FEDERAL COURT OF AUSTRALIA

Cheers v Entercorp Finance Pty Ltd [1999] FCA 1475

JURISDICTION – Federal Court of Australia – principal proceeding involving exercise of original jurisdiction – alleged contravention of Pt V of Trade Practices Act 1974 (Cth) – first cross-claim seeking damages against applicants for breach of contract – subsequent cross-claim seeking damages against other parties for tort of inducing breach of contract and breaches of Corporations Law and fiduciary duty – invalidity of parts of cross vesting legislation – whether subsequent cross-claim within accrued jurisdiction.

Corporations Law

Trade Practices Act 1974 (Cth) s 52

Fair Trading Act 1985 (Vic) s 11

Re Wakim; ex parte McNally (1999) 163 ALR 260 applied

Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 474 applied

Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 at 290 applied

Fencott v Muller (1983) 152 CLR 570 at 608 applied

Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210 at 217 referred to

Maisey v First Coast Pty Ltd (1984) 1 FCR 316 referred to

TJM Products Pty Ltd v A & P Tyres Pty Ltd (1987) 14 FCR 33 at 47-8 referred to

Walkling International Pty Ltd v Flair Men’s Wear Pty Ltd (unreported, Supreme Court of Victoria, 23 December 1993 per Tadgell J) referred to

ALAN FRANCIS CHEERS & ORS v ENTERCORP FINANCE PTY LTD & ORS

No VG 106 of 1997

WEINBERG J

27 OCTOBER 1999

MELBOURNE

THE COURT ORDERS THAT:

The amended notice of motion filed on 12 October 1999 on behalf of the eightieth, eighty-first, eighty-second and eighty-third cross-respondents be dismissed with costs.

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

REASONS FOR JUDGMENT

Introduction

1                     By an amended notice of motion filed on 12 October 1999 the eightieth, eighty-first, eighty-second and eighty-third cross respondents seek an order that the tenth respondent’s further amended cross-claim against them, filed on 22 September 1999, be stayed for want of jurisdiction. 

2                     The motion is brought in response to the decision of the High Court in Re Wakim; ex parte McNally (1999) 163 ALR 260, delivered on 17 June 1999, in which it was held that s 9(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and s 56(2) of the Corporations Act 1989 (Cth) were beyond legislative power, and therefore invalid.  As a result of that decision, the entire cross-vesting scheme has been circumscribed.  This Court does not now have jurisdiction to hear and determine non-federal matters unless they fall within what has been described as its “accrued jurisdiction” – Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 474 per Barwick CJ; Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 at 290 per Mason, Brennan and Deane JJ.

3                     The question to be determined on this motion is whether the claims made by the tenth respondent against the eightieth to eighty-third cross respondents fall within that “accrued jurisdiction”.  If they do, it is not contended that I should not, in the exercise of my discretion, hear those claims.  If they do not, this Court has no jurisdiction to hear them irrespective of how inconvenient the consequences of any such finding might be.

The general principles

4                     It is clear that none of the claims made by the tenth respondent in the further amended cross-claim are “federal” in nature.  Those claims may be summarised as follows:

(i)         Inducing or procuring a breach of contract (par 27).

(ii)        Breach of fiduciary duty (pars 32(d) and (e)).

(iii)       Breaches of the Corporations Law (pars 32(a), (b) and (c)).

5                     In order for the tenth respondent to establish that these claims fall within the “accrued jurisdiction” of the Court, it must demonstrate that they are “within the scope of one controversy” and therefore “within the ambit of a matter”.  The claims must meet the test stated by the High Court in Fencott v Muller (1983) 152 CLR 570 at 608 per Mason, Murphy, Brennan and Deane JJ;

“What is and what is not part of the one controversy depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships.  The scope of a controversy which constitutes a matter is not ascertained merely by reference to the proceedings which a party may institute, but may be illuminated by the conduct of those proceedings and especially by the pleading in which the issues in controversy are defined and the claims for relief are set out.  But in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.”

