Gemcove Asset Pty Ltd v Sirote Pty Ltd

Federal Court of Australia|2000-02-10|Before: Carr J

Introduction 1 The Court has before it a motion on notice by which the respondents seek an order that these proceedings be transferred to the District Court of Western Australia at Perth, pursuant to s 5(4) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). The applicant opposes the motion.

Factual and Procedural Background 2 The following summary of the factual background is taken variously from allegations made in the statement of claim and affidavits which have been filed by the parties. Nothing in this recitation of facts should, of course, be taken as in any way amounting to a finding of fact for the purposes of the proceedings. 3 On 4 June 1998 the applicant (which I shall refer to as "Gemcove") and the first respondent (which I shall refer to as "Sirote") entered into a written agreement, ("the Contract") whereby Sirote agreed to sell and Gemcove agreed to buy the goodwill, plant, equipment and stock-in-trade of a business carried on under the name "S & G Gearbox Exchange" (the Business) at Welshpool, a suburb of Perth. The purchase price for the Business was $238,000, allocated in the contract as to $130,000 for stock-in-trade, $40,000 for fixtures and other plant and $58,000 for goodwill. I appreciate that the applicant considers that the allocation of values is not strictly accurate. For example, the applicant suggests that the value of stock is higher than the actual value, but that there was an adjustment to take into account the fact that the applicant had assumed responsibility for future long service leave entitlements and the like. However, I treat the total purchase price and the allocation of $58,000 for goodwill as broadly indicating the dimensions of the transaction. 4 The contract contained a restrictive covenant on Sirote's part not to engage or be interested in any business of the nature of the Business within a radius of 150 kms from the premises at which the Business had been conducted by it ("the Premises") for a period of five years from the date of the Contract. There was also a clause that Sirote would not during that period engage in conduct derogating from Gemcove's right to obtain the full benefit of the goodwill of the Business. In accordance with another clause in the Contract the second respondents (whom I shall call Mr and Mrs Goeree) entered into a deed ("the Deed") with the applicant whereby they covenanted in similar terms to the restrictive covenant entered into by Sirote. Mr and Mrs Goeree are directors of Sirote and had conducted the Business on its behalf. 5 There was another relevant term in the contract. That was to the effect that Mr Goeree would, without remuneration, assist the applicant to familiarise itself with the nature and general running of the Business for a period of eight weeks from completion. 6 Completion was effected on 17 July 1998 and the applicant commenced operating the Business on 20 July 1998. 7 I should say something about the third respondent. The third respondent is a firm registered under the provisions of the Business Names Act 1962 (WA). A business names extract is in evidence which shows that Sirote successfully applied for registration of that business name on 23 June 1998 and commenced its business (automotive repairs and dismantling) on 18 July 1998. 8 On 19 February 1999 the applicant initiated these proceedings. 9 In its application the applicant claimed against each of the respondents damages under s 82 of the Trade Practices Act 1974 (Cth) ("the Act"), interest pursuant to s 51A of the Federal Court of Australia Act 1977 (Cth) and further or other relief under s 87 of the Act. 10 I have been informed that the parties attempted to resolve their disputes by mediation, but that those attempts proved unsuccessful. 11 On 28 September 1999 the applicant filed its statement of claim. 12 In summary, that statement of claim pleaded the facts to which I have just referred and then pleaded breach by the respondents respectively of the terms of the Contract and the Deed. In essence the applicant alleged that, aided and abetted by Mr and Mrs Goeree, Sirote had set up in a business which competed with the applicant's business within a few kilometres of the premises, that is, that those parties had breached their obligations under the Contract and the Deed respectively. 13 The applicant then pleaded three representations said to have been made by Mr Goeree on behalf of Sirote. They were that: · Mr and Mrs Goeree were agreeable to covenanting in the terms of the restrictive covenant contained in the contract; · Mr and Mrs Goeree intended occasionally to purchase 4-wheel drive motor vehicles, refurbish and sell such vehicles; and · Sirote was selling the Business because Mr Goeree was suffering from a chronic disease whereby he had been increasingly absent from it. 14 The applicant pleaded that those express representations constituted implied representations to the effect that Mr and Mrs Goeree would abide by their covenant, that Mr Goeree's chronic disease was such that he would be unable to conduct any business similar to the Business after completion of the Contract and that the proposed purchase and refurbishment of 4-wheel drive vehicles would be so conducted as not to constitute a breach of the covenants given by Sirote and Mr and Mrs Goeree. 15 The applicant further pleaded reliance on the representations inducing it to enter into the contract and effect completion. The applicant pleaded that the representations were made in the course of trade and commerce and were "false and untrue and misleading and deceptive" because at all times the respondents intended to act contrary to the representations, and intended to carry on a business similar to the Business within a radius of 150 kms and furthermore, Mr Goeree was not suffering from any disease of such a nature as would preclude his being actively involved in the conduct of a Business similar to the Business. 16 Finally the applicant pleaded that by reason of the misleading and deceptive conduct of the respondents it had suffered loss and damage. 17 The relief claimed in its statement of claim (in the order in which it was claimed) was:

