Fubilan Catering Services Limited v Compass Group

REASONS FOR JUDGMENT ON MOTION FOR SERVICE OUT OF THE JURISDICTION Introduction 1 These proceedings are brought by two companies incorporated in Papua New Guinea namely Fubilan Catering Services Limited ('Fubilan') and its sole shareholder, Mineral Resources Star Mountains Limited ('Mineral Resources'). The proceedings arise out of arrangements associated with the letting and operation of a catering contract for Ok Tedi Mines Pty Ltd ('OTML') to provide catering and janitorial services at the Ok Tedi mine site in Papua New Guinea ('PNG'). The applicants claim against two companies, one incorporated in Australia and one in Papua New Guinea and also against their parent company incorporated in the United Kingdom. They seek leave, pursuant to O 8 of the Federal Court Rules, to serve the United Kingdom company out of the jurisdiction. The Statement of Claim 2 The applicants allege, in their statement of claim, that in mid to late 1998 OTML was considering putting out to tender a contract to provide, as from about September 1999, catering and janitorial services for the mine. OTML was subject to an obligation, under an agreement with the government of PNG, to give preference to competitive bids from PNG businesses and individuals particularly those who originated from the Kiunga and Telefomin Sub-Provinces of the Western Province of PNG. At that time catering services were provided by P & O (PNG) Limited ('P & O'). 3 Mineral Resources says it identified the catering contract as a business opportunity and as a means of obtaining the reputation and training to provide the customer service and management skills necessary for servicing other existing and developing mining operations in PNG. At all times OTML required that any local companies seeking to be awarded the catering contract should appoint an internationally reputable firm to be the catering manager to manage and implement services and the supply of goods under any such contract ('the International Management Requirement'). 4 The applicants say that in November 1998 the respondents, Compass Group (Australia) Pty Ltd ('Compass Group (Australia)'), Eurest (South Pacific) Limited ('Eurest') and Compass Group PLC proposed that one of them would be catering manager in order to satisfy OTML's International Management Requirement. According to the applicants the respondents represented to Mineral Resources that if it appointed them to manage the contract they would provide training to employees of Mineral Resources, assemble a strong management team, aim for the highest possible involvement of PNG residents, pass on the benefit of their large global purchasing power, provide training and staff development programs, clearly demonstrate accounting procedures and provide substantial administrative and operational support and benefits to Mineral Resources through their purchasing, operational and management expertise. These and associated representations are referred to in the statement of claim as the 'Initial Representations'. They are said to have been set out in a letter from Compass Group (Australia) to Mineral Resources which was sent from Compass' Brisbane office to Mineral Resources' agent, Mr Bill Fenwick in North Beach, Western Australia. 5 These Initial Representations are said to have been confirmed by Jeff Hayes on behalf of the respondents during a meeting which he had at the Sheraton Hotel in Brisbane in or about November 1998 with Mr Fenwick. He was the General Manager for Compass Group (Australia) responsible for managing Eurest. He also became, from January 2000, the Vice President of Compass Group PLC's Asia Pacific Region. Mr Hayes also gave an assurance, which Mr Fenwick requested, that the respondents would promote localisation of management positions in PNG in a way that P & O had not done. These representations are referred to in the statement of claim as the 'Assurance Representations'. 6 The applicants say that in mid 1999 Mineral Resources entered into an agreement with the respondents under which the respondents undertook to prepare a tender for submission to OTML for the award to the applicants of the catering services contract. This agreement is referred to in the statement of claim as the 'First Retainer'. Then it is said that the respondents and Mineral Resources entered into an agreement in or about mid 1999 under which one of the respondents would be the catering manager, in order to satisfy the International Management Requirement, in support of a tender by Mineral Resources and by Fubilan when it was incorporated for that purpose. This is called the 'Second Retainer'. 7 Fubilan was incorporated in or about July 1999 as a wholly owned subsidiary of Mineral Resources to provide the catering services required under any contract with OTML. The tender was lodged by Mineral Resources on or about 13 July 1999. It was prepared by Jeff Hayes of the respondents in accordance with the OTML tender documents. It provided that if OTML awarded the contract to the applicants then the contract would be managed by the respondents in order to satisfy the International Management Requirement. The statement of claim pleads representations made by the respondents in the tender proposal itself. This related to their status as outstanding providers of support services and their proposals in relation to the management of the contract ('Tender Proposal Representations'). 