NOEL LING v COMMONWEALTH OF AUSTRALIA NG 383 of 1996

On 22 March the appellant swore an affidavit in purported satisfaction of s.41(7) of the Bankruptcy Act 1966 in which he contended he had a cross-claim against the Commonwealth for, inter alia, negligent misstatement. He alleged the Commonwealth had made various representations concerning the facilitation of access to English language intensive courses by overseas students. The representations were made in addresses by, inter alios, two Ministers of the Crown. In reliance on the representations the appellant established institutions at which English would be taught to overseas students, especially those from the People's Republic. The representations were negligent, as a result of which the appellant suffered loss, which included the amount he owed the Commonwealth under the judgment. Hill J was asked to determine as a preliminary question whether the appellant's claim for damages could have been set up in the Commonwealth proceeding. For the purpose of determining this question, his Honour was asked to assume that the appellant had a prima facie case capable of falling within s.41(7), provided he could not, within s.40(1)(g), have set up that claim in the Commonwealth proceeding. Two reasons were suggested by the appellant as to why he could not have set up the cross-claim. The first was that the Federal Court had no jurisdiction to entertain it. The second was that his solicitors had not advised him until after the conclusion of the Commonwealth proceeding that he had a claim against the Commonwealth. His Honour rejected the second reason in accordance with authority that for the purposes of s.41(7) practical difficulties in bringing a claim are not disabling provided the claim could legally have been brought. His Honour also rejected the supposed jurisdictional obstacle. He held that the appellant could have commenced a proceeding in the High Court, and applied to the High Court to remit it to this Court. Upon the remitter (which would have been made), this Court would have had jurisdiction to determine the proceeding. The remitted proceeding could then have been consolidated with the Commonwealth proceeding. For the purposes of s.40(1)(g), there would then have been one proceeding in which the Commonwealth in effect claimed the refunds and the appellant cross-claimed for damages for negligent misrepresentation. Having answered the preliminary question adversely to the appellant, Hill J declared that the appellant did not have a cross-claim which satisfied s.40(1)(g): (1995) 58 FLR 129. The Supreme Court proceeding Meanwhile, in May 1995, the appellant commenced a proceeding against the Commonwealth in the Supreme Court of Victoria. His statement of claim can be summarised as follows: (a) In October 1985 and thereafter the Commonwealth represented, through Ministers and others, that the Australian Government was facilitating and would continue to facilitate access to English language courses by students in the Asian market by streamlining immigration and other services. (b) The Commonwealth knew or ought reasonably to have known the representations would be relied on by suppliers of educational services to establish English language courses for students from the Asian market. (c) The Commonwealth owed the plaintiff, a supplier of such educational services, a duty of care in making the representations. (d) In reliance on the representations the appellant established institutions to teach English to overseas students. (e) The Commonwealth was negligent in making the representations in that, amongst other things, it failed to advise the appellant that government policy in respect of the provision of educational services to the Asian market "was, or was likely to change so as, to reduce significantly the number of students from the Asian market eligible to study in Australia". (f) The representations were false and misleading. (g) In or about March 1990 the appellant sold his interest in the institutions. (h) One of the terms of the contract of sale was that the purchaser would pay the appellant $1000 for each student enrolled in the various institutions "up to $10 million". (i) In about 1989 the Commonwealth changed the entry requirements applicable to students from the People's Republic intending to study English in Australia, and adopted a policy of discouraging such students entering Australia. (j) Between 1987 and 1990 the appellant received advance payments from students from the Republic proposing to study English at his institutions. (k) As a result of the change in requirements and policy, many students were unable to enter Australia to undertake the courses for which they had enrolled and paid, and the number of enrolments fell significantly.

