FEDERAL COURT OF AUSTRALIA

Tada Constructions Corporation Pty Ltd v JP Dixon Real Estate Pty Ltd (No 3) [2012] FCA 329

THE COURT ORDERS THAT:

1.    The respondent be granted leave to file and serve the cross-claim in the revised form dated 9 March 2012.

2.    The parties, at the case management conference scheduled for 3 April 2012, clarify to the Registrar:

(a)    their preliminary views on what trial time the cross-claim is likely to occupy; and

(b)    what impact the cross-claim will have on preparation for trial (including discovery and whether any additional time or other requirement flows from the precise issue of whether there was originally a licence to use the website).

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

Introduction

1    By an interlocutory application dated 8 February 2012, the first respondent, JP Dixon Real Estate Pty Ltd (“JP Dixon”), sought leave pursuant to r 15.05 of the Federal Court Rules 2011 (“2011 Rules”) to file and serve a notice of cross-claim and statement of cross-claim substantially in the same form as that exhibited to the affidavit of Michael O’Brien of the solicitors for the respondents sworn on 8 February 2012.

2    The application was supported by the affidavit of Mr O’Brien sworn 8 February 2012 and written submissions dated 8 February 2012.

3    The applicant, Tada Constructions Corporation Pty Ltd (“Tada”), neither consented to nor opposed the application.

4    The parties agreed that the application should be “heard on the papers”. Tada filed no submissions in relation to the application. On 8 March 2012, the parties were advised that leave to file and serve the cross-claim was granted.

5    On 9 March 2012, however, JP Dixon sought to amend the cross-claim. As discussed below, Tada opposed a grant of leave to file and serve the proposed amended cross-claim and filed material in opposition.

Background

6    Tada and Troy Daly (who was then a party) commenced the proceeding against the respondents by an application and statement of claim dated 30 April 2010.

7    A directions hearing in the proceeding was fixed for 2 July 2010, and orders were made by consent on the papers. No order or directions for the bringing of a cross-claim were sought or made at that time.

8    On 1 December 2010, the trial date was fixed for 25 July 2011, with an estimate of four to five days.

9    On 25 February 2011, Tada filed and served an amended application and amended statement of claim and, on 11 March 2011, the respondents filed and served a defence to amended statement of claim.

10    Following JP Dixon’s motions filed on 25 May 2011 and 4 July 2011, orders were made for the further conduct of the matter. Tada was granted leave to replead its claim against the respondents, and the trial date was vacated.

11    On 22 June 2011, Tada filed and served its further amended statement of claim (“FASOC”).

12    On 8 July 2011, Tada filed and served its second further amended statement of claim (“SFASC”).

13    On 2 December 2011, the proceeding was fixed for trial on 9 July 2012.

14    By his affidavit sworn on 8 February 2012, Mr O’Brien deposed that JP Dixon sought to bring a cross-claim out of time, as the events giving rise to it had arisen only in January and February 2012.

Current pleadings

15    The SFASC alleges that during negotiations between mid-June and mid-August 2007, JP Dixon represented that it would grant Tada an exclusive licence to operate a real estate business under the banner “JP Dixon Real Estate Portsea, Sorrento” in a specified geographical area of the Mornington Peninsula (defined as “the Market”). It further alleges that JP Dixon, which controlled the use of the name “JP Dixon” by Melbourne real estate entities, would permit Tada to carry on a real estate business under the banner exclusively in the Market, would not compete with Tada in the Market during the term of the licence agreement, and that JP Dixon (or other entities using the JP Dixon name) would hand any properties they listed in the Market to Mr Daly (the controller of Tada) to sell (“the representations”).

16    The SFASC further alleged that on 14 and 22 August 2007, JP Dixon represented that it would not establish another office in the Market, license any other entity to use the name in the Market during the licence, would not compete with Tada in the Market, and that JP Dixon’s controller, Mr Dixon, would not allow any entity he controlled to compete with Tada in the Market (“further representations”).