8 Further representations are attributed to the respondents in the period November to December 1999 (the 'P & O Representations'). These were oral representations said to have been made by Jeff Hayes to representatives of the applicants. They were as follows: 1. The respondents still intended to provide training and benefits that P & O had not previously provided including localisation of management; and 2. Employees of P & O would not be involved with the management of the contract. P & O was purchased by Compass Group (Australia) on or about 1 November 1999. This was a part of the acquisition by the respondents of P & O and related bodies corporate in Australia. 9 OTML is said to have requested changes to the Tender Proposal at a meeting held in Cairns in December 1999. These were agreed to by Jeff Hayes on behalf of the respondents. The Varied Tender Proposal was approved by Mineral Resources and lodged with OTML in early January 2000. The statement of claim refers to representations made by the respondents in the Varied Tender Proposal consistent with the earlier Tender Proposal Representations. All of the previously pleaded representations are said thereby to have been continued in effect at all material times and are referred to collectively in the statement of claim as the 'Continuing Representations'. 10 A Management Agreement was made by the applicants with Compass Group (Australia) and Eurest in January 2000. The agreement provided for the first and second respondents to manage the provision by Fubilan of catering services to OTML. The applicants say they would not have entered into the Management Agreement if the Continuing Representations had not been made. Various provisions of the agreement are set out at length in the statement of claim. 11 OTML awarded the catering contract to Fubilan on or about 7 January 2000 on the basis of the Varied Tender Proposal. As it turned out however, the performance of the contract was not to the satisfaction of OTML. By December 2001 OTML had advised Fubilan that their relationship was unsatisfactory and that it would not be renewing the contract term. 12 The applicants raise a number of causes of action against the respondents including unconscionable conduct, misleading or deceptive conduct, breach of contract, breach of collateral contract, negligence, breach of fiduciary duty and contravention of the Secret Commissions Act 1905 (Cth). 13 The applicants say that because of the International Management Requirement imposed by OTML they were unable or had a diminished ability to protect their own interests. They claim to have been at a 'special disadvantage' as against the respondents who were or ought to have been aware of that fact. 14 In July 1999, P & O had lodged a competing tender proposal with OTML which was more beneficial to the respondents who became its owners, than the Tender Proposal which they had lodged on behalf of the applicants. The Varied Tender Proposal was based upon a price difference between the P & O proposal and the applicants' tender. The applicants say that the respondents engaged in unconscionable conduct in contravention of ss 51AC and 51AA of the Trade Practices Act 1974 (Cth) by maintaining the two tender proposals for the contract. Because of that conduct the applicants say they have suffered loss represented in part by the difference between the rates payable under the Original Tender Proposal and the Varied Tender Proposal. 15 Misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act is also alleged on the part of the respondents. The Continuing Representations are said to have been future representations within the meaning of s 51A of the Trade Practices Act. They are said to have proved incorrect in a number of respects which are set out at some length. These include, failure to provide the promised training to employees of the applicants, use of unqualified managers and trainers, failure to involve PNG residents at any level above supervisor, failure to pass on the benefit of the respondents' buying power, the application of inadequate accounting procedures and failure to provide substantial or effective administrative and operational support. There is a number of other bases upon which the Continuing Representations are said to have been incorrect. The loss or damage pleaded as flowing from the alleged contravention of s 52 of the Trade Practices Act arises out of the non-renewal of the applicants' contract and its sequelae. 16 The applicants also allege breach of the Management Agreement by Eurest in a number of respects which it is not necessary to set out here. 17 Causes of action based on collateral contracts between the applicants and the respondents are also pleaded. These rely variously upon the First and Second Retainers and associated representations upon the lodgment of the Tender Proposal and other events related to and associated with the pleaded representations. The collateral contracts are said to have been breached. 