(l) As a result of the fall in numbers, the purchaser "did not make all the payments referred to in" (h) above, but paid only $102,161. (m) The Commonwealth, as assignee of the students' refund rights, obtained judgment against the appellant for $7.9 million. (n) By reason of the foregoing the plaintiff has suffered loss and damage in the sum of nearly $18.9 million dollars made up of the amount of the judgment ($7.9 million) and the amount not paid by the purchaser ($9.8 million). On 13 August 1995 the action was transferred from the Supreme Court to this Court. On 28 August the Commonwealth filed a creditor's petition seeking a sequestration order against the appellant's estate, based on his failure to comply with the requirements of the bankruptcy notice or to satisfy the Court he had a cross-claim equal to or exceeding the amount of the judgment obtained in the Commonwealth proceeding. The appellant gave notice he intended to appear at the hearing of the petition and to oppose it on the ground that there was "other sufficient cause" within s.52(2)(b) why a sequestration order should not be made, namely that he had a cross-claim against the Commonwealth equal to or exceeding the amount of the judgment. The strike-out application In the transferred proceeding the Commonwealth applied to strike out the statement of claim on the ground that the negligent misstatement cause of action should have been set up in the Commonwealth proceeding. The Commonwealth relied on the form of estoppel explained by Wigram V.C. in Henderson v. Henderson (1843) 3 Hare 110 and adopted in Port of Melbourne Authority v. Anshun Pty Ltd (1981) 147 CLR 589. Lehane J upheld the Commonwealth's claim and "dismissed" the statement of claim. From that order the appellant appeals. Subsequently his Honour made a sequestration order against the appellant's estate. He also appeals against that order. The appeals were heard together. Anshun applies to cross-claims In Bryant v. Commonwealth Bank of Australia (1995) 57 FCR 287 the Full Court held that the "Anshun principle" applies to cross-claims as well as to defences. At pp.297-298 the Court said: Questions of substantive degree may be involved; and in contrast to defences, many cross-claims may have little or no connection with the principal claim in the action; there may be no more than an identicality of parties. Where that is so, there may be no policy justification for forcing defendants to litigate their claims as cross-claims rather than as principal claims in separate actions in the forum of their choice. But, where, as here, a defendant's claim is intimately connected with that of the plaintiff, in the sense that each arises, substantially, out of the same matters of fact, there is every reason to require that both be litigated at the one time, thereby minimising costs and avoiding the possibility of inconsistent judgments.... In that case the Bank sued Bryant in the Supreme Court of New South Wales for possession of premises mortgaged to the Bank and for money secured by the mortgage. Bryant cross-claimed alleging, inter alia, misleading and deceptive conduct on the part of the Bank within s.52 of the Trade Practices Act. Bryant abandoned the cross-claims on the footing that he would be able to renew them at some other time and in some other place. When he sought to do so in this Court, he was held estopped.

Primary judge's reasons The essence of Lehane J's reasoning is contained in this passage: [In Bryant] the Bank had made a contractual claim against Mr Bryant for debt and had also commenced proceedings for possession under a mortgage. The claims by Mr Bryant against the Bank arose out of the same general set of circumstances as did the Bank's claim against Mr Bryant, but clearly in a literal sense each cause of action was founded on different elements in that set of circumstances. Much the same, I think, may be said of this case. The claim of the Commonwealth against Mr Ling, on which it obtained judgment, arose out of contract. The circumstances which, under the contract, gave rise to the claim were that in consequence of certain events in China and a subsequent change of Australian Government policy Chinese students were no longer easily able to attend courses such as those Mr Ling offered in Australia. Mr Ling's claim against the Commonwealth arises substantially out of the same matters of fact. Thus, the matters which gave rise to the contractual claim matters correspond closely with those which it is alleged falsified the representations said to have been made on behalf of the Commonwealth to Mr Ling. The Court's jurisdiction to entertain the cross-claim Section 75(iii) of the Constitution confers on the High Court original jurisdiction in matters in which the Commonwealth, or a person suing or being sued on behalf of the Commonwealth, is a party. Section 77(i) empowers the Parliament, with respect to, inter alia, the matter in s.75(iii), to make laws defining the jurisdiction of any federal court other than the High Court, and investing any court of a State with federal jurisdiction. While by s.39(2) of the Judiciary Act 1903 the Parliament has, subject to certain presently immaterial exceptions, conferred on State courts federal jurisdiction in all matters in which the High Court has original jurisdiction (which includes jurisdiction in cases to which the Commonwealth is a party), it has not, at least expressly, conferred that jurisdiction on this Court. Section 56(1)(b) of the Judiciary Act provides that a person making a claim against the Commonwealth in contract