FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2002] FCA 401

PROCEDURE – cross-claim – whether cross-claim should be tried with claim in action or separately with leave to cross-respondent to play limited role in trial of claim – whether exceptional circumstances supporting separate trials – whether separate trials would give rise to over-lapping issues, repetition of evidence and possibility of inconsistent findings

Federal Court of Australia Act 1976 (Cth) s 22

Federal Court Rules O 5 r 1(2), O 5 r 1(3), O 5 r 8(1), O 5 r 9(2), O 5 r 12, O5 r 12(2)

New World Oil & Developments Pty Limited v 163 Clarence Street Pty Limited (Black CJ, Jenkinson and Gummow JJ, 6 March 1995, unreported) followed

Barclays Bank v Tom [1923] 1 KB 221 considered

Standen v GH Varley Pty Ltd [1956] SR(NSW) 346 approved

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v EMERALD OCEAN DISTRIBUTORS PTY LTD, SLENDERTONE HEALTH AND BEAUTY PTY LTD and SEAN O’DONOGHUE

W118 of 2000

RD NICHOLSON J

8 APRIL 2002

PERTH

THE COURT ORDERS THAT:

1.                  The cross-claim herein be tried with the claim in the action.

2.                  Costs reserved.

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

REASONS FOR JUDGMENT

1                     These reasons relate to an application by the cross-claimants seeking a determination of the Court that their cross-claim be heard together with the claim in the trial of the action and a competing application by the applicant that the cross-claim be tried separately, albeit with leave to the cross-respondent to have limited participation in the trial of the claim. 

2                     The nature of the proceedings was described in reasons delivered by French J on 25 July 2001 in this matter as follows:

“By proceedings instituted on 19 July 2000, the Australian Competition and Consumer Commission (“ACCC”) sues Emerald Ocean Distributors Pty Ltd (“Emerald”) and Slendertone Health and Beauty Pty Ltd (“Slendertone) and their common director and secretary, Sean O’Donoghue.  The actual action arises out of the supply and promotion by Emerald and Slendertone of certain products described as “Slendertone Products”.  The products involve electronic muscle stimulation to tone and firm the body and abdominal muscles, reduce body measurements, remove cellulite and the like.  They are marketed under the names:

“Sequence 16”

“Supreme”

“Top Tone 12”

“Gymbody 8”

“Celluforme”

The ACCC alleges that advertising of various of these products in magazines called Women’s Health and Ultrafit in December 1999 and in March 2000 respectively, in Slendertone pamphlets and on a Slendertone web site in June 2000, involved false statements about the products in contravention of various provisions of the Trade Practices Act 1974 (Cth) and of the Fair Trading Acts of the various States and Territories.  Sean O’Donoghue is said to have been knowingly involved in the contraventions.  Relief claimed under the further amended application includes various declarations, injunctive relief, orders for corrective advertising and for Mr O’Donoghue to attend a Trade Practices Compliance Program seminar.  Orders for refunds of moneys paid by members of the public who believe that they may have been misled or deceived by the respondents are also sought. 

Emerald denies that it did any of the things alleged against it.  Slendertone admits that it did various of the acts alleged but denies the implications of certain statements.  And so far as it is said that statements made were in contravention of the Trade Practices Act or the Fair Trading Act it is pleaded that the statements were ones which the respondents had reasonable grounds for making.  Their case is, in substance, that all of the statements in question were based upon information and literature provided to them by or on behalf of a company called Bio-Medical Research Ltd.”

French J described the nature of the proposed cross-claim as follows:

“The proposed cross-claim refers to statements made by Slendertone in advertisements and on a web site and in its pamphlet, as particularised in the further amended statement of claim.  In par 9 it is said that Slendertone and O’Donoghue made the statements referred to in the statement of claim for the sole reason that they were made to Slendertone by Bio-Medical Research Ltd and that O’Donoghue was advised by that company to repeat the statements to members of the public of Australia in the course of carrying on the business of selling the Slendertone products.  The advice, it is said, was received at all times when O’Donoghue was in Australia.  Slendertone and O’Donoghue say, in the cross-claim, that they admit having made the statements referred to in the statement of claim and admit having made some but not all of the implied statements referred to.  They deny that all or any of the statements constitute misleading or deceptive conduct in trade or commerce as alleged by the ACCC or at all. 

