 82. Sub-sections 86 (1) and (4) of the TP Act provide as follows:
"86(1)Jurisdiction is conferred on the Federal Court in any matter arising under this Act in respect of which a civil proceeding has, whether before or after the commencement of this section, been instituted under this Part.
(2)............................................
(3)............................................
(4)The jurisdiction conferred by sub-section (1) on the Federal Court is exclusive of the jurisdiction of any other court other than the jurisdiction of the several courts of the States and Territories under sub-section (2) and the jurisdiction of the High Court under section 75 of the Constitution."
(Section 86, like s 82, is within Part VI of the TP Act and these proceedings are civil proceedings instituted under that Part.) This Court has jurisdiction in the "matter" arising under the TP Act in respect of which these proceedings have been instituted and that jurisdiction is exclusive of the jurisdiction of, for example, the New York court (and cf Gummow J in National Mutual at 232 quoted earlier).
The importance of the word "matter" in the present area of discourse is well known. The word appears in ss 73, 74, 75, 76, 77 and 78 within Ch III of the Constitution and ss 21 (1), 22, 23, 25 (6), 26 (1) and 32 of the Federal Court of Australia Act 1976 ("the FCA Act"). The word "matter" can be compared with the "case" or "controversy" of Article III of the United States Constitution.
As is well known, a "matter" is more than a legal proceeding. It has been said to mean "the subject matter for determination in a legal proceeding"; In re the Judiciary and Navigation Acts (1921) 29 CLR 257 at 265 (Knox CJ, Gavan Duffy, Powers, Rich and Starke JJ). The scope of the word "matter" was the central issue in Phillip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457. The applicants asserted claims for relief under Part VI of the TP Act arising out of alleged contraventions of ss 52 and 53 of that Act. As well, they advanced claims against the same parties arising generally out of the same facts but not under the TP Act. Section 22 of the FCA Act arose for consideration as it does in the present case (see below). The section is as follows:
"22 The Court shall, in every matter before the Court, grant, either absolutely or on such terms and conditions as the Court thinks just, all remedies to which any of the parties appears to be entitled in respect of a legal or equitable claim properly brought forward by him in the matter, so that, as far as possible, all matters in controversy between the parties may be completely and finally determined and all multiplicity of proceedings concerning any of those matters avoided." (emphasis supplied)
The High Court had to decide whether this provision empowered the Federal Court to determine the other claims made by the applicants.
Barwick CJ said that the identification of the "matter" in relation to which federal jurisdiction is attracted is a question of substance, not of mere form, and added:
"... the federal jurisdiction attracted by the claim for misleading and deceptive conduct extends to the resolution of the entire matter between the parties which includes the claim for passing off, not merely as an associated claim but as part of the entirety of the matter between the parties in relation to which federal jurisdiction has been attracted." (at 479-480)
Gibbs J noted that the provision or its predecessor had been said to mean:
"that whenever a subject of controversy arises in an action which can conveniently be determined between the parties to the action, the court should, if possible, determine it so as to prevent further and needless litigation: In the Goods of Tharp [(1878) 3 PD 76 at 81.]" (at 489)
His Honour said that the provision "gave effect to a fundamental principle of the Judicature Act procedure, the avoidance of a multiplicity of proceedings" (at 489). Later, his Honour noted that a wider test has been applied in the United States to the notion of a "case" or "controversy" than has been implied in Australia to the notion of a "matter", as a result of the decision in United Mineworkers of America v Gibbs (1966) 383 US 715 [16 Law Ed 2d 218] where it is suggested that the federal and other claim should "derive from a common nucleus of operative fact" and "must be such that the plaintiff would ordinarily be expected to try [all the claims] in one judicial proceeding" (at 500).
Mason J emphasised that the word "matter" had a broad content apt to overcome the possibility of "undue fragmentation of a total controversy" (at 512).
In the United States,
in 1990, Congress adopted a statute (28 USCA § 1367, applying to actions
commenced after 1 December, 1990) that codifies the doctrines of "pendent
jurisdiction"
and "ancillary jurisdiction" under the name "supplemental
jurisdiction". The statute reaches
joinder of additional parties and pendent-party jurisdiction may be exercised
except "as expressly provided otherwise by Federal Statute" (28 USCA
§ 1367 (a)). Supplemental jurisdiction
extends to all claims that "form part of the same case or controversy
under article III of the United States Constitution". In CA Wright's Law of Federal Courts
(Hornbook series, 5th ed, 1994) at § 19 (p 114) the current position in the
United States is summarised as follows:
"Under a 1990 Statute, 28 USCA § 3567 (a), if a federal court has original jurisdiction of a case because of a federal question, it also has 'supplemental jurisdiction over all other claims that are so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article III of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties'".
