§ "140 CATCHWORDS Practice and procedure - amendment of statement of claim prior order dismissing cause of action of one applicant whether other applicants can later rely upon the same of action - whether existence of prior order constitutes bar to amendment. Trade Practices Act 1974 ss.52,82,87 Federal Court of Australia Rules 0.28 Cellulose Products Pty. Ltd. v. Truda (1970) 392 W.N.(N.S.W.) 561 cause a Aurel Forras Pty. Ltd. v. Graham Karp Developments Pty. Ltd. £19753 V.R. 202 Bate v. International Computers (Aust.) Pty. Ltd. (1984) 2 F.C.R. 526 Port of Melbourne Authority v. Anshun Pty. Ltd. £1980] V.R. 321; [19813 V.R. 81; (1981) 147 C.L.R. 589 GEORGE TRINGAS and STAVROULA TRINGAS and ANSETT TRANSPORT INDUSTRIES (OPERATIONS) PTY. LTD. and ANSETT TRANSPORT INDUSTRIES LIMITED V. No. G 99 of 1982 Northrop J. Melbourne 12 February 1986 (Not considered appropriate for general distribution.) aa TEN eet cnn ay f | fy hts IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V. No. G 99 of 1982 GENERAL DIVISION BETWEEN : GEORGE TRINGAS and STAVROULA TRINGAS Applicants and ANSETT TRANSPORT INDUSTRIES (OPERATIONS) Pry. LTD. and ANSETT TRANSPORT INDUSTRIES LIMITED Respondents COURT: NORTHROP J. DATE: 12 FEBRUARY 19386 PLACE: MELBOURNE MINUTE OF ORDER THE COURT ORDERS THAT the motion be refused, with costs to he taxed. (Settlement and entry of Orders is dealt with in 0.36 of the Rules of Court.) ~~ eT Te Hs peer eats eeiaar ial te neateree as eh. NON Se 7S oes roe epee yn ree oe cones ee a 7 ae a ere er ee que a new IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY } V. No. G 39 of 1982 . ) ) GENERAL DIVISION BETWEEN : GEORGE. TRINGAS and STAVROULA TRINGAS Applicants and ANSETT TRANSPORT INDUSTRIES (OPERATIONS) PTY. LTD. and ANSETT TRANSPORT INDUSTRIES LIMITED Respondents COURT: NORTHROP J. DATE: 12 FEBRUARY 1986 PLACE: MELBOURNE EX TEMPORE REASONS FOR JUDGMENT By deed of agreement dated 20 November 1981 Ansett Transport Industries (Operations) Pty. Ltd. agreed to sell a business to Newtons Travel Services Pty. Utd. At all Material times the applicants, George Tringas and Stavroula Tringas, were the directors and two of the principal shareholders of Newtons. The applicants were parties to the deed of agreement dated 20 November 1981 and under that agreement jointly and severally guaranteed to Operations the due and punctual performance by Newtons of all its obligations contained in that deed. Under the deed of agreement the laws of the Australian Capital Territory were Ot yp yor as ' Pty ay ere rome pe oe ¢ eee nee tee poe et Bee ee _? ore vere nner ee a enn ee to apply to the rights and obligations of the parties to the deed. In July 1982, Newtons and the applicants commenced these proceedings in the Federal Court. The then three applicants sought damages against Operations and its parent company Ansett Transport Industries Limited, pursuant to 5.82 of the Trade Practices Act 1974 based in substance on breaches of s.52 of the Trade Practices Act and in addition, sought orders declaring the deed of agreement including the guarantee void ab initio pursuant to s.87 of the Trade Practices Act and an order directing the repayment of the Moneys paid by Newtons to Operations. It should also be noted that it was claimed that Newtons had validly rescinded that deed of agreement. Operations commenced proceedings in the Supreme Court of the Australian Capital Territory against the two applicants, Mr. and Mrs. Tringas, on their guarantee. The amount claimed was for $585,629.37 being the amount alleged to be owing by Newtons to Operations under the deed of agreement. By order made on 29 October 1982, the Federal Court ordered that Nawtons provide security for the costs of Operations and ordered further that until security was given, the action by Newtons be stayed. See 0.28 ¢.5 sub-rule (1) paragraph (a) of the Federal Court Rules. ats al Sa an RaaaaT On 30 June 1983, the Supreme Court of Victoria ordered that Newtons be wound up and Mr. OD.P. Tonkin was appointed liquidator of Newtons. By notice dated 15 December 1983, Operations gave notice that it would move the Court for orders that unless Newtons provided security for costs pursuant to the order of 29 October 1982, the application of Newtons be dismissed with costs. On 17 February 1984, the Court ordered by consent that the proceedings, insofar as they were brought by Newtons, be dismissed with costs. That order was made by consent and on the face of the record must have been made with the consent of Mr. Tonkin, the liquidator of Newtons, and the order must have been made pursuant to 0.28 r.5 sub-rule (1) paragraph (b) of the Federal Court Rules. This is so, even though the wording of paragraph (hb) is as follows:- "5S. (1) Where the Court orders that the applicant provide security for costs, it may order- ae (b) that if the applicant fails to comply with the order to provide security within the time limited in the order, the proceeding he thereafter stayed or dismissed." Counsel for Operations and Ansett in the present case has argued that this is an inference which cannot be drawn because on the face of it the record merely says, by consent the proceedings be dismissed. But having regard to the motion which was before the Court and to the existence of the earlier order for the giving of security for costs and the staying of the action, it is apparent, in my opinion, that in dismissing the proceedings, by consent, the Court Was "2 — Ree en oper ey = aes eens a " a af ~ vO a ener es ee Te ater z vt Vx fr re ee moe wooo foay oe a a ee . Lhe. - ~s exercising the power conferred by 0.428 ¥.5 sub-rule (1) paragraph (b). In the meantime, Operations had commenced proceedings in the Supreme Court of the Australian Capital Territory against tha applicants based on the guarantee given by them. Apparently with the consent of the parties, the claim by Operations was to be brought by way of cross-clain in the present proceedings in lieu of continuing with the proceedings in the Supreme Court of the Australian Capital Territory. Pursuant to directions made in this application, the following is a summary of the pleadings as between the two applicants and the respondents, Operations and Ansett, immediately prior to the present motions before the Court:- 1. Further Amended statement of claim in which the two applicants are George Tringas and Stavroula Tringas. It is dated 1 May 1984. This statement of claim is similar to the original statement of claim and in substance the applicants are seeking orders that the deed of agreement is rescinded; they are claiming damages and are seeking an order that the guarantee is not enforceable against them, and an order declaring the guarantee void ab initio. The last order being apparently under s.87 of the Trade Practices Act. 2. A defence to that statement of claim. The defence is dated 10 May 1984 and is in substance a denial of the facts upon which the applicants' claims are brought and are based. Sil dtenie keller ie) ae mo tes nt wan on, 3. A cross-claim dated 10 May 1984 by which "Operations is seeking $585,639.37 under the guarantee given by the applicants and is contained in the deed of agreement. In substance, the cross-claim is the statement of claim that had been used in the Supreme Court of the Australian Capital Territory proceedings. 4. Defence to the cross-claim dated 19 May 1984. In this defence the applicants rely upon an allegation "that the guarantee was rescinded by notice dated 12 July 19982, given by Newtons with respect to the daed of agreement. In addition, the applicants say that by reason of the matters vaised in the statement of claim, they are not liable to Operations. By notice of motion dated 25 November 1985, the applicants sought the following orders:- "lL. That the Cross-Applicants be granted leave to deliver and file an Amended Defence to Cross~-Claim and Cross~-Claim in the form of the exhibit marked 'SEG 10' to the affidavit of Sean Elwin Grant sworn the 25th day of November 1985 and filed herein. 2. That the self-executing order of Mr. Justice Northrop made the 17th day of February 1985 herein be set aside. ee ee te eee He a - sae ey, 3. Alternatively, that the self-executing order of Mr. Justice Northrop made the 17th day of February 1985 be varied so as to enable the Cross-Applicants to raise in their Cross~Claim against Ansett Transport Industries (Operations) Pty. Ltd. the Cross-Respondent herein the former claim of Nawtons Travel Services Pty. Ltd. (in liquidation) for damages for contraventions of Section 52(1) of the Trade Practices Act 1974 (Cth.). 