FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - Misleading and deceptive conduct by corporation ‑ Director involved in corporation’s contravention ‑ Application not proceeding against corporation ‑ Competency of proceeding against director alone ‑ Conduct of director constituting conduct of corporation ‑ Competency of claim against director as being involved in corporation’s contravention - Application to strike out statement of claim.

SECURITY FOR COSTS - Applicant a trustee - No assets other than right of indemnity ‑ Value to respondent of trustee’s right of indemnity ‑ No undertaking not to distribute assets.

Trade Practices Act 1974 ss 52, 75B, 82

Federal Court Rules O 28 r 3(1)(b)

Matheson Engineers Pty Ltd v El Raghy(1992) ATPR 41-192 applied

Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd(1994) 123 ALR 681 applied

Wright v Wheeler Grace & Pierucci Pty Ltd (1988) ATPR 40-865 not followed

Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 applied

Hamilton v Whitehead (1988) 166 CLR 121 considered

Mallan v Lee (1949) 80 CLR 198 distinguished

Yorke v Lucas (1985) 158 CLR 61 considered

Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40-584 considered

Chester & Fein Property Developments Pty Ltd v Candam Investments Pty Ltd(1985) ATPR 40-618 considered

WORLD CLASS ALPACAS PTY LTD (ACN 056 236 947) v OSTRICH FARMS (COOK ISLANDS) LIMITED, CHRIS De VERE and NATHAN CHANESMAN

VG 479 of 1996

SUNDBERG J

30 OCTOBER 1997

MELBOURNE

THE COURT ORDERS THAT:

1.             Within 28 days the applicant furnish security in the sum of $28,000 for the third respondent’s costs of this proceeding up to and including the first day of the trial.

2.             The security be given by payment into Court or by bond in such manner and form as the Court shall approve.

3.             Until such security is furnished or further order the proceeding be stayed.

4.             If security is not furnished as aforesaid, the proceeding be dismissed and judgment be entered for the third respondent with costs.

5.             Save as aforesaid, the motion notice which was filed on 23 September 1997 be dismissed.

6.             The applicant pay one third of the third respondent’s taxed costs of the motion.

7.             The third respondent pay two thirds of the applicant’s taxed costs of the motion.

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

REASONS FOR JUDGMENT

BACKGROUND

The applicant commenced proceedings against the respondents for damages and other relief arising out of alleged contraventions of s 52 of the Trade Practices Act 1974 (“the Act”) and comparable provisions of the Fair Trading Acts of Victoria and New South Wales.  In relation to the second and third respondents, who are said to be directors of the company, reliance is placed on s 75B of the Act.  It is alleged that the respondents represented to the applicant that they or one or more of them had established approved premises suitable for quarantining ostriches being imported into Australia, and that the premises could be adapted for use in quarantining alpacas being imported into Australia by the applicant.  In reliance on the representations the applicant entered into an agreement with the first respondent (“the company”) under which the company granted the applicant a period of exclusive use of the premises for the purpose of quarantining the applicant’s alpacas, and paid $315,000 to the company.  The representations are said to be untrue.  In par 11 of the statement of claim it is alleged that the second respondent and the third respondent (“Chanesman”) were “involved in the contravention”.  In addition to claiming damages under s 82 aganst all respondents, the applicant claims against them damages for negligence and breach of a collaterial agreement.  It claims against the company damages for breach of terms of the agreement.  The applicant has been unable to serve the company or the second respondent, and now proceeds against Chanesman only.

By motion, notice of which was filed on 23 September 1997, Chanesman applies to have the statement of claim, or alternatively particular parts of it, struck out as against him.  He also seeks to have the matter transferred to the Supreme Court of New South Wales or to the New South Wales Registry of this Court.  Finally, he seeks security for costs.

STRIKE OUT APPLICATION

(a)        Accessorial allegations

In par 11 of the statement of claim Chanesman is alleged to have aided and abetted, been knowingly concerned in, and conspired with others to effect, the contraventions “by the respondents and each of them” of s 52 of the Act and the comparable provisions of the Fair Trading Acts.

