W G & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd

REASONS FOR JUDGMENT 1 The principal issue that arises for determination on this application is whether the Federal Court has jurisdiction to entertain the proceeding. The applicant alleges that four respondents have engaged in misleading and deceptive conduct in contravention of section 52(1) of the Trade Practices Act 1974 (Cth) and that the remaining respondents have aided and abetted that contravention. Section 52(1) of the Trade Practices Act provides: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 2 An action for damages or other relief in respect of a contravention of section 52(1) of the Trade Practices Act can be brought in the Federal Court: see s 86. When a federal cause of action is within the jurisdiction of the court then other causes of action that have been pleaded in the same suit, provided they are part of a single controversy, are also within jurisdiction. This is the result of decisions such as Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, Fencott v Muller (1983) 152 CLR 570, and Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261. 3 The respondents say that the amended statement of claim discloses no reasonable cause of action so far as the federal claims are concerned and they seek an order that the claims under the Trade Practices Act be struck out. The respondents go even further. They contend that the federal claim was not made bona fide, that is to say it is a "colourable" claim and is not sufficient to attract the jurisdiction of the court in respect of the non-federal claims. 4 To deal with these contentions it is convenient to begin with a consideration of the non‑federal causes of action that are pleaded. The applicant alleges that it is the "owner" of confidential information concerning a brushless motor. It says that in June 1996 it employed the second respondent to develop the motor. The contract of employment is said to contain the usual implied terms of good faith and fidelity and an obligation not to misuse any information confidential to the applicant. Then it is alleged that by a written agreement dated 18 September 1996 the applicant, certain of the respondents, Kim Melville and Margaret Marshall agreed to establish a new company to develop the motor. Another agreement is alleged to have been made on 24 June 1997 between the applicant, the second, third and fourth respondents, and Mr Melville and Ms Marshall pursuant to which the applicant was granted a right of first refusal to manufacture motors using technology owned by the new company. Each of these agreements is said to contain a provision that the parties, other than the applicant, would have no right, title or interest in the motor. 5 The amended statement of claim alleges a number of breaches of agreement. First it is alleged that the respondents breached the first and second agreements by launching a motor with characteristics identical to the applicant's motor. The next allegation is that the second respondent breached the terms of his contract of employment by disclosing confidential information to the first and third respondents. Finally it is alleged that the first, third, fourth and fifth respondents did not offer to the applicant the right of first refusal to manufacture the motors. Presumably this is a reference to the motor launched by the respondents. 6 I do not doubt that one may find this description of the non-federal causes of action a little difficult to follow. I myself had difficulty with some of the allegations. The difficulty arises, because the pleadings are brief and the particulars that have been given are not informative. But I need not dwell on these matters. 7 I can now turn to the federal claims. They are to be found in paragraphs 18 and 19 of the amended statement of claim. Those paragraphs read: 18. Further, the first respondent, the third respondent, the fourth respondent and the fifth respondent have engaged in misleading and deceptive conduct and unconscionable conduct pursuant to Section 52 of the Trade Practices Act. 19. Further, the second respondent: (a) aided, abetted, counselled and/or procured; (b) induced; (c) was knowingly concerned in and/or a party to: the contravention referred to and was therefore a person involved in the contravention of Part 5 of the Trade Practices Act by reason of the provision of section 75B of the Act." 8 By the rules of court (O 11 r 2) a statement of claim is required to show (a) the nature of the applicant's claim and (b) the material facts on which it is based. The respondents allege that these requirements have not been satisfied. They make the following complaints. As to the allegation that each of the first, third, fourth and fifth respondents were engaged in "misleading and deceptive conduct and unconscionable conduct pursuant to Section 52" they note that s 52 does not refer to unconscionable conduct. This is not a significant complaint, because the reference to unconscionable conduct can be struck from the pleading. However, the respondents do make more substantial complaints. They say that it is not possible to ascertain what is said to be the conduct constituting the complaint. For example, they point to the fact that s 52 can be contravened by conduct that consists of representations or actions or even omissions. They say that para 18 of