Eurogold Limited v Oxus Holdings

REASONS FOR JUDGMENT 1 There is a gold bearing mineralisation deposit known as the Saulyak gold deposit near Dilove in the Ukraine. Saulyak LLC, a company incorporated in the Ukraine, holds an exploration licence, an activities licence and an associated investment agreement which permits it to undertake exploration activities and trial mining in respect of the Saulyak gold deposit. The second applicant, a wholly owned subsidiary of the first applicant, holds all the issued shares in a company, Eurogold (Bermuda) Limited, which in turn, through subsidiaries, controls 99.72% of the issued shares in Saulyak LLC. The first applicant is a publicly listed company, incorporated and carrying on business in Australia, whose shares are listed on the Australian Stock Exchange and the Alternative Investment Market (AIM), in London. 2 On 30 April 2006, the applicants and the respondents entered into an agreement (the Sale Agreement) whereby the first respondent agreed to purchase the shares held by the second applicant in Eurogold (Bermuda) Limited - and thereby obtain control of Saulyak LLC and its rights in the Saulyak gold deposit. Under the Sale Agreement the second respondent (Oxus Gold), guaranteed the performance of the obligations of the first respondent. The first respondent is incorporated in Malta, and is a subsidiary of Oxus Gold, a public company, which is incorporated and carries on business in the United Kingdom. The Sale Agreement contained a term which permitted the respondents to terminate the agreement in the event of a material adverse change in circumstances affecting the sale assets. 3 On 28 June 2006, two days before the settlement date of the Sale Agreement, the respondents issued a notice in writing (the notice of termination) whereby they exercised a power to terminate the agreement on the grounds of a material adverse change in circumstances. The notice of termination contained allegations which impugned the standing of the tenements held by Saulyak LLC and the quality and extent of the reserve at the Saulyak gold deposit. Further, Oxus Gold repeated an allegation, made in the notice of termination, impugning the extent of the reserve of the Saulyak gold deposit in a statement which it published on its website. On 11 July 2006, the first applicant made an announcement to the Australian Stock Exchange. In that statement the first applicant referred to the allegations made by the respondents in the notice of termination and purported to refute the allegations. By a letter dated 31 July 2006, the applicants advised the respondents that they regarded the notice of termination as repudiatory conduct which they accepted. The applicants thereby terminated the Sale Agreement. 4 On 31 July 2006, the applicants filed an application and statement of claim, in which four causes of action are pleaded against the respondents. Two of the causes of action allege contraventions of the Trade Practices Act 1974 (Cth) (the TPA). The first such cause of action alleges that the statement in the notice of termination impugning the standing of the tenements was misleading or deceptive, and that the first applicant has by reason thereof suffered and is likely to suffer loss and damage, being the likelihood of an increased difficulty in raising capital, and finding other parties to join with, or assist, it in developing the Saulyak gold deposit. It is alleged that the respondents are liable for the loss and damage because the respondents knew when they issued the notice of termination, that the first applicant would be required to repeat the allegations publicly, by way of making a public announcement to the Australian Stock Exchange. This cause of action is referred to as the termination representation cause of action. 5 The second TPA cause of action is founded upon the publication by Oxus Gold on its website, which is downloadable in Australia, of a statement which refers to the issue of the notice of termination, and which repeats the allegation impugning the extent of the reserve at the Saulyak gold deposit. The applicants allege that the representations made in that statement were misleading or deceptive, and that the first applicant has suffered and is likely to suffer damage because the statement impugns the value of an important asset of the first applicant. 6 The third cause of action is that the applicants have suffered loss and damage by reason of the respondents' alleged repudiatory conduct in sending the notice of termination and the applicants' acceptance of that repudiation. The fourth cause of action arises from a dispute between the parties as to the construction of a loan agreement dated 9 June 2006, which is a related dispute. 7 On 18 August 2006, I granted the applicants leave to serve the application and statement of claim on each of the respondents out of the jurisdiction (Eurogold Limited v Oxus Holdings (Malta) Limited [2006] FCA 1270). Oxus Gold now applies under O 9 r 7 of the Federal Court Rules, alternatively pursuant to the implied powers of the Court, for orders that the application be set aside, or alternatively, that the orders of 18 August 2006 be discharged. In the further alternative Oxus Gold seeks orders that the proceeding be stayed on the basis that the forum is inappropriate. 