Rafferty v Time 2000 West Pty Limited

Federal Court of Australia|2010-08-17|Before: Besanko J

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, applied Fennell v S & E Services Holdings (1988) 47 SASR 6, followed Gould v Vaggelas (1985) 157 CLR 215, followed Haydon v Jackson [1988] ATPR 40-845, distinguished I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109, cited Lackersteen v Jones (No 2) (1988) 93 FLR 442, followed Rafferty v Time 2000 West Pty Limited (No 4) [2010] FCA 725, cited

Date of hearing: 3 August 2010

Division: GENERAL DIVISION

Category: Catchwords

Counsel for the Applicants: Mr R J Whitington QC with Mr J M Cudmore

Solicitor for the Applicants: Cosoff Cudmore Knox

Counsel for the First Respondent: The First Respondent did not appear.

Counsel for the Second to Fifth Respondents: Mr M E Hoile

Solicitor for the Second to Fifth Respondents: Cowell Clarke

Counsel for the Sixth Respondent: Mr M Keith

Solicitor for the Sixth Respondent: Mouldens

AND: TIME 2000 WEST PTY LIMITED ACN 127 893 270

TIME 2000 SYSTEMS (AUSTRALIA) PTY LIMITED ACN 127 853 614

TIME 2000 OPERATIONS (AUSTRALIA) PTY LIMITED ACN 128 700 541

EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG)

The Heads of Agreement referred to in paragraph 9 of the Applicants' Further Amended Statement of Claim dated 19 January 2010, the Joint Venture and Shareholders' Agreement referred to in paragraph 15 of the Further Amended Statement of Claim and the Rights Agreement referred to in paragraph 19 of the Further Amended Statement of Claim be set aside.
The applicants be repaid the following sums subject to and upon the terms of the orders set out hereinafter: 2.1 as to $200,000 to the first applicant ("Rafferty"); 2.2 as to $500,000 to Karaville Holdings Pty Limited ("Karaville"); and 2.3 as to $1,000,000 to Karaville.
The first, second, fourth and fifth respondents jointly and severally pay to the applicants the following moneys: 3.1 as to Rafferty, the sum of $200,000.00; and 3.2 as to Karaville, the sum of $1,500,000.00.
The first, second, fourth and fifth respondents pay the applicants interest of $416,111.29 in accordance with section 51A of the Federal Court of Australia Act 1976 (Cth) and Practice Note CM16.
Upon payment by the first, second, fourth and fifth respondents as provided in paragraphs 2, 3 and 4 above: 5.1 the shares of Santora in Time 2000 West Pty Limited be cancelled; and 5.2 Rafferty provide to Time 2000 West Pty Limited by its director, the fifth respondent, a notice of resignation as a director of Time 2000 West Pty Limited.
With respect to the costs of the applicants' claims against the second to fifth respondents: 6.1 the second and fourth respondents pay those costs and after 30 January 2009 those costs be assessed on an indemnity basis; and 6.2 the fifth respondent pay those costs after 31 August 2009.
The applicants' claims against the sixth respondent be dismissed.
The applicants pay the costs of the sixth respondent in relation to the claims by the applicants against the sixth respondent.
The cross-claim by the third respondent against the first applicant be dismissed and the third respondent pay the first applicant's costs of the cross-claim.
The cross-claim by the second to fifth respondents against the sixth respondent be dismissed.
The second to fifth respondents pay the costs of the sixth respondent in relation to the cross-claim by the second to fifth respondents against the sixth respondent.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

AND: TIME 2000 WEST PTY LIMITED ACN 127 893 270

TIME 2000 SYSTEMS (AUSTRALIA) PTY LIMITED ACN 127 853 614

TIME 2000 OPERATIONS (AUSTRALIA) PTY LIMITED ACN 128 700 541

EMBLETON LIMITED (A COMPANY INCORPORATED IN HONG KONG)