17    The SFASC alleges that, induced by the representations and further representations, Tada entered a Licence Deed dated 22 August 2007. The representations and further representations were, however, misleading and deceptive, as the respondents had not determined not to compete in the Market, intended to sell properties there without referring them to Tada, Mr Dixon would procure entities he controlled to do so, and JP Dixon or entities controlled by Mr Dixon sold six properties in the Market between May 2010 and July 2011.

18    The SFASC alleges that the respondents thereby contravened s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”) and engaged in unconscionable conduct in trade and commerce. Further, Tada would not have entered the Licence Deed but for the representations and further representations but would have established a real estate business under the banner “Troy Daly” or similar. The SFASC alleges that Tada has suffered loss and damage.

19    The SFASC alternatively alleges breach of contract, whereby Tada suffered loss and damage. It alleges that the Licence Deed contained terms requiring Tada to operate the Portsea-Sorrento office in accordance with accepted good practice, to pay JP Dixon a number of specified quarterly commissions, to provide quarterly reports of all income earned from sales and rent, and to pay the cost of advertising and promotion.

20    The SFASC further alleges that the Licence Deed contained terms requiring JP Dixon to:

(a)    pay Tada 20% of the gross commissions it earned on properties listed or sold by Tada in Brighton;

(b)    not start another office on the Peninsula; and

(c)    not compete with Tada in the Market, but refer properties there to Tada to sell.

21    The SFASC alleges that the Licence Deed also contained implied terms that Tada would operate and carry on the business exclusively in the Market and that the Brighton office would list properties there, but refer them to Tada for sale.

22    The SFASC alleges that in breach, and anticipated breach, of the Licence Deed, JP Dixon denied that Tada could claim commission for sales and listings in the Market by JP Dixon or its Brighton or Toorak offices, and that JP Dixon operated its business in the Market in competition with Tada, whereby Tada had suffered loss and damage.

23    Tada claimed the relief specified in the application as follows:

(1)    Damages.

(2)    Further or alternatively, damages pursuant to s 82 of the TPA and s 159 of the Fair Trading Act 1999 (Cth) (“Fair Trading Act”).

(3)    Such further or other orders, directions or relief as may be necessary or as the court considers fit including orders pursuant to s 87 of the TPA and s 158 of the Fair Trading Act.

(4)    Interest pursuant to section 51A of the Federal Court of Australia Act 1976 (Cth).

(5)    Costs.

(6)    Such further or other orders that the court deems fit.

Defence

24    By its defence to the SFASC dated 22 July 2011, the respondents allege that on 1 March 2008, JP Dixon sold the Brighton business to United Realty Pty Ltd (“United”) and thereafter, its only involvement in the real estate industry was to grant licences to various companies to use the JP Dixon trading name.

25    The respondents admit that negotiations occurred in mid-June to mid-August 2007, in the course of which documents comprising an agreement were exchanged, which constituted the entire understanding of the parties.

26    The respondents denied that JP Dixon represented that it would permit Tada to operate the business exclusively in the “Market”, discussed any definition of the Market, or represented that JP Dixon would not compete with Tada during the term of the licence.

27    The respondents admit that they represented that JP Dixon was entitled, but not obliged, to list properties in the Peninsula and to refer them to Tada.

28    The respondents admit that Tada and JP Dixon entered an agreement constituted by the documents described by Tada as the “Licence Deed”.

29    The respondents deny that they contravened the TPA as alleged or that Tada suffered loss and damage. They say (at paragraph 12) that Tada’s entry into the Licence Deed conferred on it advantages and benefits, including the use of the JP Dixon Real Estate name, referral of property listings, JP Dixon’s agreement not to set up an office in the Peninsula, the payment of commissions to Tada and the supply at no cost of office and other equipment, the value of which advantages and benefits equalled or exceeded the commissions paid or payable in future by Tada to JP Dixon under the Licence Deed.

30    The respondents admit that the agreement contained various specified clauses, the full meaning and effect of which they will rely on at trial. The respondents deny the alleged implied terms that Tada would operate the business exclusively in the Market or that the Brighton office would list properties there but refer them to Tada for sale.