8 Oxus Gold did not rely on affidavit evidence challenging the factual allegations made in the affidavits of Mr Peter Lynton Gunzburg in support of the applicants' claims. 9 Oxus Gold's contentions were directed to the following three issues: (1) whether the jurisdiction of the Federal Court had been properly invoked by reason of the two federal claims founded on contraventions of the TPA, which were pleaded in the applicants' application and statement of claim, (2) whether in light of the non‑disclosure of information by the applicants on the ex parte application, the Court should exercise its discretion to set aside the orders for service out of the jurisdiction, (3) whether this Court is clearly an inappropriate forum. (1) Jurisdiction not properly invoked 10 Oxus Gold submitted that the order for service outside of the jurisdiction should be set aside on the basis that the jurisdiction of the Court had not properly been invoked, by the pleading of the claims founded on contraventions of s 52 of the TPA and there was, accordingly, no accrued jurisdiction in the Court to consider and determine the common law or State claims, which were pleaded. This is because, so it was submitted, the allegations made by the applicants of contraventions of the TPA by the respondents are "trivial or insubstantial". Oxus Gold relied upon four matters in support of its contention. 11 Firstly, Oxus Gold said that the claims based upon the TPA are misconceived because s 51AF(2)(a) provides that s 52 of the TPA "does not apply to conduct engaged in in relation to financial services". Oxus Gold submitted that, the conduct in question, namely, the making of the representations about the Saulyak gold deposit, in the notice of termination, which were repeated in the announcement to the Australian Stock Exchange, and on Oxus Gold's website, was "conduct engaged in in relation to financial services". Oxus Gold said that if allegations of misleading or deceptive conduct are to be made in respect of that conduct, the allegations should be made by reference to contraventions of s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), and not the TPA. 12 Secondly, Oxus Gold contended that the termination representation claim was trivial or insubstantial, because the notice of termination was sent to the applicants, and there was no plea that the applicants relied upon the terms of the impugned representations contained in the notice of termination. 13 Thirdly, Oxus Gold said that its publication of the impugned statements on the Oxus Gold website was conduct which occurred outside Australia, and there was no plea that the statement was downloaded in Australia. 14 Fourthly, Oxus Gold complains that there was no plea of reliance by any person upon the impugned statements and, therefore, there was no plea of causation. It was also contended that there was no plea of actual loss and damage by the applicants - all that was pleaded was the likelihood of future difficulties for the first applicant in relation to the exploitation of the Saulyak gold deposit. 15 The question of the jurisdiction of this Court to consider and determine a justiciable controversy which contains both state and federal aspects, was considered by the Full Court in the case of Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 (Johnson Tiles). In Johnson Tiles, the Full Court dealt with an application which pleaded a claim alleging misleading or deceptive conduct under the TPA, as well as a common law claim in negligence. 16 The Full Court held that the cause of action based on misleading or deceptive conduct under the TPA was untenable, and declined, in effect, to permit the applicant to pursue the TPA claim. The Full Court then considered the question of the jurisdiction of the Court to determine the common law claim based on negligence. At 596, at [83], French J (with whom Beaumont and Finklestein JJ agreed) observed: The matter in respect of which jurisdiction is defined embodies the entire controversy which parties bring for determination by the Court ‑ Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457 at 512 (Mason J). The content of the controversy depends upon what the parties have done, their relationships and the laws attaching rights or liabilities to their conduct and relationships. It is not ascertained merely by reference to the proceedings which are instituted but may be illuminated by their conduct and by the pleadings in which issues and controversy are defined and claims for relief set out. As the majority judgment in Fencott v Muller (1983) 152 CLR 570 observed (at 608): But in the end it is a matter of impression and of practical judgment whether a non‑federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter. 17 At 597, at [84], French J observed: The judgment to be made in assessing the scope of the accrued jurisdiction extends to the relationship between the federal and non‑federal claims said to fall within it. Further, the federal claim must be a substantial aspect of the controversy if that controversy is to attract federal judicial power. As the majority said in Fencott