REASONS FOR JUDGMENT 1 These are my reasons for the final orders I will make in this proceeding. They are to be read with my principal reasons delivered on 13 July 2010: Rafferty v Time 2000 West Pty Limited (No 4) [2010] FCA 725. I will use the same description of the parties that I used in my principal reasons. 2 The orders sought by the applicants in their application are set out in my principal reasons (at [25]). There was a dispute as to whether the orders sought in paragraphs 3, 4 and 5 should be made. The applicants no longer seek the orders set out in those paragraphs. There is a dispute as to whether the order sought in paragraph 6 should be made against the fourth and fifth respondents. There is no dispute that the applicants are entitled to interest on the moneys to be paid to them. There is no dispute that the applicants are entitled to an order for costs, but there is a dispute as to whether the costs should be assessed on a party/party or indemnity basis. 3 There is no dispute that the applicants' claims against the sixth respondent must be dismissed. There is a dispute as to the parties who should pay the sixth respondent's costs and the basis upon which those costs should be assessed. 4 There is no dispute that the cross-claim by T2OA against Mr Rafferty must be dismissed with costs. 5 There is no dispute that the cross-claim by the second to fifth respondents against the sixth respondent must be dismissed with costs.

The orders sought with respect to T2W (paragraphs 3, 4 and 5 of the application) 6 The Donovan respondents opposed the orders sought in paragraphs 3, 4 and 5 of the application. They submitted that a receiver of the assets of T2W should be appointed. They handed to the Court a consent to act as receivers signed by Mr Stephen James Duncan and Mr Christopher Robert Powell. 7 I had concerns about the orders sought by the applicants. I understood that the applicants were keen to avoid the costs associated with a receivership but there were difficulties with their proposal, which could be seen as an informal administration. I raised my concerns with counsel for the applicants during the course of his submissions. In the result, the applicants did not press for the orders sought in paragraphs 3, 4 and 5 of their application. Instead, they asked that T2W be included in the order for the payment of moneys and that the order simply refer to the amounts paid under the three agreements without any reduction. In my opinion, it is appropriate that T2W be included in the order for the payment of moneys.

The orders sought with respect to the fourth and fifth respondents (paragraph 6 of the application) 8 The applicants seek an order that T2W (first respondent), T2SA (second respondent), Embleton (fourth respondent) and Mr Donovan (fifth respondent) are jointly and severally liable to pay them the sum of $1,700,000. This sum was the total sum paid by the applicants under the three agreements. The details of the payments are set out in my principal reasons (at [42], [61], [103]). 9 It is appropriate to make the order sought by the applicants against T2W and T2SA, and I did not understand the Donovan respondents to argue to the contrary. In my principal reasons, I said that it was also appropriate to grant relief under s 87(1) of the Trade Practices Act 1974 (Cth) ("TPA") against, inter alia, Embleton and Mr Donovan (at [211]-[213], [352]). However, in their submissions as to final orders, the Donovan respondents submitted that, in the circumstances, I did not have the power to make an order for payment against Embleton and Mr Donovan. 10 In the submissions that were made before I delivered my principal reasons the Donovan respondents submitted that loss or damage of the type which would result in pecuniary relief under s 82 of the TPA had not been proved by the applicants. They made submissions about s 87 of the TPA and the orders which could be made under that section, but I did not understand them to put the precise submission, or articulate fully the precise submission they now put. However, as the submission raises a matter of law and as the applicants did not argue that I could not entertain the submission, I propose to consider it. 11 In my opinion, the submission must be rejected. 12 The first point to note is that the applicants established loss or damage within s 87(1) as a result of the respective contraventions of s 52 and s 51AD of the TPA: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31. They are entitled to have the three agreements set aside and to be repaid or compensated for the moneys paid under the agreements. In addition, they are entitled to interest on those moneys. 13 The second point to note is that, in my opinion, it is proper to conclude from all the evidence in the case that the companies identified in my principal reasons at [8], [9], [10], [13], [14], [15] and [16] were all companies which, at all relevant times, were owned and controlled by Mr Donovan. The evidence consists not only of the company searches, but also of the evidence of Mr Donovan's dealings with the applicants and Deloitte, and the evidence given by the witnesses called by Madgwicks. That evidence, and my findings with respect to it, are set out in the principal reasons. 14 It seems to me that even if it is assumed that, in addition to an order setting aside the three agreements, the only additional relief which could be granted is an order under s 87(2)(c) of the TPA, nevertheless, the order for payment of the moneys should include Embleton and Mr Donovan because the true beneficiaries of the moneys were Mr Donovan and his companies. In other words, for the purposes of s 87(2)(c) of the TPA, it is appropriate to proceed on the basis that the entities who received the moneys were Mr Donovan and the corporate respondents. I note that the applicants do not seek an order against T2SO. 15 On this approach, the decision to which the Donovan respondents referred does not stand in the way of the conclusions which I have reached. In Haydon v Jackson [1988] ATPR 40-845, Fisher J (with whom Lockhart J agreed) said that the person ordered to refund money under s 87(2)(c) should be the person who has received the money which is ordered to be refunded. His Honour said that that was so even though, on the face of it, there is a discretion in the provision as to who is to be ordered to refund. The decision does not stand in the way of an order to refund being made against T2W, T2SA, Embleton and Mr Donovan because all of those parties are to be treated as persons who received the moneys. 16 In the alternative, the order sought by the applicants should be made even if it is not appropriate to do so under s 87(2)(c). The orders identified in s 87(2) are not the only orders which can be made under s 87(1): I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Limited (2002) 210 CLR 109. Loss and damage in s 87(1) includes entering into an agreement or transaction into which, but for the contravention, the innocent party would not have entered. An aspect of entering into an agreement or transaction in a case such as the present includes the payment of moneys. Under s 87(1) the Court may make such order "as it thinks appropriate" if it considers that it will "compensate" the innocent party for the loss or damage (that is, entering into an agreement or transaction and paying moneys the party would not otherwise have paid) or "will prevent or reduce the loss or damage". 17 Section 87 confers a power on the Court to grant a wide range of remedies in the exercise of the Court's discretion: I & L Securities Pty Limited at 117 [19] per Gleeson CJ at 142 [106] per McHugh J; Akron Securities v Iliffe (1997) 41 NSWLR 353 at 364-367 per Mason P (with whom Priestley JA agreed). The section is wide enough to accommodate an order for payment against Embleton and Mr Donovan. The real question is whether such an order should be made. In the particular circumstances of this case, I think it should. Embleton was a contravener in relation to both s 52 and s 51AD. Mr Donovan was involved in a contravention in relation to s 52. In fact, he made the statements which gave rise to the contravention of s 52. The licensor (T2SA), Embleton and Mr Donovan are related parties and they all benefited directly (not simply by way of an agents' fee or commission) from the fact that the applicants entered into the three agreements. 18 In my opinion, it is proper to make the order for payment against Embleton and Mr Donovan as well as T2W and T2SA.

