CATCHWORDS Trade Practices ~- misleading and deceptive conduct - Federal and State claims constituting one controversy - interlocutory - orders seeking stay of Supreme Court proceedings - whether Federal claim is genuine. Trade Practices Act 1974 5.52 FRANCIS C. MASON PTY. LTD., v. CITICORP AUSTRALIA LTD. FRANCIS CHARLES MASON and JUDITH ASHLEY MASON V. No. G 227 of 1984 Northrop J. Melbourne 20 November 1984 N_THE ERAL {e) USTRALIA VICTO T_REGISTR V. No. G 227 of 1984 ~~ wew nw GENERAL DIVISION FRANCIS C. MASON PTY. LTD., FRANCIS CHARLES MASON and JUDITH ASHLEY MASON Applicants and CITICORP AUSTRALIA LTD. Respondent CORAM: Northrop J. DATE: 20 November 1984 PLACE: Melbourne ORDER THE COURT ORDERS THAT the motion be refused with costs. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRI y V. No. G 227 of 1984 GENERAL DIVISION BETWEEN : FRANCIS C. MASON PTY. LID., FRANCIS CHARLES MASON and JUDITH ASHLEY MASON Applicants and CITICORF AUSTRALIA LTD. Respondent CORAM: Northrop J. DATE: 20 November 1984 PLACE: Melbourne REASONS FOR JUDGMENT By their amended application, the Applicants are seeking various orders under the Trade Practices Act 1974 ("the Act") ancluding damages under s.82 and orders pursuant to 5.87 with respect to an agreement in writing dated =z September 1981 between Francis Charles Mason ("Mr. Mason") and Judith Ashley Mason ("Mrs. Mason") of the one part and the Respondent ("Citicorp") of the other part ("the loan agreement") and an agreement in writing dated 2 September 1981 between Francis C. Mason Pty. Ltd. ("the Company") and Citicorp ("the guarantee agreement"). The application is based upon conduct engaged in by Citicorp which the Applicants allege was misleading or deceptive or likely to mislead or deceive contrary to 8.52 of the Act. Other claims contained in the application based upon other causes of action are not relevant for present purposes. The application was filed on 15 August 1984. By Notice of Motion dated 3 September 1984 the Applicants are seeking anterim orders restraining Citicorp from proceeding further in Supreme Court of Victoria proceedings No. 2683 of 1984 issued on 22 June 1984 in which Citicorp is plaintiff and Mr. Mason and Mrs. Mason are defendants. In the Supreme Court proceedings, Citicorp is claiming payment of moneys alleged to be due under the loan agreement. The motion for interim relief in the Federal Court Proceedings was heard on 7 and 19 September 1984. The general principles to be applied in determining the motion have been discussed in Denpro Fty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1983) 48 A.L.R. 39. Since that decision the High Court has given judgment in Coast Securities No. 9 Pty. Ltd. v. L.E. Stack (1983) 49 A.L.R. 193 but the opinions expressed in Denpro's case are consistent with the opinions expressed in Stack's5 case. Before the Federal Court makes an order of the type sought by the Applicants, the material before the Court must satisfy it that the Federal claims and the State claims constitute one controversy between the parties, that the Federal claims are genuine and that they forma substantial aspect of that controversy. Counsel for Citicorp has contended that the Federal claims made by the Applicants are not genuine and do not form a substantial aspect of that controversy. The Court proposes to consider the contention that the Federal claim is not genuine and that accordingly the motion should be refused. A number of affidavits were filed on behalf of the Applicants and Citicorp. A number of documents were exhibited to the affidavits. The findings made in deciding the motion do not depend upon the credibility of deponents but are based upon the probabilities arising from contemporaneous documents and undisputed matters of fact. In making those findings some of the evidence contained in the affidavits of Mr. Mason is not accepted. Citicorp 1S a corporation under the Act. Mr. Mason and Mrs. Mason are directors of and control the Company which Carries on the business of purchasing real estate and either renovating any residence erected thereon for the purpose of reselling at a profit or demolishing the residence erected thereon and constructing a new residence for the purpose of selling at a profit. In April 1981 Mr. Mason became interested 1n purchasing a property situated in Monomeath Avenue, Canterbury ("the land") for the business of the Company. For this purpose, through an agent, he approached Citicorp to seek a loan facility. The initial application was for the purpose of purchasing the land, renovating the existing residence and constructing a new residence on part of the land and selling each residence on a separate title. This proposal is described