FEDERAL COURT OF AUSTRALIA

Morningstar Research Pty Ltd v Fiduciary Ltd [2003] FCA 870

PRACTICE & PROCEDURE – cross-vesting – whether proceedings are an abuse of process – proceedings instituted in the Federal Court for the purpose of enlivening the jurisdiction of the Supreme Court to transfer Industrial Relations Commission of NSW proceedings into the Supreme Court – Federal Court proceedings replicate a claim already made in the Supreme Court proceedings

Industrial Relations Act 1996 (NSW)s 106, 108B

Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) s 5(4)

Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) s 8(1)

Federal Court Rules Order 20 r 2

Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 referred to

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

Moore v Inglis (1976) 9 ALR 509 referred to

Palm Springs Ltd v Darling (2002) 192 ALR 763 discussed

Resarta Pty Ltd v Finemore (2002) 55 NSWLR 320 referred to

Rexam Australia Pty Ltd v Optimum Metallising Pty Ltd [2002] NSWSC 916 referred to

RSL Com Personal Communications Pty Ltd v Mobile Tron Pty Ltd [2001] NSWSC 819 referred to

Slough Estates Ltd v  Slough Borough Council [1968] 1 Ch 299 referred to

Varawa v Howard Smith Co Ltd (1911) 13 CLR 35 followed

Williams v Spautz (1992) 174 CLR 509 considered

MORNINGSTAR RESEARCH PTY LTD & ANOR v FIDUCIARY LTD & ORS

N 3017 OF 2003

HELY J

22 AUGUST 2003

SYDNEY

THE COURT ORDERS THAT:

1.         The motion 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                     Morningstar Research Pty Ltd (‘the company’) is a vehicle for the conduct of a joint venture between Morningstar Inc on the one hand and the interests associated with Mr Rich on the other.  When the joint venture was formed in April 1999 Mr Rich was the managing director and chief executive officer of the company.

2                     Relations between the joint venturers broke down, and on 1 November 2001 proceedings no 5308 of 2001 were instituted in the Equity Division of the Supreme Court of NSW.  There are a number of parties to those proceedings, but it is sufficient for present purposes to describe the plaintiffs as Mr Rich and interests associated with him (‘the Rich interests’) and the defendants as the company, and interests associated with Morningstar Inc (‘the Morningstar interests’).  Again, it is sufficient for present purposes to describe the proceedings as being in the nature of an oppression suit.

3                     The Rich interests applied for interlocutory relief, which was refused by Barrett J on 23 November 2001 essentially on the balance of convenience grounds.  On 24 November 2001 Mr Rich was removed as managing director and chief executive officer of the company.

4                     On 19 March 2002 the Rich interests filed a statement of claim in the Supreme Court proceedings.  The statement of claim extends over some 115 pages.  On 11 November 2002 the Morningstar interests filed a defence to that statement of claim.

5                     On 22 November 2002 the Rich interests commenced proceedings against the Morningstar interests in the Industrial Relations Commission of NSW (‘the IRC’), proceedings No IRC 6661 of 2002, seeking relief under s 106 of the Industrial Relations Act 1996 (NSW).  In these proceedings relief is sought based on the same facts as are relied upon by the Rich interests in the Supreme Court proceedings.  Morningstar was not served with the summons for relief under s 106 until its solicitors, Clayton Utz, were asked to accept service of the summons on behalf of the Morningstar interests on 25 February 2003.  This was the first occasion on which the Morningstar interests became aware of the IRC proceedings.

6                     In the meantime, on 18 December 2002, the Morningstar interests filed a cross claim in the Supreme Court proceedings against the Rich interests making various complaints in relation to the joint venture.  Mr Wang, a partner in Clayton Utz, has sworn that had he been aware on 18 December 2002 that the IRC’s proceedings had been commenced, he would not have prepared and filed a cross claim.  Instead, he would have commenced proceedings in the Federal Court in order to establish the jurisdictional transit point referred to by the Full Federal Court in par [30] of its judgment in Palm Springs Ltd v Darling (2002) 192 ALR 763.  I accept Mr Wang’s evidence in this respect.

7                     On 24 April 2003 the Morningstar interests commenced proceedings in this Court against the Rich interests.  The statement of claim in these proceedings propounds substantially the same claims as are propounded in the cross claim in the Supreme Court proceedings, and relies upon the same facts.  There are only minor and immaterial differences between the two documents.

