FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v The Bio Enviro Plan Pty Ltd [2004] FCA 415

TRADE PRACTICES – misleading or deceptive conduct and false representations – worm farming schemes – orders to give effect to liability previously found – effect of bankruptcy of sixth and seventh respondents – grant of leave to take fresh steps – order in respect of lump sum costs – compensation orders – leave to discontinue representative application

Bankruptcy Act 1966 (Cth) s 58(3)(b)

Trade Practices Act 1974 (Cth) ss 87(1), 87(1A)

Federal Court Rules O 62 r 4(2)(c), O 62 r 4(2)(d)

Property Law Act 1969 (WA) s 89

Gertig v Davies (2003) 85 SASR 226 followed

Michel v Bullen (1818) 146 ER 749 cited

Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 cited

Sangar v Gardiner (1838) 47 ER 497 cited

Thiess Watkins White Constructions Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452 cited

Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 cited

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v THE BIO ENVIRO PLAN PTY LTD, BUYPLUS COMMODITIES BROKERS PTY LTD, GREENSTAR CO-OPERATIVE LIMITED, GREENSTAR MANAGEMENT PTY LTD, KEVIN ROBERT SMITH, PAUL ANTHONY HAIGH and TREVOR SAMPSON

W208 of 2001

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v THE BIO ENVIRO PLAN PTY LTD, BUYPLUS COMMODITIES BROKERS PTY LTD, GREENSTAR CO-OPERATIVE LIMITED, GREENSTAR MANAGEMENT PTY LTD, KEVIN ROBERT SMITH, PAUL ANTHONY HAIGH and TREVOR SAMPSON

W92 of 2003

RD NICHOLSON J

7 APRIL 2004

PERTH

THE COURT ORDERS THAT:

A.        In Proceeding W208 of 2001:

1.                  (a)   The first, second, third, fourth, fifth, sixth and seventh respondents jointly and severally pay the applicant’s costs.

(b)   As to the whole of such costs, instead of taxed costs, the applicant shall be entitled to a sum to be ascertained by the Registrar.

2.                  An order that the applicant may bring representative proceedings pursuant to s 87(1A) of the Act (‘Representative Proceedings’) on behalf of:

2.1               Francis Lee Lathlean, pursuant to his consent provided under s 87(1B) of the Act dated December 2002; and

2.2              Aaron James Cuthbert, pursuant to his consent provided under s 87(1B) of the Act dated 11 December 2002.

3(a).          The first, second, third, fourth, fifth, sixth and seventh respondents, either jointly or severally, refund the sum of $20 886.85 to Francis Lee Lathlean, being the funds he paid over as membership fees for the BEP Scheme, Buyplus Scheme and Greenstar Scheme ($21 491) minus payments he received ($604.15), such refund to compensate him for the loss and damage he suffered by reason of those respondents’ conduct which contravened the Trade Practices Act 1974 (Cth) in accordance with the findings of the Court in its reasons for decision; and

3(b).         The third, fourth, fifth, sixth and seventh respondents, either jointly or severally, refund the sum of US$240 to Aaron James Cuthbert, being the funds he paid over as membership fees in the Greenstar Scheme, such refund to compensate him for the loss or damage he suffered by reason of those respondents’ conduct which contravened the Trade Practices Act 1974 (Cth) in accordance with the findings of the Court in its reasons for decision.

B.         In Proceeding W92 of 2003:

            Leave is granted to the applicant to discontinue this proceeding with no order as to costs.

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

REASONS FOR JUDGMENT

1                     These reasons should be read together with reasons for judgment delivered in proceeding W208 of 2001 on 24 March 2003 and 31 October 2003 and in the light of directions made on the latter date.  As appears therefrom, the outstanding issues for determination by the Court are whether the following orders should be made:

(a)        a lump sum costs order against all the respondents in proceedings W208 of 2001 (‘the substantive proceedings’);

(b)        the orders pursuant to s 87(1A) of the Trade Practices Act 1974 (Cth) (‘the TPA’), pursuant to the applicant’s notice of motion dated 11 February 2003 in the substantive proceedings (‘the motion’) as modified by par 2.2 of the applicant’s submissions dated 30 April 2003 and the deletion of par 2 of the motion; and

(c)        orders in accordance with Pt IV(A) of the Federal Court of Australia Act 1976 (Cth), pursuant to the application dated 30 April 2003 in proceedings W92 of 2003 (‘representative application’).

2                     The Court made final orders in the substantive proceedings on all matters except costs on 31 October 2003 and adjourned the motion seeking specific orders for compensatory relief for members of the Greenstar scheme, with directions providing the opportunity for the sixth and seventh respondents to have the benefit of submissions being filed by pro bono counsel.  Such submissions were filed on 22 January 2004.

