Federal Court of Australia|1991-12-19|Before: Lee J

The applicant pay the second and third respondents' costs of the application.

Any order for costs or expenses incurred by the fourth to sixth respondents be reserved.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

2. Five natural persons were joined with Manfal as additional respondents to the proceedings and the Commission sought an order that each of those respondents was "jointly and severally liable with Manfal to pay the amount of compensation claimed on behalf of each consumer".

3. Since the commencement of the proceedings a number of directions and orders have been made to prepare the matter for hearing. At this time the matter is ready to be set down for trial.

4. On 6 September 1989 an order was made by the Supreme Court of Western Australia that Manfal be wound up and a liquidator appointed. That order occasioned interlocutory proceedings in this Court followed by an appeal to the Full Court in respect of the right of the Commission to continue proceedings against Manfal without leave. In November 1990 the Full Court held that no leave was required. Manfal obtained a grant of special leave to appeal to the High Court of Australia against the judgment of the Full Court.

5. On 18 September 1991 the Commission, by motion, sought leave to discontinue the proceedings against Manfal. According to an affidavit filed in support of the motion the Commission and Manfal had settled the Commission's claims against Manfal it being a term of settlement that the Commission discontinue its application against Manfal. No other terms of the compromise were disclosed.

6. Each of the individual respondents opposed the motion claiming that the removal of Manfal from the action would involve prejudice.

7. It may be accepted that an application for leave to discontinue proceedings against a respondent will normally be granted. However, that does not mean that such an order is granted as a matter of course. If that were so there would be no need for the Federal Court Rules to provide, as they do in O.22 r.2, that after pleadings have closed a proceeding may be discontinued either with the consent of all the parties or with the leave of the Court.

8. The discretion to grant leave is unfettered. (See Covell Matthews and Partners v French Wools Ltd. (1977) 1 WLR 876 at p 879; S.C.I. Operations Pty. Ltd. v Trade Practices Commission [1984] FCA 52; (1984) 2 FCR 113 per Sweeney J. at pp 142-143, per Lockhart J. at pp 161-162, per Sheppard J. at pp 184-185.) The Court will give consideration to the need to refrain from compelling a party to litigate against its will but will also consider the extent to which the proceedings have developed and whether discontinuance against one respondent may impose injustice on another respondent by removing an advantage that respondent may otherwise enjoy in the proceedings or by imposing a disadvantage. In considering the undesirability of an applicant being forced to continue litigation unwillingly, it is relevant to have regard to whether the discontinuance would make any difference to the burden of litigation undertaken by the applicant and whether the application to discontinue results from a conclusion that the litigation cannot succeed against that respondent or is inspired by other reasons.

9. The requirement of the Federal Court Rules that, in the absence of consent of all parties, discontinuance of litigation against a party only be permitted by leave of the Court contemplates a judicial review of all relevant circumstances and the satisfaction of the Court that the grant of leave is proper in all the circumstances. In some cases the Court may determine that a grant of leave to discontinue should be attended with conditions and in a rare case the Court may determine that the only appropriate order is to refuse the leave sought.

10. Before turning to the particular circumstances of this case it is necessary to have regard to the nature of the litigation commenced by the Commission.

11. The Commission commenced its action under s.80 of the Act seeking an injunction to restrain Manfal and the individual respondents from acts which would involve Manfal being engaged in conduct contravening the provisions of s.52A of the Act. Manfal ceased to trade some time ago and since then the live issue in the litigation has been the Commission's application pursuant to sub-s.87(1B) of the Act for remedial orders on behalf of consumers under sub-s.87(1A) of the Act in respect of the loss or damage suffered by those consumers by reason of the conduct in which Manfal is alleged to have engaged in contravention of s.52A of the Act.

12. Section 87 provides both right and remedy. Upon the postulation in sub-s.87(1B) that, inter alia, a corporation has engaged in conduct in contravention of Pt.V of the Act by reason of which another person has suffered loss or damage or is likely to suffer loss or damage it confers a right upon the Commission to make an application for remedial orders on behalf of the person so affected. The remedy is provided in sub-s.87(1A) pursuant to which, upon the exercise by the Commission of the right conferred upon it under sub-s.87(1B), the Court may make such orders as the Court thinks appropriate against the person who engaged in the contravening conduct, or person who was involved in the contravention, as will compensate the person on whose behalf the application is made.