v Muller at 609: A federal claim which is a trivial or insubstantial aspect of the controversy must, of course, itself be resolved in federal jurisdiction, but it would be neither appropriate nor convenient in such a case to translate to federal jurisdiction the determination of the substantial aspects of the controversy from the jurisdiction to which they are subject in order to determine the trivial or insubstantial federal aspect. Again, impression and practical judgment must determine whether it is appropriate and convenient that the whole controversy be determined by the exercise of federal judicial power. It is to be noted that the characterisation "trivial or insubstantial" is not an absolute attribute of the federal claim or a description of its strength or weakness but rather a description of its relationship to the controversy in respect of which jurisdiction is invoked. 18 More recently, the Full Court in Beck v Spalla (2005) 142 FCR 555 at 560 has expressed the principles in the following terms: It is well established that when the Federal Court has jurisdiction to determine a federal matter, it has authority to determine the whole controversy and not merely that part of it which attracted federal jurisdiction: Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 472. It is equally well accepted that if the federal question is decided adversely, is struck out, or is found not necessary to be decided the matter does not cease to be in the jurisdiction of the Court: Burgundy Royale Investments Pty Ltd v Westpac Banking Corp (1987) 18 FCR 212; Unilan Holdings Pty Ltd v Kerin (1993) 44 FCR 481 and Moorgate at 476 (see generally, the article by Allsop J, "Federal Jurisdiction and the Jurisdiction of the Federal Court of Australia in 2002" (2002) 23 Australian Bar Review 29 at p 41 ff). 19 Accordingly, the central question is whether the federal claim is a trivial or insubstantial aspect of the controversy. The question is not to be assessed by reference to the strength or weakness of the federal claim as pleaded or whether it is liable to be struck out. It is recognised that even if a federal claim is liable to be struck out, this does not mean that the Court has no jurisdiction to consider a remaining common law claim. The inquiry is a wider inquiry. The content of the controversy is to be assessed by reference to "what the parties have done, their relationships and the laws attaching rights or liabilities to their conduct and relationships". Whether the conduct underlying the federal claim is a trivial or insubstantial part of the whole controversy is a "matter of impression and practical judgment". 20 In this case, the two public companies have become embroiled in a dispute about whether there were reasonable grounds for making statements - which have become public ‑ impugning the standing and quality of the Saulyak gold deposit and the legal effect of the statements. The quelling of the controversy involves the resolution of, amongst other issues, the question of whether the respondents are, on the grounds referred to in the notice of termination, entitled to terminate the Sale Agreement, and whether the respondents are liable for the damage allegedly suffered and likely to be suffered by the first applicant by reason of the statements in the notice of termination having been made public. The making of the statements and whether those statements were based on reasonable grounds, or are misleading or deceptive, goes to the core of the controversy between the parties. In my view, the federal claims cannot, therefore, be said to be a "trivial or insubstantial aspect of the controversy". It follows that I do not accept that it is inappropriate for the Court to exercise jurisdiction in respect of the resolution of the common law claims. 21 Oxus Gold relied upon WG & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd (1999) 48 IPR 111 (WG & B Manufacturing). In that case, the applicant alleged that the four respondents had engaged in misleading or deceptive conduct in contravention of s 52 of the TPA, and that the remaining respondents had aided and abetted that contravention. The non‑federal claims were somewhat imprecisely pleaded but were founded primarily on a breach of the duty of fidelity arising under contracts of employment, and on a breach of a commercial contract providing for the right to develop a brushless motor. The respondents in that case submitted that the statement of claim disclosed no reasonable cause of action so far as the federal claims were concerned, and that the federal claims were not made bona fide. 22 Finklestein J rejected the contention that the federal claims were not genuine, in the sense that they were colourable and only made for the purpose of fabricating jurisdiction. However, he found that the federal claims were " 'trivial or insubstantial' in the sense explained by the High Court in Fencott v Muller". The federal claims were made only by way of bald assertion in the statement of claim, and Finklestein J did not give detailed reasons for his conclusion. However, it is clear that Finklestein J did not suggest the principles to be applied in determining that issue were other than as set out at [16] to [18] above. WG & B Manufacturing is simply an illustration that the determination of whether a federal claim is a trivial or insubstantial aspect of the controversy is a matter of impression and practical judgment. 