Application of bankruptcy act

3                     On 24 December 2003, the seventh respondent became bankrupt by the lodgement of his own petition in bankruptcy.  On 6 January 2003, the sixth respondent became bankrupt by the lodgement of his own petition in bankruptcy.

4                     In their respective statement of affairs accompanying their debtor’s petitions, the sixth and seventh respondents each listed the sum of $400 000 as an unsecured debt owing to the applicant.  The sixth respondent described the nature of the debt as ‘misleading and deceptive conduct’ while the seventh respondent classified it as ‘court costs’.

5                     By operation of s 58(3)(b) of the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’), after a debtor has become bankrupt, except with the leave of the Court, it is not competent for a creditor to commence any legal proceedings or to take any fresh step in such a proceeding.

6                     In the present instance, the applicant sought all of the orders in relation to the above outstanding issues prior to the bankruptcy of the sixth and seventh respondents.  In seeking those orders the applicant is therefore not commencing any legal proceedings in respect of a provable debt for the purposes of s 58(3)(b) of the Bankruptcy Act.  The question is, therefore, whether filing of submissions and making of final orders is a ‘fresh step’ in a legal proceeding in respect of a provable debt.

7                     In Gertig v Davies (2003) 85 SASR 226 Doyle CJ (with whom Mullighan J agreed) held that the hearing of an application made prior to bankruptcy and the making of a decision on such an application constituted a ‘fresh step’ in the proceeding by the party seeking an order, for the purposes of s 58(3)(b).  Whilst agreeing with the final orders proposed by Doyle CJ, Besanko J was of the view that the hearing and determination of an application for a relevant order made before the relevant party became bankrupt was not a fresh step in the proceeding.

8                     For the applicant it is contended that I should follow the minority view on this aspect as expressed by Besanko J.  Given that the majority view was enunciated by the Chief Justice of the relevant jurisdiction and concurred in by a judge of the superior court of that jurisdiction, I am not prepared to do so sitting as a single judge.  I therefore accept the submission for the sixth and seventh respondents that the Court ought to follow the majority view. 

9                     The consequence is that leave is necessary in respect of any of the fresh steps. 

general discretionary circumstances

10                  There are a number of aspects which generally favour the grant of leave.  They are:

(a)        The matters before the Court involve short issues of law not dependent on the resolution of any factual controversy between the parties.

(b)               The Trustee in Bankruptcy of the sixth and seventh respondents, Mr Kim Holbrook, is aware that the applicant is seeking the proposed final orders and has not objected to the making of such orders.  And such orders would not have the effect of depriving the general body of creditors.

(c)               No advantage will be served in further delaying final resolution of the remaining issues and they should be permitted to be finally determined.

(d)               As their respective Statements of Affairs show, the sixth and seventh respondents have clearly acknowledged and contemplated their liability for costs and/or to make compensation.  Without such an acknowledgement, they would not have as significant an asset deficiency.  Rather, they would have been within $10 000 of a clear balance, as follows:

(i)         the sixth respondent – net surplus of $6950 (by himself) or net deficiency of a mere $8675 (jointly with his wife); and

(ii)        the seventh respondent – net deficiency of a mere $8886.

The sixth and seventh respondents’ debtor’s petitions acknowledged their liability in these proceedings to the sum of $400 000.  For that reason, the bankruptcy of the sixth and seventh respondents is no reason if itself not to make the orders and it would be an undesirable outcome if the effect of the bankruptcies was to frustrate the making of the orders which would otherwise have been made.

(e)               Indeed, other than the imminence of the Court’s decision with respect to the making of the final orders, there is otherwise no suggestion that the financial positions of the sixth and seventh respondents materially deteriorated up to their bankruptcy.

(f)                 The making of the orders sought will not place the applicant in a more advantageous position vis-à-vis other unsecured creditors of the sixth and seventh respondents.

costs

11                  In relation to the proposed order for costs the sixth and seventh respondents have already contemplated the making of orders in that respect in their bankruptcy.  The amount of $400 000 referred to in each of those statements corresponds approximately to the applicant’s estimate of costs that would be recoverable by it on a party and party basis.  Having that consideration in mind together with the general considerations referred to above I consider that leave should be granted in respect of the proposed further step in relation to costs. 

compensation Orders

12                  In the reasons for judgment dated 31 October 2003 it was said to be arguable that various property transfers by the seventh respondent are open to attack pursuant to s 89 of the Property Law Act 1969 (WA).  The Trustee is currently in the process of investigating whether various transactions by each of the sixth and seventh respondents, including those referred to in par 3.4 above, ought to be set aside on the basis that they were intended to defeat third party creditors in breach of s 121 of the Bankruptcy Act and hence are void as against the Trustee in bankruptcy.