6                     This passage was cited with approval by Gummow and Hayne JJ in Re Wakim at 311.  Gummow and Hayne JJ continued (at 312):

“The references to ‘impression’ and ‘practical judgment’ cannot be understood, however, as stating a test that is to be applied.  Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete.  Necessarily, then, the question will have to be decided on limited information.  But the question is not at large.  What is a single controversy ‘depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships’.  There is but a single matter if different claims arise out ‘common transactions and facts’ or ‘a common substratum of facts’, notwithstanding that the facts upon which the claims depend ‘do not wholly coincide’.  So, too there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination.  Conversely, claims which are ‘completely disparate’, ‘completely separate and distinct’ or ‘distinct and unrelated’ are not part of the same matter. 

Often, the conclusion that, if proceedings were tried in different courts, there could be conflicting findings made on one or more issues common to the two proceedings will indicate that there is a single matter.  By contrast, if the several proceedings could not have been joined in one proceeding, it is difficult to see that they could be said to constitute a single matter.”

The principal proceeding

7                     Seventy-six applicants who are, in the main, airline pilots, have instituted this proceeding against twenty-one respondents.  For the sake of convenience the applicants shall be referred to hereafter as “the pilots”.

8                     The respondents comprise –

(a)        Entercorp Finance Pty Ltd (‘Entercorp”) (now known as El Davo Pty Ltd (in Liquidation)), formerly a member of the Boyle group of companies – the first respondent;

(b)        Capital Investments Corporation Pty Ltd (“Capital”) and its controller Kerrod Grant Park – the tenth and sixteenth respondents respectively; and

(c)        Peter Lindsay Boyle, Louis Weingarten, and various persons and companies associated with Boyle (collectively referred to as “the Boyle respondents”) – the remaining eighteen respondents.

9                     The claims made by the pilots are contained in an amended statement of claim filed on 2 October 1997.  In that amended statement of claim, the pilots seek to set aside various loan agreements entered into by each of them with Entercorp (“the David Copperfield loan agreements”) on various grounds –

(a)        At no time did Entercorp provide any loan funds under the loan agreements for or on behalf of the pilots.

(b)        Misrepresentations were made by Sentinel Financial Management Pty Ltd (“Sentinel) (as agent of Entercorp and the Boyle respondents) to the pilots which were relied on by them and which induced them to enter into the loan agreements.

(c)        There was non disclosure by Sentinel (acting as agent of Entercorp and the Boyle respondents) to the pilots of certain matters prior to their having entered into the loan agreements.

(d)        The loan agreements formed part of an investment scheme which contravened the prescribed interest provisions of the Corporations Law with the result that those loan agreements are void and unenforceable.

10                  Each of the abovementioned misrepresentations and non-disclosures are said by the pilots to constitute misleading or deceptive conduct in contravention of the Trade Practices Act 1974(Cth).  Hence, a federal matter arises in this proceeding.

11                  The pilots also contend that in or about February 1996 Entercorp entered into an agreement with Capital whereby Capital agreed that it would invest funds in the David Copperfield tour and, in so doing, would procure an assignment of the pilots’ loan agreements from Entercorp.  That assignment is said to have been effected on 1 March 1996.  The pilots claim that the assignment of the loan agreements by Entercorp to Capital was invalid, and that Capital therefore has no right to enforce those loan agreements against them.  The relief sought by the pilots in their amended application includes a declaration that Capital is not entitled to make any demand against them, pursuant to the loan agreements, for repayment of loan funds or interest instalments. 

12                  On 24 September 1998 Capital filed an amended defence and further amended cross-claim in response to the pilots’ application.  The further amended cross-claim was brought against the pilots, Entercorp and some, but not all, of the Boyle respondents.  In that further amended cross-claim, Capital seeks to enforce the loan agreements against each of the pilots.  It seeks judgment against each pilot for the amount outstanding under the loan agreement entered into by that pilot with Entercorp. 

13                  The underlying facts to be investigated for the purposes of resolving the dispute between the pilots on the one hand, and the Boyle respondents and Capital on the other, include –

(a)        The entry into the David Copperfield loan agreements by each of  the pilots and whether they relied on any misrepresentations made by Sentinel (alternatively non-disclosure by Sentinel) during the relevant period.

(b)        The capacity in which Sentinel was acting at the relevant time.

(c)        The due diligence enquiries conducted on behalf of Capital in January-February 1996 prior to Capital taking the assignment of the loan agreements, and whether these due diligence enquiries have the effect of imputing certain knowledge to Capital.