31    The respondents deny that JP Dixon has operated an office in Brighton after March 2008, or in Toorak or Sandringham, referring to its sale to United and subsequent limitation of its activities to licensing. The respondents’ deny breach or anticipated breach of the agreement, and further say that the JP Dixon trading name had an established reputation in the real estate business, and, but for Tada’s entry into the Licence Deed in late 2007, JP Dixon would have licensed another real estate agent to use the JP Dixon trading name or would have opened its own real estate agency office in the Portsea-Sorrento area.

32    The respondents further allege that if (which they deny) Tada suffered any loss or damage, it failed to mitigate, as it did not seek to terminate the Licence Deed, did not accede to the respondents’ request by letter dated 12 July 2011 for early termination on terms which would release Tada from any future obligation to pay commission, and did not respond to their invitation that Tada propose alternative terms for early termination.

Reply

33    By a reply dated 2 August 2011, Tada alleges that the respondents are estopped from alleging, in paragraph 12(b)(ii) of their defence, that Tada would not have enjoyed advantages and benefits but for entry into the Licence Deed, as that allegation effectively asserted that Tada was operating the Portsea-Sorrento office as part of a JP Dixon franchise. Such an assertion was contrary to JP Dixon’s representations in July 2009 that it did not consider that the Licence Deed constituted a franchise, on which Tada relied to its detriment, as, inter alia, it did not receive disclosures from JP Dixon which would have benefited Tada.

34    Tada further alleges that early termination of the agreement would have crystallised, rather than mitigated, its loss and damage.

Cross-claim out of time

35    In support of the application for leave to file and serve the cross-claim, Mr O’Brien deposed that JP Dixon is the proprietor of a registered trade mark (“JP Dixon trade mark”), which conducted the business under the name “JP Dixon Real Estate Ltd” using logos and devices substantially in the form of that trade mark.

36    Mr O’Brien referred to terms of the Licence Deed requiring Tada to pay quarterly commissions and to provide quarterly reports of income, and entitling either party (subject to independent arbitration) to terminate if the other breached the agreement with “actions that are detrimental to the Business”.

37    Mr O’Brien acknowledged that the agreement implicitly licensed Tada to trade under the JP Dixon name using livery and signage substantially in the form of the JP Dixon trade mark.

38    Mr O’Brien deposed that Tada, during the course of the Licence Deed, usually made its quarterly reports and paid quarterly commission fees within the first week after the end of the relevant quarter, but by 6 January 2012, Tada had not provided the reports or payments for the December 2011 quarter.

39    Mr O’Brien deposed to his correspondence with Mr Morehead, the solicitor for Tada, in which Mr O’Brien sought the report and payment, while Mr Morehead required JP Dixon’s demand for fees to be made in a manner complying with “the franchise agreement”.

40    Mr O’Brien asserted that JP Dixon could not issue a tax invoice without first receiving the report. Mr Morehead asserted that Tada had no obligation to pay in the absence of an invoice, nor any obligation to provide information unless JP Dixon produced a disclosure document complying with the franchising code of conduct.

41    Mr O’Brien deposed:

On 16 January 2012, having heard nothing further from Mr Morehead, I wrote to him again requiring that his client by 4 pm on 19 January 2012 provide the First Respondent with details of his client’s gross commissions for the December 2011 quarter and, within two business days of receipt of the First Respondent’s tax invoice, pay the First Respondent the amount due for the December 2011 quarter.

42    Mr Morehead subsequently asserted that Tada required until 17 February 2012 in order to provide details of gross commissions.

43    On 18 January 2012, Mr O’Brien reiterated his demands and asserted that time was of the essence.

44    Mr O’Brien deposed:

Having heard nothing further from Mr Morehead, on 30 January 2012 I wrote to Mr Morehead to the effect that in our view his client had evinced its intention not to be bound by the Agreement and had therefore repudiated the Agreement. I accepted repudiation of the Agreement on behalf of the First Respondent and stated that the Agreement was therefore terminated by the First Respondent…

Notwithstanding that the Agreement was terminated, the Applicant's obligation to pay commission fees for the December 2011 quarter remained on foot, and I set a deadline of 6 February 2012 by which that was to occur.