13                  Having in mind these specific considerations and the general considerations referred to above I consider that leave should be granted in respect of the compensation orders sought in the motion. 

representative proceeding

14                  For the applicant it is accepted that it may need leave for the purposes of s 58(3)(b) of the Bankruptcy Act to progress the representative application, arising in light of the sixth and seventh respondents bankruptcy.  However, the applicant also submits that if the Court is not minded to exercise its discretion to grant the orders the applicant will seek to discontinue the representative application with no orders as to costs. 

15                  In my opinion, even given the possibility that certain transactions may be determined to be void as against the sixth and seventh respondents’ Trustee in bankruptcy, that possibility does not enhance the lack of futility in the issue of representative proceedings.  This is due to the nature of the assets of the sixth and seventh respondents and the absence of any other respondents with assets able to meet likely liabilities arising from the application.  In those circumstances I consider it is a proper exercise of the discretion not to grant the orders in relation to the representative application.  Accordingly, as the applicant’s submissions allow and as it is accepted for the sixth and seventh respondents, the applicant should have leave to discontinue the representative application with no order as to costs. 

lump sum costs

16                  In the reasons delivered on 31 October 2003 I stated:

‘Order 62 r 4(2)(c) provides that a gross sum must be specified in the order.  In my view, the affidavit supporting the claim for costs should be referred to the Registrar for consideration in the light of his experience in taxing costs in the Court.  While I favour making an order for a gross sum, as it cannot be now specified in the order I will refer the question of costs to the Registrar for determination.’

17                  In accordance with those reasons I now propose to order that the reference be made so that the Registrar is to ascertain costs in a sum:  Federal Court Rules O 62 r 4(2)(d).

joint and several LIABILITY

18                  The sixth and seventh respondents accept that any inability to meet a costs order, or merely being of limited financial means, is not itself a sufficient reason to depart from the ordinary rule that costs follow the event.

19                  However, the sixth and seventh respondents invite the Court to depart from the ordinary rule that all seven respondents each pay (on a joint and several basis) the applicant’s costs of the substantive proceedings, on the basis of ‘relative fault of the various respondents viewed together with the limited financial means of the sixth and seventh respondents’. 

20                  The usual approach is that where an order for the payment of costs is made against two or more persons the liability in respect of that order is joint and several as between them (eg Ryan v South Sydney Junior Rugby League Club Ltd [1975] 2 NSWLR 660 at 663) and may be enforced against them jointly or against any one of them separately:  Michel v Bullen (1818) 146 ER 749; Sangar v Gardiner (1838) 47 ER 497.

21                  The usual approach should not be disturbed unless, and only to the extent that, one defendant conducts a separate and distinct defence which incurs costs which cannot be attributed to the joint conduct of the defendants in the defence of the action:  Thiess Watkins White Constructions Ltd (in liq) v Witan Nominees (1985) Pty Ltd [1992] 2 Qd R 452.

22                  In the present case, there was no segregation of the conduct of the defence. 

23                  Further, the applicant submits that an order that a designated proportion of its costs be paid by each respondent is unusual:  Trade Practices Commission v Nicholas Enterprises Pty Ltd (No 3) (1979) 28 ALR 201 at 210 per Fisher J.  There are no relevant special circumstances in the present case which would require departure from the usual rules.  The ‘limited financial means’ of the sixth and seventh respondents is not a special circumstance such as to justify the making of such an unusual order.

24                  For these reasons the applicant submits that the usual approach referred to in par 4.3 should apply and, accordingly, the sixth and seventh respondents’ costs should be awarded on a joint and several basis.  I accept these submissions as correct in law and in the circumstances of this proceeding.  There is no proper basis here to disturb the usual approach of ordering joint and several liability.

compensation orders

25                  It is no longer in contention that the applicant obtained the written consent of each of the Messrs Lathlean and Cuthbert prior to applying for the orders sought on their behalf in par 3 of the motion. 

26                  The applicant acknowledges observations made by the Court in the reasons delivered on 31 October 2003 concerning the possible futility of proposed compensation orders.  However it is submitted that on account of the investigations being carried out by the Trustee there is a real chance that the transactions may be determined to be void as against the sixth and seventh respondents’ Trustee in bankruptcy.  Consequently, it is said, that in such circumstances there is a real possibility that the orders proposed, if made, will not be rendered totally futile.  Further, I accept the submission for the applicant that the orders sought seek to bring the sixth and seventh respondents to account for a loss which forms part of the full consequences flowing naturally from their prohibited conduct. 

27                  In these circumstances I consider that the compensation orders should be made in terms of par 1 and terms of par 3 as recast in par 2.2 of the applicant’s submissions dated 30 April 2003. 

Associate:

Dated:              7 April 2004