Whether prima facie case established
21 Rule 10.43(4)(c) FCR requires Freightliner to establish that it has a prima face case for all or any of the relief claimed in the proceeding.
22 At the hearing of this application, counsel for Freightliner made the following submissions as to why r 10.43(4)(c) FCR was satisfied in this case:
That is to say, it's correct to look at whether there is a prima facie case for any of the relief in the proceeding, the proceeding being the cross-claim as a whole, and if that is made good, it is not necessary to establish a prima facie case in respect of the particular defendant who is outside the jurisdiction. And the authority for those propositions, your Honour, is firstly the case of BY Winddown Inc v Vautin, and that is at 249 FCR 262 at paragraphs 42 to 52. And that reasoning was followed by Katzmann J in Fair Work Ombudsman v DTF World Square Proprietary Limited (2020) FCA 1178 at paragraph 13.
23 The Full Court decision of Winddown endorsed the approach taken by the Full Court in Costa Vraca Pty Ltd v Bell Regal Pty Ltd [2003] FCAFC 305 (Costa Vraca).
24 To understand the reasons in Winddown, one must therefore have regard to the reasons of Costa Vraca.
25 In Costa Vraca, the Full Court (consisting of Ryan and Gyles JJ and Kiefel J as her Honour then was) construed O 8 r 2(1) Federal Court Rules 1979 (Cth) (former FCR), which was the former rule concerning an application for leave to effect service outside Australia.
26 In that case, the applicants were growers of tomatoes who claimed to have suffered financial loss as a consequence of their tomato crops having been affected by bacterial canker. The applicants claimed that the source of the bacterial canker was certain seeds produced overseas by two companies (the Hazera respondents) and supplied by those respondents to companies which had sold the seeds to the applicants in Australia. Before the primary judge, the applicants had applied for leave to serve the Hazera respondents pursuant to O 8 r 2(1) FCR (being the previous rule concerning an application for service outside Australia).
27 In Costa Vraca at [13], the Full Court referred to O 8 r 1(g) of the former FCR which enabled an originating process to be served outside the Commonwealth where the proceeding is properly brought against a person served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding.
28 At [17], the Full Court in Costa Vraca stated that:
[T]he proper approach here was to ask whether a local respondent has been properly joined, then determine whether the proposed foreign party would have been a proper party to the proceeding if it had been within the jurisdiction. It is accepted that the rules of Court relating to the joinder of parties provide a good guide to answering that second question.
29 In Costa Vraca at [21], the Full Court decided that the claims against the local respondents and the claims against Hazera respondents arose out of a common substratum of fact.
30 At [23] - [24], the Full Court stated that:
This analysis makes clear that the application of O 8 r 2(2)(c) is not to be approached by considering only the Federal claim against the overseas party by reference only to conduct of the overseas party in Australia. The question is whether there is a prima facie case that the foreign party is involved in the 'matter' which is the controversy to be determined. The finding that there was a prima facie case that the bacterial canker had been caused by the Daniela seed is sufficient to involve the suppliers of that seed in the same 'matter' or 'matters' in the sense just discussed as the parties which have been served within the jurisdiction.
In those circumstances there would be no reason for the exercise of any residual discretion which may exist to not confirm service. The policy of having all parties concerned in a controversy before the Court and all aspects of a controversy before the Court at the one time is sound. It ensures that those with the knowledge and interest to do so bring forward all relevant material and so enable the adversarial system to work best. In the present case the conduct of the actual supplier of the seed is an integral part of the factual matrix to be considered and determination of the issues would be very much hampered without the involvement of that party.
31 The facts of the case before the Full Court in Winddown were summarised at [8] - [9]:
The background facts which are relevant to this interlocutory application were not in dispute. In October 2011, Mr Vautin purchased a yacht from Eagle Yachts. Mr Vautin resided in Australia and Eagle Yachts was carrying on a business buying and selling yachts in Australia. Eagle Yachts was the exclusive dealer in Australia appointed by BY Winddown (formerly known as Bertram Yacht, Inc but, for convenience, will hereinafter be referred to as BY Winddown). Mr Vautin paid a contract price of USD 3 million in cash and USD 75,000 for shipping costs together with a trade-in Bertram 630 motor yacht valued at AUD 1.2 million. The purchased yacht, named the "Revive", was delivered in early 2012.
By separate contract, Eagle Yachts purchased the yacht from BY Winddown, who was its manufacturer. BY Winddown is incorporated in Delaware, USA, and its principal place of business is Florida. In the substantive proceedings which were commenced by way of an originating application dated 18 April 2016, Mr Vautin seeks damages from BY Winddown for failure to comply with guarantees in ss 54(1) and 59(1) of the Australian Consumer Law. Mr Vautin also seeks declaratory relief and damages from Eagle Yachts, essentially on the basis that there are defects in Revive which mean that it was not of acceptable quality when supplied and that it was manufactured defectively. These allegations are denied by Eagle Yachts.