8                     On 30 April 2003 the Morningstar interests filed a notice of motion in the Supreme Court proceedings seeking orders that the IRC proceedings be removed into the Supreme Court and that the IRC proceedings be consolidated with the Supreme Court proceedings.  The Supreme Court was informed that the Morningstar interests intended to file a notice of motion in the Federal Court proceedings seeking orders that the Federal Court proceedings be transferred to the Supreme Court and that thereafter the Federal Court proceedings be consolidated with the Supreme Court proceedings.  An undertaking was given not to prosecute the cross claim in the Supreme Court proceedings pending the transfer and consolidation of the IRC proceedings.

9                     On 2 May 2003 the Morningstar interests filed a notice of motion in these proceedings seeking an order pursuant to s 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) that the Federal Court proceedings be transferred to the Supreme Court of NSW for consolidation with the proceedings pending in that Court.  That motion has not been heard.

10                  On 17 June 2003 the Rich interests filed a notice of motion seeking dismissal of the Federal Court proceedings pursuant to Order 20 rule 2 of the Federal Court Rules (‘the Rules’) on the ground that the Federal Court proceedings are an abuse of process, as the claims made in them are in substance the same as the claims made by the Morningstar interests in the cross claim in the Supreme Court proceedings.  The Rich interests contend that the Federal Court proceedings were commenced with no intention of prosecuting them to a conclusion, and for the illegitimate purpose of conferring jurisdiction on the Supreme Court of NSW to entertain the IRC proceedings, a jurisdiction which the Supreme Court does not otherwise have.

11                  On 21 July 2003 the Morningstar interests changed tack.  They filed an amended notice of motion in the Supreme Court proceedings seeking that the IRC proceedings be removed into the Supreme Court and consolidated with the Supreme Court proceedings and that the consolidated proceeding thereafter be transferred to the Federal Court and consolidated with the Federal Court proceedings.

12                  On 24 July 2003 I was informed by counsel that there was a general, but tentative consensus that the IRC proceedings should be removed into the Supreme Court and consolidated with the Supreme Court proceedings, and that the consolidated proceedings should thereafter be transferred to the Federal Court.  However, concern was expressed by counsel, and in particular by counsel for the Rich interests, that there might be a constitutional difficulty in this Court determining the IRC proceedings.  Once this potential problem emerged, counsel for the Morningstar interests reverted to the course originally chartered by the Morningstar interests, namely that the IRC proceedings should be removed into the Supreme Court and consolidated with the Supreme Court proceedings, and that the Federal Court proceedings should be cross-vested to the Supreme Court.  Counsel for the Rich interests indicated that he opposed that course because his clients wished to retain what was perceived to be a forensic advantage if the IRC proceedings stayed in the IRC.  Reference was made to the judgment of Spiegleman CJ in Resarta Pty Ltd v Finemore (2002) 55 NSWLR 320 at [32] where the Chief Justice described this as a ‘legitimate forensic advantage’, at least in the circumstances of that case.

13                  On 25 July 2003 the solicitors for the Rich interests put a proposal to Clayton Utz which, if agreed to by the Morningstar interests, would allow the matter to be pursued in the Federal Court.  In very general terms, the proposal involved the Rich interests pleading their s 106 case by way of defence and cross claim in the Federal Court proceedings on the basis that the Morningstar interests would take no point as to the jurisdiction of the Federal Court to entertain the s 106 claim, but if the Court itself declined to entertain the claim, then the Rich interests would be free to pursue it thereafter in the IRC.  Clayton Utz did not agree to that course. 

14                  Accordingly, I proceeded to hear the dismissal motion.  On the hearing of that motion the Morningstar interests proffered an undertaking to the Court not to prosecute these proceedings and the cross claim in the Supreme Court proceedings in both Courts at the same time.  That undertaking was proffered in lieu of an undertaking earlier offered not to litigate the cross claim in the Supreme Court proceedings for so long as the Federal Court proceedings are on foot and have not been determined.  An undertaking in those terms became inappropriate once the option of seeking to transfer the consolidated IRC and Supreme Court proceedings to this Court was abandoned by reason of potential constitutional problems which were perceived by counsel.

The legislative scheme

15                  There is no mechanism by which proceedings in the Supreme Court and proceedings in the IRC may be amalgamated or cross-vested in such a way that where common issues of law and fact concerning the same parties (or some of them) arise then they be dealt with entirely by one tribunal or another: RSL Com Personal Communications Pty Ltd v Mobile Tron Pty Ltd [2001] NSWSC 819 at [5] per Barrett J; Rexam Australia Pty Ltd v Optimum Metallising Pty Ltd [2002] NSWSC 916 at [23] per Einstein J.