13. As pointed out in State of Western Australia v Wardley Australia Ltd. [1991] FCA 314; (1991) 102 ALR 213 at p 224, the legislation has as a primary objective the protection of perceived public interests. The rights of litigation provided by the Act are part of interlocking provisions of the Act designed to enforce, or gain adherence to, provisions of the Act intended to govern the conduct of corporations in trade or commerce and thereby serve the general public good. (See Fencott v Muller (1983) 152 CLR 570.)

14. That primary objective is probably made even more apparent in proceedings prosecuted by the Commission.

15. In the present litigation the five individual respondents are not persons to whom s.52A of the Act applies. It is not contended that s.6 of the Act extends the operation of s.52A of the Act to any of those respondents.

16. Pursuant to sub-s.87(1A) of the Act, the orders the Court may make by way of remedy may extend to and bind a person who has been involved in a contravention of s.52A by Manfal if such is found to have occurred but the right conferred by sub-s.87(1B) to make an application for such an order is entirely dependent upon proof that Manfal engaged in conduct which contravened s.52A. In the absence of proof of such conduct by Manfal the Commission has no right to make an application under sub-s.87(1B) and the individual respondents are not liable to have an order made against them under sub-s.87(1A).

17. Although s.75B of the Act defines a person involved in a contravention of a provision of, inter alia, Pt.V of the Act as a person who has aided, abetted, counselled, procured, induced, been knowingly concerned in the contravention or who has conspired with others to effect the contravention, no right of action is provided by the Act against such persons in respect of any of the acts described. The acts are used as a means of definition of the persons to whom remedial orders may be directed in respect of the conduct of the corporation that has contravened, in this case, Pt.V of the Act and occasioned loss or damage to another. In that sense the power of the Court to make an order against a person involved in a contravention as defined by s.75B and the liability of such a person to be made subject to such an order is entirely dependent upon and derived from the proof of conduct in contravention of the provision of Pt.V of the Act by a person to whom the Act applies.

18. The Act does not provide directly that the Court may apportion between the several persons who engaged in the conduct, or were involved in the contravention constituted by that conduct, degrees of culpability in respect of the occasioning of the loss or damage suffered by another but that is not to say that a Court could not entertain proceedings seeking orders of contribution based upon rights at law or in equity arising out of a co-ordinate liability imposed upon the parties by the Act. (See Re: La Rosa and Anor; Norgard v Rodpat Nominees Pty. Ltd. (1991) ATPR 41-139 at pp 52,998-52,999 and 53,001.)

19. The categories of rights of contribution are not closed. The foundation for such a right appears to be unjust enrichment (see Goff and Jones, Law of Restitution (3rd Edition) at p 272) or simply a matter of justice. (See Albion Insurance Co. Ltd. v Government Insurance Office of New South Wales [1969] HCA 55; (1969) 121 CLR 342 per Kitto J. at p 350.)

20. Where there is a community of interest between parties in respect of a matter of liability and the delivery of a benefit to one of those parties by the enforcement of the burden of that liability against the others, a right of contribution may arise. (See Bonner v Tottenham and Edmonton Permanent Investment Building Society (1898) 1 QB 161 per Vaughan Williams L.J. at p 174.)

21. As French J. pointed out in La Rosa (supra) at p 53,001, the question whether any principle of public policy should be applied to deny contribution between persons involved in a contravention of the Act by a corporation and between such persons and the corporation as joint wrongdoers should be decided upon arguments submitted after trial of the action. Having regard to the right of defaulting trustees in breach of trust (see Baker and Langan, Snell's Principles of Equity (28th Edition) at p 294; Ramskill v Edwards (1885) 31 Ch 100 at p 110) and of defaulting directors in breach of their duties to a corporation and its shareholders to pursue cross-claims seeking a right of contribution from co-trustees and co-directors in default, there may be room for an argument that a corporation which has contravened the Act and persons involved in that contravention, may have rights of contribution. Perhaps in some cases, where duties arise from the nature of the relationship existing between the person misled and the corporation, a cross-claim by a person involved in the contravention of the Act seeking contribution from the corporation may be met by a defence or cross-claim alleging malfeasance or breach of fiduciary duty. That circumstance is unlikely to arise where the employee of the corporation holds no office and is acting within the scope of his or her authority and pursuant to the direction of the corporation.