(d)        The assignment on 1st March 1996 by Entercorp to Capital of the David Copperfield loan book.

(e)        The events following the assignment leading to the supposed termination of the David Copperfield loans by Sentinel (purportedly acting on behalf of the pilots) on or about 1st July 1996.

(f)         Whether the notice of assignment given on behalf of Capital on 25 October 1996 was effective.

Capital’s further amended cross-claim against the eightieth to eighty-third cross-respondents

14                  On 13 May 1999 Capital filed a cross-claim against the eightieth, eighty-first and eighty-second cross respondents.  The eightieth cross respondent, Classic Trading Pty Ltd, is a company carrying on business as a provider of finance.  The eighty-first cross respondent, Elliott Davis, was at all relevant times a director of that company, and is said by Capital to have been in effective control thereof.  The eighty-second cross respondent, Frank Crombie, was at all relevant times prior to 21st June 1996 a director of, and consultant to, Capital.  He was responsible for the assignment to Capital of the loan agreements, and for monitoring the performance of those agreements.

15                  The cross-claim originally filed against these cross-respondents (who shall, for ease of reference, be described hereafter as the Davis parties) pleaded that the Davis parties had induced the pilots to breach their contractual obligations to Capital.  In the case of Crombie, the cross-claim pleaded that he had breached his duties to Capital under ss 232(2), (5) and (6) of the Corporations Law, and also that he had breached his fiduciary duty to the company.  Classic Trading Pty Ltd and Davis were said to have aided and abetted and to have been knowingly concerned in those various breaches of duty.

16                  On 23 July 1999, a little over a month after the High Court decision in Re Wakim, Capital was granted leave to file an amended cross-claim against the Davis parties, adding to the causes of action pleaded various allegations of contraventions of s 52 of the Trade Practices Act, and also of s 11 of the Fair Trading Act 1985 (Vic).  The claims under the Trade Practices Act appear to have been added as a form of “insurance” given that Re Wakim had determined that an alleged contravention of the Corporations Law could no longer be regarded as falling within the jurisdiction of this Court by virtue of cross-vesting, and had to be brought within its “accrued jurisdiction”.

17                  On 13 September 1999 Capital was granted leave to file a further amended cross-claim, and to add to the Davis parties the eighty-third cross-respondent, National Finance Group Pty Ltd, another Davis company.  The tort of inducement of breach of contract, the alleged contraventions of ss 232(2), (5) and (6) of the Corporations Law, and the alleged breach of fiduciary duty, were again pleaded.  The claims under the Trade Practices Act and the Fair Trading Act were, however, abandoned.

18                  Capital was given leave to file its original cross-claim against the Davis parties in May only because there was evidence that their alleged involvement in the breaches by the pilots of their contractual obligations to Capital had not become apparent until after discovery had been given in the principal proceeding.  It seemed desirable that Capital’s claims against the Davis parties be dealt with at the same time, and in the same proceeding, as its claims against the pilots.

19                  Capital contends as against the Davis parties in its further amended cross-claim that in about May-June 1996 those parties encouraged the pilots (either directly or indirectly through Sentinel) –

(a)        to terminate the David Copperfield loan agreements;

(b)       to purport to assign the burden of those loan agreements to Hemisphere Finance (NZ) Ltd and;

(c)                to enter into “switched” investments by taking out equivalent loans with Hemisphere Finance (NZ) Ltd. 

This conduct on the part of the Davis parties is said to give rise to liability for damages for the tort of inducing breach of contract. 

20                  The remaining causes of action pleaded in the further amended cross-claim, namely breaches of director’s duties, and breach of fiduciary duty, are said to arise from Crombie having, in or about June 1996, induced the pilots to breach the loan agreements.  It is also contended that Crombie, at about that time, removed from Capital, and turned over to the other Davis parties, certain documents relating to the due diligence enquiries conducted by Cornwall Stodart on behalf of Capital, and Capital’s monitoring and management of the David Copperfield loans.  This conduct on the part of Crombie is said to have been preparatory to the inducement by the Davis parties of the breach of the loan agreements, and the breaches by Crombie of his director’s duties, and of his fiduciary duty to Capital.

