FEDERAL COURT OF AUSTRALIA

Cheque One Pty Limited v Cheque Exchange (Australia) Pty Ltd (in liq) [2002] FCA 593

PRACTICE & PROCEDURE – statement of claim pleads case on behalf of twelve applicants against five respondents – each applicant a party to separate transactions with one or more respondents – separate representations made to each applicant – whether applicants can be joined in the one proceeding pursuant to Federal Court Rules O 6 r 2.

Corporations Act 2001 (Cth), ss 440D, 471B

Trade Practices Act 1974 (Cth), ss 51A, 52, 53

Federal Court Rules, O 6 r 2

Payne v Young (1981) 145 CLR 609, applied.

Bishop v Bridgelands Securities Ltd [1990] ATPR 41-060, distinguished.

CHEQUE ONE PTY LIMITED v CHEQUE EXCHANGE (AUSTRALIA) PTY LTD (in liq)

N 1345 of 2000

SACKVILLE J

SYDNEY

10 MAY 2002

THE COURT ORDERS THAT:

1. The statement of claim filed 7 February 2002 be struck out as against the second respondent.
2. The motion filed by the second respondent on 11 April 2002 (“the strike out motion”) otherwise be dismissed without prejudice to the second respondent’s entitlement to bring a further motion for security for costs.
3. The third, fourth, fifth, sixth, seventh, tenth, eleventh, fourteenth, twentieth, twenty first, twenty second, twenty third and twenty fourth applicants (“the Remaining Applicants”) pay the second respondent’s costs of the strike out motion.
4. The motion filed by the Remaining Applicants on 29 April 2002 be listed for further directions on 14 June 2002.
5. The proceedings be stood over for directions on 14 June 2002.

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

REASONS FOR JUDGMENT

1                     Two motions are before the Court.  The first has been filed by the second respondent (“Mr Hare”) who seeks orders, inter alia, striking out the statement of claim filed on 7 February 2002 (“Statement of Claim”), purportedly pursuant to leave granted by me on 15 November 2001.  The second motion was filed on 29 April 2002, on behalf of twelve of the applicants named in the statement of claim (the “Remaining Applicants”).  They seek, inter alia, an order granting them leave pursuant to s 471B of the Corporations Act 2001 (Cth) (“Corporations Act”) to proceed against the first respondent (“Cheque Exchange”), a company in liquidation.  (The motion erroneously refers to s 440D of the Corporations Act, but nothing turns on this for present purposes.)

2                     Section 471B of the Corporations Act provides as follows:

“While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin to proceed with:

(a)               a proceeding in a court against the company or in relation to property of the company; or

(b)               enforcement process in relation to such property;

except with the leave of the Court and in accordance with such terms (if any) as the Court imposes.”

3                     The proceedings were commenced in December 2000.  At that time, there were twenty-seven applicants, although a twenty-eighth was included in an amended statement of claim filed on 24 April 2001 (a formal order adding the twenty-eighth applicant was made on 30 May 2001).  All twenty-eight applicants were said to have been franchisees of Cheque Exchange, having entered into franchise agreements with that company in 1999 or 2000.  The franchise related to a business involving the cashing of third party cheques, the making of “pay-day advances” and the sale of certain goods.

4                     Initially there were three respondents to the proceedings, as follows:

• Cheque Exchange;

• Mr Hare, a director of Cheque Exchange; and
• Mr Cobbold, also a director of Cheque Exchange.

Later, two further respondents were added, as follows:

• the fourth respondent (“CX Computers”), which entered into a so-called Computer Systems Integration Agreement with each of the Remaining Applicants; and
• the fifth respondent (“Sandspring”) which entered into a so-called Site Development Agreement with each of the Remaining Applicants.

Mr Hare and Mr Cobbold were each also directors of CX Computers and Sandspring.

5                     To date, Cheque Exchange, CX Computers and Sandspring have played no active part in the proceedings.  Mr Cobbold, who is apparently resident in California, has appeared by a solicitor from time to time and has filed a defence.  Mr Hare has been the most active of the respondents and has filed a number of motions in the course of the proceedings.

6                     The amended statement of claim filed on 24 April 2001 was 193 pages in length.  Not surprisingly, it generated disputation.

7                     On 15 November 2001, I struck out the amended statement of claim as against Mr Hare.  I also directed that it be taken to have been withdrawn as against the remaining respondents.  Eight applicants (referred to as the “Money Plus Group”) were given leave at that time to discontinue the proceedings.  Two other applicants had previously discontinued the proceedings.

8                     Thirteen applicants (referred to as the “Money Centre Group”) were given leave

 “to file and serve a further amended statement of claim pleading each of their individual causes of action”.

9                     The remaining applicants subsequently discontinued their proceedings or were the subject of orders dismissing their claims.

