FEDERAL COURT OF AUSTRALIA

B J McAdam Pty Limited v Jax Tyres Pty Limited (No 4) [2013] FCA 643

THE COURT ORDERS THAT:

1.    The sixth, seventh and eighth defendants be removed as parties.

2.    The plaintiffs pay the sixth defendant’s costs as taxed or agreed.

3.    The plaintiffs pay the seventh and eighth defendants’ costs as taxed or agreed up until 5 September 2012 on a party-party basis and thereafter on an indemnity basis.

4.    Leave be granted to the defendants to have the costs orders referred to in orders 1-3 taxed.

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

REASONS FOR JUDGMENT

1    This is an application by each of the sixth, seventh and eighth defendants to be removed as a defendant from the proceedings. I shall refer to the sixth defendant as Colnagow, the seventh as Quickfit and the eighth as JQFS. On 21 February 2013, the parties appeared before me and there was made by consent an order that permitted the plaintiffs to file a Fourth Further Amended Originating Process (‘the current originating process’) together with a Second Further Amended Statement of Claim (‘the current pleading’). The orders made clear that this step was taken without prejudice to the right of the sixth, seventh and eighth defendants to apply to be removed as parties from the proceedings.

Colnagow

2    Colganow submits that there is no pleaded case against it and that no relief from it is sought by the plaintiffs. Colganow was originally joined to the proceeding on an interlocutory process which was filed by the plaintiffs on 17 November 2010. In that interlocutory application the plaintiffs sought to restrain Jax Franchising Systems Pty Ltd ACN 060 106 891 (‘JFS’) from taking any steps to facilitate the transfer of the interests of Quickfit in the 2008 joint venture to Colnagow. Colnagow was joined as the sixth defendant on the application for that purpose. On 17 November 2010, and then again on 19 November 2010, Stone J made orders having the effect sought by the plaintiffs as did Emmett J on 3 December 2010. It will be seen, however, that no relief was ever sought directly against Colnagow. It may be surmised, not unreasonably I think, that the view may have been taken within the plaintiffs’ camp that Colnagow was interested in the orders sought (and made) in the sense that whilst those orders were in place they had the effect of preventing something from happening which, if it were to happen, would benefit Colnagow.

3    The case has moved on since then, however. Colganow is now only referred to in paragraph 8(i) of the current pleading (where it is alleged that Mr Hurrell was its sole director and shareholder), paragraph 10 (where it is alleged that Colganow is duly incorporated and so on) and paragraphs 135-140 which contain an allegation that Colnagow was involved in a breach of a duty owed by Mr Hurrell to JFS.

4    It is true that the plaintiffs originally pursued a case that Quickfit should be restrained from distributing any of its interest in the 2008 joint venture to Colnagow. But this case is no longer pursued against it in the current pleading (although its prior existence can be deduced from the interlineated text in the former paragraph 101). It is not difficult to see why it was appropriate to join Colnagow whilst such a claim was being pursued (and particularly whilst injunctive relief against Quickfit on the same basis remained in place).

5    However, as Mr Knackstredt, who appeared for Colnagow, pointed out, the only extant allegation against Colnagow is that it assisted Mr Hurrell in a breach of his duty alleged in paragraphs 135-140 of the current pleading. Paragraph 140(e) is perhaps the clearest example of this set of allegations and may serve as an example. It is there contended that by reason of the conduct alleged to have been committed by Mr Hurrell and Colnagow ‘each of Quickfit and Colnagow has proposed to engage in conduct that would encourage, assist, aid and abet such breaches’. This allegation (and other similar claims in the balance of paragraph 140) are – and this is significant – disconnected from any claim for relief against Colnagow.

6    Colnagow relied upon r 9.08 of the Federal Court Rules 2011 (Cth) which provides:

A party may apply to the Court for an order that a party that has been improperly or unnecessarily joined as a party, or has ceased to be a proper or necessary party, cease to be a party.

7    It seems that this rule will be engaged when a party’s ‘rights against or liabilities to any party to the action in respect of the subject matter of the action [will] be directly affected by any order which may be made in the action’. See: News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 524 (FC) citing the Privy Council’s advice in Pegang Mining Co Ltd v Choong Sam [1969] 2 MLJ 52 at [55]-[56].

8    I accept that Colnagow presently satisfies that test although I do not accept that it satisfied it whilst the claims seeking to prevent Quickfit from disposing of its interest in the 2008 joint venture remained on foot. The plaintiffs sought in writing to argue that they had pursued the winding up of JFS in the current pleading and the consequential dissolution of the joint venture with Quickfit. However, even accepting that is so, such an order has no direct effect on the position of Colnagow.

9    In his oral address Mr Street SC emphasised the interlocutory orders which prevented Quickfit from disposing of its interest in the 2008 joint venture to Colnagow. The difficulty with that submission is that those interlocutory orders no longer align to any part of the plaintiffs’ pleaded case.

10    In those circumstances, I will order that Colnagow cease to be a party. Colnagow then argues that it should have its costs of the proceedings. Mr Knackstredt submitted that whatever case the plaintiffs had originally had against Colnagow, that case had now been abandoned. I think this must be right and I did not apprehend any real answer to this contention to have been advanced on the plaintiffs’ behalf, either in writing or orally. In those circumstances, whatever it is that the plaintiffs actually originally sued Colnagow for, that forensic adventure has ended in failure. The plaintiffs are to pay Colnagow’s costs of the proceedings.