21                  The due diligence documents which Crombie is said to have turned over to the other Davis parties noted that there was a problem with a particular clause of the loan agreements.  Capital alleges that the Davis parties subsequently encouraged the pilots to assign the David Copperfield loans, exploiting a legal advice given by Cornwall Stodart to Capital, but to Capital’s detriment.  Capital contends that this conduct by Crombie should be viewed as an integral part of Crombie’s actions, in conjunction with the other Davis parties, in inducing the pilots to breach their contracts with Capital.

22                  The relief sought by Capital against the Davis parties includes –

(a)                damages for loss of the benefit of the David Copperfield loan agreements and/or

(b)               an account of the profit made by the Davis parties in relation to the switched investments.

23                  The question to be resolved is whether the cross-claim against the Davis parties falls within the accrued jurisdiction of the Court. 

The Davis parties’ contentions

24                  The Davis parties contend that there is a clear delineation between the principal proceeding between the pilots and the twenty-one respondents, and the cross-claims by Capital against the Davis parties.  They draw attention to the fact that there is no reference whatever in the amended application and amended statement of claim, or in Capital’s amended defence and cross-claim, to the matters involving the Davis parties, and Mr Crombie in particular. 

25                  The Davis parties contend that while it is clear that there is a “common sub-stratum of facts” as between the pilots and Capital which brings Capital’s amended defence and cross-claim against the pilots and its cross-claim against the Boyle respondents within the jurisdiction of the Court, (given that the pilots rely upon the provisions of the Trade Practices Act to avoid contractual liability, and Capital seeks to recover damages against them for breach of contract) there is no such “common sub-stratum of facts” regarding Capital’s cross-claims against the Davis parties. 

26                  The causes of action which are pleaded in Capital’s cross-claim against the Davis parties, namely the tort of inducing breach of contract, breaches of the Corporations Law and breach of fiduciary duty, are said to be unrelated to the principal claims, save perhaps in the most peripheral sense.  While it is accepted that Capital’s claim against the Davis parties depends upon Capital being able to establish the existence of loan agreements which are valid and enforceable, and which have been breached, and while the claims made against the Davis parties are therefore “dependent”, at least in part, upon the very matters which are in dispute in the principal proceeding, these claims are not, in any relevant sense, “inter-dependent”. 

27                  The Davis parties submit that all issues in contention between the pilots and the twenty-one respondents sued in the principal proceeding may be fully determined without reference to the issues raised in Capital’s cross-claim against them.  All relief to which the pilots and Capital may be entitled may be granted in the absence of that cross-claim.  Although the principal proceeding and the cross-claim will involve some mutually relevant evidence, the overlap is likely to be minimal.  It cannot, therefore, be said that the two proceedings arise out of “common transactions and facts” – Obacelo Pty Ltd v Taveraft Pty Ltd (1985) 5 FCR 210 at 217 per Wilcox J.

28                  The Davis parties rely also upon the decision in Maisey v First Coast Pty Ltd (1984) 1 FCR 316 in which a claim in contract and in negligence made by the applicants against the solicitor who acted on their behalf in a transaction was held, notwithstanding some overlap in the likely evidence, to be separate and distinct from the claims – in reliance upon s 52 of the Trade Practices Act and in tort – against the other respondents, the vendors of units in a proposed building.  See also TJM Products Pty Ltd v A & P Tyres Pty Ltd (1987) 14 FCR 33 at 47-8 per Fisher J.

29                  The Davis parties also contend that the evidence necessary to prove the alleged tort of inducing breach of contract is separate and distinct from the evidence required to prove the breaches of contract themselves.  The same is true of the claims of breaches of the Corporations Law, and breach of fiduciary duty, which are pleaded.  The only common facts would be proof of the loan agreements, and of their breach.  Accordingly, the Davis parties submit, there would be little or no overlap between the evidence required to prove the facts in dispute in these quite different claims.

Capital’s contentions

30                  Capital submits that its further amended cross-claim against the Davis parties falls within the accrued jurisdiction of the Court because:

(a)                it arises out of the same sub-stratum of facts and justiciable controversy that underlies the principal proceeding; and/or

(b)               it is so related to the claims in the principal proceeding that the determination of one is essential to the determination of the other.