The applicants' costs 19 The applicants have succeeded against T2SA and Embleton on both causes of action and are entitled to their costs against those parties. 20 The applicants have succeeded against Mr Donovan on the cause of action involving a contravention of s 52 of the TPA and are entitled to their costs against Mr Donovan. That cause of action was introduced into the applicants' pleadings on 31 August 2009. 21 The applicants made three offers of compromise to the Donovan respondents. Those offers were made by letters dated 16 January 2009, 4 June 2009 and 16 December 2009 respectively. All of those offers represented genuine offers to compromise and all involved offers to settle the applicants' claims on terms more favourable to the offerees than the terms of the orders I will make in favour of the applicants against T2SA, Embleton and Mr Donovan. The offer of 16 January 2009 was made only to the Donovan respondents and, as I have said, they are related parties. I see no reason for not reflecting the circumstances which I have described in the orders for costs against T2SA and Embleton. Those parties should pay the applicants' costs of the claims against them, and the costs after 30 January 2009 should be assessed on an indemnity basis. Mr Donovan is also liable for the applicants' costs of the claims against him for the period after 31 August 2009. However, he is in a different position as far as indemnity costs are concerned. The offer of 16 December 2009 was addressed to Madgwicks as well as the Donovan respondents. They are an independent party and it was not open to Mr Donovan to accept the offer unless Madgwicks also accepted it. In those circumstances it is not appropriate to make an order for indemnity costs against Mr Donovan.