4. For such further orders as the Court considers appropriate." It is difficult to understand the reference to the self~-executing order referred to in each of orders 2 and 3 as sought by the applicants. The order made on the 17th day of February 1984 was an order by consent dismissing the claim by Newtons. It was in its terms final and absolute and was not and could not be described as a self-executing order to operate in the future. By notice of motion dated 29 November 1985, Operations and Ansett are seeking orders that the proceedings be set down for trial. The two motions came on for hearing on 6 February 1986. In support of order 2 the applicants cn aft Ter nn erg ne rt einen Ste ea ena, ees we epee ee Pn es y YLT oO e owe mene ene ere eee relied upon 0.28 r.5 sub-rules (2) and (3). The whole of r.5 should be read:- "BS. (1) Where the Court orders that the applicant provide security for costs, it may order- (a) that the proceeding on any claims by the applicant for relief he stayed until security is provided; or (b) that if the applicant fails to comply with the order to provide security within the time limited in the order, the proceeding be thereafter stayed or dismissed, (2) Subject to sub-rule (1), the Court may set aside or vary any order made under this Order. (3) Where a proceeding stands dismissed pursuant to an order under this Order, that order shall not be set aside or varied except in special circumstances." It should be noted further that under 0.28 r.1l a reference in that Order to an applicant extends to any person who makes a claim for relief in any proceeding and accordingly would apply to a respondent who is seeking by way of cross-claim, relief against a respondent. The motion to set aside the order of 17 February 1984 is refused. Newtons is in liquidation, the motion is not made on behalf of Newtons. The liquidator presumably does not desire to proceed with the proceedings. There is no basis for the motion to obtain an order that Newtons be made an applicant. To do so would make a mockery of the order for security for costs. Newtons would become an applicant. Newtons is insolvent. The liquidator who controls Newtons should net be compelled to continue with proceedings which it ee eee Voor es oan H does not want to take and accordingly, there is no basis for the order seeking to set aside the judgment. The substance of the submissions made on behalf of the applicants in relation to the other matters can be summarised. In the present case I do not express any final or concluded views on the questions of law raised, and any views I 50 express are on the basis that they are in the nature of interlocutory matters before the Court, and would not in any way prevent the Judge hearing the action from expressing views contrary to them. The cross-claim brought by Operations is based on a guarantee. Counsel for the applicants concedes, quite Correctly, that in answer toa claim on the guarantee, a Quarantor cannot avail himself of remedies the principal debtor may have against the creditor to whom the guarantee is given. Counsel does contend that there is an exception to that rule, namely the existence of an equity arising from the insolvency of the principal debtor which allows the guarantor to raise as a defence to an action based on the guarantee, a claim which the principal debtor may have had against the guarantee and arising out of the transaction in which the guarantee was given. Counsel relied upon a number of authorities including Cellulose Products Pty. Ltd. v. Truda (1970) 92 W.N.(N.S.W.) 561, and authorities referred to therein and to authorities in the United States of America. There is much to be said for that contention. To some extent, the applicants have relied upon that principle in the —— A ee "3 existing statement of claim and in their defence to the eross-claim. The existence of the exception arises from the insolvency of the principal debtor and is based on the equity that if a guarantor is required to pay a debt of the principal debtor, normally he can claim that amount so paid from the principal debtor. But if the principal debtor is insolvent, his only remedy would be to sue or to claim in the insolvency, and in those circumstances, it would be inequitable for the guarantor not to he able to rely upon any defence or claim that the principal debtor may have against the creditor if the creditor was to sue the principal debtor. The existence of the equity attempts to work out what is fair and just as between the guarantor and the creditor. However, the form of the order sought in order 3 of the motion by the applicants is not appropriate, and reference is made to Aurel Forras Pty. Ltd. v. Graham Karp Developments Pty. Ltd. £19751 V.R. 202 at p.220 where Menhennitt J. said, and I quote:- "Tt follows from the foregoing that, if a Plaintiff, in reply to a defendant's counter-claim, seeks to rely upon a claim which arose before the issue of the writ, he should, in general, apply for leave to amend his statement of claim, but that, if he seeks to rely upon a claim which arose after the issue of the writ, the only way in which he can do so, in the absence of consent by the defendant, is ina counter-claim by the plaintiff and it was decided in Toke v. Andrews (1882) 8 Q.B.D. 428 that he was entitled to raise it in a plaintiff's counter-claim." See also Bate v. International Computers (Aust.) Pty. Ltd. (1984) 2 F.C.R. 526 per Woodward J. at p.532. Accordingly, the further hearing of the motion was adjourned to today to enable the legal advisers of the applicants to consider the position of the applicants. On the resumption of the hearing of the motion today, the applicants sought leave to amend the application, the statement of claim and the defence to the cross-claim. In substance, what was sought by the applicants was the inclusion of certain claims contained in paragraphs 15 to 22 of the document handed to the Court this morning. By paragraph 15, the applicants sought to allege an agreement between Newtons and Operations containing a number of terms being the terms of the representations constituting the conduct alleged which was entered into by Operations in breach of s.52 of the Trade Practices Act. Paragraph 16 alleges breaches of those terms. Paragraph 17 alleges a collateral agreement between Newtons and Operations; the terms of the agreement being the representations which constitute the conduct, the basis of the s.52 Trade Practices Act claims. La ' mare ee ree pee + ehemehdir tidy tide tetas =e oa we rep ee ee re vw we ee eee en eee eee eee Tet pe owe ow aque ion ieelliten Sat we Mea mp ame or a 78, Sree os - 1l1- Paragraph 18 alleges breaches of those collateral warranties. Paragraph 19 alleges damages - and I will read that paragraph: - "19. In the premises Newtons has suffered loss and damage. PARTICULARS OF LOSS AND DAMAGE Full particulars of loss and damage will be provided prior to trial." Interrupting the examination of the proposed amendments, it should be noted that paragraph 19 includes the clain for damages based on s.52 of the Trade Practices Act which was a claim made by Newtons in the original statement of claim when Newtons was an applicant. That claim has been dismissed by consent. Paragraph 19 also claims damages based upon the terms of the agreement referred to in paragraph 15 of the proposed amendment and also damages for breach of the collateral warranties alleged in paragraph 17 of the proposed amendment. Neither of those causes of action were pleaded by Newtons in its original statement of claim. Coming back to the proposed amendments, paragraph 20 alleges that Newtons was wound up on 30 June 1983. Paragraph 271 raises fairly and squarely the equity which has been discussed earlier in these reasons. It reads as follows:- "21. In the premises the applicants are entitled ta set-off against the cross-claim of the respondents so much of the claim of Newtons for loss and damage arising by reason of the matters contained herein as will be sufficient to satisfy or extinguish the said cross-claim." By way of comment it is noted that this is stated in the form of a cross-claim but is expressed as a set-off to a cross-claim by Operations. It is based fairly and squarely on the equity. It is limited to the amount of the claim by Operations against the two applicants and even though Newtons is not a party to the proceedings, that is not a fatal defect having regard to the fact that Newtons is in liquidation. Paragraph 22 although marked to be a new paragraph is, on the face of it, almost identical to paragraph 15 of the statement of claim presently bafore the Court. It reads as follows:- "22. Further, by reason of the matters aforesaid:- (a) Newtons became entitled to, and did, rescind the agreement embodied in the deed referred to in paragraph 12(a) hereof;". There is now inserted the word "hereof" which did not appear in the current statement of claim. "(b) the guarantee is not enforceable against the applicants ar either of them; and (c) the applicants are entitled to an order declaring the guarantee void ab initio," So in reality, the amendments now sought to the statement of claim are in relation to the terms of the agreement between Newtons and Operations; the collateral warranties, the terms of which are the same as those terms, damages suffered by Newtons for breach of those collateral oe yt. prema re a Le fo nm en ee eee: Zorn aoe meters pots en a ery oe warranties as well as for contravention of 5.52 of the Trade Practices Act and a set-off of the amount up to the amount of damages suffered by Newtons. Problems do arise in relation to a claim based on s.52 of the Trade Practices Act by incorporating the same facts as being terms of an agreement, particularly when, from what appears from the pleadings, the agreement was reduced to writing and became a deed of agreement, and these