FEDERAL COURT OF AUSTRALIA

Palm Springs Ltd v Darling [2002] FCA 277

PRACTICE AND PROCEDURE – application to have proceedings dismissed – whether proceedings are an abuse of process – whether proceedings were instituted for the predominant purpose of enabling cross-vesting – whether claims are without foundation – approach taken by Court in determining purpose of instituting proceedings

Corporations Act 2001 (Cth)

Trade Practices Act 1974 (Cth)

Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW)s 8

Industrial Relations Act 1996 (NSW) s 106

Federal Court of Australia Act 1976 (Cth)

Jurisdiction of Courts (Cross-Vesting Act) 1987 (Cth) s 5

Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 cited

The Bell Group Ltd v Westpac Banking Corporation (2000) 104 FCR 305 referred to

Williams v Spautz (1992) 174 CLR 509 followed

In re Majory [1955] Ch. 600, cited

Wood v Boral Resources (NSW) Pty Ltd (unreported, NSW Supreme Court, McLelland CJ in Eq, 28 October 1993) refererd to

ECC Lighting Ltd v McGurk (unreported, NSW Supreme Court, Santow J, 15 June 1995) referred to

Ge v River Island Clothing Pty Ltd [2001] NSWSC 935 discussed

BT Australasia Pty Ltd v State of New South Wales and Telstra Corporation Ltd (No 13) (unreported, Federal Court of Australia, Sackville J, 29 September 1998) cited

PALM SPRINGS LIMITED v

MARK HAROLD DARLING

N1396 OF 2001

TAMBERLIN J

SYDNEY

19 MARCH 2002

THE COURT ORDERS THAT:

1. The proceeding is dismissed as an abuse of process.
2. The respondent on the Notice of Motion shall pay the applicant’s costs.

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

REASONS FOR JUDGMENT

1                     By Notice of Motion filed on 12 November 2001, the respondent Mark Harold Darling (“Darling”) seeks to have proceedings in this Court filed by Palm Springs Limited (“Palm Springs”) on 5 October 2001 dismissed.

2                     The basis of the application for dismissal is that the application in this Court is an “abuse of process”.  The proceedings in this Court are said to be colourable and without foundation and that they were instituted for the predominant purpose of enabling jurisdiction to be vested in the Supreme Court of New South Wales (“the Supreme Court”) from the Industrial Relations Commission of New South Wales (“the IRC”) and from this Court. The proceedings brought in this Court, it is said, are not for the predominant purpose of the Court proceeding to exercise the judicial power of the Commonwealth because it is not intended that the proceedings should go to a hearing in this Court.

3                     It is common ground that Palm Springs seeks to achieve the objective of having all its claims relating to Darling and itself determined in one Court, namely the Supreme Court.

4                     Darling contends that the federal matters relied on in making the claims under the Corporations Act 2001 (Cth) (“the CA”) and the Trade Practices Act 1974 (Cth) (“the TPA”), are colourable and are so lacking in substance as to warrant the inference that they were brought in an attempt to fabricate Federal Court jurisdiction for the purposes of s 8 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW)(“the State CVA”).

Procedural history

5                     On 7 June 2001, Darling filed a Summons in the IRC seeking relief under s 106 of the Industrial Relations Act 1996 (NSW) (“the IR Act”), in respect of an alleged unfair employment contract with Palm Springs.  The relief sought in the IRC includes variations to an agreement for the purchase of shares in Fountainhead Water Company Pty Limited (“FHW”) entered into on 20 February 2001, between Darling and Palm Springs.  Darling seeks payment of $1,457,353.34 plus holiday and long service leave entitlements from Palm Springs.

6                     The matters raised include assertions of pre-contractual representations, contractual provisions for appointment, activities at company meetings and directors’ meetings and termination of employment and unfair conduct, whereby Darling is said to have lost the benefit of employment as an officer of Palm Springs, has suffered damage to his reputation and has been unable to obtain work in the water industry.

7                     On 11 July 2001, Darling filed proceedings against Palm Springs in the Supreme Court seeking rectification of an error in the recording of a number of shares to be issued by Palm Springs to Darling in a Sale of Shares agreement, dated 20 February 2001.  An Amended Summons for Relief was filed on 8 October 2001 in those proceedings.

8                     On 6 August 2001, an affidavit by the solicitor for Palm Springs deposed that the company intended, at an appropriate time, to seek orders that the IRC proceedings be transferred to the Supreme Court under the State CVA, and that it also was intended to seek a transfer of Federal Court proceedings to the Supreme Court under the same legislation.  On 9 August the Supreme Court  Registrar was informed on behalf of Palm Springs that it may have to commence proceedings in the Federal Court in order to give the Supreme Court jurisdiction to deal with all of the proceedings.  That is to say the proceedings in the IRC, the rectification proceedings and the Federal Court proceedings.