Quickfit

11    The current pleading seeks no relief against Quickfit. Paragraph 134 does allege that Quickfit entered into a joint venture with JFS and JQFS on 12 February 2008. It also alleges that Colnagow offered to acquire Quickfit’s interest in the joint venture (paragraph 135), that Quickfit has at all times threatened to sell its interest to Colnagow (paragraph 136) and that Quickfit and Colnagow have each proposed to engage in conduct which would encourage, assist, aid or abet breaches by Mr Hurrell and Colnagow of their duties (paragraph 140). As already noted, despite these allegations against Colnagow there is no claim for relief against it.

12    The same is true of Quickfit. Despite the claims made in respect of it, the plaintiffs do not seek any relief from it. On its face this would appear to make good Quickfit’s contention that it is not directly affected by any order sought by the plaintiffs.

13    To this, the plaintiffs again responded that they sought a winding up of JFS and this would affect Quickfit. I do not understand how the winding up of one joint venture partner would directly affect the legal rights of the other. I do not find persuasive the contention that Quickfit is directly affected by orders sought because if JFS is wound up this will be an event of default under the joint venture agreement. This is not, as the very structure of the submission shows, a direct result of the winding up order. In any event, no attempt was made to delineate just what the consequences of an event of default on Quickfit would be. It was also submitted that the various declarations which were sought in the litigation had the potential to affect the composition of the management committee. So much may be accepted – but it does not constitute a direct effect on the position of Quickfit.

14    It follows that Quickfit should cease to be a party. It now submits that it should have its costs on an ordinary basis from the time of its joinder (17 November 2010) until 5 September 2012 and on an indemnity basis thereafter. In relation to the first period, there is no reason that costs ought not to follow the event and I will order the plaintiffs to pay Quickfit’s costs in that period.

15    For the period between 6 September 2012 and the present Quickfit submitted it was entitled to its costs on an indemnity basis. This was said to be because of the combined effect of (a) Quickfit’s solicitors having on a number of occasions pointed out to the plaintiffs’ solicitors the obvious, namely that Quickfit was not involved in this imbroglio and (b) my initial judgment of 1 August 2012, which rejected the bulk of the plaintiffs’ case based on the restructuring allegation. It was also noted that at the last hearing the plaintiffs had indicated that they would probably discontinue against Quickfit.

16    I think this is a case for indemnity costs. The Quickfit parties are innocent bystanders. They have never been substantively involved in any of the allegations between the warring factions save to the extent that the case based on the restructuring allegations somehow caught them by a sidewind. As I indicated in the judgment of 1 August 2012 in BJ McAdam Pty Limited v Jax Tyres Limited (No 2) [2012] FCA 799 (and then again in my third judgment in BJ McAdam Pty Limited v Jax Tyres Limited (No 3) [2012] FCA 1438) that case, however, makes no sense and never has. In my opinion, it was a species of litigation misbehaviour of a kind which ought to be deterred to keep Quickfit in this case after that judgment (or, at any event, within a few weeks of that judgment). I will order indemnity costs from 6 September 2012.

JQFS

17    As in the case of Colnagow and Quickfit, no relief is claimed against JQFS. Unlike those two parties, however, JQFS is the trustee of the JQFS unit trust which, it is alleged, was the trustee of the unit trust conducting the merged Quickfit and Jax Tyres businesses. This raises the possibility that some relief might be sought by the plaintiffs which goes to the constitution of that trust and which would make the joinder of its trustee appropriate.

18    Such relief is not, however, sought in this case. It is true that a number of declarations which are sought by the plaintiffs touch upon JQFS but not in a way which affects its rights. For example, a series of declarations are sought about how the various warring factions are to go about conducting the affairs of a number of the involved entities including, unsurprisingly, JQFS. Prayer 1 of the current originating process seeks a declaration that each faction is only allowed one director on the board of any relevant entity (which includes JQFS). This flows, so it is said, from the terms of various inter-member agreements. The state of those agreements is, however, of no interest to JQFS. The same is true of the other declaratory relief sought. The plaintiffs also repeated their argument based on the winding up of JFS which I have rejected above in the case of Quickfit and Colnagow. I reject it in the case of JQFS for the same reasons.

19    JQFS should cease, therefore, to be a party. Ordinarily it would be entitled to party-party costs of the proceedings because of that conclusion and I see no reason not to make such an order. It also seeks the costs of obtaining judicial advice from the Supreme Court. I can see no principled basis on which it can be denied those costs which were entirely made necessary by the fact that it was being sued by the plaintiffs.

20    JQFS also seeks indemnity costs from 24 March 2012. On 23 March 2012 JQFS’ solicitors wrote to the plaintiffs solicitors offering to file a submitting appearance if the plaintiffs deleted a number of claims (which claims I have largely accepted were untenable). JQFS now says that, with it having been removed as a party, the plaintiffs would have been better off accepting this offer. In effect, it is put that it was unreasonable for the plaintiffs to have rejected the offer made on 23 March 2012 and that indemnity costs should be imposed thereafter. I am not prepared to say that the position of the plaintiffs became, at that time, unreasonable. However, after the judgment of 1 August 2012 I do not accept that continuing to keep JQFS in the proceedings was rational. I will therefore order indemnity costs on and from 6 September 2012 (the same date I have used in the case of Quickfit, reflecting a period in which the implications of the judgment might be absorbed).

21    I make the following orders:

1.    The sixth, seventh and eighth defendants be removed as parties.

2.    The plaintiffs pay the sixth defendant’s costs as taxed or agreed.

3.    The plaintiffs pay the seventh and eighth defendants’ costs as taxed or agreed up until 5 September 2012 on a party-party basis and thereafter on an indemnity basis.

4.    Leave be granted to the defendants to have the costs orders referred to in orders 1-3 taxed.

Associate:

Dated:    2 July 2013