as plan l. On 6 April 1981 a loan facality for §570,000 was approved by Citicorp for the implementation of plan l. The land was purchased by the Company at auction on 11 April 1981 for $320,000. By letter dated 16 April 1981 Citicorp notified Mr. Mason and the Company that Citicorp was prepared to provide the loan facility. The maximum amount of the loan was §570,000 spread over ani18 month term. Interest was Payable and security was required. The advance was based on the cost components as follows: "(a) land and existing residence $320,000 (b) renovations to existing residence S$ 50,000 (c) construction of new residence $230,000 $600,000" The Company was to provide $30,000 towards the purchase price of the land leaving the sum of $570,000 to be advanced by Citicorp. Citicorp was to provide this money by progressive payments but at no time was more than §570,000 to be advanced. Citicorp had to be satisfied that the total project cost did not exceed §600,000. It is not necessary to refer to the other terms set out ain the letter, a copy of which was signed by Mr. Mason as a director of the Company. Sometime in June 1981 Mr. Mason informed Mr. Burrows, an officer of Citicorp, that he had decided to demolish the existing residence on the land and to build one luxury dwelling. This proposal is described as plan 2. Mr. Mason sought approval from Citicorp to proceed with plan 2. in lieu of plan 1. and for that purpose requested that the amount of the loan to be advanced by Citicorp be increased to $600,000. On 2 July 1981 Citacorp approved the cancellation of the loan approved on 6 April 1981 and offered a new loan in the sum of §600,000. The loan agreement which gave effect to the loan of $600,000 approved by Citicorp on 2 July 1981, was executed on 2 September 1981. The Company commenced work on the land in October 1981 but the erection of the luxury dwelling did not progress as planned. The §600,000 was fully advanced long before the luxury residence was completed. The Company encountered financial difficulties and Mr. Mason requested further advances from Citicorp. It 15 not necessary to refer to all of these matters. It 1s sufficient to say that in February 1984 Citicorp sold the land for $451,000. On 22 dune 1984 Citicorp issued the Supreme Court proceedings claiming moneys due under the loan agreement. A summons for final judgment has been taken out 1n those proceedings but the hearing of that summons has been adjourned pending the determination of the motion before the Federal Court. The facts set out above have been taken primarily from contemporaneous documents in the possession of Citicorp. By their statement of claim the Applicants allege that on or about 10 April 1981 and during the course of negotiations with Mr. Burrows, Mr. Burrows represented to Mr. Mason that: "(i) Citacorp was prepared to advance the sum of $600,000 to F.C. Mason and J.A. Mason on the aforesaid securities, to enable F.C.M. P/L to purchase the Canterbury property and complete plan 1; (ii) in the event that F.C. Mason decided to adopt Plan 2 Citicorp was prepared to advance sufficient money to enable plan 2 to be completed even if the moneys required exceeded §600,000". The Applicants claim further that plan 1. and plan 2. were both being considered in April 1981 but that the loan of $600,000 was agreed to in relation to plan 1. The contemporaneous documents are inconsistent with that claim. The Applicants claim further that 1n or about June 1981 Mr. Mason decided to implement plan 2. and told Burrows of that decision. Thereafter the loan agreement and the guarantee agreement were entered into. The Applicants allege that the representations set out constitute conduct which was deceptive or misleading or was likely to deceive or misiead contrary to s.52 of the Act since at the time the representations were made Burrows did not believe that Citicorp was prepared to advance the additional moneys or alternatively Burrows made the representations recklessly being indifferent as to whether he had the present belief or not. In his affidavits Mr. Mason deposes to conversations which in substance support the allegations made. This case is a perfect illustration of the defect in the judicial system of Australia arising from the existence of 5.86 of the Act. That defect 1s discussed by the Chief Justice of the High Court in Stack's case, above, at pp.206-7. In that passage His Honour illustrated the problem that can arise where one party to a controversy is able to commence proceedings in a State Court only while the other party may be able to commence proceedings in the Federal Court and, if desired, seek to rely upon State claims under the accrued jurisdiction of the