32 At [18] - [19] of Winddown, the Full Court stated:
The primary judge further observed that the facts in the proceedings here were similar to those in Costa Vraca in that Mr Vautin's claims arose out of a common substratum of fact. … The primary judge concluded at [37] that the approach in Costa Vraca applied to item 20 in the table to r 10.42 and to the Court's obligation under s 22 of the FCA Act to deal with all matters in controversy where possible.
33 In dismissing the application for leave to appeal the decision of the primary judge in Winddown, the Full Court stated at [43] - [44]:
First, the Full Court's construction of the previous rules [in Costa Vraca] is consistent with the text of [the previous Federal Court Rules], when viewed in their context and with particular reference to the overarching principle in s 22 of the FCA Act. The central focus of the Full Court's approach there was to view the construction and application of O 8 r 2(2)(c) with the objective of determining whether there was a prima facie case that the foreign party was involved in the "matter" which gave rise to the controversy which had to be determined in the proceedings. This approach was consistent with s 22 of the FCA Act.
The same approach applies to the construction and application of relevant provisions of the 2011 FCRs. Although the previous rule, i.e. O 8 r 2(2)(c), spoke of "a prima facie case for the relief sought by the party in the proceeding", and r 10.43(4)(c) speaks of the party having "a prima facie case for all or any of the relief claimed in the proceeding", this change in terminology does not provide a sufficient basis for not continuing to apply the approach in Costa Vraca. That is primarily because, in both situations, central attention is directed to the question whether the foreign party is involved in the "matter". It is sufficient in that context that a prima facie case for relief is made out in respect of the local party (significantly, the applicant acknowledged below that Mr Vautin had a prima facie case for relief against Eagle Yachts, as the primary judge himself had also found at [13] in his reasons for judgment on the ex parte application (see [10] above)). This approach to the construction of the relevant provisions of the 2011 FCRs gives full effect to s 22 of the FCA Act.
(emphasis added)
34 Applying this reasoning, in order to satisfy rule 10.43(4)(c) FCR, it will be sufficient if a prima face case for relief is made out in respect of the local party in circumstances where the foreign party is involved in the "matter" (and not as a general proposition).
35 That is, if an overseas party would have been a proper party to the proceeding if it had been within the jurisdiction, then, in that context, it is sufficient that a prima facie case is made out for all or any of the relief claimed in the proceeding in respect of the party in Australia against whom a proceeding has been properly brought.
36 It would therefore be insufficient for Freightliner to show that it had a prima facie case for all or any of the relief against the Company (the local party in this case) unless Mr Zhan would have been a proper party to the proceeding if he had been within the jurisdiction.
37 The question then is whether Mr Zhan would have been a proper party to the proceeding if he had been within the jurisdiction.
38 The nature of the allegations which are made in this proceeding are summarised in the decision of Derrington J in Connelly (liquidator), in the matter of CIMC Rolling Stock Australia Pty Ltd (in liq) v One Rail Australia (FLA) Pty Ltd [2021] FCA 946 (Connelly No 1) at [2] - [13].
39 In particular, the cross-claim alleges that, as a result of certain representations made by the Company when entering into a settlement deed, the Company is liable to Freightliner for loss and damage consequential upon breaches of certain warranties contained in the deed.
40 Those representations are also relied upon as supporting a claim against the Company for damages for misleading or deceptive conduct.
41 Claims are also made by Freightliner in the cross-claim against the two directors (including Mr Zhan) and an officer of the Company on the basis that they were knowingly involved in misleading or deceptive conduct engaged in by the Company.
42 In essence, the facts relied upon to plead the case against the Company and the proposed case against Mr Zhan arise from "a common substratum of fact" relating to events which preceded the entry into a deed of settlement by the Company and Freightliner, as well as the terms of the deed itself.
43 That is, the pleaded case against the Company and one of its directors, Mr Zhan, demonstrates that Mr Zhan is involved in the "matter" which gave rise to the controversy which is to be determined in these proceedings.
44 Further, a separate proceeding could be brought against the Company and Mr Zhan in which the same questions of law or fact might arise for decision and all rights to relief claimed in the proceeding arise out of the same transaction or event or series of transactions or events. This satisfies r 9.02 FCR which relates to joinder of parties.
45 For these reasons, and applying Winddown, it is sufficient in this context for a prima facie case for relief to be made out in respect of the Company for the purposes of satisfying r 10.43(4)(c) FCR.
46 In Connelly No 1 at [22], Derrington J accepted that Freightliner has an arguable cause of action against the Company. However, the finding in Connelly No 1 was made in the context of deciding whether Freightliner should be granted leave to proceed against the Company, a company in liquidation.
47 Accordingly, I have considered whether the affidavit material relied upon by Freightliner establishes a prima facie case for the purposes of r 10.43(4)(c) FCR.