9                     On 5 October 2001, the same day the Federal Court proceedings were instituted, Palm Springs filed a Summons in the Supreme Court seeking an order that the IRC proceedings be removed to the Supreme Court and consolidated with the rectification proceedings in the Supreme Court.  The Summons also sought an order that the IRC proceedings and the Supreme Court proceedings be stayed pending orders by the Federal Court transferring the proceedings filed in the Federal Court to the Supreme Court.

10                  The evidence also discloses that on 5 October 2001, a draft Notice of Motion in the Federal Court had been prepared seeking removal of the Federal Court proceedings to the Supreme Court Equity division.  This has never been filed. 

11                  Order 10A of the Federal Court Rules which concerns cross-vesting, provides in r 5(1)(b) that a party to a proceeding relying on a cross-vesting law should seek direction as soon as practicable on whether the proceeding should be transferred under the Act.  In this case, no satisfactory explanation has been made as to why, after indicating its intention more than six months ago to institute Federal Court proceedings and transfer them to the Supreme Court, no application has yet been made by Palm Springs.

12                  It is common ground that as a matter of jurisdiction the proceedings instituted in the Federal Court could have been instituted in the Supreme Court.  In addition to the claims under the TPA, the other claims made in the proceeding before this Court involve misleading and deceptive conduct under state legislation, breach of contract, breach of fiduciary duty, breach of warranty and misuse of confidential information.

Legislation

13                  Section 8 of the State CVA is relevantly in these terms:

“8. (1)Where:

(a)       a proceeding (in this subsection referred to as the ‘relevant proceeding’) is pending in:

(i)                 a court, other than the Supreme Court, of the State; or

(ii)               a tribunal established by or under an Act; and

(b)       it appears to the Supreme Court that:

(i)                 the relevant proceeding arises out of, or is related to, another proceeding pending in the Federal Court, the Family Court or the Supreme Court of another State or of a Territory and, if an order is made under this subsection in relation to the relevant proceeding, there would be grounds on which that other proceeding could be transferred to the Supreme Court; or

(ii)               an order should be made under this subsection in relation to the relevant proceeding so that consideration can be given to whether the relevant proceeding should be transferred to another court,

the Supreme Court may, on the application of a party to the relevant proceeding or of its own motion, make an order removing the relevant proceeding to that Supreme Court.”

14                  Accordingly, it must be shown that the proceeding in the IRC arises out of or is related to a proceeding pending in the Federal or another specified court.

15                  Section 5(4) of the Jurisdiction of Courts (Cross-Vesting Act) 1987 (Cth) (“Federal CVA”) provides:

“(4)     Where:

 (a)      a proceeding (in this subsection referred to as the ‘relevant proceeding’) is pending in the Federal Court or the Family Court (in this subsection referred to as the ‘first court’); and

 (b)      it appears to the first court that:

(i)                 the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court;

(ii)               having regard to:

(A)       whether, in the opinion of that first court, apart from this Act and any law of a State relating to cross-vesting of jurisdiction, the relevant proceeding or a substantial part of the relevant proceeding would have been incapable of being instituted in the first court and capable of being instituted in the Supreme Court of a State or Territory;

(B)       the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-paragraph (A) and not within the jurisdiction of the first court apart from this Act and any law of a State relating to cross-vesting of jurisdiction; and

(C)       the interests of justice;

it is more appropriate that the relevant proceeding be determined by that Supreme Court; or

(iii)      it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of a State or Territory;

the first court shall transfer the relevant proceeding to that Supreme Court.” (Emphasis in original)

16                  The requirement here is that there must be a proceeding pending in the Federal Court and it appears that it arises out of or is related to another proceeding pending in the Supreme Court of a State where it is more appropriate that the proceeding be determined by the Supreme Court.  Where these circumstances exist, the Federal Court must transfer the proceedings to the Supreme Court.

Abuse of process

17                  Darling submits that for federal jurisdiction to be invoked so that a matter is pending before the Federal Court, it is necessary for the claims to be genuine and not colourable in the sense that they are not fabricated for the purpose of establishing jurisdiction: see Burgundy Royale Investments Pty Ltd v Westpac Banking Corporation (1987) 18 FCR 212 at 219.  This principle was applied by Carr J in The Bell Group Ltd v Westpac Banking Corporation (2000) 104 FCR 305 at 328-332.  His Honour there said at 328:

“To invoke federal jurisdiction it is necessary for the claim or defence raised to be genuine and not a mere subterfuge to fabricate jurisdiction … the strength of the claim or defence is immaterial …”

18                  That case involved questions of limitation and his Honour considered that the cross-claims were not colourable.