My Reasoning 41 The applicant has quite clearly been put on notice that it was required to give the Court some indication of the amount of any monetary judgment which it seeks. It has been given what I consider to be an adequate opportunity to do this. It has chosen not to do so. As I have mentioned above, it did not even ask the respondents for inspection of the documents discovered by them on 8 December 1999. I am not satisfied with the explanation tendered in Court on 23 December 1999 for its failure to seek such inspection. 42 The impression which I have formed is that the applicant chose to institute and maintain these proceedings in the Federal Court of Australia due to some perceived advantage of litigating in this Court. In that regard I refer to paragraphs 33 and 34 of the affidavit of Mr Alan Robert Wall (a director of the applicant) sworn on 15 December 1999. Those paragraphs read as follows: "The decision to litigate in the Federal Court 33. The decision to embark upon Federal Court proceedings was arrived at after considerable discussion of the advantages of bringing the matter in the Federal Court as opposed to the greater costs that would be incurred thereby. 34. Both my wife and myself remain convinced of the advantages of remaining in the Federal Court and we would therefore request, despite the higher costs and possible negative costs consequences for the first applicant that have been explained, we seek that the matter remains in the Court in which it was commenced." 43 The reference to "possible negative costs consequences", so I infer, amounts to confirmation that Mr and Mrs Wall have had explained to them the risks, in terms of costs, should they recover less than $100,000 in these proceedings. 44 I am left to assess, as best I can, the prospects (if any) of the applicant obtaining a judgment of more than $250,000 in these proceedings. Without intending in any way to prejudice the final outcome of these proceedings, my assessment, on the basis of the evidence before me is that there is very little prospect of such an outcome. 45 First I refer to the purchase price for the business and its allocation between the various assets so purchased. The parties chose to allocate $58,000 as being the value of the goodwill of the Business. It is that asset which is intended to be protected by a restraint of trade covenant. I do not suggest that damages would be limited to that amount or even approximately that amount for either breach of contract or the consequences of misleading or deceptive conduct. However, I treat it as a preliminary indicator. 46 Next, I refer to an affidavit sworn on 15 December 1999 by Mr Joseph Lieberfreund on behalf of the applicant. Mr Lieberfreund is a chartered accountant who provides forensic accounting services. At paragraph 8 of his affidavit Mr Lieberfreund refers to the matter of obtaining an assessment of the best reasonable estimate of the monetary judgment sought by the applicant. In the next paragraph Mr Lieberfreund states that he believes: "… that it is not possible to accurately estimate the losses of the First Applicant until such time as further and better discovery of documents listed below is made." 47 I interpolate that what was sought was not an accurate estimate but an assessment of the likelihood of whether a judgment of more than $250,000 was to be sought. 48 It appears from Mr Lieberfreund's affidavit that he has analysed and reviewed four years of the financial statements of the Business i.e. for the years ended 30 June 1994 to 30 June 1997. Those indicate a net profit of $9,027, $42,245, (a loss of $10,527) and $63,593 for the four respective years. Mr Lieberfreund (at paragraph 27 of his affidavit) refers to the similar turnover achieved by the Business during the time it was operated by the respondents and then by the applicant but he then expresses a view that there still remains what he describes as "a substantial loss occasioned through the actions of the Respondents herein in affecting the four-wheel drive component" of the Business. Again Mr Lieberfreund makes no effort to quantify that loss. 49 Mr Wall, in his affidavit sworn on 15 December 1999 deposes (at paragraph 27): "27. The First Applicant has therefore succeeded in maintaining similar turnover levels as what the First and Second Respondents achieved but this is primarily reliant on the passenger market." 50 I note the vagueness of this statement. No particulars are given as to whether "similar turnover levels" means higher or lower. No indication is given of the profitability or otherwise of the Business. What emerges is that Mr Wall asserts that it is through the applicant's efforts that the Business has been maintained and that it could have done a lot better were it not for the competition from the respondents. In paragraph 55 of his affidavit sworn on 21 January 2000, Mr Wall states that the applicant has achieved similar results in the conduct of the business. However he has chosen not to disclose what those results are. Again he asserts that this was because of his and his wife's efforts in creating and expanding the passenger side of the business. 51 My impression from all of the evidence before the Court is that this is a monetary claim which falls well within the jurisdiction of the District Court of Western Australia.