the amended statement of claim does not identify any particular conduct the subject of complaint. It may be that the applicant's complaint is that the respondents have misrepresented certain matters, or that they engaged in certain acts or omissions which have resulted in the applicant or others being misled. Accordingly, the respondents say that the true nature of the complaint is not articulated. In other words, the respondents contend that para 18 of the amended statement of claim does not contain any statement of the material facts which constitute a contravention of s 52(1). Paragraph 18, they say, merely contains a conclusion (namely that s 52(1) has been contravened) drawn from facts which are not set out. 9 In order to satisfy the requirements of a proper pleading it is, as the rules state, necessary for the statement of claim to state material facts. In this context the word "material" means necessary for the purpose of formulating a complete cause of action, and if any one "material" fact is omitted, the statement of claim is bad: see Bruce v Odhams, Press Ltd [1936] 1 KB 697; Philipps v Philipps (1878) 4 QBD 127. This case seems to me to be a very clear example of a deficient pleading. 10 Paragraphs 18 and 19 must therefore be struck out. Ordinarily I would give leave to an applicant to deliver a further amended statement of claim, but I do not think it is appropriate for me to do so in this case. First, the current amended statement of claim, obviously enough, is not the first delivered. It is an amended pleading. However, that is not the reason why I would refuse leave to deliver a further pleading. The applicant has been on notice for some time that the respondents regarded its statement of claim as deficient. The point has been mentioned at a number of directions hearings and is identified in the defence that has been delivered. Further, when this application was set down for hearing, counsel for the applicant said he would turn his mind to whether amendments to the pleading should be made in order to avoid hearing the strike-out application. Thus I am entitled to infer that no amended pleading was delivered, because the applicant could plead no facts which would improve its position. 11 This then requires me to determine whether the non-federal claims are justiciable in the Federal Court. The relevant cases show that if a federal claim which is said to enliven the accrued jurisdiction of the court to dispose of non-federal claims is trivial or insubstantial, that will not be sufficient to attract that jurisdiction. The cases are collected in the judgment of Merkel J in Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 1645. As Merkel J pointed out, triviality in this context does not require an examination as to whether the federal claim is less likely to succeed than the non-federal claim. Accrued jurisdiction does not depend upon an assessment being made of the strengths of the federal claim; rather the question is whether the federal claim is genuine. If the federal claim is colourable in the sense that it was made for the purpose of fabricating jurisdiction, of course the jurisdiction of the court is not enlivened: see Fitzroy Motors Pty Ltd v Hyundai Automotive Distributors Australia Pty Ltd (1995) 133 ALR 445. How is the genuineness of the claim to be determined? One way is to ask whether the federal claim is bound to fail, that is to say, to ask whether the claim is unarguable. If the federal claim is hopeless then it is difficult to see how an applicant could contend that it was pursuing the claim bona fide. 12 However, it is not only when a federal claim is colourable that the Federal Court would lack jurisdiction to deal with non-federal matters. In Fencott v Muller (at 609-610) in a joint judgment of Mason, Murphy, Brennan and Deane JJ, the following was said: "However, federal judicial power is attracted to the whole of a controversy only if the federal claim is a substantial aspect of that controversy. A federal claim which is a trivial or insubstantial aspect of the controversy must, of course, itself be resolved in federal jurisdiction, but it would be neither appropriate nor convenient in such a case to translate to federal jurisdiction the determination of the substantial aspects of the controversy from the jurisdiction to which they are subject in order to determine the trivial or insubstantial federal aspect. Again, impression and practical judgment must determine whether it is appropriate and convenient that the whole controversy be determined by the exercise of federal judicial power." 13 In the present case, on balance I am not prepared to conclude that the asserted federal claims are not genuine in the sense that they are colourable and only brought for the purpose of fabricating jurisdiction, but what does seem plain to me is that the cause of action under s 52 of the Trade Practices Act is "trivial or insubstantial" in the sense explained by the High Court in Fencott v Muller. This is not a claim that would be appropriately and conveniently determined in the exercise of federal jurisdiction. 14 In the result two things follow. First, the court does not have jurisdiction to entertain the non-federal claims. Second, there being no other claims that are relied upon to found jurisdiction in the Federal Court, the proceeding must be dismissed with costs.