' CATCHWORDS J Practice and procedure - leave to discontinue - relevant principles - some injustice to respondent - inability to ensure preservation of advantage gained - exercise of discretion. TRADE PRACTICES COMMISSION v A.P.M. No. VG 84 of 1983 Woodward J. Melbourne 22 December 1983 INVESTMENTS PTY. LIMITED and Ors. <7 RECEIVED 2 JAN 1984 Aa eet FEDERAL WET OF iq nye Lb pay ChtAb prt SUT d IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) No. VG 84 of 1°83 ) ) GENERAL DIVISION BETWEEN: TRADE PRACTICES COMMISSION Applicant and - A.P.M. INVESTMENTS PTY. LIMITED First Respondent FIBRE CONTAINERS LIMITED Second Respondent LEIGH-MARDON PTY. LIMITED Third Respondent ASSOCIATED NOMINEES PTY. LIMITED Fourth Respondent FRANCIS JAMES BURKE Fifth Respondent PETER BECKER Sixth Respondent WILLIAM GIBSON Seventh Respondent and JOHN FRANCIS ELFVERSON Eighth Respondent Fifth to Eighth Respondents as Trustees for LEIGH-MARDON PTY. LIMITED and ARTHUR KEVIN SMITH Ninth Respondent CORAM: Woodward J. DATE: 22 December 1983 REASONS FOR JUDGMENT In this matter I gave judgment on 15 November dismissing an application for the discharge of undertakings. That application had been brought, by way of notice of motion, by SCI Packaging Pty. Ltd. ('SCI') which, although not a party to these proceedings was involved in related proceedings and was bound by the interlocking undertakings sought by the applicant ('the TPC') and given in this action. The application by SCI was supported by all the parties to the present action except the first respondent ('APM'). I do not intend to repeat here any of the background to ° - this matter set out in that recent judgment or the reasons which led me to the conclusion I then reached. It is however relevant + to repeat one passage from the concluding part of my judgment. [I said "... I should perhaps add that it was urged on behalf of SCI and FCL [the second respondent] that the TPC should now discontinue its action, since Amatil [the third to eighth respondents] had reached a firm and irrevocable decision not to sell ats shares to APM and that has rendered the action unnecessary and academic. Alternatively Mr. McComas, for FCL and Amatil, indicated a willingness to consent to a judgment for injunctions which would have the effect of preventing Amatil's Board of Directors from resiling from the decision it has taken never to sell to APM, The TPC has said that 1t will not take either course, at least until after this judgment has been delivered and considered. No doubt the TPC has been influenced in this by the reasons for judgment ef the Full Court [dismissing an earlier application for discharge of undertakings] and by a desire to carry out its responsibilities in as even-handed a way as possible. Although the role of the TPC has now been adverted to in open Court, I @o not believe that I should say anything to influence it in the performance of its statutory functions, and nothing I have said should be read as having that intention." An appeal was lodged by SCI against my decision dismissing 1ts notice of motion. That appeal came on for hearing before another Full Court of this Court on 13 December and, in the course of argument, counsel for FCL and Amatil indicated that their clients would be prepared to submit to judgment against them in this matter in the form of injunctions restraining them from selling shares to APM. They would also submit to an order for costs in favour of the applicant, including any costs which the applicant might be ordered to pay to APM. Counsel for the TPC indicated that his client was prepared to accept this offer and, after some discussion, the hearing of the appeal was adjourned indefinitely to enable a notice of motion to be brought before a single judge. On 14 December the TPC took out two notices of motion, the first along the lines which had been indicated before the Full Court, seeking judgment by consent against the remaining respondents and discontinuance against APM. The second notice of motion simply sought discontinuance against all respondents. Both notices sought the order for costs which FCL and Amatil had offered. In the event the Court was moved pursuant to the second notice only, and so the application I have to deal with is one seeking leave to discontinue the action. Leave 1s necessary at this stage of proceedings (pleadings being complete and the matter ready for trial) pursuant to Ord.22 r.2(1)(d) of the Federal Court Rules. The reasons why the TPC would wish to discontinue its action are clear enough. It has, as it's counsel have informed the Court, reached a clear view that the commercial reality 1s that Amatil will not sell its shares in FCL to APiM. It has reached that conclusion in the light of the circumstances canvassed in my previous judgment and of the statements on the subject made to the Full Court