Costa Vraca Pty Ltd (ACN 005 913 431) v Bell Regal Pty Ltd

Federal Court of Australia (Full Court)|2003-12-19|Before: Gyles JJ

THE COURT ORDERS THAT: 1 Leave to appeal be refused. 2 The parties have leave to file and serve written submissions as to the appropriate order for costs within 28 days. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT THE COURT: 1 The applicants in eight proceedings carried on the business of growing and selling tomatoes. In the 1998-1999 tomato growing season each of the applicants claim to have suffered financial loss as a consequence of their tomato crops having been affected by bacterial canker. The applicants claim that the source of the bacterial canker was 'Daniela (FA144) Hybrid Tomato Seeds' (the Daniela seeds) produced in Israel by Hazera (1939) Limited and Hazera Genetics Limited (the Hazera respondents) and supplied by those respondents to Bell Regal Pty Ltd (Bell Regal) and Gumrange Pty Ltd (Gumrange) being companies in the group of companies which was the exclusive distributor of Hazera seeds in Australia and which sold the Daniela seeds to the applicants in Victoria and Queensland respectively. In six of the proceedings the applicants claim that their loss was also caused by the application of a spray known as 'Spore Kill', produced by Coralberry Holdings Pty Ltd (Coralberry), as it did not eradicate the canker. 2 The Hazera respondents are Israeli companies and could not be served with originating process in Australia. They were duly served in Israel pursuant to leave granted under O 8 r 2(2) of the Federal Court Ruleson ex parte application made on behalf of each of the applicants. The Hazera respondents have applied to the Court under O 9 r 7 to set aside service of the originating process upon them on the ground that the requirements of O 8 r 2(2) have not been satisfied. In the alternative, the Hazera respondents have sought a stay of the proceedings pursuant to O 20 r 2(1)(c) of the Federal Court Rules. 3 On 12 February 2003 the primary Judge dismissed each motion by the Hazera respondents in each proceeding (Costa Vraca Pty Ltd v Bell Regal Pty Ltd [2003] FCA 65). This is an application for leave to appeal from those dismissals. Full argument was heard and a ruling on the application for leave deferred until judgment. The principal argument was presented in the proceeding by Costa Vraca Pty Ltd (No V 773 of 2000), with supplementary submissions in relation to the other cases. Such differences as there are between the cases are not material in the light of the conclusion to which we have come. 4 The principal affidavit in support of the motion by Costa Vraca for leave to serve out of the jurisdiction pursuant to O 8 r 2 referred to the original statement of claim. By the time that the Hazera parties filed conditional appearances, the statement of claim had been amended. The hearing of the motions by the Hazera parties proceeded by reference to that amended statement of claim. The structure of the amended statement of claim was as follows: (1) Paragraphs 6-14 inclusive plead the breach by Bell Regal of two contracts for the supply of seed including, in relation to the second contract, breaches of warranties implied pursuant to the Trade Practices Act 1974 (Cth) (TPA). (2) Paragraphs 15-22 inclusive plead what are called precontractual representations and warranties against each of Bell Regal and the Hazera respondents separately. All of the representations and warranties related to the seed which had been purchased pursuant to the contracts already pleaded and its product. (3) The applicant pleads that it relies on s 51A(2) of the TPA in relation to certain of the representations and warranties. (4) Paragraphs 23, 23A and 24 plead what are described as duty of care claims directed to Bell Regal and to the Hazera respondents. Paragraph 25 pleads a breach of those duties. Paragraph 26 pleads loss or damage arising from the breaches of duty of care and breaches of the collateral agreement which had been pleaded. (5) Paragraph 27 pleads that the representations and warranties allegedly made by each of Bell Regal and the Hazera respondents had been made in trade or commerce within the meaning of the TPA and were deceptive or misleading in contravention of each of s 52 and s 53(a) of that Act. Paragraph 28 pleads a breach of s 52 by reason of the conduct of each of Bell Regal and the Hazera respondents in supplying the tomato seed to the applicant without informing or warning the applicant of the risk that the tomato seed might be infected with bacterial canker in the circumstances which are there alleged. Paragraph 29 pleads loss or damage arising out of the alleged breaches of theTPA. (6) Paragraphs 30-46 make various allegations against Bell Regal and Coralberry including breaches of the TPA arising out of the use of 'Spore Kill' and claim the same damage as that claimed against Bell Regal and the Hazera respondents. 