19                  In the present case Darling contends that the federal claims made are so flawed and without foundation as to be colourable under the above principle. 

20                  Having considered the submissions of both parties on this question I am not persuaded that the claims are without any reasonably, arguable basis or that they can be described as colourable.  There was some discussion before me as to whether a dismissal of proceedings for an abuse of process in the present circumstances is in the nature of an interlocutory order or is one for final relief, in particular for the purpose of considering the admissibility of evidence.  It is not necessary for me to resolve this question because, even on an interlocutory standard, I do not find the claims to be colourable or without foundation as to warrant dismissal of the application on that basis in relation to the federal claims.

21                  The formulation of the claims as pleaded in the Statement of Claim are unsatisfactory but are not such that they lack foundation.  The argument raised in this respect really goes to the striking out and possible amendment of the pleading.  But they do not call for foreclosure of the right of Palm Springs to pursue those matters.  At this stage of the proceedings there has been no interlocutory process in the nature of discovery, particulars, interrogatories, notices to produce, subpoenas, or notices to admit for example.  The material presently before the Court provides an inadequate basis on which to make any definitive determination as to the merits of the matter and there are many aspects of the case which call for further investigation.   The evidence of Darling is largely documentary and to some extent hearsay.  It provides an unsound basis, even taking the hearsay material into account, in finding that there is no substance in the federal claims.  The provenance, meaning, effect and context of documents produced to me in the course of the hearing have not been explored to any extent and no evidence has been forthcoming from Palm Springs in relation to the matters raised.  There has been no cross-examination and there is no basis on which to make any findings of fact or determinations of law.  In these circumstances it is not appropriate to conclude that there is no factual or legal foundation for any of the matters raised.  I therefore do not approach the matter on the basis that the proceedings in this case should be dismissed as lacking any substance.

22                  However, I am satisfied that the proceedings have been instituted in this Court for an ulterior and collateral purpose outside the Federal Court of Australia Act 1976 (Cth) (“the FCA”).  It has been frankly conceded that the purpose of the commencement of proceedings in this Court is to procure a situation whereby all issues will be heard together in the Supreme Court and that the initiation and transfer of the Federal Court proceedings is an essential step in securing this result.

23                  The most pertinent authority on the question of abuse of process for present purposes is the High Court decision in Williams v Spautz (1992) 174 CLR 509.

24                  That case concerned the institution of criminal proceedings for defamation with the predominant purpose of obtaining re-instatement in employment at the University and to procure a settlement of a claim for wrongful dismissal.  The majority judgment makes it clear that the Court was concerned with the predominant purpose and that the power of the Court to protect against abuse of process will be applied notwithstanding that the initial proceeding, if prosecuted to a conclusion, might result in the judgment sought by the moving party: see Spautz at 521 and 529.  The Court endorsed an objective approach to ascertaining the intention of the moving party rather than taking a purely subjective approach.  At 522 the majority said in relation to abuse of process:

“In our view, the power must extend to the prevention of an abuse of process resulting in oppression, even if the moving party has a prima facie case or must be assumed to have a prima facie case.  Take, for example, a situation in which the moving party commences criminal proceedings.  He or she can establish a prima facie case against the defendant but has no intention of prosecuting the proceedings to a conclusion because he or she wishes to use them only as a means of extorting a pecuniary benefit from the defendant.  It would be extraordinary if the court lacked power to prevent the abuse of process in these circumstances.” (Emphasis added)

25                  Later at 526, their Honours said that it may be an abuse of process when the purpose of bringing the proceedings is to use them as a means of obtaining some advantage for which they are not designed or some collateral advantage beyond which the law offers.

26                  At 528, the majority endorsed as a general statement of principle, the proposition expounded by Lord Evershed MR in In re Majory [1955] Ch. 600, at 623-624, that:

“ … court proceedings may not be used or threatened for the purpose of obtaining for the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.”

27                  For Palm Springs it is said that there is no abuse of process because it seeks to obtain the relief sought in relation to its claims.  It prefers to have them disposed of in the Supreme Court where all issues in the three jurisdictions can be resolved together.  It also submits that if any transfer motion is eventually made, and refused, then it will litigate all federal and state claims in the Federal Court proceedings (with the exception of the IRC claims) to a final determination.  In addition, it submits that the approach taken is open in law to it and is contemplated by legislation so that it can be said to be taking an advantage that the law offers, namely, the invocation of federal jurisdiction to enable the transfer of IRC proceedings to the Supreme Court.