terms are not those contained in the deed of agreement, as well as alleging collateral warranties. But nevertheless, on the face of it, if the applicant desires to amend and there is no other reason why the leave should not be given to so amend, leave would be given to raise those additional matters. Likewise, from what has been said earlier, leave would normally be given to raise the set-off based on the equity discussed earlier in these reasons. The proposed amended defence to cross~claim is complementary to the amendments to the statement of claim, and what is sought is the addition of a further paragraph as follows:- "20. Further and in the alternative the cross-respondents will seek to set-off so much of their claim herein, including the claim of Newtons' raised by them, as will be sufficient to satisfy or extinguish the claim of the cross-applicants herein." That is a defence based fairly and squarely on the equity. en np =e fern te an - - 14 - The proposed amendments to the application are to insert new paragraphs (d), (e) and (f), and I will read:- "(d) an order pursuant to sub-section 87(2)(d) of the Trade Practices Act 1974 (Cth.) directing the respondents and each of them to pay to the applicants the amount of any loss or damage suffered by the applicants as a result of the contraventions referred to in the Further Amended Statement of Claim;". This claim is brought under 5.87(2) of the Trade Practices Act because of problems that might arise in relation to limitations of actions arising from the provisions of that Act. At the moment the question as to whether the limitation period is six years or three is pending in the High Court. "(e) an order setting off against any amount found to be due upon the respondents' cross-claim so much of the loss and damage suffered by Newtons by reason of the matters referred to in the Further Amended Statement of Claim as will be sufficient to satisfy or extinguish such cross-claim; (f) interest pursuant to Statute;". Counsel for Operations and Newtons has opposed the granting of leave on two principal grounds. The first: that of futility. This is based on the principle that where a claim is being made or sought to be made, which cannot possibly succeed, the Court should refuse to give leave to so amend a statement of claim as to raise that particular claim. In elaboration of that submission, counsel argued that the applicants cannot have any greater right than the right Newtons had, and even though Newtons is not a party to the proceedings and need not be a party, the applicants - 15 - cannot raise any cross-claim by way of defence or set-off because Newtons claim for those very matters has been dismissed by consent. He relies upon the principle that a dismissal or judgment in an action, as this is, merges the cause of action in the judgment, and that cause of action cannot then be relied upon by the party to those proceedings. And of necessity, other persons cannot raise that same issue in other proceedings. Counsel relied upon a series of authorities: Port of Melbourne Authority v. Anshun Pty. Ltd. in the Supreme Court of Victoria, McGarvie 7., reported £19801 V.R. 321; an appeal to the Full Court in (19811 V.R. 81, and in the High Court, (1981) 147 C.L.R. 589. A number of general propositions arise from those authorities. The first one, which 1s stated at p.324 of the judgment of McGarvie J. is as follows :- "1. Where a cause of action is claimed upon or put in suit ina proceeding and judgment is obtained, the cause of action merges in the judgment or is negated by the judgment and has no later existence as a cause of action. Accordingly, no proceeding can later be brought upon the cause of action." Accordingly, no proceeding can later be brought upon the cause of action. In Anshun's Case, there had been a judgment of the Court after trial. In the Present case, there is interlocutory judgment; there has been no Judgment on the Merits as opposed to an interlocutory judgment even though final. In my opinion, that makes no difference to the 2 tole s i if Ae ae were tenet eR ee ra aps apo - 16 - general principle, although problems do arise in the present case because of equities which I will explain in a moment. Tt is submitted by counsel for Operations that the judgment obtained by Operations against Newtons is a bar to any subsequent action brought by Newtons and, of necessity, is a bar to any claim brought by the applicants, the Tringas', based upon a cause of action which has been barred by Newtons agreeing to judgment being entered against it. He contends that to enable the Tringas' to bring such a