10                  On 7 February 2002, the Statement of Claim was filed.  Although it names twenty-six applicants, in fact it pleads only the cases of the thirteen members of the Money Centre Group.  Since two applicants (the fourth and the fifth) are the same entity, there are in truth only twelve applicants left in the proceedings.  The Statement of Claim is 136 pages in length.

11                  In the course of oral argument, I identified to Mr Forster SC, who appeared for the Remaining Applicants, the flaws in the Statement of Claim that I considered warranted striking it out in its current form as against Mr Hare.  I shall therefore state my reasons for reaching this conclusion more briefly than otherwise would be the case.

12                  The structure of the Statement of Claim is as follows:

• Paragraphs 1-3 are introductory.
• Paragraphs 4-8 plead the various Franchise Agreements, Computer Systems Integration Agreements and Site Development Agreements, as well as guarantees executed by the Applicants.
• Paragraphs 9-15 plead, in compendious form, alleged breaches of the three agreements, without distinguishing among the Remaining Applicants.  The pleading alleges, for example, 34 breaches of the Franchise Agreements.
• Paragraphs 17-35 plead the case of the fourth, fifth and sixth applicants (collectively, the “Corporal applicants”) as follows:

-         paragraph 17 sets out ten written representations allegedly made by Cheque Exchange on behalf of itself and CX Computers and Sandspring to a Mr Spilsbury on behalf of the Corporal applicants in order to induce them to enter the various agreements and guarantees;

-         paragraph 18 sets out no less than 54 separate oral representations made by Cheque Exchange on behalf of itself, CX Computers and Sandspring to Mr Spilsbury on behalf of the Corporal applicants;

-         paragraph 20 identifies the representations said to be with respect to future matters and invokes s 51A of the Trade Practices Act 1974 (Cth) (“TP Act”) (which provides that a corporation making representations with respect to a future matter without reasonable grounds for doing so is taken to have engaged in misleading conduct);

-         paragraph 21 pleads that the written representations were misleading and deceptive and made in contravention of ss 52 and 53 of the TP Act;

-         paragraph 22 pleads the falsity of the oral representations, although not specifically by reference to each individual pleaded representation;

-         paragraph 23 pleads that the representations referred to in paragraphs 17 and 18 were made by Cheque Exchange in the knowledge that they were false;

-         paragraph 24 pleads that the Corporal applicants were induced to enter the various agreements by the representations alleged;

-         paragraph 25 alleges that Cheque Exchange, in order to induce the Corporal applicants to continue to perform their obligations under the various agreements, made a further series of eight representations;

-         paragraph 27 alleges that the representations pleaded in paragraph 25 were misleading and deceptive, although the allegations of falsity are not specifically related to each representation;

-         paragraph 28 pleads that the Corporal applicants continued to perform their obligations in reliance on the representations pleaded in paragraph 25;

-         paragraphs 29-31 plead that Mr Hare and Mr Cobbold were knowingly concerned in the contravention of the TP Act alleged in paragraphs 17-28;

-         paragraph 32 simply alleges that by reason of the matters previously alleged the Corporal applicants suffered loss and damage; and

-         paragraphs 33 and 34 plead that the Corporal applicants had validly terminated the various agreements executed by them.

13                  The structure of the pleading is similar in relation to the claims of each of the other ten applicants whose case is pleaded in the Statement of Claim.  The oral representations on which each of the other ten applicants is alleged to have relied are, however, different in some respects from those pleaded by the Corporal applicants.  They are also different in some respects from those alleged by each of the other applicants.

14                  Mr Slowgrove, who appeared for Mr Hare, submitted that the pleading was fundamentally flawed because:

• each of the causes of action pleaded on behalf of the different applicants was separate and distinct and should be the subject of a separate statement of claim;
• the proceedings against Cheque Exchange were effectively stayed by operation of s 471B of the Corporations Act, since no court had granted leave to proceed against the company in liquidation; and
• the Statement of Claim did not comply with the grant of leave on 15 November 2001, since it did not plead individual causes of action, but in paragraphs 4-15 pleaded elements of the twelve claims in a compendious fashion.

15                  It is necessary only to address the first contention.  The Federal Court Rules (“FCR”), O 6 r 2, provides as follows:

“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.”

