FEDERAL COURT OF AUSTRALIA

Advanced Switching Services Pty Limited v State Bank of New South Wales T/as Colonial State Bank [2001] FCA 1508

PRACTICE AND PROCEDURE     -  application for leave to join proposed second respondent – whether leave should be granted - where agreements provided that disputes arising “in connection with the agreement” should be dealt with by arbitration – whether this encompasses disputes arising in respect of pre-contractual misrepresentations – whether this encompasses disputes in respect of post-contractual misrepresentations – where joinder would be futile – where statement of claim embarrassing

Federal Court Rules O6 r 2, O 13 r 3

Trade Practices Act 1974 (Cth)

Commercial Arbitration Act 1984 (Vic) s 53(1), 53(2)

Judiciary Act (1903) (Cth) s 79

Posselt v Wolfenden (Nicholson J, 5 May 1998, unreported)

Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1

ADVANCED SWITCHING SERVICES PTY LIMITED v STATE BANK OF NEW SOUTH WALES LIMITED T/AS COLONIAL STATE BANK

N 88 OF 2001

HELY J

30 OCTOBER 2001

SYDNEY

THE COURT ORDERS THAT:

1.         The Notice of Motion filed on 28 August 2001 be dismissed with costs.

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

REASONS FOR JUDGMENT

1                     The applicant seeks an order pursuant to Order 6 rule 2(b) of the Federal Court Rules that leave be granted to the applicant to join Akyman Financial Services Pty Ltd as the second respondent in these proceedings.  For convenience, I shall refer to Akyman Financial Services Pty Ltd as “the second respondent”.

2                     Order 6 rule 2 provides:

“Two or more persons may be joined as applicants or respondents in any proceeding –

(a)               where –

(i)                 if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and

(ii)               all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or

(b)               where the Court gives leave so to do.”

Leave of the Court is required in the circumstances of the present case, if only because the application for joinder is one which has been made after the commencement of the proceedings.

3                     On 20 March 1997 and 12 September 1997 the applicant and the second respondent entered into three distribution agreements whereby the applicant acquired the exclusive right to distribute portable EFTPOS terminals manufactured by the second respondent in specified states and territories of Australia.  The agreements were for a term of five years.  Clause 25 of each agreement provides that any dispute “arising in connection with this agreement” which cannot be resolved by agreement between the parties is to be submitted to arbitration.

4                     On 8 February 1999 the second respondent purported to terminate those agreements.  As a result, on 20 June 2000 a notice of dispute was given by the applicant to the second respondent pursuant to the arbitration clause.  The applicant delivered a statement of claim in the arbitration proceedings, and the second respondent lodged a defence and counter claim in the arbitration.  The applicant lodged a statement of evidence, but since 31 January 2001 the applicant has taken no steps to progress the arbitration.

5                     These proceedings were commenced by an Application and Statement of Claim against the State Bank of New South Wales filed with the Court on 1 February 2001.  In that Statement of Claim, the applicant alleges that it suffered loss by reason of 28 misrepresentations on the part of the first respondent which broadly related to the distribution of the portable EFTPOS terminals which were the subject of the distribution agreements between the applicant and the second respondent.  The loss was particularised as wasted expenditure in the 1998 year of $1,613,675, and $2,687,755 for the year 1999.  Loss of profits from the sale of terminals of $12.675 million in the first year and $19.857 million in the second year was also claimed.

6                     The present application was accompanied by a form of Amended Application and Amended Statement of Claim.  In reliance upon Order 13 rule 3 the claim against the first respondent was amended so as to increase the number of representations relied upon from 28 to 88. 

7                     The claim against the second respondent begins at par 574 of the proposed pleading.  It alleges various breaches of s 52 of Trade Practices Act 1974 (Cth) (“TPA”) by the second respondent.  The contraventions consist of a number of representations alleged to be misleading or deceptive or likely to mislead or deceive.  Thirty four such misrepresentations are pleaded.  The loss which the applicant alleges it sustained in consequence of those representations is the same loss and damage as is claimed from the first respondent.  The representations alleged to have been made by the first respondent are different from the representations alleged to have been made by the second respondent, although in some cases they may relate to the same or similar subject matter.  Although an affidavit filed in support of the application asserted a belief in the deponent that if separate proceedings were brought by the applicant against the second respondent “the same questions of law and fact would arise in those proceedings”, Mr Wheelhouse, counsel for the second respondent, was unable to identify by reference to specific paragraphs in the pleading, specific questions of law or of fact which are common to the claim against the first respondent and the second respondent.  Given that the claims relate to the one commercial transaction and that the same damage is claimed against each of the respondents, it is likely that some common questions will emerge, even though they have not been identified with any precision up to this point.