or tort may do so in the High Court or in a court of the State or Territory in which the claim arose. This Court is not mentioned. (a) Remittal from High Court and consolidation That the appellant could have set up his cross-claim in the Commonwealth proceeding has been decided against him by Hill J, and he did not dispute that before Lehane J. He could have sued the Commonwealth in the High Court, applied to that Court to remit the action to this Court, and then applied for the consolidation of the two proceedings. As Hill J said, this was a "tortuous route". For it to be successfully travelled, two discretions had to be exercised in favour of the appellant. The High Court had to accede to the remittal application, and this Court to the consolidation application. (b) (i) Section 32 associated matter In deciding the issue under s.41(7) of the Bankruptcy Act, Hill J was prepared to assume, without deciding, that the appellant could not have brought his tortious claim as a cross-claim in the Commonwealth proceeding. Section 32 of the Federal Court of Australia Act 1976 confers on the Court jurisdiction "in respect of matters not otherwise within its jurisdiction that are associated with matters in which the jurisdiction of the Court is invoked". In Philip Morris Inc v. Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, at p.494 Gibbs J said:

this sub-section cannot validly confer on the Federal Court jurisdiction in respect of matters other than those enumerated in ss.75 and 76. However, the sub-section is capable of some valid operation. It is expressed to operate to the extent that the Constitution permits, and the Constitution does permit a valid law to be made investing the Federal Court with jurisdiction in respect of matters not otherwise within its jurisdiction that are associated with matters in which the jurisdiction of the Court is invoked, provided that the former matters are matters of a kind mentioned in s.75 or s.76. As has been seen, the jurisdiction of the Federal Court may be invoked in a matter arising under the Trade Practices Act. Once the jurisdiction of the Court is so invoked, its jurisdiction is extended by s.32(1) to associated matters which arise under other laws made by the Parliament, even though the Parliament has not (except by s.32(1)) conferred jurisdiction on the Court in respect of those matters. His Honour then gave the example of an action for infringement of copyright, a matter arising under a law of the Commonwealth in respect of which no original jurisdiction had been directly conferred on this Court, and said that the effect of s.32(1) was that jurisdiction was conferred on this Court in respect of an infringement action that was associated with matters otherwise within its jurisdiction. The judgments of Mason J at p.516, Aickin J at p.538 and Wilson J at p.547 are to the same effect. Gibbs J's copyright illustration is directed to s.76(ii), which empowers Parliament to make laws conferring original jurisdiction on the High Court in any matter arising under any laws made by the Parliament, but his general remarks are applicable to s.75(iii). The appellant's claim against the Commonwealth for damages for negligence is, for the purposes of s.77(i) of the Constitution, a matter mentioned in s.75(iii) - a matter in which the Commonwealth is a party. Parliament may thus make a law defining the jurisdiction of this Court in relation to that matter. Section 32(1) is such a law, and, subject to the question discussed under the next sub-heading, the appellant could have brought his claim as a cross-claim in the Commonwealth proceeding, if it is a matter "associated with" the Commonwealth's claim against him. Lehane J decided that the matters which gave rise to the Commonwealth's contractual claim corresponded closely with those which the appellant alleges falsified the representations he says the Commonwealth made. Hill J was "inclined to think" that the necessary association existed: (1995) 58 FCR, at p.137. In Philip Morris all members of the Court accepted that s.32 confers jurisdiction in respect of associated federal claims, whether or not these claims are part of the "matter" that originally attracted the Court's jurisdiction. In other words, it is not necessary that the two claims so depend on common transactions and facts that they arise out of a common substratum of facts. See e.g. per Mason J at p.512. See also Sutton v. Sharp (1994) 125 ALR 643, at pp.660-661 per Wilcox CJ. The federal claim in the Commonwealth proceeding was that the appellant misleadingly represented to Asian students that they would receive refunds if they were unable to obtain visas, that the students relied on the representation by paying their fees in advance, and that the Commonwealth relied on it by refunding the fees. The appellant says he was induced to establish institutions in which to provide English language courses to Asian students by representations by the Commonwealth that it would facilitate their entry into Australia. The representations were negligent in that the Commonwealth failed to advise the appellant that government policy was likely to change, with the result that the number of students eligible for entry would be reduced. As a result of the change that in fact occurred the appellant suffered loss, including the amount of the judgment obtained by the Commonwealth against him. Although there is no common substratum of facts involved in the two claims, the appellant's claim, if successful, would impeach that of the Commonwealth in the sense described in the cases