18 Compass Group (Australia) is said to have breached the Secret Commissions Act aided and abetted by Eurest. All respondents are said to have owed and breached a fiduciary duty to the applicants. Negligence is alleged against all respondents. Breaches of guarantee and a further breach of the Management Agreement are alleged against the first and second respondents. Motions Before the Court 19 By a motion filed in the present proceedings, which was returnable on 16 April 2004, the applicants seek an order for leave to serve the application on Compass Group PLC out of the jurisdiction under O 8 r 2 of the Federal Court Rules. Rules of Court Relating to Service Out of the Jurisdiction 20 The relevant provisions of the Federal Court Rules are to be found in O 8 r 1 and O 8 r 2. In the material parts they provide: '1 Subject to rule 2 and Divisions 2 and 3 of this Order, originating process may be served outside the Commonwealth in the following cases - (a) where the proceeding is founded on a cause of action arising in the Commonwealth; ... (b) where the proceeding is founded on a breach of an Act, where the breach is committed in the Commonwealth; (c) where the proceeding is founded on a breach, wherever occurring, of an Act, and is brought in respect of, or for the recovery of, damage suffered wholly or partly in the Commonwealth; ... (g) where the proceeding is properly brought against a person served or to be served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding. ... 2(1) Service outside the Commonwealth of originating process is not valid under this Order unless - (a) the service is in accordance with the prior leave of the Court given under sub-rule (2); (b) the Court confirms the service under sub-rule (4); or (c) the person served waives objection by entering an appearance. 2(2) The Court may, by order, give leave to serve originating process outside the Commonwealth in accordance with Division 2 or 3 of this Order or, subject to subrule (2B), on such terms and conditions as it considers appropriate, if the Court is satisfied that: (a) the Court has jurisdiction in the proceeding; and (b) rule 1 applies to the proceeding; and (c) the party seeking leave has a prima facie case for the relief sought by the party in the proceeding.' Whether Leave Should be Granted to Serve out of the Jurisdiction 21 In his oral submissions counsel for the applicants indicated that the causes of action relied upon against Compass Group PLC are the contraventions of the Trade Practices Act and the breach of fiduciary duty. That being so, it may be necessary to amend other aspects of the statement of claim which appear to make broad allegations against all respondents in respect of alleged breaches of collateral contracts and negligence. 22 Order 2 r 2 sets out three conditions which must be satisfied before the Court can exercise its discretion to give leave to serve originating process outside the Commonwealth. The first of those is that the Court has jurisdiction in the proceedings. 23 The cause of action in unconscionable conduct, as pleaded, relates to the conduct of the respondents 'in maintaining the two tender proposals' for the catering services contract, being the P & O Tender Proposal and the Tender Proposal lodged on behalf of the applicants. This is said to haveled to the Varied Tender Proposal and to have resulted in loss to the applicants. 24 It was the first respondent, Compass Group (Australia), which purchased P & O according to the statement of claim but it is also alleged in the statement of claim that 'the Respondents' acquired 'P & O and companies in Australia, including its parent company'. It is not apparent from the pleading how it is said that the Compass Group PLC was involved in the unconscionable conduct alleged against it. Nevertheless, the allegation of unconscionable conduct by all respondents in contravention of the provisions of the Trade Practices Act does raise a matter within the jurisdiction of the Court. That question is distinct from the question whether, as against a particular respondent, the applicants would be able to show a prima facie case for the relief claimed. 25 In so far as the claims for misleading or deceptive conduct are concerned, these are raised against all respondents and fall within the matter or matters that are within the jurisdiction of the Court. The claim for breach of fiduciary duty appears to arise out of the same factual circumstances and to fall within the Court's accrued jurisdiction. Although not all of the conduct alleged took place in Australia according to the statement of claim significant elements of it have and sufficient is pleaded in my opinion to bring each of the matters within the jurisdiction. 