45    Mr O’Brien deposed to further correspondence between the solicitors, in which Mr Morehead, on 2 February 2012, provided, “under protest”, gross commission details and disputed the termination of the agreement. Mr O’Brien deposed that as at 8 February 2012, JP Dixon had not received payment of the amount due for the December 2011 quarter.

46    Mr O’Brien deposed at [23] and [24]:

To the best of my knowledge and belief, based on a conversation with the Applicant's lawyer, the Applicant will continue to trade under the ‘JP Dixon’ banner' despite the termination of the Agreement.

Accordingly, despite the fact that this proceeding has been on foot since 30 April 2010, given that it remains on foot, I consider it appropriate that all issues arising concerning the Agreement between the parties be dealt with in the one proceeding, and accordingly seek leave of the Court to file and serve a cross-claim substantially in the form of the Statement of Cross-Claim appended hereto and marked "MJO-18".

Cross-claim

47    The cross-claim annexed to Mr O’Brien’s affidavit (subsequently amended by some minor additions) alleged, inter alia, implied terms of the agreement that time was of the essence for providing the quarterly reports and paying the quarterly commission payments, and that in exchange for providing the reports and payments, Tada was entitled to use the JP Dixon Real Estate trading name, the JP Dixon trade mark and a website (with web address http//jpdixonportseasorrento.com.au) in connection with Tada’s office.

48    The cross-claim alleged that Tada used the name, trade mark and website for the December 2011 quarter and earned commission on sales and rentals, but in breach of the implied terms of the agreement, failed to provide a quarterly report or pay commissions. It thereby evinced an intention no longer to be bound by, and repudiated the agreement, which repudiation JP Dixon accepted by a letter dated 30 January 2011.

49    The cross-claim alternatively alleged that if time were not of the essence, Tada repudiated the agreement by failing to provide reports or pay within a reasonable time after the end of the 2011 December quarter.

50    The cross-claim alleged that JP Dixon thereby suffered loss and damage, as it allowed franchises to promote real estate agency businesses by use of the JP Dixon name and had established a substantial and valuable reputation, such that the use of the JP Dixon Real Estate trading name and livery, trade mark and website denoted its authorised franchises only.

51    The cross-claim alleged that after termination of the agreement, Tada had no entitlement to use the JP Dixon name and livery, trade mark or website in any way. JP Dixon did not approve the promotion or advertisement of the Tada office under the JP Dixon name and there was no association between Tada’s operation of the Tada office and JP Dixon.

52    Nevertheless, following termination of the agreement, Tada had not complied with JP Dixon’s demands that it cease to use the JP Dixon Real Estate trading name and livery, the JP Dixon trade mark and the website in connection with the operation of the Tada office.

53    The cross-claim alleged that unless restrained, Tada would continue to use the JP Dixon trading name, mark and website, thereby representing that it was authorised to do so, or that it was approved by, or affiliated with, JP Dixon’s business. The cross-claim further alleged passing off and trade mark infringement, and sought relief as follows:

A.    A declaration that the Agreement has been terminated.

B.    Damages for repudiation of the Agreement.

C.    A permanent injunction restraining Tada from:

i)    trading under the JP Dixon Trading Name or using JP Dixon livery or the Trade Mark or the Website in the operation of the Tada Office (or otherwise) pursuant to s 232 of the ACL; and

ii)    using the Trade Mark or any sign which is misleadingly similar to or substantially identical with the Trade Mark pursuant to s 232 of the ACL and / or s 126 of the TM Act.

D.    Damages for contravention of ss 18(1) and / or 29(1)(g) and (h) of the ACL pursuant to s 236 of the ACL.

E.    Damages for passing off and an injunction in the terms set out at paragraph C above to prevent any future passing off.

F.    Damages, or alternatively an account of profits, pursuant to s 126 of the TM Act.

G.    Interest.

H.    Costs.

I.    Such further or other order as the court deems fit.

54    As stated above, Tada neither consented to nor opposed leave to file and serve the above cross-claim and made no submissions in relation to it.