by counsel for Amatil. Since the whole purpose of the action was to prevent such a sale taking place, because it was alleged that it would contravene s.50 of the Trade Practices Act 1974 ('the Act'), the TPC no longer sees the need to pursue its action. If the action were to proceed 1t would take a number of months to try and would quite possibly be followed by appeals. The legal costs would be very high and the TPC's staff would be kept very busy in meeting the requirements of the litigation. In these circumstances, where the hearing has not yet commenced, the merits of the action have yet to be determined (but the TPC is just as confident of success as 1s APM), and APM's costs would clearly have to paid as a condition of discontinuance, the TPC's application would seem at first sight to be irresistible. However counsel for APM have addressed a careful and cogent argument to the Court as to why the application should not be granted, or only granted on the most stringent terms. The substance of that argument is that the TPC is seeking to have the fruits of its action without having to establish its case. It should not be permitted to discontinue unless it is willing, so far as 1t lies within its power, to return the principal respondent (APM) to the position 1t occupied before the proceedings were commenced. APM's situation in the market-place has already been very severely damaged by the institution of proceedings and the delays which have since occurred, through no fault of APM. However the TPC could make some amends by paying APM's costs on a solicitor-and-client basis rather than a party-and-party basis. It could also, and more importantly, undertake not to bring any fresh action if APM succeeds in acquiring FCL shares. Only thus would the 'shadow of illegality' (to use an expression of Smithers J. in the first Full Court hearing), which is hanging over APM, be removed. If the TPC is not prepared to go ahead and prove its case, it should abandon it altogether and not leave the possibility of further proceedings hovering over APM like an incubus, further damaging its already very difficult position in the market-place. Another way in which the argument was put is that the discontinuance of proceedings 1s simply another way of overcoming the Court's refusal to release all parties from their undertakings. It 1s achieving by a side door the very thing which has been denied to the parties seeking it by the front door and which is already the subject of appeal. On the question of the principles to be applied 1n cases of discontinuance, counsel for APM relied in particular on the decision of Graham J. in Coveil Matthews v French Wools Ltd. 1977 1 WLR 876 at 879. After citing several earlier authorities, his Honour said "The principles to be culled from these cases are, in my judgment, that the court will, normally, at any rate, allow a plaintiff to discontinue if he wants to, provided no injustice will be caused to the defendant. It 1s not desirable that a plaintiff should be compelled to litigate against his will. The court should therefore grant leave, 1£ it can, without injustice to the defendant, but in doing so should be careful to see that the defendant 1s not deprived of some advantage which he has already gained in the litigation and should be ready to grant him adequate protection to ensure that any advantage he has gained is preserved." Applying these principles to the case before him, his Honour made an order for discontinuance, conditional upon the party seeking it agreeing (a) not to renew its application (which his Honour said was probably academic), (b) that the order would be without prejudice to a relevant contention of the other party which it might wish to raise in other proceedings, and (c) to "an appropriate order for costs" against it. P: I would respectfully adopt Graham J's formulation of principles so far as it goes, but it leaves open the question as to what should be done in a case where leave cannot be granted without some injustice to the respondent, or in which it may not be possible or appropriate tc ensure that every advantage which the respondent may have gained in the course of litigation is preserved. » In my view the matter must remain one for the exercise of the Court's discretion in each case, even if the interests of the respondent cannot be fully protected. I do not believe that Graham J. was suggesting that, unless the respondent's rights can be completely protected, an application for discontinuance must be refused. If he was implying that, then I must respectfully decline to follow his Honour to that extent. In approaching the exercise of the Court's discretion in the present case, I take the following considerations into account in favour of the applicant:- (a) it should not be compelled to litigate, against its will, at great