26 The second condition that must be satisfied is that r 1 applies to the proceeding. In my opinion, on the basis of the allegations contained in the statement of claim the third respondent, Compass Group PLC, being the ultimate holding company of Compass Group (Australia) and allegedly represented by Mr Hayes in relation to the representations complained of as constituting misleading or deceptive conduct, would properly be joined as a party to the proceeding. 27 The third question is whether the party seeking leave has a prima facie case for the relief sought by the party in the proceeding. This condition is made out if a claim for relief in the proceeding is supported by a prima facie case in at least one of the causes of action which support that claim - see Bray v F Hoffman-La Roche Ltd [2003] FCAFC 153 at [38] - [47] per Carr J and the cases there cited and at [176] - [190] per Branson J. 28 A prima facie case is made out for the purposes of O 8 r 2(2) if there be material before the Court from which inferences are open which, if translated into findings of fact, would support the relief claimed - Western Australia v Vetter Trittler Pty Ltd (In liq) (1991) 30 FCR 102 at 110, approved in Sydbank Soenderjylland A/S v Bannerton Holdings Pty Ltd (1996) 68 FCR 539 at 549. 29 As Beaumont J said in WSGAL v Trade Practices Commission (1992) 39 FCR 472 at 476, the question whether a prima facie case exists does not call for a substantial inquiry at this stage. As his Honour said: 'The kind of evidence adduced on a preliminary inquiry of this kind should be in proportion to the nature of such an interlocutory issue... [The] purpose is to determine by way of a mini rather than a mega trial whether the applicant has a prima facie case.' 30 The applicants sought to establish satisfaction of the condition by reliance upon the affidavit of William Fenwick, a Director of Fubilan. Mr Fenwick is employed by Morocco Holdings Pty Ltd ('Morocco'). He is a catering consultant who provides consulting services to both the applicants. In 1983 he was appointed as project manager for Poon (PNG) Catering and Services ('Poons') remote site catering operations at the Ok Tedi mine site. The Poons business was carried on by the P & O Group. In 1985 Mr Fenwick became the business development manager for Poons' parent company in Western Australia. He had acted as a consultant for OTML in 1994 for about eighteen months in relation to the Ok Tedi mine. He has also acted as a consultant for a number of other companies, including Mineral Resources Development Corporation Ltd ('MRDC') and the applicants. In his affidavit he said that Poons had all of the OTML Catering Contract in its own right in 1997. 31 Mr Fenwick said OTML had undertaken to support local employment and business development as part of its 1976 Agreement with the PNG Government. The PNG Government agreed to support local employment and business development in its 1991 agreement with local landowners. In 1997 Kiunga Catering Services Ltd ('KCS') was awarded part of the OTML Contract in relation to operations at Kiunga. Mr Fenwick acted for KCS and another company, Lotic Ltd, in negotiating for the contract with OTML. 32 In 1997 when Mr Fenwick was providing consulting services to OTML in relation to the OTML Catering Contract he contacted Jeff Hayes in Brisbane by telephone in relation to possible opportunities for Compass Group (Australia) arising out of problems OTML were having with Poons under their catering contract. He said that Mr Hayes told him that Compass Group (Australia) and Eurest were capable of performing the catering for OTML. Mr Hayes sent him a copy of Compass Group (Australia)'s pricing structure for a project it was catering for of a similar scale. That was at Olympic Dam. 33 In 1997 Mineral Resources was formed to advance the interests of landowners in the area of the Ok Tedi mine site. Mineral Resources proposed to create a catering company to tender for the OTML Catering Contract. Mr Fenwick was engaged as a consultant to Mineral Resources and to MRDC to prepare a proposal to go to OTML for Mineral Resources to take on the OTML Catering Contract. 34 Mr Fenwick considered different models including having a firm appointed to manage the contract for Mineral Resources. He said that in November 1998 he telephoned Jeff Hayes to meet with him in Brisbane to discuss Compass Group (Australia)'s capabilities to manage the OTML Catering Contract. He met with Mr Hayes and they discussed the possibility of an arrangement under the OTML Contract whereby Compass Group (Australia) could be managers for a landowner company to be formed by Mineral Resources. Mr Fenwick said that during that meeting Mr Hayes spoke of both Compass Group (Australia) and Eurest as the one organisation which he called either SHRM or the SHRM Group. He said he managed Australian remote mining sites for SHRM but they had no remote mining sites in PNG. He said that at this meeting Mr Hayes told him a number of things about the SHRM Group's capacities in relation to handling the proposed Management Agreement, providing training and other matters. The SHRM Group was owned by the respondents. 35 Following the meeting in Brisbane Mr Hayes wrote to Mr Fenwick in relation to the proposal. A copy of the letter dated 25 November 1998 is exhibited to Mr Fenwick's affidavit. It bears the letterhead 'Group SHRM'. 