16                  However, the Supreme Court could become seized of both matters if the court proceedings had been commenced in the Federal Court, the Family Court or the Supreme Court of another State or of a Territory, rather than in the Supreme Court of NSW itself.

17                  In the present context, the effect of s 8(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (NSW) is that where proceedings are pending in the IRC, and it appears to the Supreme Court that the IRC proceeding is related to another proceeding in the Federal Court, the Supreme Court can make an order removing the IRC proceeding to the Supreme Court if there are grounds on which the Federal Court proceedings could be transferred to the Supreme Court.  The Supreme Court has a discretion whether or not to make an order under s 8(1) and may take into account in the exercise of that discretion any legitimate forensic advantage which would accrue to a party if the proceedings stayed in the IRC: Resarta Pty Ltd v Finemore (supra) at [33].

18                  Whilst it may appear to the Supreme Court that there are grounds on which the Federal Court proceedings could be transferred to the Supreme Court, the Supreme Court cannot itself bring about that result.  Removal of the proceedings from the Federal Court to the Supreme Court is dependent on an order being made by the Federal Court under s 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth).  Accordingly, the practice in the Supreme Court, so I was informed by counsel, has been to make an order for removal of the IRC proceedings into the Supreme Court under s 8(1) in an appropriate case, but to stay the operation of that order pending a determination by the Federal Court as to whether it will transfer the Federal Court proceedings into the Supreme Court.  If the Federal Court does not make an order under s 5(4) transferring the Federal Court proceedings to the Supreme Court, then the removal order in relation to the IRC proceedings remains stayed and the IRC proceedings continue in the IRC.

Submissions of the Rich interests

19                  ‘Abuse of process’ denotes that the process is employed for some purpose other than the attainment of the claim in the action: Varawa v Howard Smith Co Ltd (1911) 13 CLR 35 at 91 per Isaacs J, extracted in Williams v Spautz (1992) 174 CLR 509 at 524.  Accordingly, it is prima facie vexatious or oppressive to commence and prosecute a second proceeding on the same subject matter where the remedy sought in the second proceeding is obtainable in the first and there is no reason why it could not be sought in the first; Moore v Inglis (1976) 9 ALR 509 at 513, 515 per Mason J. 

20                  The decision of the Full Court in Palm Springs Ltd v Darling (2002) 192 ALR 763 is authority for the proposition that it is not an abuse of process to choose the Federal Court as a forum for contemplated proceedings because that forum has the advantage of permitting cross-vesting.  The case is not authority for the proposition that it is legitimate to initiate proceedings for the predominant purpose of cross-vesting other proceedings.  Such a course remains an abuse of process: ECC Lighting Ltd v McGurk (unreported, SCNSW, Santow J, 15 June 1995).

21                  Here, the Rich interests submit that the Morningstar interests do not seek the relief claimed in the Federal Court proceedings within the context of the proceedings (they already had a cross claim to obtain that relief in the Supreme Court); rather they commenced the proceedings solely or predominantly for the purpose, as Morningstar’s submissions concede, of having the entirety of the dispute between them and the Rich interests dealt with by one court, ie a purpose other than securing the relief sought in the action.

22                  The Rich interests submit that it is an abuse of process to utilise the Federal Court’s procedures to attempt to confer on the Supreme Court a jurisdiction it does not otherwise have, and thereby to deny to the Rich interests the legitimate forensic advantage to which they are entitled of having the claim under s 106 of the IRC Act to declare void or vary relevant contracts and/or arrangements determined by the IRC.

Morningstar’s submissions

23                  The crucial enquiry is as to the purpose of the party instituting the proceeding: Williams v Spautz (supra) at 524 per Mason CJ, Dawson, Toohey and McHugh JJ.  If that purpose is to obtain an advantage for which the law provides, then it is not an abuse of process to institute the proceedings.  If, however, the purpose is to seek an advantage beyond what the law offers, the institution of the proceeding may be an abuse of process of the Court: Dowling v Colonial Mutual Life Assurance Society Ltd (1915) 20 CLR 509 at 521-522 per Isaacs J; Williams v Spautz (supra) at 524-527 per Mason CJ, Dawson, Toohey and McHugh JJ.

24                  Prior to the commencement of the proceedings in this Court, the Morningstar interests were confronted with defending two essentially identical proceedings commenced by the Rich interests firstly in the Supreme Court and then in the IRC.  The purpose of the Morningstar interests in commencing this proceeding was to have the entirety of the dispute between them and the Rich interests dealt with by one court utilising the procedures under the cross-vesting legislation.  This is an advantage for which the law specifically provides, and in the submission of the Morningstar interests, it is not an abuse of process to commence a proceeding to achieve such an advantage: Palm Springs Ltd v Darling (supra) at 768-770.