Federal Court. At p.207 His Honour continued: "There will therefore be cases in which one party can commence proceedings only in the Supreme Court, and the other party can commence proceedings only in the Federal Court. In those circumstances a defendant in proceedings in the Supreme Court may, for tactical reasons, delay making his application to the Federal Court until the eve of judgment - as occurred in some, at least, of the present cases. Even a defendant in the Supreme Court who wished to dispose of the controversy as quickly as possible would be compelled to begin litigation in the Federal Court if he sought relief under Pt VI. It is inconsistent with the position of the Federal Court that 1t should be used as a vehicle to frustrate and delay proceedings in the Supreme Court, and derogatory of the position of the Supreme Court that its proceedings should be capable of being impeded in this way. It 15 a defect in the judicial system that in some cases duplication of proceedings in inescapable, and a multiplication of applications whose sole purpose is to resolve jurisdictional conflicts 15 highly likely. The only effective remedy for this overlap of jurisdiction, which tends to place two superior courts in unbecoming conflict, 1s to amend the Trade Practices Act 50 as to provide that the jyurisdiction of the Federal Court, at least in actions and other proceedings under Pt VI which relate to an alleged contravention of a provision of Pt V, should no longer be exclusive. The question whether conduct 15 misleading or deceptive does not require a specialist court to decide it - the Supreme Courts decide such questions every day - and the provisions of Div 2A of Pt V already recognize that no specialist court is needed to deal with the matters of consumer protection. Now that the present cases have exposed the serious inconvenience of the present situation, I hope that the Parliament will provide the remedy." With respect, I express the same hope as the Chief Justice. In the present case there 15 no suggestion that the Applicants, for tactical reasons, deliberately delayed making their application to the Federal Court until the eve of judgment in the Supreme Court proceedings. Nevertheless, it is necessary for the Court to exercise its discretion on whether to grant the interlocutory injunctions sought by the Applicants. As has been said earlier in these reasons it is necessary to be satisfied that the Federal claim 16 genuine. The contemporaneous documents are inconsistent with the allegations made by the Applicants and are inconsistent with the substance of the conversations set out in the affidavits of Mr. Mason. In this motion it 15 neither necessary nor desirable that the Court express any opinion on the liklihood of the Applicants success in their Federal claims or other claims made in the Federal Court in the exercise of its accrued jurisdiction. The motion seeks orders restraining Citicorp proceeding further in the Supreme Court action until the hearing and determination of the Federal Court proceedings or until further order. The Federal Court proceedings were commenced long after the sale of the land and after the Supreme Court proceeding had been issued and served. Although there may be inconvenience in having the two proceedings conducted concurrently, the Federai Court should restrain a plaintiff from proceeding with Supreme Court proceedings only when it is satisfied that the Federal Court proceedings are genuine as discussed earlier in these reasons. Having regard to the inconsistency between the contemporaneous documents and the evidence of Mr. Mason, the Court is not satisfied, for the purpose of this motion, that the Federal claims are genuine. The Court has formed the opinion that the Federal claims have been made and the Federal Court proceedings instituted for the purpose of delaying the Supreme Court proceedings and without any real basis to support the Federal claims. In those circumstances it is neither necessary nor desirable that the Court should express any opinion on the other matters raised by counsel for Citicorp including the issue of whether the Federal claims are substantial in relation to the Matters in controversy between Citicorp and the Applicants and the matters discussed by Lockhart J. in Bill Acceptance Corporation Ltd. v. G.W.A. Ltd. (1983) 50 A.L.R. 242. The motion 1s refused but directions will be given on the basis that the Federal Court proceedings should he heard at the earliest practical date. ae a = , EqvT (8) F| | I certify 11 t this and the i preedice p ges are a true copy of the Reasons i: judgment herein of the Honourable Mr. Justice RM. NORTHROP Associate One, LO | Dated: 20 Novem bew /98Y,