on equitable set-off. Equitable set-off is available where the defendant's claim impeaches the title of the plaintiff's claim. The mere existence of a cross-demand is not sufficient. See Edward Ward & Co v. McDougall [1972] VR 433; Eagle Star Nominees Ltd v. Merril [1982] VR 557; Indrisie v. General Credits Ltd [1985] VR 251; James v. Commonwealth Bank of Australia (1992) 37 FCR 445. In his article "Equitable Set-offs" (1969) 43 ALJ 265, at p.268 Dr. Spry Q.C. wrote: What must be established was such a relationship between the claim of the plaintiff at law and the claim of the defendant that the right of the plaintiff should be regarded in equity as dependent on satisfaction of the claim of the defendant. This would be the case where, for example, there had been not only fraud on the part of the plaintiff such as to give rise to a claim against him, but that fraud had also led to the incurring of the obligation of the defendant. Similar principles no doubt applied when it was negligence, rather than fraud, which was in issue, and it was through the negligence or other wrong of the plaintiff (in respect of which the claim of the defendant was made) that the claim against the defendant had arisen. ... And indeed there were other cases too where the behaviour of the plaintiff was such that his rights would be regarded in equity as conditional on the allowing of the claim of the defendant, for the applicable principles were not to be arbitrarily restricted. (I have omitted the footnotes and the authorities referred to in them.) The appellant's claim in negligence would, if successful, impeach the title of the plaintiff's claim. While before us the appellant denied that his claim gave rise to an equitable set-off, in his written submission that he should not be made bankrupt on the Commonwealth's judgment he said, correctly in my view, that "the allegation that the conduct of the Commonwealth caused the Debtor's acknowledged breaches of his contract with numerous overseas students is a matter which necessitates the conclusion that the Debtor ought not to be made bankrupt in respect of liabilities incurred as a direct consequence of the Debtor's reliance on that conduct". Without attempting to propound a test that can be applied in all cases to determine whether one claim is "associated with" another within s.32, it seems to me that the required nexus exists where the cross-claim impeaches the claim, that is to say where the conduct that sustains the cross-claim has brought about or contributed to the existence of liability on the claim. Accordingly, s.32(1) would have given this Court jurisdiction to hear the appellant's negligence claim had he set it up as an answer to the Commonwealth's claim. (ii) Order 5 rule 1 Order 5 rule 1 of the Federal Court Rules permits a respondent to cross-claim against an applicant "for any relief to which the respondent would be entitled against the applicant if the applicant were a respondent in a separate proceeding commenced in the Court by the respondent for that purpose". In Obacelo Pty Ltd v. Taveraft Pty Ltd (1985) 5 FCR 210 it was held that the Court had no jurisdiction in relation to a cross-claim which could not have been brought in the Court as a separate proceeding. That case was decided before the cross-vesting legislation was enacted. Section 4(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 of each of the States gives this Court original and appellate jurisdiction with respect to "State matters". A "State matter" is "a matter in which the Supreme Court has jurisdiction otherwise than by reason of a law of the Commonwealth or of another State". Section 9(2) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) enables this Court to exercise jurisdiction conferred on it by the State Acts. The courts of the States derive their jurisdiction to determine a suit against the Commonwealth for negligence from a law of the Commonwealth, namely s.39(2) of the Judiciary Act. Accordingly this Court would not have jurisdiction to entertain the appellant's negligence claim in a separate proceeding, unless the requirement in Order 5 rule 1 were dispensed with under Order 1 rule 8. In Pilecki & Turner Pty Ltd v. Chen (unreported, 23 April 1993) Drummond J said that as a result of the cross-vesting legislation "there can probably never be any doubt now that this Court will always have jurisdiction in every case to entertain a cross-claim". In 163 Clarence Street Pty Ltd v. New World Oil and Developments Pty Ltd (unreported, 31 May 1994) Einfeld J agreed with this statement. The cross-claims in these cases were common law claims against natural persons and corporations, and Drummond J's statement is doubtless correct in such cases. But the definition of "State matter" means that it does not have general application. So the position is that s.32 confers jurisdiction on the Court to hear the appellant's claim against the Commonwealth, yet Order 5 rule 1 purports to prevent him making it by cross-claim. There must therefore be a question as to whether the rule is effective to do this. Cf. Australasian Jam Co Pty Ltd v. Federal Commissioner of Taxation (1953) 88 CLR 23 and Pearce, Delegated Legislation, pars.402-411. The existence of the dispensing power in Order 1 rule 8 may be relevant in this connexion. But, as will become apparent, I need not decide whether Order 5 rule 1 is effective in the sense I have described. (c) Cross-vesting from State Court