In the typical case, A
invokes federal jurisdiction against B and, over the opposition from B, asks
the Court to exercise power in respect of other claims against B, such as for
deceit under the general law, which are said to arise out of the same facts. Questions then arise as to the bounds of the
"matter" over which the Court has jurisdiction and as to the
"severability" of the non-federal from the federal claims. But an obligation is also imposed on the
Court. In Fencott v Muller
(1983) 152 CLR 570, Mason, Murphy, Brennan and Deane JJ, in a joint judgment
expressed the principle as follows:
(at 608):
"A judicial power which is not exercised to determine the whole of a controversy is, generally speaking, not appropriately and conveniently exercised. Not appropriately, because the controversy is not quelled; not conveniently, because the parties -- the principal beneficiaries of the exercise of judicial power -- must litigate anew to have the outstanding questions and issues determined."
In these proceedings, the applicants have invoked federal jurisdiction under ss 52 and 82 of the TP Act against many parties, but not against Skadden, and many parties, but not the applicants, have invoked that jurisdiction against Skadden.
On the cross-claims, the Court would have power to determine whether, arising out of the same facts, Skadden incurred a legal liability to the applicants for fraud under the common law of New York as well as for contravention of s 52 of the TP Act. The former is of course, the claim made against Skadden in the New York actions.
Although the applicants have not invoked federal jurisdiction against Skadden, from no later than April 1994 when some of them launched the Ithaca action against Skadden, it was foreseeable that the respondents to these proceedings would probably cross claim against Skadden for contribution or indemnity based on the same facts as those which gave rise to the Ithaca action.
All of these considerations suggest that if the applicants wish to proceed against Skadden, they should not be permitted to do so elsewhere than in these proceedings and that it is vexatious or oppressive or an abuse of the process of this Court for them to proceed against the respondents here while suing Skadden in New York. Although Freehills raised the issues of the scope of the "matter" over which the Court has jurisdiction and the operation of s 22 of the FCA Act, they did so only on the hearing and the applicants replied to it only orally. I would be assisted by further submissions on these matters.
Joinder of issue as between Skadden and the applicants by the seeking of a "negative declaration"
Although all parties are before this Court, Skadden has not cross claimed against the applicants for a declaration that, in effect, it does not have the liability to them propounded in the New York actions (cf E I Du Pont de Nemours & Co v I C Agnew (No 2) [1988] 2 Lloyd's Rep 240 (CA); The "Volvox Hollandia" [1988] 2 Lloyd's Rep 361 (CA); Kawasaki Steel Corporation v Daeyang Honey (1994) 120 ALR 109 (FCA/Gummow J); Cigna at 58-63). I say nothing as to whether a motion by Skadden for leave to file such cross claim would be likely to succeed or not and make no observations as to the form or effect of any such "negative declaration". Submissions did not address this matter. I would be assisted by submissions on it.
CONCLUSION
The parties should have the opportunity of addressing, or addressing further, the two issues which I have raised above under the headings "Invocation of federal jurisdiction in respect of a 'matter'" and "Joinder of issue as between Skadden and the applicants by the seeking of a 'negative declaration'". Although Freehills put submissions in relation to the former, this was done in writing on the hearing and the response was oral. All parties should have an opportunity of making submissions or supplementary submissions in writing in relation to these two matters. There will be directions accordingly and the motions will be determined after such written submissions have been received and considered.
I certify that this and the preceding 88 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.
Associate:
Dated: 19 January 1996
Heard: 13, 14 November 1995
Place: Sydney
Decision: 19 January 1996
Appearances: Mr F M Douglas QC and Mr D R Stack of counsel instructed by Deacons Graham & James appeared for the applicants.
Mr A Sullivan QC and Mr S J Gageler of counsel instructed by Dibbs Crowther & Osborne appeared for the 1st cross respondent.
Mr P Hely QC and Mr M Pembroke SC instructed by Allen Allen & Hemsley appeared for the 1st, 7th, 8th, 9th and 11th respondents.
Mr L Aitken of counsel instructed by Minter Ellison appeared for the 2nd respondent.
M P Durack of counsel instructed by Clayton Utz appeared for the 3rd respondent.
Mr T Vero of Clayton Utz appeared for the 4th respondent.
Mr J Karkar QC and Mr P Anastassiou of counsel instructed by Mallesons Stephen Jaques appeared for the 5th and 6th respondents.
Mr S D Robb QC and J W J Stevenson of counsel instructed by Middleton Moore & Bevins appeared for the 10th respondent.
Mr P W Gray of counsel instructed by Gilbert & Tobin appeared for the 52nd respondent.
Mr T M Jucovic QC with Mr R Smith and Mr L V Gyles of counsel instructed by Norton Smith appeared for the 54th respondent.
Mr T F Bathurst QC with Mr R McHugh of counsel instructed by Blake Dawson Waldron appeared for the 207th cross respondent.