Counsel for Chanesman submitted that what I will call the accessorial case against his client “cannot be heard by the Court” because the company will not be before the Court with the result that no declaration of contravention will be binding upon it.  No authority was cited to for the contention that relief cannot be granted under s 82 in conjunction with s 75B unless the principal contravenor is before the Court or bound by its orders.  Indeed authority is to the contrary.  In Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 the corporate respondent had been dissolved by the time of the hearing and the case proceeded against the individual respondents (its directors) alone.  Burchett J accepted that an action may be maintained against individuals alleged to have been involved in a contravention of s 52, within the meaning of s 75B, although proceedings are not pursued against the corporation which is the principal party to the contravention.  In Matheson Engineers Pty Ltd v El Raghy (1992) ATPR 41‑192 French J said that the words of s 82 ‑ “by action against that other person or against any person involved in the contravention” ‑ were clear, and did not impose as a condition of accessorial liability that the primary contravenor be a party to the action.

(b)        No independent conduct by Chanesman

It was also submitted that par 11 and associated paragraphs should be struck out on the ground that there is no pleaded conduct of Chanesman independent of the conduct alleged to have constituted the contravention by the company.  Reliance was placed on the observations of French J in Wright v Wheeler Grace & Pierucci Pty Ltd (1988) ATPR 40‑865 at 49,376‑377:

This raises a question whether a natural person can be accessory to a corporate principal whose liability arises from the act of that person.  There could be a case where a natural person engaged in preliminary conduct of an accessorial character followed by distinct conduct attributable to a corporation as principal.  But where the conduct upon which liability is founded is the only relevant conduct, it is difficult to see how it can also have that accessorial character.  This difficulty was recognised by the High Court in Yorke v Lucas (1985) 61 ALR 307.  ... At 313 in the joint judgment of Mason ACJ, Wilson, Deane and Dawson JJ the following observation is found:

“... the appellants may ... have encountered difficulty in establishing that Lucas was involved within the meaning of s 75B [of the Trade Practices Act] in the contravention constituted by the making of the false representations, having regard to the fact that the representations, albeit made on behalf of the Lucas company, were made by Lucas himself.  As Dixon J observed in Mallan v Lee (1949) 80 CLR 198 at 216:

‘It would be an inversion of the conceptions on which the degrees of offending are founded to make the person actually committing the forbidden acts an accessory to the offence consisting in the vicarious responsibility from his acts.’”

...

In the end the problem reduces to one of construction, and, as a matter of language, the conduct contemplated by the words of s 75B(1) is conduct distinct from that which constitutes the contravention.

Counsel for the applicant did not challenge the correctness of French J’s decision, which was given on 22 April 1988.  The High Court’s decision in Hamilton v Whitehead (1988) 166 CLR 121 was handed down on 7 December 1988.  In that case a company was charged with contravening s 169 of the Companies Code ‑ issuing a prospectus to the public.  Whitehead, its managing director, was charged with being knowingly concerned in the commission of the offence.  If the company committed the offence, it was only as a result of acts done by Whitehead.  The magistrate dismissed all charges.  The Supreme Court allowed the prosecutor’s appeal against the dismissal of some of the charges against the company, and found those charges proved.  Appeals against  the dismissal of the charges against Whitehead were dismissed.  Franklyn J said:

Before his Worship the prosecution case against [the company] was that the actions of Whitehead were the actions of [the company], he being its managing director.  ... Thus it relied on the acts and decisions of Whitehead as ‘the directing mind and will of the company’ as being the acts and decisions of [the company].  It appears to me to be clearly wrong and oppressive to then prosecute Whitehead personally for the identical acts and decisions as were relied on as the acts of the company.

The High Court allowed the prosecutor’s appeal.  It distinguished Mallan v Lee on the ground that the legislation under consideration in that case made the company vicariously liable for the acts of its public officer.  The company’s liability under the Code was direct, and not vicarious.  The High Court referred to the observations in Yorke v Lucas (1985) 158 CLR 661 at 671, quoted by French J in Wright, and said that “this reservation, made no doubt out of an abundance of caution, was unnecessary”.  Section 75B, like s 169 of the Code but unlike the provision in Mallan v Lee, made the alleged accessory a true accessory, since the offence committed by the company was not the consequence of a vicarious liability for the actions of its servants, but of actions undertaken directly by it.