This court could have acquired jurisdiction to determine the appellant's negligence had he commenced an action in a State court and secured its transfer to this Court under s.5(1) of the State cross-vesting statute. It could then have been consolidated or heard together with the Commonwealth proceeding. (d) Consent of Commonwealth to Federal Court assuming jurisdiction In Breavington v. Godleman (1988) 169 CLR 41 the plaintiff sued the Australian Telecommunications Commission in the Supreme Court of Victoria for damages for negligence arising out of a motor vehicle accident that occurred in the Northern Territory. The Commission was "the Commonwealth" for the purposes of s.56 of the Judiciary Act. Because the plaintiff's claim did not arise in Victoria, sub-s.(1)(b) was not applicable. It was nevertheless held that as the Commonwealth had not objected to the jurisdiction of the Court or pleaded a defence based on s.56, the Supreme Court had jurisdiction to entertain and determine the claim against the Commission. Mason CJ said: It is not the function of s.56 to invest jurisdiction in the High Court or the courts of the States in actions against the Commonwealth. That is the function of s.75(iii) of the Constitution and s.39(2) of the Judiciary Act. ... What [s.56] does is to confer a right to proceed against the Commonwealth in the circumstances mentioned .... Although, for these reasons, s.56 does not limit or curtail the investment of jurisdiction achieved by s.39(2), the effect of s.56 is to qualify or restrict what may be done in the exercise of that jurisdiction by providing that the right to proceed against the Commonwealth in respect of a claim in contract or tort arising in a Territory is exercisable only in the circumstances mentioned in the section. ... On this footing s.56 enabled the Commission to defeat the action on the ground that the applicant had no right to proceed against the Commonwealth in the Supreme Court of Victoria .... Whether the absence of such a right to proceed should be raised by way of objection to the jurisdiction or by way of defence is not a question that needs to be decided. The Commission has not taken such an objection, nor pleaded such a defence. Accordingly, the Supreme Court of Victoria has jurisdiction to entertain and determine the claim for relief against the Commission. The jurisdiction was necessarily federal jurisdiction by reason of s.75(iii) of the Constitution and s.39(1) and (2) of the Judiciary Act. To the same effect are the judgments of Brennan J at p.118, Wilson and Gaudron JJ at p.104, Deane J at pp.139-140, Dawson J at pp.152-153 and Toohey J at p.169. It is I think clear that in their Honours' view the case depended on the Supreme Court having jurisdiction under s.39, and that the decision would not have been the same had the forum been this Court, which, for some reason, does not enjoy the benefits conferred on State courts by s.39. Although Hill J did not decide this question, he appears not to have shared my view: (1995) 58 FCR, at p.133. To the extent that he doubted whether Breavington v. Godleman was distinguishable on the ground that s.39(2) does not mention this Court, I respectfully differ from him. It follows that in my view the consent of the Commonwealth would not have enabled the appellant to have brought his cross-claim in the Commonwealth proceeding if the Court otherwise lacked jurisdiction to entertain it. Reasonableness of appellant's failure to raise cross-claim It is one thing to say that a party could have raised a defence or cross-claim in an earlier proceeding. It is another to say that he should have. In Anshun (1981) 147 CLR, at p.602 Gibbs CJ, Mason and Aickin JJ said: there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. (a) The tortuous route I do not think the appellant's failure in 1992 to follow the course later mapped out by Hill J was unreasonable. His Honour was, of course, not concerned with the reasonableness of the appellant's conduct, but with whether he could have set up his negligence claim in the Commonwealth proceeding. As I have said, in order to bring the matter before this Court in the Commonwealth proceeding the appellant would have had to commence an action in another court, ask that court to exercise its discretion in favour of remitting the matter to this Court, and then ask this Court to exercise its discretion to consolidate the actions or hear them together. While experience indicates that it is most unlikely that either discretion, especially the first, would have been exercised against the appellant, he had no right to remittal or consolidation. Given that he had first to initiate a proceeding in another court before the discretionary issues could arise, it was not unreasonable for him not to follow the tortuous route. (b) The s.32 approach Four considerations have led me to conclude that it was not unreasonable for the appellant not to have set up his negligence claim as an associated matter. The first is that in his discussion of s.32 and Order 5 rule 1 Hill J had said "it would clearly be the case that this court would have no jurisdiction (absent the consent at least of the Commonwealth) to hear and decide a case involving a claim in tort against the Commonwealth in a separate proceeding". The second is that his Honour's later observation that Order 5 rule 1 may be in conflict with s.32 may reasonably have led the appellant to conclude that in order for him to bring his cross-claim in this Court he would first have to attack the validity of the rule. The third is that although Order 1 rule 8 would have enabled the Court to dispense with the requirement in Order 5 rule 1, an application in that behalf would