the sixth respondent's costs 22 The Donovan respondents issued their cross-claim against Madgwicks on 30 June 2009. In the cross-claim the Donovan respondents alleged breaches of retainer by Madgwicks and, assuming, contrary to their contention that the Franchising Code of Conduct did not apply, that the Code did apply, to involvement in the contravention of s 51AD. Both causes of action related to the Franchising Code of Conduct and details of the claims are set out in my principal reasons (at [337]-[349]). 23 The applicants joined Madgwicks as a respondent on 31 August 2009. They alleged against Madgwicks a contravention of s 9 of the Fair Trading Act 1999 (Vic) and involvement in a contravention of s 51AD by the Donovan respondents. These two causes of action related to the Franchising Code of Conduct and details of the claims are set out in my principal reasons (at [273]-[336]). 24 Madgwicks were successful in defending both the applicants' claims against them and those of the Donovan respondents. Plainly, Madgwicks are entitled to award of costs. The applicants contend that the Donovan respondents should pay Madgwicks' costs of the applicants' claims against them. They seek a Sanderson order. 25 The following matters should be noted. First, the applicants succeeded on the claim of a contravention of s 51AD of the TPA against the parties they originally sued, but failed on their claim related to that contravention against a party (that is, Madgwicks) they joined part way through the proceeding. Secondly, there was never a serious possibility of the applicants failing in their claim against T2SA or Embleton for a contravention of s 51AD, but succeeding against Madgwicks. Thirdly, while there is no doubt the Donovan respondents were claiming in their cross-claim that, as to the alleged contravention of s 51AD, Madgwicks was the party ultimately responsible, they did not suggest (nor could they) that they could avoid liability to the applicants because Madgwicks was the party solely responsible to the applicants. Finally, I do not detect anything in the Defence of the Donovan respondents or the cross-claim brought by the Donovan respondents against Madgwicks that would have led the applicants to think that it was necessary for them to join Madgwicks. 26 There are numerous authorities on the circumstances in which it is appropriate to make a Bullock or Sanderson order. A number of them are discussed in Professor Dal Pont's book, Law of Costs (2nd ed, LexisNexis Butterworths, 2009) [11.12]-[11.30]. 27 The first question is whether it is appropriate that the unsuccessful respondent should pay the successful respondent's costs. If that question is decided in the affirmative then it becomes necessary to consider whether the order should be a Bullock order or a Sanderson order. 28 In Gould v Vaggelas (1985) 157 CLR 215, Gibbs CJ said (at 229-230): "The ground on which a Bullock order may be made is, in my opinion, more accurately stated in a passage in Sanderson v. Blyth Theatre Co. which was cited with approval in Bullock v. London General Omnibus Co. and Hong v. A. & R. Brown, viz., that the costs which the plaintiff has been ordered to pay to the defendant who succeeded, and which the plaintiff recovers from the defendant who has failed 'are ordered to be paid by the unsuccessful defendant, on the ground that ... those costs have been reasonably and properly incurred by the plaintiff as between him and the [unsuccessful] defendant'. In Johnsons Tyne Foundry Pty. Ltd. v. Maffra Corporation, Williams J. stated the principle in a similar way and Starke and Dixon JJ., in giving their reasons for making a Bullock order, both relied on the circumstance that the attitude adopted by the successful defendant had induced the plaintiff to join the other defendant. In my respectful opinion the true position was clearly stated by Blackburn C.J. in Steppke v. National Capital Development Commission, when he said that 'there is a condition for the making of a Bullock order, in addition to the question whether the suing of the successful defendant was reasonable, namely that the conduct of the unsuccessful defendant has been such as to make it fair to impose some liability on it for the costs of the successful defendant'." (Citations omitted.) (See Murphy J at 232; Wilson J at 246-247, Brennan J at 260.) 29 In Fennell v S & E Services Holdings (1988) 47 SASR 6, von Doussa J said (at 19): "In my opinion the principle to be discerned from Gould v Vaggelas (supra) is that a Bullock order may be made where the costs in question have been reasonably and properly incurred by the plaintiff as between him and the unsuccessful defendant; as between them those costs will be so incurred where the conduct of the unsuccessful defendant in relation to the plaintiff's claim shows that the joinder of the successful defendant was reasonable and proper to ensure recovery." (See also Jacobs J at 14-15.) 30 In Lackersteen v Jones (No 2) (1988) 93 FLR 442, Asche CJ said (at 449): "From those cases therefore the following principles seem to be established before a judge can make a 'Bullock' or 'Sanderson' order.