On the basis of the distinction drawn in Hamilton v Whitehead, an appeal against the relevant part of French J’s decision in Wright was allowed: (1989) ATPR 40‑940.

Neither Hamilton v Whitehead nor the Full Court’s decision in Wright was mentioned before me, and as I have said, the authority of French J’s observations in Wright was not challenged.  Obviously those observations are not authoritative.

I am not satisfied that I should strike out par 11 and the associated parts of the statement of claim on the ground that the accessorial claim cannot succeed.

VENUE

Counsel for Chanesman submitted that the proceeding should not be in this Court because all the “live” matters in the statement of claim are State matters.  The only respondent against whom the proceeding is to continue is not a corporation, and so only the Fair Trading Acts and negligence causes of action have vitality.  I do not agree.  In order for the applicant to succeed against Chanesman it will have to establish that the company contravened s 52, (a matter within federal jurisdiction), even though no order can be made against the company.

In my view the proceeding should remain in this Court, and in the Melbourne Registry.  The applicant resides here, as does its principal witness, Mr Harrison, who would suffer substantial dislocation to his business if he had to spend significant time in Sydney.  Another witness, Mr Wren, also lives in Melbourne and conducts his practice here.  These Victorian connections show that there was nothing contrived or artificial in the proceeding having been instituted here.

At the same time, there are factors connecting the matter with New South Wales: Chanesman lives there and conducts his business primarily in that State.  Chanesman’s solicitor deposed that Chanesman’s witnesses reside in New South Wales.  But, apart from Chanesman himself, the witnesses are not identified.  Even though the cause of action on the agreement will not be pursued, I have taken into account that the negotiations leading up to the agreement occurred in New South Wales, that the proper law of the agreement is New South Wales law and that by clause 9 the parties submit to the jurisdiction of the Courts of that State.  I have however accorded less weight to the last two considerations than I would have done had the cause of action relating to the agreement remained alive.

SECURITY FOR COSTS

The applicant is a trustee.  It thus brings the action for the benefit of others.  Cf O 28 r 3(1)(b) of the Federal Court Rules.  It has no assets of its own, other than its right of indemnity out of the trust assets.  As to a trustee’s right of indemnity, in Laundry Coin‑Wash Nominees Pty Ltd v Dunlop Olympic Ltd (1985) ATPR 40‑584 Smithers J said:

With respect to the indemnity, unless the applicant itself co‑operated, or the applicant company were wound up, benefit could not be obtained by the respondents thereunder.  No direct process of execution would be available for the purpose of obtaining that benefit.  Further, the extent to which the indemnity would in any event be productive would depend upon the state of finances of the trust.  And the possibility of some defence cannot be ignored.

Where the only tangible assets of an applicant company are held in trust for another entity and its solvency depends on its right as trustee to an indemnity against that entity it is necessary for the Court to have in mind the difficulties which a successful respondent would face in attempting to execute in respect of an order for costs.  Indeed, unless some step is taken to alleviate those difficulties it is reasonable and just to treat the applicant company as if it were without assets to meet such a liability.

There is nothing to stop the applicant distributing the trust assets prior to the conclusion of the litigation.  The applicant did not offer an undertaking not to dispose of its assets.  Cf Laundry Coin‑Wash, and see Chester & Fein Property Developments Pty Ltd v Candam Investments Pty Ltd (1985) ATPR 40‑618 at 46,990‑46,991.  Chanesman has made out a case for security.

As to quantum, Chanesman’s solicitor has sworn a detailed affidavit estimating the costs up to and including the first day of the trial at $38,000.  I do not regard all the items paid or expected to be paid as likely to be recovered in full on taxation.  I have had regard to the answering affidavit of the applicant’s solicitor, whose estimate is $18,397.  Doing the best I can, I think the appropriate sum is $28,000.

Associate:

Dated:              30 October 1997