5 A substantial body of affidavit evidence was tendered by both sides and some deponents were cross-examined. A large number of documents was tendered. Extensive submissions were made canvassing many issues. 6 The primary Judge considered what he described as a threshold question, namely whether the applicant had made out a prima facie case that the bacterial canker which caused the tomato crops to fail had originated in the Daniela seed, rather than external sources such as the soil in which the crops were grown, and answered that question in the affirmative (at [42]-[45]). That was plainly correct. 7 His Honour went on to consider the TPA claims against the Hazera respondents based upon conduct by them in Australia. He was not satisfied that a prima facie case of a breach of the TPA had been made out in relation to representations as to the quality of tomatoes that could be grown from the Daniela seed. That was principally because it was held that the representations related to the quality of the seed, not the quality of tomatoes which could be grown (at [46]-[48]). On a prima facie basis, His Honour found that statements on the sealed seed packages supplied by the Hazera respondents to Bell Regal were statements made by them in Australia. It was also found that statements made in a brochure produced by the local distributor were based upon and reflected information provided by the Hazera respondents which was directed by those respondents to, and was intended by those respondents to be acted upon and republished by, the local distributor in Australia (at [51]). It was found that the statements on the sealed package that the seed had been 'Tested' and 'Germ Tested' constituted representations by the Hazera respondents that the seeds were safe for use, in the sense that they were free from any organisms likely to engender any significant disease or infection. As it had been concluded that some of the seeds supplied in the sealed packages were not safe for use as they were infected by bacterial canker, the implied representation to the contrary was misleading. It was inferred that the applicants had been induced to purchase by the misrepresentation, and consequently a prima facie case for damages for breach of s 51 of the TPA was established (see [52]-[55]). 8 The primary Judge then went on to find a prima facie case of negligence against the Hazera respondents on the basis that the quality control procedures employed by them in respect of the Daniela seeds had been deficient in breach of the duty of care owed to the purchasers of the seed. That finding was substantially based on tests which had been developed by another seed manufacturer, Novartis Seeds Pty Ltd ('Novartis') and introduced in December 1999, having been developed over a couple of years before then (see [61]-[63]). 9 The conclusions of the primary Judge at [64]-[66] were as follows: 'For the reasons set out above, I am satisfied that the applicants have a prima facie case for damages in respect of the conduct of the Hazera respondents in contravention of s 52 of the TPA and also in negligence. As I have found a prima facie case in negligence and under s 52 it is unnecessary for me to consider the other claims made against the Hazera respondents. The Court has jurisdiction in respect of the contravention of s 52 under s 86(1) of the TPA. There is a sufficient overlap in the factual issues involved in the s 52 and the negligence claims for those claims to form part of the "matter" before the Court: see Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 599. Accordingly, the negligence claim is part of the "matter" raised by the s 52 claim and is therefore within the accrued jurisdiction of the Court. The final requirement under O 8 r 2(2) is the requirement in sub-rule (b) that r 1 applies to the proceeding. It is clear that the proceeding is founded on a cause of action arising in the Commonwealth, being the contravention of s 52 of the TPA, with the consequence that O 8 r 1(1)(a) applies. Insofar as the negligence claim is based on tortious acts or omissions committed outside the Commonwealth O 8 r 1(1)(ad) applies as the proceeding is for the recovery of damage suffered in the Commonwealth caused by a tortious act or omission, wherever occurring. Accordingly, I am satisfied that the requirements of O 8 r 2(2) have been met. The prima facie case that I have found has been made out on the evidence, is not one which strictly conforms to the cases pleaded by the applicants. In the circumstances it is appropriate to grant the applicants leave to amend their pleadings. The amendments should also take into account the criticisms of the pleadings made by the Hazera respondents.'