It must be seen to have been reasonable and proper for the plaintiff to have sued the successful defendant. 2. The causes of action against two or more defendants need not be the same but they must be substantially connected or dependent the one on the other. 3. While it is essential to find that the plaintiff has acted reasonably and properly that alone is not sufficient. The court must find something in the conduct of the unsuccessful defendant which makes it a proper exercise of discretion. 4. Finally, in considering whether to make such an order, the court should, in the exercise of its discretion balance overall two considerations of policy: the first, that an unnecessary multiplicity of actions should not be forced on litigants, so that a plaintiff who acts reasonably in joining two or more defendants should not be penalised or lose the fruits of his victory in costs on the basis that he should have either elected or taken separate actions; secondly, that an unsuccessful defendant should not have to pay more than one set of costs merely because he is unsuccessful." 31 Having regard to my principal reasons, it cannot be said that the applicants' decision to join Madgwicks as a respondent was an unreasonable one. Furthermore, the causes of action against the Donovan respondents and Madgwicks were closely connected. However, this is not a case where there was any prospect of the applicants succeeding against Madgwicks and not succeeding against the Donovan respondents in relation to the alleged contravention of s 51AD of the TPA. Furthermore, I find nothing in the conduct of the Donovan respondents which makes it a proper exercise of the discretion that those respondents should pay Madgwicks' costs of the applicants' claims against Madgwicks. 32 The applicants should pay Madgwicks' costs of the applicants' claims against Madgwicks. 33 The Donovan respondents should pay Madgwicks' costs of their cross-claim against Madgwicks. Madgwicks made a genuine offer of compromise to the Donovan respondents by letter dated 8 December 2009. However, the offer was a joint offer to the applicants and the Donovan respondents and it could not be accepted by the Donovan respondents alone. In those circumstances, I do not think it can form the basis of an order for indemnity costs.

Conclusion 34 I will make the following orders: 1. That the Heads of Agreement referred to in paragraph 9 of the Applicants' Further Amended Statement of Claim dated 19 January 2010, the Joint Venture and Shareholders' Agreement referred to in paragraph 15 of the Further Amended Statement of Claim and the Rights Agreement referred to in paragraph 19 of the Further Amended Statement of Claim be set aside. 2. The applicants be repaid the following sums subject to and upon the terms of the orders set out hereinafter: 2.1 as to $200,000 to the first applicant ("Rafferty"); 2.2 as to $500,000 to Karaville Holdings Pty Limited ("Karaville"); and 2.3 as to $1,000,000 to Karaville. 3. The first, second, fourth and fifth respondents jointly and severally pay to the applicants the following moneys: 3.1 as to Rafferty, the sum of $200,000.00; and 3.2 as to Karaville, the sum of $1,500,000.00. 4. The first, second, fourth and fifth respondents pay the applicants interest of $416,111.29 in accordance with section 51A of the Federal Court of Australia Act 1976 (Cth) and Practice Note CM16. 5. Upon payment by the first, second, fourth and fifth respondents as provided in paragraphs 2, 3 and 4 above: 5.1 the shares of Santora in Time 2000 West Pty Limited be cancelled; and 5.2 Rafferty provide to Time 2000 West Pty Limited by its director, the fifth respondent, a notice of resignation as a director of Time 2000 West Pty Limited. 6. With respect to the costs of the applicants' claims against the second to fifth respondents: 6.1 the second and fourth respondents pay those costs and after 30 January 2009 those costs be assessed on an indemnity basis; and 6.2 the fifth respondent pay those costs after 31 August 2009. 7. The applicants' claims against the sixth respondent be dismissed. 8. The applicants pay the costs of the sixth respondent in relation to the claims by the applicants against the sixth respondent. 9. The cross-claim by the third respondent against the first applicant be dismissed and the third respondent pay the first applicant's costs of the cross-claim. 10. The cross-claim by the second to fifth respondents against the sixth respondent be dismissed. 11. The second to fifth respondents pay the costs of the sixth respondent in relation to the cross-claim by the second to fifth respondents against the sixth respondent. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Trade Practices Act 1974(Cth)ss 51AD, 52, 75B, 87

Fair Trading Act 1999(Vic)s 9

Trade Practices (Industry Codes - Franchising) Regulations 1998(Cth)

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