52 It seems to me to be quite clear that the District Court has jurisdiction to hear all of the applicant's present and proposed claims. It is vested with federal jurisdiction to do so under s 86(2) of the Act. The qualification expressed in s 86(3) that nothing in s 86(2) shall be taken to enable an inferior court of a State to grant a remedy other than a remedy of a kind that the Court is able to grant under the law of that State would have no impact on this matter. Under s 77 of the Fair Trading Act 1987 (WA) the District Court has power to grant similar remedies to those which the applicant now seeks by its proposed substituted statement of claim under s 87 of the Act. Section 75 of the Act provides that Part V of the Act does not exclude or limit the concurrent operation of any law of a State. Thus the Fair Trading Act 1987 (WA) is a law which has concurrent operation. Furthermore, s 55 of the District Court of Western Australia Act 1969 (WA) provides that the District Court has power to make orders in equity. That power would include an order for rescission see Hondros and Tholet v Chesson [1981] WAR 146 and see also generally the recent decision of Lee J in Tenji v Henneberry & Associates Pty Ltd [1999] FCA 1259 at para 7. I note however that at para 10 in that case his Honour observed that the principles on which orders are to be made under s 87 are still being developed and that where a claim for relief under s 87 is a substantial part of a proceeding brought under the Act, it is likely that in many of those cases the Federal Court would be the appropriate court for that proceeding. That was in the context of considering the application of Order 62 rule 36A.