Relevant legal principles

55    Rule 15.04 of the 2011 Rules provides:

Time for bringing cross-claim

A notice of cross-claim must be filed at the same time as the filing of:

(a)    the respondent’s defence; or

(b)    the respondent’s affidavit in reply to the applicant’s affidavit in the principal proceeding.

56    Rule 15.05(1) of the 2011 Rules provides that a respondent who wants to file a notice of cross-claim, but has not complied with rule 15.04, must apply to the court for leave to file a notice of cross-claim.

57    Order 5 r 9 of the Federal Court Rules 1979 (Cth) (“former Rules”), which applied at the date the proceeding was instituted and at the time of the first directions hearing in the proceeding, provides:

(1)    A respondent desiring to cross-claim after the directions hearing shall obtain all necessary directions at the directions hearing in relation to the cross-claim, including the time within which the cross-claim is to be filed.

(2)    A respondent who does not obtain directions pursuant to subrule (1) shall not cross-claim after the directions hearing without the leave of the Court.

58    Although the proceeding was commenced prior to 1 August 2011, the present application for leave constitutes a new step taken after that date within the meaning of r 1.04(2) of the 2011 Rules. JP Dixon therefore requires leave to bring its cross-claim out of time pursuant to r 15.05 of the 2011 Rules.

59    In Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 33 ALR 127, Sheppard J considered the following matters in relation to an application for leave to bring a cross-claim out of time:

(a)    whether the subject matter of the claim fell within the court’s jurisdiction (which was not, in that case, a straightforward question) (at 129); and

(b)    the demands of how effect should be given to what justice required (at 133) in circumstances where there had been delay of the “gravest kind” in the bringing of the claim, the scheduled trial of the matter would be adjourned, and there was a risk of loss of evidence by reason of the cross-claim (at 134).

60    In Sunbeam Corporation Ltd v Breville Pty Ltd [2007] FCA 496, Graham J refused leave to amend a cross-claim, where the application to bring it was made at a late stage, and the proposed amendment introduced new subject matter which was, in effect, a separate case tacked on, with a potential need for significant further discovery which would substantially affect the ability to prepare for trial.

61    In Lendlease Project Management and Construction (Australia) Pty Ltd v Construction, Forestry Mining and Energy Union (No 3) [2011] FCA 912, Collier J considered an application under the former Rules to file, out of time, a cross-claim which sought relief against a number of third parties as well as the applicant.

62    Her Honour stated at [18]:

Order 5 r 5(1) of the Federal Court Rules fixed the time limit for filing a cross-claim, and contemplated that the respondent could seek an extension of time in which to do so. It is not in dispute that the CFMEU is out of time in which to file a cross-claim within the terms of Order 5. Principles relevant to the exercise of the court’s discretion in respect of an application out of time for an extension of time in which to file process are found in the judgment of Wilcox J in Hunter Valley Developments Pty Ltd v Cohen (1984) 3 FCR 344 at 348–9. In summary:

•    the court should have regard to whether the applicant for extension has shown an acceptable explanation of the delay in filing the process.

•    any prejudice to the respondent including any prejudice in defending the proceedings occasioned by the delay is a material factor militating against the grant of an extension.

•    the merits of the application are properly to be taken into account in considering whether an extension of time should be granted.

63    Collier J accepted that the delay was due to confusion over whether leave was required, that the respondent suffered no prejudice due to delay, and that the relief sought by the cross-claim against the third parties was related to or connected with the subject of the proceeding.

64    Collier J recognised that a separate trial of the cross-claim might ultimately be appropriate, as it sought relief against a number of third parties and case management difficulties and delay might otherwise ensue.

discussion

65    In the present case, I was satisfied that the court had jurisdiction to determine the cross-claim, that the respondents satisfactorily explained the application to file a cross-claim at the relevant time, and that they sought leave promptly after the occurrence of the events giving rise to the new claims.

66    While the respondents were out of time to file a cross-claim within terms of the relevant orders in either the former Rules or the 2011 Rules, there was no delay.