16                  In Payne v Young (1981) 145 CLR 609, the High Court was concerned with an equivalent rule, namely High Court Rules, O 16 r 1.  By majority, the Court held (Barwick, Stephen and Mason JJ; Murphy J dissenting) that the claims made by seven abattoir owners for the recovery of inspection fees paid by each of them under protest to eight separate defendants could not be joined in the one proceedings.  The majority held that the word “same” in the equivalent to FCR O 6 r 2(a)(ii) qualified both “transaction” and “series of transactions”.  As Mason J (with whom Stephen J agreed) said (at 618):

“under…the rule joinder of separate causes of action accruing to different plaintiffs is authorised when the relief claimed is in respect of, or arises out of, the same or a particular series of transactions.  Joinder is not authorized when the relief claimed is in respect of, or arises out of, two or more different series of transactions, when the participation of each individual plaintiff is limited to participation in one series of transactions, the other plaintiffs not participating in that series.

In the present case, each series of transactions was peculiar to each individual plaintiff.  There was no common participation in the inspection services which were performed, in the liability to pay the fees demanded or in the payments which were actually made.  Accordingly, it cannot be said that the relief claimed by way of recoupment of inspection fees from the defendants…is in respect of, or arises out of, ‘the same transaction or series of transactions’.”

17                  In Bishop v Bridgelands Securities Ltd [1990] ATPR 41-060, the applicant had deposited funds with Bridgelands and had instituted proceedings against it and a director seeking to recover damages by reason of misleading and deceptive conduct in contravention of s 52 of the TP Act.  The applicant sought an order joining another 114 persons who had also deposited money with Bishopsgate on the faith (so it was alleged) of the same misleading and deceptive conduct.  Wilcox J said this (at 51,765):

“Counsel accepted that similar reasoning [to that in Payne v Young] would apply in the present case, where each of the depositors had entered into a separate transaction with the respondents and been the recipient of separate – though similar – alleged misrepresentations. In practical terms, it seems that cases such as the present could be brought within subr. (a) only if it were expanded to refer to ‘similar transactions or series of similar transactions’.”

18                  The Statement of Claim alleges that each of the Remaining Applicants entered into separate agreements with Cheque Exchange, CX Computer and Sandspring.  The terms of each agreement may have been identical, but that does not bring the case within FCR, O 6 r 2(a), since each series of transactions was peculiar to each Applicant.   More importantly for present purposes, each Applicant also alleges that a series of false representations was made by or on behalf of Cheque Exchange, CX Computer and Sandspring, with the knowing participation of Mr Hare and Mr Cobbold.  The fact that some of the representations alleged to have been made may have been the same, or substantially the same, does not mean that the rights to relief arise out of the “same” series of transactions as that expression has been construed in Payne v Young and Bishop v Bridgelands.  As in the latter case, each of the franchisees entered into separate transactions with the corporate respondents and was the recipient of separate misrepresentations, even though there is overlap in the content of the alleged representations.

19                  I did not understand Mr Forster ultimately to dispute that the joinder of the Applicants in the one set of proceedings could not be supported under FCR, O 6 r 2(a).  He sought to retrieve the position by applying, or foreshadowing an application for, leave to join all the Remaining Applicants in the proceedings pursuant to FCR, O 6 r 2(b).  It was this course that Wilcox J adopted in Bishop v Bridgelands. His Honour there recognised that everything must depend on the facts of the particular case, but formulated principles to guide the exercise of the discretion conferred by r 2(b) (at 51,765):

“The basic principle…is that the Court should take whatever course seems to be most conducive to a just resolution of the disputes between the parties, but having regard to the desirability of limiting, so far as practicable, the costs and delay of the litigation.  Considerations of costs and delay may often support the grant of leave under subr. (b); but, in my opinion, leave ought not to be granted unless the Court is affirmatively satisfied that joinder is unlikely to result in unfairness to any party.  Secondly, regard must be had to practical matters.  For example, it would normally be inappropriate to grant leave for the joinder of applicants who were represented by different solicitors.  There must be a single solicitor, or firm of solicitors, who is accountable for the conduct of the proceedings on the applicants’ side of the case.  Similarly, although all applicants might propose to rely upon some common, or similar facts, there may be such differences between the evidence intended to be relied upon in support of the claims of particular applicants as to make it inexpedient to join the claims.  The discrete material may overbear that which is common to all the claims.  Again, there may be cases in which the sheer number of the claims, if joinder is permitted, will impose an undue burden on the respondent; although it seems to me unlikely that this will be so except in cases where separate evidence is proposed to be adduced in support of individual claims.”

20                  In my opinion, there are a number of reasons why leave should not be granted to join all the Remaining Applicants in the proceedings.

21                  First, Mr Forster was unable to point to any significant practical advantage in the conduct of the litigation if all the Remaining Applicants’ claims were pleaded in the one Statement of Claim.  He did not suggest that all of the pleaded claims should be heard together.  On the contrary, he proposed that the claim of the Corporal applicants should be heard and determined separately and in advance of all other claims.  This proposal reinforces the point that the claims of each of the Remaining Applicants (regarding the Corporal applicants as one for this purpose) are distinct and will require separate evidence to support them.  Mr Forster did not suggest that there were issues common to all claims pleaded in the Statement of Claim that should be determined separately from all other issues.