cause of action would, in substance, place the respondents in a position of being able to bring an action on Newtons behalf when Newtons cannot bring that action where the Court has made an order for security for costs against Newtons, and, on a motion to have the claim by Newtons dismissed, Newtons has consented to the claim being dismissed; in other words, judgment against it; that it would be unfair to allow Tringas to bring that claim based on 5.52 of the Trade Practices Act, and equally unfair to allow the applicants to bring a related claim arising from the same facts based upon terms of an agreement, and collateral warranties. As opposed to that, it must be remembered that Operations is claiming under a guarantee. The guarantors, if they are liable under guarantee, are paying a debt of the principal debtor, the debtor is in liquidation, the guarantors have no way to ensure that the principal debtor takes all steps to raise by way of defence or counter claim, claims 1t might have against the creditor. That here, the er -_—— -a wees on a ae wee Uta, ST EE ry opr ert ree miner eee rte i - 17 - liquidator can do what he likes and this could well amount to an unfair basis in which the applicants are unable to raise defences which equity they are entitled to raise. It must be remembered however, that the need for the guarantee was to secure payment where, for any reason, the principal debtor did not or could not pay the debt. In fact, in the material in support of their motion, the applicants alleged facts which suggested that Operations was in some way active in obtaining the winding up order against Newtons as a step in defeating Newtons' claim against Operations. During the course of submissions, on that issue, I expressed a view that there was no basis whatsoever for any such suggestion. The whole purpose of the security for costs being awarded against a corporate body was because of the unique provision relating to corporations; special provisions being made that if a corporation is unable to pay its debts or pay the costs or give security, it should not be allowed to pursue proceedings in the Court. Nevertheless, one is faced with the problem of the applicants, under normal circumstances, having a claim based in equity to raise by way of defence, a claim that Newtons may have against Operations being bound by actions over which they have no control. Nevertheless, applying the principles of law which are discussed in Anshun's Case, in my opinion, the existence of the judgment or order against Newtons does constitute a bar to the applicants in relying upon any claim that Newtons may have against Operations. " — = yap ra Likewise, in my opinion, to allow the applicants to bring a related claim based on breach of terms of an agreement between Newtons and Operations or collateral warranties between Newtons and Operations, would be a way to avoid those principles of law which is not permissable, and accordingly, in my opinion, the existence of the judgment is a bar to the proposed claim of proposed amendment sought by the applicants. This doses not of necessity mean that the applicants cannot rely upon the matters already raised by them in relation to the recission of the deed of agreement, including the terms relating to the guarantee. The other main matter raised by way of opposition to the order sought was on discretionary grounds, namely that because of the delay in the matter, the matter having been ready for trial, because of the problems associated with the fact that Newtons having been ordered to give security for costs did not give them, and then subsequently had their claim dismissed, as a matter of discretion the Court should not allow the applicants to raise those same issues, as it were, on behalf of Newtons, since to do so would be to defeat the orders already made. Again, this raises a nice balancing exercise between the equities of the applicants and the existence in law of the judgment, andas a matter of discretion, if otherwise there is power to do so, I would refuse to grant Seer Ener y Soto le ——— he ~ at TCT TTT Se Gia se xe a ao! - 19 - leave sought to amend the statement of claim, the defence to cross-claim and the application. In all the circumstances, therefore, the motion brought by the applicants and dated 25 November 1985, is refused, with costs to be taxed. re woman ors bers = x ei chet this and the 2 < | b . . . q ; cele pages aie a tine copy of the 4 Reasors for Suds nent herein of the j Honourable Myr. Justica orth rey | ; \ escclate LS ee 1 Dated:lZ212.1. 5G { fen ee Suey . ene eee ee een = © pre Woe Nee wee teen oe a