have been required, and it would not necessarily have succeeded. The final consideration is that although I have concluded that s.32 gave this Court jurisdiction to hear the negligence claim, the process of reasoning involved discloses that that conclusion is not obvious. It proceeds by analogy with what was said in Philip Morris. No earlier case actually decides the point. (c) Cross-vesting For much the same reasons as those given under (a), I do not think it was unreasonable of the appellant not to have commenced an action in a Supreme Court on his negligence claim in 1992 and then sought an order that it be transferred to this Court under the State's cross-vesting legislation. The fact that in May 1995 he did commence his action in the Supreme Court of Victoria, and in August of that year consented to a transfer to this Court, does not mean that it was unreasonable not to have done this three years earlier. I do not think the appellant was required, under pain of estoppel, to approach a court other than that in which the proceedings against him had been launched, and then seek a favourable exercise of discretion from that court to a transfer of the case to the other court. It is true that in 1995 the Commonwealth consented to the transfer. But it may, for tactical reasons, not have done so in 1992. And in any event, the Commonwealth's consent does not deprive the court of its discretion to refuse a transfer. Conclusion on the first appeal Lehane J did not expressly deal with the unreasonableness issue. He did however consider whether there were special circumstances taking the case out of the general rule or which, as a matter of discretion, the Court might accept as sufficient to justify the displacement of the general rule. The Privy Council in Yat Tung Investment Co Ltd v. Dao Heng Bank Ltd [1975] AC 581, at p.590 appears to have considered "special circumstances" as an issue separate from "unreasonableness". In Yat Tung at p.590 Lord Kilbrandon, for the Privy Council, said: The shutting out of a "subject of litigation" - a power which no court should exercise but after a scrupulous examination of all the circumstances - is limited to cases where reasonable diligence would have caused a matter to be earlier raised; moreover, although negligence, inadvertence or even accident will not suffice to excuse, nevertheless "special circumstances" are reserved in case justice should be found to require the non-application of the rule. For example, if it had been suggested that when the counterclaim in no.969 came to be answered Mr Lai was unaware, and could not reasonably have been expected to be aware, of the circumstances attending the sale to Choi Kee, it may be that the present plea against him would not have been maintainable. The Board's example seems to be one to which the rule would not apply at all, rather than a special circumstance requiring the non-application of the rule. On Lord Kilbrandon's own formulation, the rule does not apply unless reasonable diligence would have caused a matter to be raised. A party who is unaware of the facts which answer a claim, and could not reasonably be expected to be aware of them, would not be held to have failed to exercise reasonable diligence, or to have acted unreasonably, in not raising the answer. I prefer to approach the matter as the High Court appears to have done, and that is simply to ask whether the appellant's failure to raise his grievance in the Commonwealth proceeding was unreasonable. For the reasons I have given, I do not think it was, and accordingly I do not consider he is estopped from now litigating his negligence claim. Before parting with this issue, I should express my view that Anshun was a clear case. Only one court was involved. No jurisdictional issues complicated the scene. No rules of court threw up obstacles. The judgment sought to be obtained by the Authority would conflict with that already obtained against it. Bryant was closer to the present case in that two courts were involved. But, unlike the present case, there was the possibility of conflicting judgments: (1994) 51 FCR, at p.535 (Einfeld J) and cf. (1995) 57 FCR, at p.298 (Full Court), there were no jurisdictional problems, and no troublesome rules of court. I would allow the first appeal and order that the Commonwealth's motion for dismissal be dismissed. I would remit the matter to Lehane J for pre-trial directions. The bankruptcy appeal The Appeal Book contains no record of Lehane J's reasons for making the sequestration order. The appellant's ground of opposition to the petition was that his cross-claim was "other sufficient cause" for the purposes of s.52(2)(b) of the Bankruptcy Act. Once his Honour made his order in the first appeal, the ground of opposition evaporated, and the sequestration order was presumably made as of course. The viability of the appellant's negligence action appears not to have been explored before Lehane J, and was not explored on the appeal. In those circumstances I propose to say no more than that, although his claim has its difficulties, as his counsel conceded, it has in my view sufficient validity to justify a dismissal or adjournment of the petition. See Re Schmidt; Ex parte Anglewood Pty Ltd (1968) 13 FLR 111 and Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd [No. 2] (1994) 51 FCR 14. The appropriate course is to allow the bankruptcy appeal, and set aside the sequestration order. I would adjourn the hearing of the petition until the determination of the negligence claim or any earlier date determined by a Judge of the Court.