10 In support of leave to appeal, the Hazera respondents made a number of criticisms of the finding of a prima facie breach of s 52. The most fundamental was that there was no reference to such a case in the pleading, in the evidence or in the course of the proceeding and had been entirely constructed by the Judge. That appears to be correct and should not have occurred. At the least, the parties should have been given adequate notice of the proposed departure from the pleadings, and an opportunity to deal with the issue. The problem is not just academic. The Hazera respondents have clearly demonstrated that the finding was based upon a misconception. The reference to 'Germ Tested' had nothing to do with germs in the sense of bacterial or other organisms but, rather, referred to germination. Furthermore, the evidence is that only one of the applicants received a sealed seed packet and there is no evidence that any statement on it was read and understood as was found by the primary Judge by any person on behalf of that applicant. The packages were supplied to a nursery rather than to the applicant in the other cases. We would add that where leave is granted on ex parte application to serve originating process on a foreign respondent out of the jurisdiction pursuant to O 8 r 2(2) by reference to a statement of claim, caution should be exercised in permitting a later amendment to cure the absence of a proper basis for jurisdiction at the time leave was given in circumstances where the foreign party is disputing jurisdiction. If the case was defective at inception, no leave to serve should have been given. We do not suggest that mere infelicity of pleading would amount to such a defect (cf Cell Tech Communications Pty Ltd v Nokia Mobile Phones (UK) Ltd (1995) 58 FCR 365 at 373-374). A new and distinct factual and legal basis for the originating process may be in another category depending upon the circumstances. After all, the jurisdiction which is to be exercised is exorbitant. In the present case the statement of claim had already been amended once by the time of the primary hearing. 11 It was submitted for Costa Vraca, on the other hand, that the primary Judge had erred in holding that the representations pleaded did not relate to the product of the seed, namely the tomatoes, rather than simply to the seed itself. It was also submitted that the primary Judge did not deal with other bases for the s 52 claim which had been argued. There is substance in these submissions. 12 It was submitted for the Hazera respondents that the finding of the prima facie case in negligence was the result of a demonstrable error of fact by the primary Judge (amongst other alleged errors). The principal foundation for the finding of negligence was that Novartis had developed and introduced by December 1999 a new test for the presence of bacterial canker which was more accurate than that which had hitherto been utilised. The problem is that the latest time which is relevant for the present case is June 1998. The evidence is that as late as November 1998 the Novartis testing procedures were still being developed and there is no evidence that they were commercially available or otherwise known about in June 1998 or that Hazera knew or should have known about development of them at that time. There is substance to this complaint. On the other hand, it was contended for Costa Vraca that there were other bases for a prima facie finding of negligence not dealt with by the primary Judge. 13 In our opinion it is unnecessary to resolve these questions as they are, in a sense, false issues once attention is paid to subr (g) of O 8 r 1 which provides: '… originating process may be served outside the Commonwealth in the following cases … … (g) 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'. 14 Rules of this character have a long history. Order XI r 1 of the United Kingdom Rules in 1888 provided that service out of the jurisdiction of a writ of a summons may be allowed whenever: '(g) any person out of the jurisdiction is a necessary or proper party to an action properly brought against some other person duly served within the jurisdiction.' 15 In Massey v Heynes & Co (1888) 21 QBD 330 an action was brought against defendants in London for breach of warranty of authority. It appears that they had assumed as agents for foreign principals to enter into a contract to be performed out of the jurisdiction, and that there had been a breach out of the jurisdiction, the supposed principals having repudiated the contract as having been made without their authority. It was held that the foreign principals were proper parties to the action. Lord Esher MR said (at 338): 'The question, whether a person out of the jurisdiction is a 'proper party' to an action against a person who has been served within the jurisdiction, must depend on this - supposing both parties had been within the jurisdiction would they both have been proper parties to the action? If they would, and only one of them is in this country, then the rule says that the other may be served, just as if he had been within the jurisdiction.' Lindley LJ said (at 338): 'When the liability of several persons depends upon one investigation, I think they are all 'proper parties' to the same action, and, if one of them is a foreigner residing out of the jurisdiction, r 1(g) of Order XI applies.' Lopes LJ said (at 339):