Paragraph 13 of the proposed amended cross-claim reads:

“13.     If, despite the matters pleaded in paragraphs 11 and 12, this Honourable Court finds:

            (a)        against the First Respondent that it made all or any of those statements; and/or

            (b)        against any or all of the Respondents that any or all of the statements which they admit having made constitute misleading or deceptive conduct in trade or commerce,

            (c)        That any or all of the Respondents made any or all of the statements referred to herein that the Respondents deny having made, and that all or any of those statements constitute misleading or deceptive conduct in trade or commerce

            and makes an order that the Applicant is entitled to all or any of the relief claimed by it the Respondents against whom such orders are made will suffer loss and damage for which they claim an indemnity against the Cross Respondents.

                                                               Particulars

            The costs of making refunds sought by the Applicant and the costs of running corrective advertising.”

The proposed cross-claim then goes on to say that O’Donoghue began selling Slendertone products on his own account.  Before 1993 he had substantially ceased to carry on the business of selling the massage equipment and electro therapeutic goods in order to concentrate on the business of selling Slendertone products.  He did so in reliance on statements made by Bio-Medical Research Ltd to the effect that the entire range of products that he would be selling worked by stimulating the user’s muscles with electrical impulses and other statements about the benefits that could be derived by the use of Slendertone products.  He pleads that if the statements which he made in reliance on Bio-Medical Research are found to have constituted misleading or deceptive conduct, then to that extent those made by Bio-Medical Research to him also constituted misleading or deceptive conduct.  In the event, Slendertone and O’Donoghue will have suffered loss if they have to cease carrying on the business of selling Slendertone products and will also have lost the opportunity foregone in giving up the business of selling other massage equipment and electro therapeutic goods.  The relief claimed is by way of indemnity against liability to make any refund to customers for the purchase of Slendertone products, indemnity against the costs of producing and placing corrective advertisements, damages and costs.”

Requirements of Act and Rules

3                     Section 22 of the Federal Court of Australia Act 1976 (Cth) provides:

“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 or her 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.”

4                     Order 5 r 1(2) of the Federal Court Rules establishes the right of a respondent to cross-claim against a third party “for any relief which is related to or connected with the subject of the proceeding”.  Order 5 r 1(3) recognises that this may include a cross-claim for contribution or indemnity.  Order 5 r 8(1) is the source of the need for leave for the issue of a cross-claim against any person not being a party:  see also O 5 r 9(2).  Order 5 r 12 makes provision to the Court to give directions in respect of cross-claims.  Order 5 r 12(2) provides authority for directions concerning the manner in which cross-claims may be tried.

Submissions for cross-claimants

5                     The submissions for the cross-claimants commenced by placing reliance on the decision of the Full Court in New World Oil & Developments Pty Limited v 163 Clarence Street Pty Limited (Black CJ, Jenkinson and Gummow JJ, 6 March 1995, unreported).  There the Court found in the particular circumstances of that matter that the findings of fact in the action would bear directly on the issues raised in the cross-claims.  Therefore it said that, regardless of how the case was presented, there would arise problems of over-lapping issues, repetition of evidence and the possibility of inconsistent findings on the same or difference evidence:  cf Barclays Bank v Tom [1923] 1 KB 221 at 224 per Scrutton LJ.  Reference was also made to Standen v GH Varley Pty Ltd [1956] SR(NSW) 346, where Owen J said that in his view it would only be in “exceptional circumstances” that the court would order a separate trial of the issues between a defendant and a third party.  Both as a matter of convenience and justice it was most desirable that the same tribunal should, at one and the same time, determine the rights and liabilities of all the parties concerned.  Given the strength of considerations in favour of hearing all the matters at the one time, the court considered there should be an order for a joint hearing.  It regarded s 22 of the Federal Court of Australia Act as supportive of that conclusion.