length, and with considerable expenditure of public monies, an action which it believes, on reasonable grounds, to be pointless; (b) the circumstances which have arisen, and which appear to make further litigation by it unnecessary, were not designed by it; mor could they readily have been foreseen when the litigation was instituted; (c) the merits of the action have not been entered into; there is nothing to suggest that the applicant's case 1s lacking in good faith or in merit; (d) the applicant 1s prepared to surrender any right to pursue the remedy which it is presentiy seeking, namely an injunction to prevent the acquisition of certain shares or assets; (however 1t reserves the right, if it ever becomes appropriate, to bring an action which would probably be based on substantially the same material, seeking a divestiture of shares or assets so acquired); and (e) the applicant is prepared to submit to an order for those costs which 1t would be obliged to pay if its action were being dismissed on its merits at this stage. The main consideration pointing against giving leave to discontinue is that APM's apparently remote chance of bidding successfully for FCL is further reduced by the 'shadow of illegality' that has been referred to; that shadow would still be hanging over APM because of the TPC's continuing right to institute proceedings for divestiture. It should however be noted that there 1s already an action afoot by SCI designed to prevent an APM takeover of FCL, and Visy Board Pty. Ltd. ('Visy') has also indicated, in an attempted intervention in these proceedings, a clear intention of trying to frustrate such a takeover if it appears likely to occur. Thus the only way in which APM can fully disperse the shadow is by successfully defending an action which raises all the relevant issues. It 1s important to appreciate that even the dismissal of the present action, if the TPC decided not to prosecute it, would not disperse the SCI or Visy shadows. Before reaching a conclusion about this issue of the 'shadov of illegality', it is necessary to identify the other choices which are open to the Court and the TPC if the application to discontinue, on terms acceptable to the TPC, is refused. The first is that the Court could seek to impose the conditions urged by APM. So far as solicitor-and-client costs are concerned, such an order might seem reasonable if all attention were focussed upon the unfortunate position in which APM now finds itself; but I can see no good reason why the TPC, or any other litigant involved, should be required to pay APM's costs at a figure substantially higher than APM could achieve if the action against it were now dismissed. Samilarly, a requirement that the TPC undertake not to seek divestiture of any shares in FCL which APM might succeed in acquiring, would go further than a dismissal of the present action for want of prosecution. Depending on the circumstances obtaining at the time, the TPC could well argue that such a dismissal did not estop it from pursuing an action for divestiture. Further, it must be remembered that a threat of legal action pursuant to s.50 of the Act hung over APM's head even before this action was instituted and the undertakings were given. Earlier evidence has made it clear that APM recognized this possibility from the outset and, very properly, consulted TPC about 1t. 'The imposition of the condition sought by APM would put it in the same position, so far as the TPC is concerned, as 1f it had successfully defended the action on its merits and succeeded on grounds that applied equally to davestiture proceedings. The conditions which APM seeks with regard to Amatil, namely that it will not regard itself "as bound in any way not to sell" to APM, and that it will be "willing to consider any offer" APM may make are, in my view, conditions which the Court has no power to impose, and which I would not consider imposing, as a matter of discretion, if I had power. It is clear, as a matter of law, that there is nothing to prevent Amatil from considering any APM offer once the present action is discontinued or dismissed. TIT deait with this question of Amatil's freedom to change its mind, in spite of what it has said, in my earlier judgment of 15 November. This Court should not and, I believe, cannot become involved in the deliberations of Amatil beyond that point. The Commission has informed me, through its counsel, that it would not accept the condition proposed by APM that it undertake not to bring any future action against APM af that company should acquire FCL shares. The TPC has statutory functions to perform and, in my view, it is fully entitled to maintain that it would be contrary to the public interest for it to bind itself in the manner suggested. I appreciate that there is authority for the proposition that the Court can