I certify that this and the preceding 20 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg ................................................. Associate 25 July 1996

Counsel for the Appellant: G T Bigmore QC and M R Aldridge Solicitors for the Appellant: J M Smith & Emmerton Counsel for the Respondent: P M Biscoe QC and F Kunc Solicitors for the Respondent: Australian Government Solicitor Date of Hearing: 28 May 1996 Place of Hearing: Sydney Date of Judgment: 25 July 1996

IN THE FEDERAL COURT OF AUSTRALIA) NEW SOUTH WALES DISTRICT REGISTRY) No NG 383 of 1996 GENERAL DIVISION ) No NG 397 of 1996 BETWEEN: NOEL LING Appellant AND: COMMONWEALTH OF AUSTRALIA Respondent COURT: WILCOX, WHITLAM AND SUNDBERG JJ PLACE: SYDNEY DATE: 25 JULY 1996 REASONS FOR JUDGMENT WILCOX J: I have had the advantage of reading in draft form the reasons of Sundberg J. I agree with him but wish to make some additional observations. The principle applied by the High Court of Australia in Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 is designed to minimise the burden of litigation. It enables courts to ensure that parties put their whole case forward at one time, thereby eliminating duplication of effort and expense and reducing the opportunity for a party to harass a weaker opponent with repeated suits. However, these benefits come at a price. The result of a court applying the principle is to shut out a claim or defence that a party wishes to pursue, without determination of its intrinsic merit, on the ground that it ought to have been raised in

earlier litigation. As the Judicial Committee of the Privy Council pointed out in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd (1975) AC 581 at 590, this is a serious step, a power not to be exercised except "after a scrupulous examination of all the circumstances". If the Anshun principle is too readily applied, there is a possibility of serious injustices. As it seems to me, application of the principle to a failure to plead a defence will ordinarily not present a problem. It is not unreasonable to expect people who are sued promptly to consider what defences are available to them and put forward any that seem to have substance. The same statement may be made about a claim for indemnity, as between parties to the first proceeding, in relation to the claim made in that proceeding; as in Anshun itself. However, it cannot be made about cross-claims generally. As a member of the Full Court in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287, I joined in holding that the Anshun principle might apply to a cross-claim. I adhere to that view, and also the actual decision in the case. Bryant was, in my opinion, a clear case for the application of the Anshun principle. The claim that Mr Bryant sought to make in the second action was intimately connected to the bank's claim against him in the first action. Both claims arose out of substantially the same facts and Mr Bryant had originally pleaded the matters raised in the second case as a defence to the first. The decision in Bryant does not mean that it will always be appropriate to apply the Anshun principle to cross-claims. Some cross-claims have little or no connection with the claim in the action. There may be no more than an identicality of parties. It is difficult to see any justification for applying the Anshun principle to a case of that kind. Some cross-claims overlap the facts of the principal claim but involve additional facts. Where this occurs, a question of degree arises. It would be wrong to say that the Anshun principle is excluded whenever there are additional facts; to go so far would be to render it nugatory. However, where the additional facts are substantial, it may be appropriate to accept the reasonableness of separate proceedings. I think the present case is of this type. There is a factual connection between the claim that was brought by the Commonwealth against Mr Ling and the claim he seeks to make against the Commonwealth. Both actions arose out of Mr Ling's involvement in businesses providing English language instruction to Chinese students and the 1989 government decision to restrict student entry visas. Also, one of the items of damage claimed by Mr Ling in his action against the Commonwealth is the sum of damages awarded against him by Beaumont J in the first action. But thereafter the facts diverge. The Commonwealth's claim was based upon assignments to it, by students denied visas, of their right to enforce an implied term of their agreements with Mr Ling. The primary issues in the case were the existence or otherwise of the alleged implied term, the validity of the assignments and the situation of each of the students - in particular the fees paid by that student and whether or not he or she was denied a visa. There were also legal issues about the Commonwealth's competence to take the course it did. In contrast, the major issues that seem to arise in Mr Ling's claim concern statements allegedly made by various government functionaries in 1985 and 1987 about promotion of Asian educational services and the effect in law of these statements, including their capacity to give rise to tortious liability, the effect of the 1989 change in government policy and the nature and extent of any damage suffered by Mr Ling, especially having regard to the 1990 sale of his relevant business interests. While there is some factual overlap, clearly each of the actions involves substantial facts immaterial to the other action. I cannot, with respect, accept the view of the learned primary Judge, Lehane J, equating the situation in this case with that in Bryant or his Honour's statement that "Mr Ling's claim against the Commonwealth arises substantially out of the same matters of fact" as the Commonwealth's claim against him. If that were so, it is unlikely that anybody would have doubted the Federal Court's jurisdiction to deal with Mr Ling's claims. It would clearly have involved the concept of "same substratum of facts", a basis of jurisdiction under s. 32 of the Federal Court of Australia Act 1976 that has been well understood since the decision in Fencott v Muller (1983) 152 CLR 