28                  While these submissions have some force, I consider that the material before me is sufficient to warrant the conclusion that the objective, predominant intention of Palm Springs is to use the Federal Court for a purpose other than exercise of the jurisdiction for which the Federal Court was established.

29                  In this case, the predominant purpose objectively determined of Palm Springs is not to have the proceedings decided by the Federal Court in the exercise of the judicial power of the Commonwealth, but rather to use the Federal Court proceedings as a means to consolidating all proceedings both state and federal into one combined hearing in the Supreme Court.  The question is essentially one of characterisation but, in my view, such use of this Court is one for which the Court’s jurisdiction was never designed and is a use of the proceedings for a collateral or ulterior purpose foreign to the jurisdiction conferred.

30                  It was always envisaged in this case that federal jurisdiction was to be invoked, not to exercise the judicial power of the Commonwealth or to vindicate the rights and obligations of the parties, but to enable cross-vesting under state legislation from a court other than the Supreme Court into the Supreme Court.

31                  In two cases to which I have been referred, Judges of the Supreme Court have expressed reservations about the use of cross-vesting provisions in situations where the jurisdiction of the IRC, the Supreme Court and the Federal Court under s 8 of the State CVA was under consideration: see Wood v Boral Resources (NSW) Pty Ltd (unreported, NSW Supreme Court, McLelland CJ in Eq, 28 October 1993) and ECC Lighting Ltd v McGurk (unreported, NSW Supreme Court, Santow J, 15 June 1995), where Santow J said in exercising the Court’s discretion not to transfer:

‘The other factor which I attribute considerable weight is that the Federal Court proceedings, which are a condition precedent for the cross-vesting to be able to take effect, were only instituted on 2 June 1995.  Those proceedings for the first time raised matters under s52 of the Trade Practices Act 1974.  Again, it was properly and frankly acknowledged that those proceedings were brought simply to facilitate cross-vesting.  It was considered that the representations upon which those proceedings are founded could equally have been pleaded or made the subject of an amended cross-claim in this Court under identical legislation.  It must be an abuse of process to commence proceedings purely to facilitate cross-vesting.… Here the forensic advantage that the Applicant seeks, as he candidly and properly acknowledges, is the capacity to have all matters in question heard together, consolidated with the belatedly brought proceedings in the Federal Court constrained for that very purpose … These are all considerations which, in the interests of justice, weigh against allowing the Applicant to succeed in his application to cross-vest.”  (Emphasis added)

32                  Of course, in that case the proceedings- involved the exercise of discretion in relation to a transfer and not to a dismissal for abuse of process.  In a further case, Ge v River Island Clothing Pty Ltd [2001] NSWSC 935 at [10], [12] and [19]-[20], Studdert J stated that it was an abuse of court process to transfer proceedings where the only purpose of seeking relief in the Supreme Court was to avoid the appellant’s opposition to unlimited jurisdiction in the District Court yet still proceed to trial in that Court.  His Honour considered that use of the transfer of proceedings in a manner that was never intended and in a manner that deprived the appellants of legitimate expectations (that the District Court’s jurisdiction would be limited to $750,000) was an abuse of process and he therefore declined to remit the matter to the District Court.

33                  There is also a helpful examination of the relevant principles in BT Australasia Pty Ltd v State of New South Wales and Telstra Corporation Ltd (No 13) (unreported, Federal Court of Australia, Sackville J, 29 September 1998)

34                  The Federal Court was established to exercise the judicial power of the Commonwealth in relation to matters properly before it in order to determine the claims and vindicate the rights and obligations of the parties by a binding and enforceable decision.  It was not designed to serve as a jurisdictional transit point to facilitate transfer so as to enable a resolution of issues in a state court under state legislation.

35                  In conclusion, although I am not satisfied that the federal claims brought in this Court on behalf of Palm Springs are without foundation or are so unarguable as to warrant dismissal, I am satisfied that the institution of these proceedings was predominantly for a collateral purpose foreign to the purpose for which the Federal Court was invested with the judicial power of the Commonwealth and that the institution of proceedings amounts to an abuse of process.  Accordingly, the application for dismissal of the proceedings as an abuse of process should be granted and the respondent to the motion should pay the applicant’s costs on the application.

Associate:

Dated:              19 March 2002