properly rule that it will only grant leave to discontinue on certain terms, even though it knows or believes that such terms will prove unacceptable to the applicant (Covell Matthews v French Wools Ltd. 1978 1 WLR 1477 at 1485). However I do not believe that such an order would be appropriate in this case. That does, however, lead conveniently into a4 consideration of the next possibility which the Court must consider 1£ leave to discontinue is to be denied. This is the possibility that the applicant may elect to call no evidence and invite the Court to dismiss the action. So far as costs are concerned, the result would be the same as for discontinuance. So far as renewed proceedings are concerned, 1t would seem that the TPC could still take action for divestiture under s.81 of the Act following such a dismissal, although there could be difficult questions of issue estoppel to be decided. This question of the effect of an order dismissing the action was not argued before me and, beyond saying that such an order would create a confused and artificial situation (the merits of the case not having been decided) it is not necessary for me to decide what that effect would be. I do not believe that I should take any step designed to persuade the TPC to accept a dismissal of its action, with uncertain consequences which could in future prevent it from acting in this matter in what it saw as being the public interest. I therefore do not belreve that I should refuse this application on the ground that dismissal of the action (or the imposition of terms designed to produce at least the same result) 1s an acceptable alternative to discontinuance. This brings me back to the choice between granting the application on the terms which the TPC is prepared to accept and dismissing the application on the understanding that the matter will proceed to trial. v I can only say that, in my opinion, both common sense and legal principle are in favour of granting leave to disconcinue. I say that for the reasons set out in paragraphs (a) to (e) above. I recognize that some hardship will thereby be done to APM and that it w1ll lose some of the advantage it gained by entering into interlocking undertakings at the outset of this action. However most of the loss of advantage has been created by the commercial decision reasonably reached by Amatil over which the applicant and the Court have no control. For reasons given above in discussing the 'shadow of illegality', APM would only be marginally better off in the market place if this action were now dismissed, and that 1s the best cesult it is entitied to argue for in the circumstances that have arisen. Before concluding these reasons I should say something about APM's contention that the other parties to the action are, by seeking leave to discontinue, achieving indirectly the result - 13 - that they have so far been denied by the Court - release from undertakings. There is enough merit in this contention to calj for a consideration of the matter on that basis. In my view the application to discontinue has introduced an entirely fresh element to this case requiring me (to use the language of my earlier judgment of 15 November) "to reconsider the whole discretionary issue for myself and, while giving proper respect to the views of the Full Court as to what matters are material and how much weight each should be given, I must make up my cwn mind on these matters". In what I have already said I have had constantly in mind the issues dealt with in that earlier judgment. I was there concerned in particular to compare the relative rights and entitlements of FCL and Amatil (those of SCI being derivative and comparatively less significant)_wath those of APM. When the rights of the TPC on an application for discontinuance are thrown unto the existing discretionary balance, I am satisfied that the application should be granted, on terms that TPC pay APM's taxed costs and undertakes not to institute any further proceedings for injunctions, or otherwise seek, to prevent the purchase of shares in FCL by APM. The words "or otherwise seek" are within the spirit, though not the words. of the undertaking offered by TPC. I think. some such addition 1s necessary. Such an undertaking - 14 - would not prevent a later application for divestiture 1f TPC saw fit to bring it. I shail make the agreed order for costs against the second to eighth respondents. Because I believe the parties should have an opportunity to consider the precise wording of the undertaking to be given by TPC as a condition of leave to discontinue, I shall make no formal order now. I shall sit again at a time convenient co the parties. I certify that this and the 13 preceding pages are a true and accurate copy of the Reasons for Judgment herein of The Hon. Mr. Justice Woodward sociate Dated: 22 December 1983