36 Mineral Resources wanted to try to acquire the catering contract in its own right. Mr Fenwick prepared a proposal to put to OTML on that basis. However OTML told him that the landowners would not be awarded the catering contract in their own right. They could, however, appoint an international catering company to manage the contract for them. As a result, Mineral Resources asked Mr Fenwick to identify catering companies that could provide the necessary management. Following correspondence in early 1999 the board of Mineral Resources instructed Mr Fenwick to meet with Mr Hayes to determine whether the respondents had the capabilities necessary to manage the OTML Catering Contract for a landowner company. 37 Mr Fenwick met with Mr Hayes in Brisbane in early 1999. They talked about the proposal of a Management Agreement and the preparation of a tender proposal. Mr Fenwick told Mr Hayes that the landowners had presented a proposal for the landowner company to take on the OTML Catering Contract in its own right and that had been declined. Mr Hayes, he said, again spoke of the capacities of the respondents collectively, including the capabilities of the third respondent. He confirmed all of the points that he had raised at their previous meeting in Brisbane. 38 At the request of Mineral Resources, Mr Hayes travelled to Port Morseby to meet with MRDC and the directors of Mineral Resources to outline the respondents' proposal for the Management Agreement. Mr Fenwick said in his affidavit that Mr Hayes presented the proposal from MRDC and the board of Mineral Resources. The necessity for training was discussed in depth. So too was the fact that for twenty years Poons had done nothing in relation to training. Marcus Gosling of SHRM was introduced by Mr Hayes as being Brisbane-based operations manager responsible for managing PNG operations. Following this presentation the board of Mineral Resources resolved to work with the respondents on a Management Agreement and the development of a tender proposal for the OTML Catering Contract. It was to be prepared on the basis that Mineral Resources would incorporate a subsidiary to carry out the catering contract if the tender were successful. Fubilan was incorporated for that purpose. 39 Because Mineral Resources lacked the skills to properly prepare a tender proposal, according to Mr Fenwick, the respondents were appointed to prepare the tender proposal for Mineral Resources. Mr Fenwick said he travelled to Brisbane and met with Mr Hayes in the Brisbane office of Compass Group (Australia). He was there for about two weeks to provide operational knowledge in relation to when and where meals would have to be served, their quality and quantity and so forth. This was provided to Mr Hayes as he prepared the tender proposal. 40 The tender proposal prepared by Mr Hayes was lodged with OTML on or about 13 July 1999 and contained a Memorandum of Understanding between the respondents and the applicants. In the covering letter it was stated that the intention of the submission was to combine the interests of Mineral Resources with the experience and support of SHRM (South Pacific) Pty Ltd trading as Eurest. 41 In the Background Statement which formed part of the tender, it was said: 'Eurest is part of Compass Group, the world's leading catering and services management company. Compass Group enjoys a leading position in the world foodservice market, employing in excess of 170,000 staff in over 49 countries.' Eurest was described in the tender documents as 'a global company with local expertise'. The tender set out a Training and Localisation Plan based upon the requirements of the Training and Localisation Plan Mining (Ok Tedi Agreement) Act 1976. There was reference to the employment of training consultants and the creation of a structured accredited training program which would enable all employees to improve skill levels ranging from frontline operational staff to senior supervisors. Training programs and employment opportunities were specified. A timetable for this aspect of the tender was set out. 42 Mr Fenwick said that on or about 13 July 1999 P & O also lodged a tender proposal with OTML for the catering contract. It did not include a joint venture or similar arrangement with any landowner group from the area of the Ok Tedi mine. On 1 November 1999 P & O was purchased by Compass Group (Australia) as part of the acquisition by the respondents of P & O and related companies in Australia, including its parent company. The respondents advised OTML and the applicants of that acquisition on 25 November 1999. 43 According to Mr Fenwick he was informed by Michael Baitia, the contract representative for Fubilan, that in November or December 1999 Mr Hayes told him that as the respondents now in effect owned both the P & O Tender Proposal and the Fubilan Tender Proposal Mr Hayes had to choose which was to be supported. He assured Mr Baitia that he was 'going with the Tender Proposal' and that P & O staff would not be involved in the management of the catering contract if the Tender Proposal were successful. Mr Fenwick said that the respondents did not withdraw the P & O Tender Proposal nor inform OTML that they would only be going with the Fubilan Tender Proposal. 