67    Tada, while not consenting to the existing cross-claim, did not oppose a grant of leave. Tada did not dispute that it was appropriate and convenient that all the matters between the parties concerning the agreement be dealt with in one proceeding, or that, as the respondents submitted:

(a)    the Court has jurisdiction to determine the proposed cross-claim;

(b)    the proposed cross-claim is intimately connected with the subject matter of the applicant's proceeding:

(c)    there has been no grave delay, and indeed no delay, in bringing the application;

(d)    the cross-claim will not give rise to significant further discovery;

(e)    the cross-claim will not affect the parties' preparation for trial; and

(f)    by reason of the above, the demands of justice require leave to be granted.

68    Tada did not assert any prejudice whether by reason of delay or any other circumstance. Accordingly, on 8 March 2012, I gave leave for the respondents to file and serve the cross-claim.

Proposed cross-claim

69    JP Dixon subsequently, on 9 March 2012, sought to amend the cross-claim, stating that on further consideration, Mr O’Brien and counsel believed that the existing cross-claim did not deal correctly with the website issue.

70    The principal difference between the existing and the proposed cross-claim is that the latter only alleges as an alternative that Tada was implicitly licensed to use the website. It primarily alleges that Tada was never authorised to use the website.

71    The further proposed cross-claim alleges that since about 2007, Tada had registered the website in its name and used it in connection with the Tada office, displaying the JP Dixon trade mark and JP Dixon livery to the viewing public.

72    The proposed cross-claim alleges that (in contrast to the name and JP Dixon trade mark), JP Dixon never gave Tada authority, consent or approval to register or use the website in connection with the Tada office, or otherwise. Alternatively, the proposed cross-claim alleges that if Tada had authority to register and use the website in connection with the Tada office, this was no longer the case after the agreement was terminated.

73    The proposed cross-claim reiterates the allegations that Tada’s continued use of the website after termination would constitute a representation of authorisation by, or affiliation with, JP Dixon, and passing off.

74    In the proposed cross-claim, reference to the website is deleted from the allegation that Tada had an implied licence to use the JP Dixon name and trade mark in return for providing quarterly reports and paying quarterly commissions.

75    Tada opposed a grant of leave to file the proposed cross-claim.

76    The affidavit of Troy Daly sworn on 22 March 2012 and written submissions filed on 23 March 2012 were filed in opposition. Mr Daly deposed, inter alia, that the website was established by late 2007 and that he showed and explained it to the second respondent.

77    Tada submitted that the allegation in the proposed cross-claim that JP Dixon never authorised Tada to use the website was inconsistent with the implied licence to do so alleged in the existing cross-claim and asserted in Mr O’Brien’s affidavit.

78    Tada further submitted:

The new website claim, in addition to being entirely inconsistent with the Cross Claim and Mr. O'Brien's affidavit, has the capacity to cause problems for preparation for trial and timely consequential pleading in that it derives from 2007 and introduces a new subject matter requiring further discovery. See, further, the third affidavit of Mr. Troy Daly filed with these submissions and dated 22 March 2012.

Conclusion

79    In my opinion, leave to file and serve the amended cross-claim should be granted in order to permit JP Dixon accurately to put its case.

80    While it is not a precondition of leave that a cross-claim can be heard at the same trial as the application, in this case it is manifestly highly desirable that all disputed matters between the parties connected with the negotiations, licence agreement and business relationship be dealt with in the trial fixed to commence on 9 July 2012.

81    Tada did not oppose the existing cross-claim. While Tada asserted that the amendment in relation to the website had “the capacity to cause problems”, the amendment appears unlikely to add materially to preparation for trial, pleading or additional discovery, over that which would be necessary for the existing cross-claim in any event. While some uncertainty attends an estimate of additional trial time occasioned by the cross-claim in the absence of a defence to cross-claim, Tada did not dispute JP Dixon’s submission that the existing cross-claim would entail an additional half day at trial.

82    As a case management conference will shortly take place, I shall direct the parties to clarify to the Registrar, at that conference, their preliminary views on the impact of the amended cross-claim on preparation for, and the estimated length of, the trial.

Associate:

Dated:    2 April 2012