6                     The submissions for the cross-claimants then addressed the issue of whether as respondents to the action they had occasioned delay.  It was disputed by them that they had done so.  It is not necessary here to set out the chronology or to make a determinative finding of fact on that issue because however responsibility for any past delay (if there was such) can be allocated, any future delaying effect of a joint trial is a factor falling for consideration independently of that past responsibility.

7                     It was further submitted for the cross-claimants that the case was one likely to be resolved on the basis of expert testimony.  Some expert evidence had already been exchanged. 

8                     Additionally, the submissions for the cross-claimants stated that if the trial of the action and the cross-claim were separate, witnesses from overseas on behalf of the cross-respondent would be compelled to come to Australia at least twice.  This would involve large costs in respect of accommodation and transport.

9                     In relation to the compromise proposal of behalf of the applicant that the cross-respondent have leave to appear at the trial of the action and lead evidence with respect to the truth or falsity of the representations and to cross-examine the expert witnesses with respect to such truth or falsity, counsel for the cross-respondent submitted as follows.  He said that the cross-respondent, being granted leave, would not be bound to exercise the leave.  Furthermore, the cross-respondent would not be bound by any finding of fact in the determination of the action.  There would still be the necessity for cross-examination at the trial of the cross-claim.  There would, therefore, be no benefit in terms of case management from the compromise proposal. 

Applicant’s submissions

10                  The submissions for the applicant commenced with an assertion that the respondents had occasioned delay in the progress of the action to date and that further delay would result if separate trials were not held.  The applicant is ready for trial and does not wish trial of the action delayed.  I have referred to the issue of past delay above.

11                  There are several features of the cross-claim which the applicant contends would contribute to delay.  Firstly, there are the claims of representations to the cross-respondent.  Secondly, there would be the need on the cross-claim to explore the history of dealings between Mr O’Donoghue and the cross-claimant and its staff.  Thirdly, there would be issues relating to the operation of the respondent’s business.  Fourthly, there would be the issue of quantum of damages. 

12                  In contrast it is said that the applicant simply seeks declarations and undertakings and the action should be allowed to proceed to determination without the intrusion of the matters associated with the cross-claim. 

Cross-respondent’s submissions

13                  Counsel for the cross-respondent informed the Court that the cross-respondent elected to adopt the submissions put forward on behalf of the cross-claimants.  He also placed reliance on features of the reasoning of the Full Court in New World. 

14                  In relation to the over-lap of issues, he referred to pars 4 – 10 of the affidavit of Mr O’Donoghue sworn on 25 February 2002.  Those paragraphs assert that all the words used by the second respondent in its advertisements in the publications in issue came from material supplied by the cross-respondent.  That assertion is further particularised in those paragraphs. 

15                  Finally, counsel for the cross-respondent emphasised that the damages sought against it were not at large.

Reasoning

16                  In my opinion the objections made on behalf of the cross-claimants and cross-respondent to the compromise proposed on behalf of the applicant are correct.  For those reasons I do not consider that the compromise is a viable solution.

17                  The submission for the applicant that the action should, because of its relative simplicity, be allowed to go to trial separately is attractive in relation to the efficient consideration of the applicant’s claim considered alone.  However, when regard is had to the cross-claim the position is otherwise.  The nature of the principal action and the cross-claim are such that regardless of how the case is presented, there would arise problems of over-lapping issues, repetition of evidence and the possibility of inconsistent findings on the same or difference evidence if separate trials were held.  Taking into account the provisions of s 22 and dicta to the effect that only in exceptional circumstances should a separate trial be ordered, I consider that it is not appropriate here to order a separate trial.  The opposite course, propounded for the applicant, could only be embarked upon in disregard of these principles arising from the decided cases.

Conclusion

18                  For the above reasons I consider that it is appropriate for the Court to order that the cross-claim be tried with the claim in the action. 

Associate:

Dated:              8 April 2002