570. Yet, in dealing with Mr Ling's application to set aside the bankruptcy notice issued by the Commonwealth in enforcement of the judgment entered by Beaumont J, Hill J was prepared to assume that Mr Ling "could not have brought the claims in tort directly as cross-claims in the Commonwealth proceedings": see Re Ling; Ex parte Commonwealth of Australia (1995) 58 FCR 129 at 133-134. In order to hold that the claim was one that Mr Ling might have set up in the case brought against him by the Commonwealth, Hill J postulated what he called the "tortuous route" of an action brought by Mr Ling in the High Court, pursuant to s. 75(iii) of the Constitution, and remitted to this Court under s. 44 of the Judiciary Act 1903. This Court does not have a general jurisdiction to determine actions against the Commonwealth, notwithstanding that it is within the province of Parliament to confer that jurisdiction on the Court: see s. 77(i) of the Constitution. The continuing failure of Parliament to confer that jurisdiction is remarkable in the light of the exposure in 1988 of the injustice which it may create: see Kodak (Australasia) Pty Ltd v Commonwealth of Australia (1988) 22 FCR 197. Nonetheless, I am satisfied that, in the present case, the Court would have had jurisdiction to entertain the action, without the necessity for a transfer order under the cross-vesting legislation. It would have had that jurisdiction under s. 32 of the Federal Court of Australia Act, not on the basis that Mr Ling's claim arose out of the same substratum of facts as the Commonwealth's action, but because it was an action of the type referred to in s. 75 (iii) of the Constitution and so capable of being committed by Parliament to this Court. As Sundberg J points out, s. 32 covers such cases. The fundamental issue in the application of the Anshun principle is whether it was reasonable for the party bringing the second action to have failed to raise its subject in the first action. In Anshun at 602, Gibbs CJ, Mason and Aitkin JJ stated the relevant principle in these words: "... there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it." Although their Honours were dealing with failure to raise a defence, the concept of reasonableness has been applied to failure to raise a claim: see Priestley JA in Rahme v Commonwealth Bank of Australia (New South Wales Court of Appeal, 20 December 1991, not reported) which is discussed in Bryant at 297. In considering reasonableness, as it seems to me, consideration must be given to all aspects of the case. They include the extent of the overlap between the facts underlying each claim; the greater the overlap, the easier it is to argue that it was unreasonable not to raise the matter in the first case. They also include any difficulties that existed, or might reasonably have been perceived, in raising the matter earlier. Where the matter can be raised only by way of cross-claim, as distinct from defence, and there was a serious question about the entitlement of the Court to consider the cross-claim, there is an obvious difficulty in arguing that it was unreasonable for the party not to have done so. Order 5 rule 1 of the Federal Court Rules presented an obstacle to any cross-claim that Mr Ling might have wished to bring. However, the Rules are not immutable. A Judge may dispense with compliance with any of their requirements at any time: see Order 1 rule 8. So I would not treat Order 5 rule 1 as critical to the result of the case. But I think it is relevant. In assessing the reasonableness of Mr Ling's failure to raise his claim against the Commonwealth when he was sued by it in the earlier action, it is necessary to look at the whole of the circumstances that he then confronted. His claim involved facts that overlapped the Commonwealth's case to some extent but were substantially extraneous to that case. The Court's jurisdiction to entertain his claim was not blindingly obvious. What might be called the "Philip Morris" aspect of s. 32 was probably not then widely appreciated. And Mr Ling's claim would have failed to comply with the requirements of Order 5 rule 1; so a dispensation would have been necessary before it could be brought. Taking those matters in combination, I think it was not unreasonable for Mr Ling to fail to raise in the first action the matters he now seeks to raise in his action against the Commonwealth. I would allow Mr Ling's appeal against the order of Lehane J dismissing his statement of claim and, in lieu thereof, order that the Commonwealth's motion for dismissal be dismissed and the proceeding be remitted to Lehane J for pre-trial directions. Having regard to the issues involved, it ought to be possible to arrange a relatively early trial. So I share the view of Sundberg J that the appropriate course in the bankruptcy proceedings is to allow the appeal and to make orders setting aside the sequestration order and adjourning the hearing of the petition until the determination of Mr Ling's action for damages or any earlier date determined by a Judge of the Court. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment of his Honour Chief Justice Wilcox. APPEARANCES Counsel for the Appellant : G T Bigmore QC M R Aldridge Solicitor for the Appellant : J Smith & Emmerton Counsel for the Respondent : P M Biscoe QC F Kunc Solicitor for the Respondent: Australian Government Solicitor Date of hearing : 28 May 1996

CATCHWORDS No. NG of Coram:Whitlam J Place: Sydney Date: 1996

IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 383 of 1996 ) NG 397 of 1996 GENERAL DIVISION ) NOEL LING Appellant COMMONWEALTH OF AUSTRALIA Respondent Coram:Whitlam J Place: Sydney Date: 25 July 1996 MINUTES OF ORDER

THE COURT ORDERS THAT: 1. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 383 of 1996 ) NG 397 of 1996 GENERAL DIVISION ) NOEL LING Appellant COMMONWEALTH OF AUSTRALIA Respondent

Coram:Whitlam J Place: Sydney Date: 25 July 1996 REASONS FOR JUDGMENT WHITLAM J: I agree with the judgment of Sundberg J and with the additional observations made by Wilcox J.

I certify that this page is a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam Associate: Date: 25 July 1996