'If both these parties were within the jurisdiction it could not be contended that they were not both "proper parties" to the action. As one of them is out of the jurisdiction, I can see no reason why the rule should not apply.' 16 This approach has been applied in a series of judgments by various courts in Australia with similar rules - KW Thomas (Melbourne) Pty Ltd v Groves [1958] VR 189; Coppin v Tobler Brothers Canberra Marine Centre Pty Ltd [1980] 1 NSWLR 183; Scruples Imports Pty Ltd v Crabtree & Evelyn Pty Ltd [1983] 1 IPR 315; Bank of New South Wales v Commonwealth Steel Co Ltd [1983] 1 NSWLR 69; Maclaine Watson & Co Private Ltd v Bing Chen [1983] 1 NSWLR 163. The same approach has been taken in New Zealand - Adastra Aviation Ltd v Air Parts (New Zealand) Ltd [1964] NZLR 393 and Pratt v Rural Aviation (1963) Ltd [1969] NZLR 46. In England see Multinational Gas & Petrochemical Co v Multinational Gas & Petrochemical Services [1983] 1 Ch 258 and (for a recent application of the principle by the Court of Appeal) United Film Distribution Ltd v Chhabria [2001] 2 All ER (Comm) 865. 17 Order 8 r 1(g) cannot be distinguished in principle from the provisions considered in that line of authority. It follows that the 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. 18 Relevant rules of this Court are O 6 r 2: 'Joinder of parties generally Two or more persons may be joined as applicants or respondents in any proceeding: (a) where: (i) if a separate proceeding were brought by or against each of them, as the case may be, some common question of law or of fact would arise in all the proceedings; and (ii) all rights to relief claimed in the proceeding (whether they are joint, several or alternative) are in respect of or arise out of the same transaction or series of transactions; or (b) where the Court gives leave so to do.' And Order 6 r 8(1)(b): '(1) Where a person who is not a party: … (b) is a person whose joinder as a party is necessary to ensure that all matters in dispute in the proceeding may be effectually and completely determined and adjudicated upon; the Court, on application by him or by any party or of its own motion, may order that he be added as a party and make orders for the further conduct of the proceeding.' 19 In relation to proceedings in this Court it is necessary to satisfy the added requirement that the Court has jurisdiction in relation to the proceeding against the local party (O 8 r 2(2)(b)) and that the party seeking leave has a prima facie case for the relief sought by the party in the proceeding; see O 8 r 2(2)(c). 20 There is no doubt that the pleaded case involves Federal claims against Bell Regal which corporation is, and has been served, within the jurisdiction. Those claims are for both breach of warranties implied by the TPA and breach of s 52 and s 53(a) of that Act. No attempt has been made to strike out those claims and they must be taken to subsist. Furthermore, the other causes of action pleaded against Bell Regal in contract and in tort must be taken to subsist and are fairly clearly part of the same 'matter' (Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 at 599; Petrotimor Companhia de Petroleos Sarl and Another v Commonwealth of Australia and Others (2003) 198 ALR 269 per Black CJ and Hill J at [3], [11]-[13], [25]; per Beaumont J at [33]). 21 In our opinion it is quite clear that the claims against the Hazera respondents and the claims made against Bell Regal arise out of a common substratum of fact. Where damage is said to have been suffered as a result of the use of defective goods, the joinder of the manufacturer of the goods to a claim made by a purchaser against the local distributor is a routine application of the principle that all parties involved in a controversy should be before the Court in order that the controversy may be determined having regard to all relevant rights and interests (see s 22 Federal Court of Australia Act 1976 (Cth)). A local party in the position of the Hazera respondents would plainly be properly joined or properly added pursuant to the rules of Court to which we have referred. The fact that the manufacturer (or in this case the supplier to the local distributor) is overseas does not change the nature of the rights and interests which are involved in determining that controversy. 22 There are also Federal claims against Coralberry and Bell Regal concerning 'Spore Kill' and the damage claimed is, in effect, the same damage as that claimed against Bell Regal and the Hazera respondents for the supply of the seed. Those claims, against Bell Regal and Coralberry respectively, are plainly part of the same controversy or matter. In our opinion they are also part of the same controversy or matter as that in which the Hazera respondents are involved. Even if that be wrong, that matter is plainly an associated matter within the meaning of s 32 of the Federal Court of Australia Act 1976, a concept which should not be read down (PCS Operations Pty Ltd v Maritime Union of Australia (1998) 72 ALJR 863; 153 ALR 520). 23 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. 24 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. 25 In the words of Lee J in Century Insurance Ltd (in provisional liquidation) v New Zealand Guardian Trust Ltd ([1996] FCA 376): 'What the Court must determine is whether the case made out on the material presented shows that a controversy exists between the parties that warrants the use of the Court's processes to resolve it and whether causing a proposed respondent to be involved in litigation in the Court in Australia is justified.' In our opinion that is plainly established in the present case. 26 If leave to appeal were granted the appeal would inevitably fail, albeit for reasons different from those of the primary Judge. Further, we have indicated that there is substantial doubt about some of the findings made by the primary Judge and there were no findings in relation to some issues. Deciding the appeal would involve considering issues which may be of significance at trial but on incomplete material. It would only further complicate the trial if those issues were determined on an interlocutory basis on such material. The state of the pleadings can be considered by the docket Judge in light of these reasons. We refuse leave to appeal in each matter. We give the parties leave to file and serve written submissions as to the appropriate order for costs within 28 days. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate: Dated: 19 December 2003 Counsel for the Applicants for leave (Second and Third Respondents): Mr C Maxwell QC with Mr C Caleo

Solicitor for the Applicants for leave (Second and Third Respondents): Clayton Utz

Counsel for the Respondents on the application for leave (Applicants): Mr R Macaw QC with Mr E Szabo

Solicitor for the Respondents on the application for leave (Applicants): Coulter Roache

Date of Hearing: 4 and 5 August 2003

Date of Judgment: 19 December 2003

Trade Practices Act 1974(Cth)

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