53 The applicant relies on the fact that it chose the Federal Court of Australia as its forum for this dispute. Some of the authorities on this topic of choice of forum are collected in "Australian High Court & Federal Court Practice" (Vol 2) CCH Australia Ltd at pp 90,174 and 90,181. The authorities appear to be in conflict on this point. In Bourke v State Bank of New South Wales (1988) 22 FCR 378 at 396 Wilcox J said: "However, for an applicant's choice of forum to be overridden, there must be some objective factor which makes it possible to say that the interests of justice will be better served by transfer than by non-transfer. Where, as here, it is impossible to identify any such factor, the sub-paragraph has no application." 54 In the absence of that observation, I would, with all due respect to Wilcox J, have been inclined to follow the views of Rogers J in Seymour-Smith v The Electricity Trust of South Australia (1989) 17 NSWLR 648 where his Honour rejected Wilcox J's approach and said (at 662): "With respect, I do not accept there is any weight to be ascribed to the fact that the court may be overriding the plaintiff's choice of venue. The court is, in my view, required to carry out a balancing exercise to determine the appropriate court." 55 It may well be that the apparent conflict is simply that, i.e. not a real conflict and that the question boils down to how much weight, if any, is to be attributed to the applicant's choice of forum. 56 I take into account the fact that the applicant has chosen this Court, but I must say that I give it very little weight. 57 The applicant points to the fact that in its proposed amended statement of claim it relies upon contraventions of the Act and not common law breach of contract. As I have outlined above, that is not how it originally framed its claim. In the statement of claim, as it presently stands, the applicant relies very heavily on breach of contract. Even the misleading or deceptive conduct pleaded was closely linked to the contractual claim. It is not possible for me to make a finding whether the applicant seeks to recast its claim so as to keep the matter in this Court. It has put forward evidence that the decision to seek rescission was based on events as they evolved over the last few months and in particular the competition to the Business emanating from the respondents and a person who it asserts is associated with them. However, it is open to me to infer (and I do so) that the desire to keep this case in this Court played at least a significant part in the fairly late decision to recast the statement of claim as one made almost entirely under the Act. 58 Next, the applicant relied upon what it described as legitimate benefits conferred upon it by proceeding in this Court. As to judge-managed directions hearings, I consider that there is little weight in that point. This is not a complicated matter and directions could as easily be made in it by a Judge or a Registrar of the District Court. The next benefit relied upon was expedition of a trial date. There is no evidence before me of when this matter is likely to be heard in the District Court if it is transferred to that Court. Counsel for the respondents asserted, without contradiction, that it would be unlikely to be heard by the District Court until towards the end of the year. My assessment is that if this matter remained in this Court it would be unlikely to receive a hearing date before the last quarter of this year. 59 Counsel for the applicant referred me to the provisions of the Evidence Act 1995 (Cth) and the consequential provisions of the Federal Court Rules relating to hearsay evidence and tendency evidence, but although, in oral address, counsel referred to the fact that he was proposing to call an airline pilot, there was nothing put to show how the applicant might be prejudiced by having to rely on State evidence law. I do not consider that the applicant has demonstrated to me that the application of the Commonwealth Evidence Act in this matter would confer a benefit which it would not receive if the law of evidence as applied by the District Court were applied to this matter. I accept that the Commonwealth Evidence Act would not be applied by the District Court. See s 4 and the definition of federal court - in the dictionary of that act. 60 As to the contention that Judges in this Court have more familiarity with the provisions of the Act, I discount that argument so far as it concerns this matter. Even if Federal Court Judges are more familiar with the provisions of the Act, I have every confidence that any District Court Judge would be more than capable of applying the relevant law to the facts as found in this case. 61 I accept the applicant's contention that applications for transfer should not be granted "too readily". I take into account the burden of costs in this matter, a burden which will fall either on the applicant or the respondents, depending upon the outcome. I give that matter considerable weight. My assessment is that the burden will be substantially less if the rest of this litigation is conducted in the District Court rather than in this Court. My assessment is that the hearing would take at least five days. In this Court daily hearing fees are charged which, in those circumstances and in the circumstances of this case, having regard to the parties, would amount to $5258. No hearing fees are charged in the District Court. My impression is that there are likely to be further interlocutory motions in this matter. Substantial fees are charged in this Court for the filing and hearing of such motions. That is not the case in the District Court. The applicant says that it will not recover, in the District Court, the costs which it incurred in preparing the affidavits which it filed with its application. There are two things to be said about that. First, some of those costs will have been incurred in relation to the interlocutory injunctive relief which it claimed and since abandoned. Secondly, to the extent that the costs of such affidavits were properly incurred in getting up its case they should be recoverable upon taxation. I think that the following passage in the reasons for judgment of Beaumont J in Korn v Paisley-Robertson (1995) 59 FCR 251 at 252 is particularly apposite in this matter and I quote: "It is now accepted that, as a matter of proper judicial administration, relatively small claims [and I interpose that the evidence was that the claim in that matter was $120,000] should not be dealt with by this Court unless there is a federal or other special element to warrant a use of this Court's jurisdiction. There are a number of reasons underlining this policy. The primary reason is that, as the Woolf inquiry in England has recently found, care must be taken to ensure that in the case of relatively small claims, the amount of the claim or a substantial part of it, is not consumed in costs [citation omitted]. In this connection, it must be borne in mind that in the higher courts the expense of litigating tends to be greater than in other courts. . . . If this matter were simply a claim under Part V of the Trade Practices Act I would not have hesitated to order that it be transferred to the District Court." 62 His Honour then looked at the other matters raised in the proceedings, but still expressed the view that the matter should be transferred from the Federal Court of Australia to either the District Court or the Equity Division of the Supreme Court of New South Wales. 63 It is not an answer, in my opinion, for the applicant, as it does, to say that if it is successful but only recovers less than $100,000 it will take its chances about the application of Order 62 rule 36A. The matter of costs has to be considered in relation to the interests of both the applicant and the respondents. 64 The respondents rely upon s 5(4) of the Cross-Vesting Act, and in particular subs (4)(b)(ii) and (iii) for their motion. However, that section is not applicable in respect of a proposed transfer to a District Court. It only applies to transfers to a Supreme Court. That is what the section says. See also TPC v Collings Construction Co Pty Ltd (1994) 130 ALR 115 at 125. 65 In my view, the relevant provisions for the transfer sought by the respondents are s 86A of the Act and s 10 of the Cross-Vesting Act. No specific test is expressed in the former provision whilst the relevant test under s 86A(2)(b) is whether it is in the interests of justice that the matter be determined by another court. That is the test which I propose to apply. 66 On balance, after giving consideration to all of the matters advanced by each side and in particular the various matters which I have discussed earlier in these reasons, I think that it is in the interests of justice that this matter be transferred to the District Court of Western Australia. There may well be some advantage in making the relevant order under s 86A rather than under the cross-vesting legislation - see the reasoning of Sackville J in Crandell v Servier Laboratories (Aust) Pty Ltd [1999] FCA 1461, in particular at para 11. I certify that the preceding sixty-six numbered paragraphs are a true copy of the Reasons for Judgment of Justice Carr.

Solicitor for the Respondent: Messrs Arns & Associates

Trade Practices Act 1974(Cth)

Federal Court of Australia Act 1977(Cth)

Fair Trading Act 1987(WA)

Thus the Fair Trading Act 1987(WA)

At a glance

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Cases Cited (6)