48 A prima facie case is made out if, on the material before the Court, inferences are open which, if translated into findings of fact, would support the relief claimed: Ho v Akai Pty Ltd (in liq) (2006) 247 FCR 205, 208 [10]; [2006] FCAFC 159 [10] (Akai).
49 The requirement to demonstrate a prima facie case in this context is 'not particularly onerous': Australian Information Commission v Facebook Inc (2020) 144 ACSR 88, 94 [30]; [2020] FCA 531 [30] (Facebook Inc). A substantial inquiry is not called for: Akai, 208 [10].
50 Save for an extreme case, it is not necessary to demonstrate a prima facie case for each cause of action said to support the relief: Tiger Yacht Management Pty Ltd (a company incorporated in the Cayman Islands) v Morris and Others (2019) 268 FCR 548, 557 [45]; [2019] FCAFC 8 [45].
51 It is pleaded in paragraph 3 of the Amended Statement of Cross-Claim that Mr Zhan was a director of the Company from 27 January 2016 to present (and this is established by the evidence in this application, although whether that is correct is a matter for trial).
52 It is pleaded in paragraph 33A of the Amended Statement of Cross-Claim that Mr Zhan (amongst others) was put on notice of Freightliner's concerns that the Company may be impecunious and may not be able to meet its debts out of its own funds. The particulars state that Mr Zhan was the recipient of a letter dated 17 November 2017. The letter is in evidence in this application, although whether Mr Zhan received it is a matter for trial.
53 It is pleaded that Mr Zhan instructed the former solicitor of the Company to swear to certain facts in an affidavit in connection with certain assets of the Company: paragraph 53A(b) of the Amended Statement of Cross-Claim. A copy of the affidavit is in evidence in this application. It refers to instructions being given by Mr Zhan and deposes to the matters pleaded. Whether those instructions were given is a matter for trial, although it is unlikely that the deponent (a solicitor) was mistaken about the source of his instructions.
54 These facts are then relied upon by Freightliner to allege that the Company made certain representations in trade or commerce as to the present and future solvency of Company: paragraphs 36, 37, 38 and 39 of the Amended Statement of Cross-Claim. Whether the facts relied upon are sufficient to amount to the pleaded representations, and whether they were made in trade and commerce, is a matter for trial.
55 It is pleaded that further representations as to the solvency of the Company were made in trade or commerce "at or about the time of entry into the Settlement Deed on 22 December 2017" and reliance is placed on clause 8.1(d) of the deed as well as "the circumstances in which the Settlement Deed was entered into": paragraphs 40 and 41 of the Amended Statement of Cross-Claim.
56 The settlement deed is in evidence on this application and appears to bear the signature of Mr Zhan. Clause 8.1(d) appears under a heading "Representations and warranties" and the chapeau states that "Each of Company and Freightliner represents and warrants that…".
57 Whether clause 8.1(d) contains the alleged representation is a matter of trial, especially as the circumstances in which the deed was alleged to have been entered into are not identified in the particulars to paragraph 40 and these might affect any finding in that regard.
58 Facts are then pleaded to the effect that if the plaintiffs succeed in certain aspects of their claim, then the pleaded representations were misleading and deceptive in contravention of s 18 ACL: paragraphs 42 to 48 of the Amended Statement of Cross-Claim.
59 The facts relied upon to allege that Mr Zhan was knowingly concerned in the contraventions are set out in paragraph 53A of the Amended Statement of Cross-Claim which include the facts referred to above and a plea that, as a matter of inference from these facts, Mr Zhan was aware or ought reasonably to be aware of the (true) financial position of the Company.
60 It is pleaded that Freightliner relied upon the various representations when "determining to enter the Settlement Deed": paragraphs 49, 50 and 51 of the Amended Statement of Cross-Claim.
61 By particulars contained in a letter dated 14 July 2021, which is at tab 9 of DPC-1 to the first Cowling affidavit, the persons who had the state of mind on behalf of Freightliner are identified as Jodie Sparrow and Luke Anderson. The signatures of those individuals appear on the deed.
62 Paragraph 52 of the Amended Statement of Cross-Claim pleads that Freightliner has suffered loss and damage in that, for example, if the representations had not been made, Freightliner would not have entered the deed.
63 There is no evidence before the Court, whether directly or on information and belief, to support the pleaded reliance or the plea of loss and damage.
64 However, in circumstances where clause 8.1(d) of the deed was expressed to be both a representation and warranty, and the persons who are alleged to have relied upon (at least) the representation in clause 8.1(d) are also apparent signatories to the deed, inferences are open which, if translated into findings of fact, would support a finding at trial that Freightliner relied upon the representation in that clause and would not have entered the deed of settlement had it not contained that clause.
65 For these reasons, I accept that r 10.43(4)(c) FCR has been satisfied in this case.