31                  Capital submits that an analysis of the pleadings in the principal proceeding and in its cross-claim against the Davis parties shows that similar factual and legal issues will arise in both cases.  It is reasonably to be anticipated that the Davis parties, who have not as yet filed a defence in this proceeding, will rely upon the same matters as are relied upon by the pilots in their defence to Capital’s claims against them, namely the various breaches of the Trade Practices Act, the lack of consideration for the loan agreements, and the defects in the assignment of those loan agreements to Capital. 

32                  Capital contends that these issues will occupy a substantial amount of time in each proceeding, and that there will be significant overlap in the evidence adduced in relation to them.

Conclusions

33                  In order for Capital to succeed against the Davis parties on the common law cause of action of inducing breach of contract, Capital will need to establish, among other things, that:

(a)                the David Copperfield loan agreements were valid and enforceable; and

(b)               the assignment of the David Copperfield loan agreements from Entercorp to Capital was also valid and enforceable.

34                  It is clear that both these issues not only arise in the principal claim, but are pivotal to that claim.  The same matters will need to be determined in relation to the cross-claim brought by Capital against the Davis parties.  Counsel for the Davis parties quite properly acknowledged that this was so during the course of argument on the motion.

35                  Both the principal claim and the cross-claim against the Davis parties arise out of the same series of events.  There is, at the very least, a substantial overlap between the factual investigation that is required to be undertaken for the purposes of disposing of the principal claim, and the Davis cross-claim.  The degree of overlap between these matters is, in my opinion, far greater in this case than was the position in the authorities relied upon by the Davis parties. 

36                  There is no reason in principle why a party who sues another for damages for breach of contract should not join in that proceeding a cause of action in tort against a third party said to have induced that breach of contract – Walkling International Pty Ltd v Flair Men’s Wear Pty Ltd (unreported, Supreme Court of Victoria, 23 December 1993 per Tadgell J).  I note in particular the width of the Court’s discretion under O 6 r 1 of the Federal Court Rules relating to joinder of causes of action, as qualified by O 6 r 6.

37                  Although there are, in the present proceedings, different causes of action, one in contract, and one in tort, and although they are both non-federal in nature, the cause of action in contract is plainly within the accrued jurisdiction of the Court.  There is no reason in principle why Capital’s claim in tort against the Davis parties of inducing that same breach of contract, which is effectively an alternative to its claim of breach of contract against the pilots, should not also be regarded as being within the accrued jurisdiction.  In my opinion, that claim falls squarely within that jurisdiction.

38                  That is not to say that the question whether the cross-claim against the Davis parties is part of a “single matter” is free from difficulty.  I accept that the claims alleging contraventions by Crombie of the Corporations Law, and breach of fiduciary duty, arising from his supposed misuse of Capital’s documents may be seen as being one step further removed from the single justiciable controversy in the principal proceeding than the claim for the tort of inducing breach of contract.  Nonetheless, those claims too are, in my opinion, sufficiently closely linked to the “common transactions and facts”, or “common sub-stratum of facts” arising out of the validity and enforceability of the loan agreements to warrant being treated as being within the accrued jurisdiction of the Court.  They are, after all, realistically and tangibly linked to the claim of inducing breach of contract which I have already found to be within that accrued jurisdiction.

39                  Any damages which Capital might be entitled to recover against Crombie, or against the other Davis parties arising out of Crombie’s conduct, and arguably also any account of profits, will ultimately be dependent upon the findings made in relation to the validity and enforceability of the loan agreements, and the validity of the assignment of those loan agreements to Capital.  These are the matters which lie at the heart of the principal claim.  It is these same matters which will need to be determined in the course of dealing with Capital’s cross-claim against the Davis parties.  They form a major part of that cross-claim and there will, in my opinion, be a significant overlap in the evidence adduced in relation to them.

40                  There is nothing in Wakim (supra) which suggests that a narrow view should now be taken of the accrued jurisdiction of this Court, or that the earlier statements of principle laid down in Fencott v Muller (supra) should be given a restricted operation. 

41                  For the reasons set out above all three non-federal claims made by Capital in its further amended cross-claim are, in my opinion, within the accrued jurisdiction of the Court.

42                  The amended notice of motion must be dismissed, with costs.

Associate:

Dated:              27 October 1999