22                  Secondly, as Mr Forster implicitly accepted, Mr Hare would be subjected to a very onerous burden if all pleaded claims were heard together.  The number of representations, oral and written, alleged in the Statement of Claim runs into the hundreds.  The representations are said to have been made by many different people at different times to different Applicants (or their representatives).  While there will doubtless be some overlap in the evidence, the evidence relating to the making and falsity of the oral representations will be different in each of the cases.  So, too, will the evidence relating to reliance and loss.  In short, a trial of all pleaded claims, at least if the Statement of Claim remains in its present form, will be extremely lengthy, complex and costly.  In my view, this will impose an unduly onerous and unfair burden on Mr Hare.

23                  Thirdly, the Statement of Claim in its present form has serious defects that require remedying.  For example, it is alleged that named persons made representations on behalf of the corporate respondents, without facts being pleaded that would establish the agency relationship.  Mr Hare is said to have procured the breaches by the corporate respondents of the various agreements, but the Statement of Claim does not explain how he did so other than to allege that he was a director of the companies at the relevant times.  The Statement of Claim alleges reliance on the representations by each Applicant without distinguishing between the effect of the various representations (which range from the relatively minor to the apparently important).  Certain of the facts pleaded as establishing the falsity of representations are incapable of doing so.  Further, the Statement of Claim makes no attempt to identify the categories of loss allegedly sustained by each Applicant, let alone quantify the losses said to be recoverable.  Independently of the other difficulties, I would be reluctant to grant leave pursuant to FCR, O 6 r 2(b) for all the Remaining Applicants to be joined as parties to the proceedings unless I were satisfied that the deficiencies in the pleadings had been overcome.

24                  Fourthly, if the Remaining Applicants are required to plead their causes of action in separate statements of claim, they will be able to conduct the litigation in the manner they have said they prefer.  That is, there will be nothing preventing the Court hearing the claims of the Corporal applicants in advance of all other claims, should that course of action be otherwise appropriate.  Indeed, the only significant disadvantage Mr Forster identified as flowing from a refusal to grant leave under FCR, O 6 r 2(b), was that the Applicants would be forced to pay filing fees in respect of each additional initiating process.  Assuming that this is a relevant consideration for the purposes of the exercise of the power conferred by O 6 r 2(b), it cannot, in my opinion, outweigh the injustice to Mr Hare that a grant of leave would entail.

25                  The orders made on 15 November 2001 granted leave to the Applicants to file and serve a further amended statement of claim pleading each of their individual causes of action.  No issue had then arisen as to whether the various causes of action would properly be joined in the one statement of claim.  The orders were not sought or granted in exercise of the power conferred by FCR O 6 r 2(b).  Accordingly, grant of leave does not render the pleading immune from the attack now made on behalf of Mr Hare.  Mr Forster did not contend otherwise.

26                  In my opinion, the appropriate order is that the Statement of Claim be struck out as against Mr Hare.  Since none of the other respondents has filed a motion, I shall not strike out the Statement of Claim against them.  This does not necessarily mean, however, that the question will not arise later in the proceedings.  There may be good reason for each of the Remaining Applicants to reconsider the appropriateness of the pleading against the respondents other than Mr Hare.

27                  There was some discussion as to whether orders should be made protecting the position of the Remaining Applicants, from a limitations point of view, should they each choose to institute fresh proceedings in this Court.  It does not appear, however, that any particular limitations difficulty will arise if each Applicant were to institute separate proceedings promptly.  In any event, I do not think that it is appropriate, on the material available to me, to make such orders.  The question of my power to do so was not explored and, as Mr Slowgrove pointed out, the issue had not been foreshadowed prior to the hearing.

28                  The Statement of Claim should therefore be struck out as against Mr Hare.  The balance of Mr Hare’s motion (which seeks an order for security for costs) should be dismissed, without prejudice to Mr Hare’s entitlement to bring a further motion for security for costs should he be so advised.  The Remaining Applicants must pay Mr Hare’s costs of the motion.

29                  The Remaining Applicants’ motion filed on 29 April 2002, which seeks leave to proceed against Cheque Exchange, should be stood over for directions.  I shall also list the proceedings for further directions.  At that time I would expect the Remaining Applicants to advise the Court of the further steps that they have taken or intend to take in the proceedings.  As I pointed out in the course of argument, it should not be assumed that this Court, rather than the Supreme Court of Western Australia which made the order appointing a liquidator to Cheque Exchange, is necessarily the appropriate forum in which to determine an application for leave to proceed under s 471B of the Corporations Act.

Associate:

Dated:              10 May 2002