25                  The procedural facts in the present case differ from those in Palm Springs v Darling in only one respect.  In this case, but not in Palm Springs Ltd v Darling, prior to the commencement of the Federal Court proceedings, the Morningstar interests filed a cross claim in the Supreme Court proceedings which is essentially identical to the claim in this Court.  That is submitted to be an immaterial difference.  Whilst it may be prima facie vexatious or oppressive to commence and prosecute a second proceeding on the same subject matter, where the remedy sought in the second proceeding is obtainable in the first (Moore v Inglis (supra)); Slough Estates Ltd v  Slough Borough Council [1968] 1 Ch 299 at 314-315, that is submitted not to be the case here because:

-                     the Morningstar interests do not seek to have the remedy granted by both Courts.  Rather, they wish to have the entire dispute dealt with in one forum either this Court or the Supreme Court;

-                     the Morningstar interests have undertaken not to pursue both proceedings simultaneously;

-                     the Supreme Court cross claim would not have been filed had the Rich interests not withheld service of the IRC summons until after the filing of the cross claim.  At the time the cross claim was filed in the Supreme Court, the twelve month limitation period for the commencement of IRC proceedings (s 108B Industrial Relations Act 1996 (NSW)) had lapsed without any service of any IRC process by the Rich interests; and

-                     the Morningstar interests would have instituted proceedings in this Court, rather than filing a cross claim in the Supreme Court had they been aware of the institution of the IRC proceedings.

Decision

26                  I accept, as the submissions of the Morningstar interests concede, that their purpose in commencing the Federal Court proceedings was to have the entirety of the disputes between them and the Rich interests dealt with by one court, utilising the procedures under the cross-vesting legislation.  However, this is an advantage for which the law provides, and the decision of the Full Court in Palm Springs Ltd v Darling establishes that it is not an abuse of process to commence a proceeding for the purpose of achieving that advantage.

27                  Counsel for the Rich interests accepted that had the Morningstar interest discontinued their cross claim in the Supreme Court prior to the institution of the Federal Court proceedings, then his contention that the Federal Court proceedings were an abuse of the process of the Court would have been bound to fail.  Whilst the Morningstar interests did not discontinue that cross claim, they have proffered undertakings not to pursue the cross claim and the Federal Court proceedings concurrently.

28                  The Federal Court proceedings, whilst duplicating the cross claim in the Supreme Court proceedings, are a more effective vehicle than the cross claim inasmuch as they allow the Morningstar interest to seek orders under the cross-vesting legislation which would have the effect that all disputes between the parties would be resolved in the one forum.

29                  As the Full Court observed in Palm Springs Ltd v Darling, the present case is a world away from the kind of collateral benefit that Dr Spautz sought: the acquiescence of defendants to demands which had no connection with his criminal defamation action.  The Morningstar interests are not seeking an object beyond that which the legal process offers.  If there is a problem for the Morningstar interests it does not lie the fact that they do not genuinely seek to obtain the relief sought in the cross claim and in these proceedings.  Clearly they do.  If there is a problem, it lies in the fact that the Morningstar interests have asked for that relief twice, and from two different courts.

30                  But the Morningstar interests do not propose to pursue those claims concurrently.  They have given an undertaking to that effect.  I was not asked to make an order staying these proceedings but to dismiss them in accordance with the principles established in Williams v Spautz.  In my view, those principles have no application in the circumstances of the present case because the Morningstar interests did not commence these proceedings for an improper purpose.  It is not vexatious or oppressive to allow these proceedings to go on in order to afford the Morningstar interests the opportunity of invoking the cross-vesting legislation.  If the Morningstar interests are successful in that respect then the result will be one case in the Supreme Court and both the IRC proceedings and the Federal Court proceedings would be transferred into that court.  If for some reason orders are not made under the cross-vesting legislation so as to achieve that objective, then the proceedings in this Court and the cross claim in the Supreme Court would both be on foot.  Thereafter it would be vexatious, oppressive or an abuse of process for both proceedings to go on, and one or other of them would be stayed, not because of any impropriety of purpose underlying the institution of these proceedings, but because no legitimate forensic advantage could result from the concurrent prosecution of practically identical proceedings in the Federal Court and in the Supreme Court.

31                  The motion is dismissed with costs.

Associate:

Dated:              22 August 2003