22. In the present case no cross-claim seeking an order for contribution has been issued by any respondent against Manfal. It has not been necessary for any of the individual respondents to take the trouble and expense to seek leave to commence cross-claims against Manfal whilst Manfal has remained a co-respondent liable to a joint judgment with obligations of contribution arising out of the liability imposed by the joint and several judgment sought by the Commission.

23. The individual respondents now contend that discontinuance against Manfal would require each respondent to obtain leave from the Supreme Court of Western Australia to commence a cross-claim proceeding against Manfal and that they should not be exposed to the risk of not now obtaining such leave or to the expense of incurring the cost of those proceedings when the principal proceedings are so far advanced and ready for trial. Furthermore the individual respondents contend they should not be placed in a position where their right at law to obtain contribution is unclear.

24. It is pleaded in the statement of claim that two of the respondents, F.A. and R.A. Lilley ("the respondents Lilley"), were Directors of Manfal at all material times being General Manager and Assistant General Manager respectively. It is then pleaded that two other respondents, Hatch and Howton, were servants or agents of Manfal at all material times as Managers of Sales Administration. It is pleaded that the remaining respondent, Antonovich, was the Secretary of Manfal at all material times.

25. The respondents Lilley, are represented by solicitors; the respondents, Hatch, Howton and Antonovich, have no legal representation. Although the unrepresented parties lodged submissions in support of their opposition to the Commission's motion, I have taken the submissions of counsel for the respondents Lilley to have equal application to the position adopted by the remaining individual respondents.

26. At this point, according to the application and statement of claim, the money judgment sought by the Commission would be a joint judgment against Manfal and any of the individual respondents proved to have been involved in any contraventions of s.52A of the Act alleged in the six instances pleaded.

27. Upon the entry of judgment and irrespective of the grounds of liability relied upon at law to obtain the judgment, the entry of judgment will create a co-ordinate liability between Manfal and the relevant respondents in respect of the sum recoverable under the judgment on behalf of each consumer. The amount of the loss or damage in respect of which judgment is entered will be the amount of loss or damage suffered by reason of the conduct of Manfal in contravention of the Act, not by reason of the conduct of a person involved in that contravention. The right of action and the quantum of the remedy flows solely from the conduct of Manfal in contravention of the Act. It will be the same liability which gives rise to a joint judgment against Manfal and the other respondents. There will be a common interest and common burden under such a judgment. (See Munkman, Quasi Contract p 81.)

28. Although such conduct by Manfal must be proved in order to obtain an order for compensation under sub-s.87(1A) against a person involved in the contravention, the absence of Manfal as a party to the proceeding would mean that there could be no judgment binding upon Manfal. However, the discharge of liability under the judgment by any one of the individual respondents would discharge the consumer's claim for the amount of loss or damage suffered by reason of Manfal's conduct and, therefore, any claim against Manfal. If Manfal were a party to that judgment there would be no question that it would be obliged to make proportionate contribution to any other party to the judgment who voluntarily or involuntarily discharged the judgment and it would be entitled to receive proportionate contributions from all other parties to the judgment if it discharged the judgment.

29. Whatever may have been the situation at law and in equity in respect of rights of contribution prior to the entry of judgment, the entry of a joint or joint and several judgment creates a common burden between the parties to the judgment, although execution of such a judgment may be directed or levied against and satisfied by one of the parties to the judgment.

30. Once the co-ordinate liability of the parties has been established in a joint judgment a new burden is created to which rights of contribution are attached. It follows that all parties to the judgment must bear the judgment equally and no one of the judgment debtors is able to profit from the discharge of that equal responsibility by another. (See Randall, Storey's Commentaries on Equity Jurisprudence (3rd English Edition) para 493.)