8                     Mr Wheelhouse submitted that leave to join the second respondent and to amend the Statement of Claim so as to plead a case against the second respondent should be given, unless the second respondent can demonstrate that it would be an exercise in futility for that to occur.  He relied, by way of analogy, on authorities which establish the limited circumstances in which summary dismissal of proceedings will be ordered, and on the general approach adopted by the courts on an application to amend pleadings.  Where a party satisfies a court that the party genuinely desires to amend the pleading so as to alter an existing claim or to introduce a new claim, leave should be granted, subject to proper terms, unless the proposed amendment is obviously futile or would cause substantial injustice which cannot be compensated for.  See, for example, Posselt v Wolfenden (Nicholson J, 5 May 1998, unreported).

9                     On the other hand, Mr Collins, counsel for the second respondent, submitted that the issue is whether his client should be compelled to become a party to the proceedings between the applicant and the first respondent at this time having regard to the terms of the proposed Amended Statement of Claim.  In addition to its other submissions, the second respondent made detailed criticisms of the form of the proposed Amended Statement of Claim, and complained that the second respondent is not alerted as to the case sought to be made against it.  Whether and to what extent that case overlaps with the claim made against the first respondent so as to give rise to common issues does not emerge from the proposed pleading with any clarity.

The arbitration

10                  The distribution agreements provide that they are governed by the laws of Victoria.  Section 53(1) of the Commercial Arbitration Act 1984 (Vic) (“the Act”) provides:

“If a party to an arbitration agreement commences proceedings in a Court against another party to the arbitration agreement in respect of a matter agreed to be referred to arbitration by the agreement, that other party may, subject to subsection (2), apply to that Court to stay the proceedings and that Court, if satisfied -

(a)               that there is no sufficient reason why the matter should not be referred to arbitration in accordance with the agreement; and

(b)               that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary for the proper conduct of the arbitration -

may make an order staying the proceedings and may further give such directions with respect to the future conduct of the arbitration as it thinks fit.”

Section 53 of the Act is capable of application by virtue of s 79 of the Judiciary Act (1903) (Cth) to proceedings in this Court.  The second respondent has, as required by s 53(2) of the Act, not delivered pleadings or taken any step in the proceedings other than the entry of an appearance.

11                  In one sense, consideration of the potential application of s 53 of the Act is premature as the second respondent would not be entitled to an order under s 53 until it is joined as a party to the proceedings.  However, Mr Wheelhouse accepted that if a claim against the second respondent was within the arbitration clause, it would be proper to refuse the joinder application on the ground of futility. 

12                  Whether the claim against the second respondent is a dispute arising“in connection with the agreement” depends upon the breadth of the italicised expression and the proper characterisation of the claim.  The representations relied upon can be broken down into two groups.  The first group consists of representations 89-101 pleaded in pars 574-586 of the Amended Statement of Claim.  The misleading qualities of those representations are alleged in pars 611-627.  Paragraph 628 alleges that the applicant entered into the three distribution agreements to which I earlier referred in reliance on those representations.

13                  Mr Wheelhouse submits that a dispute arising “in connection with this agreement” does not encompass pre-contractual misrepresentations.  I do not agree.  A dispute as to whether an agreement was induced by misleading and deceptive conduct is, in my view, a dispute arising in connection with the agreement.  The nexus or connection between the dispute and the agreement is both clear and direct.  The fact that the representations are alleged to have induced the agreement provides the requisite connection.

14                  Cases decided on the construction of other arbitration clauses are of limited assistance, as so much depends upon the particular context.  However, in Hi-Fert Pty Ltd v Kiukiang Maritime Carriers Inc (No 5) (1998) 90 FCR 1, Emmett J, as a member of the Full Court, reviewed many of the cases which were concerned with the application of arbitration clauses to causes of action arising under TPA.  His Honour reached the following conclusions:

-                     where there is a dispute as to a claim in respect of conduct which is antecedent to the making of a contract, such a dispute cannot be said to arise from the contract in question;

-                     the expression “arising in connection with” is wider than the expression “arising out of”;

-                     the expressing “arising in connection with” the relevant agreement is wide enough to include a claim alleging contravention of Part V of TPA inducing the contract in question (at 160);

-                     a claim arising out of contravention of TPA during the performance of an agreement could be a claim arising out of the agreement or from the agreement.

15                  The expression “in connection with” is an expression of wide import, which simply requires a sufficient nexus between one thing and another.  A further reason for construing the expression in a broad manner is that it can be assumed that the parties intended all of their disputes in connection with the contract to be capable of resolution in the one forum.

16                  The applicant has already elected to refer its disputes with the second respondent to arbitration.  Whilst the existing reference may be confined to performance of contractual terms and repudiation, there is no reason why it should not be extended if the applicant wishes to extend its claims so as to include alleged misrepresentations said to have induced the applicant to enter into the contracts, or induced the applicant to expend money or take other action by reason of the subsistence of the contracts, provided that the broader dispute is within the arbitration clause.

17                  Representations 102-123 pleaded in par 587 of the Amended Statement of Claim and following are not alleged to have induced the entry into the distribution agreement.  They were described by Mr Wheelhouse in the course of his submissions as representations which caused the applicant to adhere to the distribution agreements, or to continue to perform them.  In Mr Wheelhouse’s submission, disputes arising in connection with the agreement are confined to disputes as to the compliance by the applicant with the terms of the agreement, or as to breach by the second respondent of the terms of that agreement.  In my view, that is too narrow an interpretation of the clause in question.  A dispute may arise “in connection with” the agreements even though the subject matter of the dispute is something other than the performance or non-performance of a provision of that agreement.