44 At a meeting in Cairns between representatives of OTML, the applicants and the respondents, the applicants were requested by OTML to reduce the rates contained in the Tender Proposal because of the price difference between the Tender Proposal and the P & O Tender Proposal. This was agreed to by the applicants on the advice of Mr Hayes. The Varied Tender Proposal involved an annual reduction of 3,451,200 kina in income to the applicants from the catering contract. The Management Agreement in relation to the management and supervision of Fubilan's conduct under the OTML Catering Contract was signed on about 4 January 2000 and the contract awarded by OTML to Fubilan on or about 8 January 2000. 45 Mr Fenwick said that the applicants relied on the statements which the respondents made to them up until the signing of the Management Agreement in meetings and documents in relation to what would occur if the respondents were engaged to prepare the Tender Proposal and manage the Catering Contract. Mineral Resources paid for the acquisition of P & O stock held by the respondents. However Mr Baitia requested budgets prior to allotting 3 million kina start-up capital which had been agreed to by Mineral Resources. 46 Problems arose between the applicants and Eurest.In May 2000 Mr Baitia contacted Mr Fenwick by telephone and asked him to come up to Port Morseby to 'sort out the mess' in relation to the Catering Contract. In a meeting with representatives of the respondents Mr Fenwick was told that the only problem with the contract was the payment of 3 million kina to Eurest. Mr Baitia said that prior to the payment of that sum budgets and cash flow projections were necessary. Mr Younger, for the respondents, promised that Mr Baitia would have them. 47 According to Mr Fenwick from the outset the respondents had problems with management staff. The initial site manager left after approximately six weeks. Another manager replaced him but left just before Christmas 2000. The respondents, he said, were simply not able to meet the obligations under the Management Agreement. There were no budgets or management reports and no controls on debtors and cash flow. The applicants were completely unaware of how the operations were going and what payments were being made by the respondents. Mr Fenwick referred to overcharging by the respondents which was identified. His affidavit referred also to continuing discussions relating to financial and accounting difficulties between the parties. He mentioned problems with the supply of food which emerged in late February 2001. 48 KPMG was appointed to carry out an investigative audit in March 2002. It provided a substantial report in or about December 2002 which, according to Mr Fenwick, identified many problems with the respondents' conduct and amounts in contention of 2,593,821 kina. The report was qualified by KPMG to the extent that the respondents did not provide it with access to sufficient requested documents for it to be definitive. 49 In a general statement about the failure to honour promises, Mr Fenwick identified numerous respects in which the representations said to have been made on behalf of the respondents had not been honoured. These included the alleged representations as to training and staff development, substantial and effective administrative and operational support, the benefits of buying power and a number of other matters. 50 There is, in my opinion, enough in the affidavit material to support, for the purposes of the grant of leave under O 8, the view that there is a prima facie case against Compass Group PLC for the grant of the relief sought under s 82 of the Trade Practices Act and for breach of fiduciary duty. I should add that, to the extent that the claim relies upon conduct in Papua New Guinea which amounted to non-fulfilment of the promissory statements attributed to the respondents, it does so to support characterisation of those representations, made in Australia, as misleading or deceptive or likely to mislead or deceive. 51 Having regard to the satisfaction of the conditions for the grant of leave and the integrated nature of the global Compass Group, it is appropriate that the overseas parent be a party and be served. In so saying, I emphasise that this decision does not prevent Compass Group PLC from moving to set aside the service, nor does it prevent any respondent from bringing a strike out action in relation to all or part of the statement of claim. In my opinion the statement of claim as it presently stands needs refinement and greater specificity in relation to the ways in which liability is said to attach to each of the parties. It needs also to remove global references to all respondents where relief is not pursued against all, as in the case of the negligence claim. I certify that the preceding fifty-one (51) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French.