31. Manfal's defence to the Commission's claim is germane to the defence of all individual respondents. If Manfal were to succeed in its defence the actions against all other respondents must fail.

32. Historically, such a discontinuance would operate to the benefit of other respondents sought to be made jointly liable in respect of the one liability, and judgment would be entered for all (see Williams, Joint Obligations para 34) but here the Commission is not seeking to discontinue proceedings against Manfal after concluding that the claims against Manfal are unlikely to succeed. Quite the reverse.

33. Order 22 r.7 of the Federal Court Rules sets out the effect of discontinuance. The apparent intent of r.7 is to make it clear that the mere circumstance of discontinuance does not provide a defence by way of bar to the party against whom the proceedings have been discontinued. It says nothing about the effect of the discontinuance upon the proceedings continued against other respondents to the same cause of action.

34. Although discontinuance in the present case would not be a bar to an action by the Commission against Manfal, the payment of any judgment in respect of that liability obtained against the remaining respondents would be such a bar.

35. If the Commission's application were granted at this late stage it would lead to an expansion of the proceedings by applications for leave to institute cross-claims of uncertain nature and the further delay of the hearing of proceedings now ready for trial.

36. As the proceedings now stand the individual respondents are entitled to anticipate that any liability found against them will be shared jointly with Manfal and the discharge of such a judgment would provide a foundation for right of contribution from Manfal. In this regard it is noted that the Court has not been informed of the actual state of the assets and liabilities of Manfal and there is no reason to conclude that a prospect of contribution for Manfal is valueless. It should be assumed that if the proceedings are discontinued against Manfal something of value may be lost by the individual respondents to their prejudice.

37. Furthermore, to refuse leave to discontinue does not force the Commission to litigate against a party against whom it believes it cannot succeed nor would it involve the Commission in incurring any additional costs. The Commission must present the same case as it would be required to present against Manfal if it is to satisfy the threshold ground required to establish liability against the individual respondents.

38. There is also an element of public interest to be considered in cases of this type. The trading entity with which the public has been involved is Manfal. Any judgment against the individual respondents is unlikely to convey to the public that errant behaviour on the part of Manfal has been duly identified and redressed and only those with special knowledge of the matter would be aware that discontinuance against the corporation was not a finding or a representation of belief that Manfal's conduct was acceptable and not a contravention of s.52A of the Act as previously alleged. The proceedings are entirely grounded upon the allegation of a contravention of the Act by Manfal and in no sense can it be said that the joinder of Manfal has become inappropriate.

39. I have given consideration to whether the application for leave to discontinue should be granted subject to conditions but no conditions appear to fit the circumstance of the case and the only fair order at such an advanced stage of this proceeding, having regard to its particular facts, is to decline to grant the leave sought by the Commission.

Federal Court Rules 1979

Re Trade Practices Commission v Manfal Pty Ltd; Frederick Arthur Lilley; Richard Arthur Lilley; Geoffrey Neil Hatch; Russell Howton and Kevin Dennis Antonovich [1991] FCA 650; (1992) 14 Atpr 41-16 (19 December 1991)

Albion Insurance Co. Ltd. v Government Insurance Office of New South Wales [1969] HCA 55; (1969) 121 CLR 342

S.C.I. Operations Pty Ltd v Trade Practices Commission [1984] FCA 52; (1984) 2 FCR 113

State of Western Australia v Wardley Australia Ltd [1991] FCA 314; (1991) 102 ALR 213

Re Trade Practices Commission v Manfal Pty Ltd; Frederick Arthur Lilley; Richard Arthur Lilley; Geoffrey Neil Hatch; Russell Howton and Kevin Dennis Antonovich [1991] FCA 650;

At a glance

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Judgment (42 paragraphs)

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Legislation Cited (2)

Cases Cited (9)

Re Trade Practices Commission v Manfal Pty Ltd; Frederick Arthur Lilley; Richard Arthur Lilley; Geoffrey Neil Hatch; Russell Howton and Kevin Dennis Antonovich [1991] FCA 650; (1992) 14 Atpr 41-16 (19 December 1991)