18                  Paragraphs 633, 638, 642, 648, 653, 659, 664-669, 679, and 712-718 are the allegations with respect to reliance on the post-contractual misrepresentations.  It is not easy to encapsulate those allegations into a single paragraph, but in one way or another, the case which the applicant there seeks to make against the second respondent is that it committed funds and manpower to the performance of the agreements, or the achievement of the commercial objective intended to be secured by the agreements, which but for the misleading and deceptive conduct it would not have undertaken.  That suggests that Mr Wheelhouse’s characterisation of the post-contractual representations as being representations which caused the applicants to adhere to the agreements, and to continue to perform them, is very close to the mark.  Disputes of that kind are properly characterised as disputes arising in connection with the distribution agreements, and are therefore within the arbitration clause.  In my view, each of the post-contractual claims of misleading and deceptive conduct is within the arbitration clause.

19                  As I will shortly explain, the Amended Statement of claim is an unsatisfactory document which does not expose with clarity or precision the case which the applicant seeks to make against the second respondent.  However, what the applicant seeks to recover from the second respondent is expenditure on the faith of the distribution agreements which has been wasted, and profits which would otherwise have been made by virtue of those agreements but for the TPA contraventions.  The way in which the damages claim has been formulated strongly supports the view that the claim as a whole is a dispute arising in connection with the distribution agreements.

20                  Given the concession that if the matters the subject of the proposed claim against the second respondent are within the arbitration clause, then joinder of the second respondent as a party to the proceedings ought not to be permitted, the application for leave to the applicant to join Akyman Financial Services Pty Ltd as the second respondent in these proceedings should be dismissed.

21                  It is at least theoretically possible, contrary to the conclusion which I have reached, that the view might be taken that a particular element of the applicant’s claim is not appropriately characterised as being a dispute in connection with the distribution agreements.  To take an example, the advance of $50,000 referred to in par 633 might be regarded as something wholly outside the distribution agreements.  Even if that were so (and the terms of representation 102 indicate to my mind that it is not so), that would not provide a sufficient foundation for dragging the second respondent into the proceedings between the applicant and the first respondent which have a considerable sweep in terms of the conduct complained of and its consequences.  If it were the case that there is some small part of the applicant’s TPA claim against the second respondent that is outside the arbitration clause, then my decision in this case would not preclude the applicant from instituting other proceedings against the second respondent in relation to that matter.

22                  The Amended Statement of Claim insofar as it seeks to make a claim against the second respondent is a wholly unsatisfactory document.  To take an example, the first representation of the second respondent relied upon is the 89^th representation.  It is alleged in par 574.  The allegation is that in or about March 1997 the second respondent represented that the M-Pos terminal is the only one of its kind in the marketplace.  Par 611 alleges that the 89^th representation is misleading or deceptive, but the only particulars given of that allegation are that the second respondent did not have reasonable grounds to make the 89^th representation.  The 89^th representation is, however, as to an existing fact.  Further and/or in the alternative, it is said that the 89^th representation is positive and unqualified, and by failing to qualify the 89^th representation it is said that the representation is misleading or deceptive or likely to mislead or deceive.  No information is given as to in what way the 89^th representation is false or likely to lead a person into error, nor is there any statement of the respects in which the representations should have been qualified if its misleading and deceptive character was to be avoided.  The whole of the proposed pleading against the second respondent is replete with illustrations and recurrences of this problem.

23                  The claim against the second respondent is pleaded in such an embarrassing and uninformative way that, considered as a self-contained claim against the second respondent, it would be liable to be struck out.  Still less does it provide a foundation for a conclusion that I should grant leave for that claim to be brought forward in proceedings against the first respondent when the common issues do not emerge from the pleading and when the supposed benefits to be derived from joinder are at best speculative.  This provides a further reason for not granting the relief sought in the Notice of Motion.

24                  In written submissions lodged shortly prior to the hearing, the second respondent identified deficiencies in the pleading.  In response to those submissions the applicant indicated that it did not press pars 590, 591 and 653, but otherwise maintained that the application for leave to join the second respondent should be determined upon the basis of the proposed Amended Statement of Claim.  I enquired of Mr Wheelhouse as to whether it was his client’s position that the application should be determined on the basis of that document.  His response was that it should.  For the reasons which I have given, the applicant has not made out a case for the granting of leave to join the second respondent as a party to these proceedings in order to enable the applicant to proceed against the second respondent in terms of the Amended Statement of Claim.

25                  The second respondent opposed the grant of leave on the further basis that, in the circumstances, there was some onus on the applicant to demonstrate either that it would not be ordered to provide security for costs, or that it would be able to comply with such an order if one were made.  In my view, considerations relating to security for costs have no bearing on the motion.  They only arise, if at all, at a later stage in the proceedings.

Associate:

Dated:              30 October 2001