23 There was also some debate as to whether Oxus Gold had actually put in issue whether the applicants' conduct in making the federal claims was "colourable" in the sense that they were raised in bad faith. It is not necessary to determine whether or not that issue was properly raised because, for the reason set out above, it cannot, in my view, be said that the making of the federal claims was colourable. Both of the federal claims address the loss and damage suffered and likely to be suffered by the first applicant, a public company, from the publication to the investing public of statements impugning an important asset of the first applicant. 24 Further, it does not follow from Oxus Gold's submissions, referred to at [11] to [14] above, that the applicants have failed to demonstrate a prima facie case, in the sense referred to in State of Western Australia v Vetter Trittler Pty Ltd (in liq) (Receiver and Manager Appointed) (1991) 30 FCR 102, in respect of the two claims for misleading or deceptive conduct currently made by reference to contraventions of s 52 of the TPA. 25 As to the first submission, it is unnecessary for me to determine whether the applicants are precluded by s 51AF(2)(a) from relying upon s 52 of the TPA in support of their claims. This is because the same underlying facts would be relied upon in support of any claim that may be available to the applicants under s 12DA of the ASIC Act. The applicants have said that they intend to amend to plead that they rely in the alternative on contraventions by the respondents of s 12DA of the ASIC Act. Such an amendment would not result in claims of a substantially different nature being made to those in respect of which leave to serve out of the jurisdiction was granted (Beck v Value Capital Ltd (No 2) [1975] 1 WLR 6 at 15). 26 As to the second submission, it is said that there was no plea that the applicants relied upon the relevant representation in the notice of termination. However, the case made by the applicants is that the statements contained in the notice of termination have been made public and it is the impact of those statements on the investing public which have had, and are likely to have a deleterious effect upon the business of the first applicant. It is not necessary for the party suffering, or likely to suffer the loss and damage, also to be the party relying upon the statements (Janssen‑Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526). 27 As to the third submission, there are authorities which support the proposition that the publication of a misleading statement on the Oxus Gold website which is based in the United Kingdom, and which is downloadable in Australia, is capable of comprising conduct in Australia. (See, for example, Paper Products Pty Ltd v Tomlinsons (Rochdale) Ltd (No 2) (1993) 44 FCR 485; Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309). Further, the unchallenged evidence of Mr Gunzburg is that he was able to download the statement in Australia. 28 As to the fourth submission, the applicants have pleaded that the first applicant has suffered and is likely to suffer loss and damage by reason of the denigration by the respondents of the Saulyak gold deposit. Mr Gunzburg has deposed that the statements have had a deleterious effect on the perception of the company in the market with the attendant potential to impact negatively on the applicants' ability to exploit the Saulyak gold deposit. Mr Gunzburg said that the asset has gained a "damaged goods" reputation in the market place. There has been no challenge to the evidence of Mr Gunzburg on this issue. Loss and damage to the standing, or reputation of a business is compensable under s 82 and s 87 of the TPA without the need to quantify the precise loss and damage (RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164). (2) Should the orders be set aside because of non‑disclosure 29 The next issue was whether the Court should exercise its discretion to set aside the orders permitting service out of the jurisdiction on the grounds of a material non‑disclosure by the applicants in the ex parte application made before me. 30 In the case of Arab Business Consortium International Finance and Investment Co v Banque Franco‑Tunisienne [1996] 1 Lloyd's Rep 485, the applicant applied for leave to serve proceedings out of the jurisdiction to enforce an arbitration award under the international convention to which the Arbitration Act 1975 (UK) gives effect. The respondent, Banque Franco‑Tunisienne, applied to have the leave to serve the proceedings out of the jurisdiction set aside, on the grounds that there had been a serious non‑disclosure of relevant material during the course of the ex parte application for leave to serve out of the jurisdiction. At the hearing of the ex parte application, the applicant had referred to an order of a Tunisian court giving leave to enforce the award, but had not disclosed that the order had been reversed on appeal. Waller J at 489 said: