Practice and Procedure - claim under Trade Practices Act and accrued jurisdiction arising out of sale of business - matter subject of prior proceedings in State Supreme Court - application for injunction to restrain prosecution of Supreme Court action - need for federal claims to be genuine and to constitute a significant part of the controversy between the parties. Federal Court of Australia Act 1976 s.23 ALLIED INSURANCE AGENCIES PTY LTD and ALLIED INSURANCE BROKERS PTY LID v WILLMAINE PTY LTD (IN LIQUIDATION) and JOHN PAT WILLIAMS and RONALD JOSEPH CRANE NO. WAG 73 of 1986 FRENCH J. PERTH 2 December 1986 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN 3: No. WAG 73 of 1986 ALLIED INSURANCE AGENCIES PTY LTD and First Applicant ALLIED INSURANCE BROKERS PTY LTD WILLMAINE PTY LTD (In Liquidation) and JOHN PAT WILLIAMS and RONALD JOSEPH CRANE MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER : 2 December 1986 WHERE MADE ; PERTH THE COURT ORDERS THAT : 1. First Second Applicant Respondent Second Respondent Third Respondent The First Respondent be restrained until further order from further prosecuting Action No. 1178 of in the 2. Supreme Court of Western Australia commenced by writ dated 14 February 1986. 2. There be liberty to the First Respondent to apply to vary or discharge Order 1 on 48 hours notice to the Applicant. 3. The costs of the Application be in the cause. Note : Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION CORAM: FRENCH J. No. WAG 73 of 1986 BETWEEN: ALLIED INSURANCE AGENCIES PTY LTD First Applicant and ALLIED INSURANCE BROKERS PTY LTD Second Applicant WILLMAINE PTY LTD (In Liquidation) First Respondent and JOHN PAT WILLIAMS Second Respondent and RONALD JOSEPH CRANE Third Respondent 2nd December 1986 REASONS FOR JUDGMENT On 23 July 1986 the Applicants instituted proceedings against the Respondents arising out of the sale of an insurance 2. agency and brokerage business in September 1984. It is alleged in the Statement of Claim that the Applicants and the First and Second Respondents entered into a written agreement dated 12 September 1984 under which the First Applicant agreed to purchase and the First Respondent agreed to sell the business which was said to comprise "a portfolio of clients for various types of insurance effected by the First Respondent together with certain items of computer hardware and software". The statement of claim pleaded certain terms of the agreement relating to the calculation of the purchase price according to a somewhat complicated formula and the payment of instalments thereon. The agreement was also said to contain a covenant on the part of the Second Respondent that he would provide his services for a period of 6 months after the date of sale for the purpose of permitting an orderly transition of the ownership of the business. The Third Respondent although not a party to the agreement was to enter into a contract of employment with the First Applicant and assist with the transition in the ownership of the business. The Second Applicant was evidently a party for the purpose of guaranteeing the First Applicant's obligations under the agreement. 3. According to the Applicants they were induced to enter into the agreement by representations made by the Second and Third Respondents as agents for the First Respondent. These representations related to the accuracy of a computer print-out produced by the computer hardware and software being sold as part of the business and various other attributes of the business. The Applicants say that after entering into the agreement the First Applicant commenced operating the business and paid to the First Respondent $234,764.00 by way of deposit and first instalment of the purchase price. The representations relied upon are now said to be false in various respects which it is not necessary to set out in detail for present purposes. The Applicants plead that the conduct of the First Respondent and its agents constitutes conduct by the First Respondent which was misleading or deceptive or likely to mislead or deceive contrary to s.52 of the Trade Practices Act 1974 and that the Applicants have thereby each suffered damage. It is further alleged that by reason of the matters pleaded the First Respondent have contravened para.53(a) or (c) of the Act. 4, The representations are also said to have been incorporated as terms of the agreement and alternatively embodied in a collateral contract between the Applicants and the Respondents. Relying upon their falsity the Applicants say that the terms of the agreement and/or the collateral contract have been breached. An alternative plea in negligence is raised and certain other breaches of provisions of the agreement are pleaded. The Applicants claim to have suffered damages including:- (a) the difference in the value between the amount paid by the Applicants for the business and its true worth; {b) The cost of reorganizing the business so that it operated efficiently and in accordance with lawful and normal insurance industry practices; (c) the loss of goodwill incurred as a consequence of a breach of the agreement. Damages are claimed pursuant to the provisions of s.82 of the Trade Practices Act or at common law. 5. On 14 February 1986 the First Respondent instituted proceedings in the Supreme Court of Western Australia, being Action No. 1178 of 1986, against the First Applicant under its former name Faringdon Pty Ltd. The claim was for the sum of $243,460.00 together with interest at the rate of 16% being money said to be due and payable under the agreement less the sum of $60,865.00 paid into an account and to be held on trust by the First Applicant for the First Respondent in or about March 1985 together with interest thereon. In respect of that amount the First Respondent sought a declaration that it represented moneys due and payable by the First Applicant to it under the terms of the agreement. A Statement of Claim was not filed in those proceedings until 7 July 1986. By a Notice of Motion filed in the Federal Court on 23 July 1986 the Applicants sought orders that:- 1. They be given leave pursuant to sub-s.401(2) of the Companies (Western Australia) Code to commence an action against the First Respondent by way of the application filed in the proceedings and in respect of those matters disclosed inthe statement of claim. 2. That the First Respondent be restrained until further order from prosecuting Action No.1178 of 1986 in the Supreme Court of Western Australia commenced by it by a writ dated 14 February 1986. The motion came on for hearing before Burchett J. on 20 August 1986. It was adjourned to enable the First and Second Applicants to apply to the Supreme Court of Western Australia in order to seek the leave required under s. 401(2) of the Code. On 5 November 1986 Olney J. in the Supreme Court granted leave to the Applicants to commence proceedings against the Defendant in this Court. The adjourned motion has now been relisted in order to enable the Applicants to pursue its second limb namely, an order restraining the First Respondent until further order from prosecuting Action No. 1178 of 1986 in the Supreme Court of Western Australia. The Second and Third Respondents have not yet been served with the substantive application or the statement of claim. There is some evidence to suggest that the Second Respondent may now be residing in England. Five attempts to serve papers on the Third Respondent have been unsuccessful. As the substantive application relies upon a cause of action arising under s.82 of the Trade Practices Act, the Court has by reason of s.86, exclusive jurisdiction to adjudicate upon it. The controversy thus brought into this Court embodies the claims in contract and tort which the Court may adjudicate in the exercise of its accrued jurisdiction - Fencott v Muller (1983) 152 CLR 570. The claim upon which the Supreme Court proceedings are based being for moneys due and payable under the agreement for sale form part of the same controversy and are for that reason within the accrued jurisdiction of this Court. This Court having jurisdiction, has power under s.23 of the Federal Court of Australia Act 1976 to restrain the First Respondent from proceeding further in the Supreme Court until the litigation before it has been finalised. - St. Justins Properties Pty Ltd v Rule Holdings Pty Ltd (1980) 40 FLR 282 at 285 per Toohey J. If it were the case that the claim brought in the Supreme Court could not be dealt with in the jurisdiction of the Federal Court (accrued or associated) then it seems the Federal Court would have no power to impose such a restraint. This is subject to the possibility that power may exist where the continuance of the proceedings in the Supreme Court would render nugatory any substantive relief within the power of the Federal Court. - Friendship Corporation Pty Ltd v Adamad Pty Ltd (1984) 57 ALR 81 at 84 per Beaumont J. The general approach to be taken to the exercise of the Court's discretion in cases of this kind is set out in the judgment of the High Court in Stack v Coast Securities (No.9) Pty Ltd _ (1983) 154 CLR 261. Before the Court in that case was the question, inter alia, whether certain proceedings then pending in the Supreme Court of Queensland should be stayed until the determination of a related application in the Federal Court. Gibbs CJ, having decided that two actions in which judgments had been given in the Supreme Court should remain on foot went on to say at 285:- "In the case of the other action (No. 349) commenced by Coast Securities I consider that the proceedings in the Supreme Court should be stayed until the Federal Court decides whether it will proceed to deal with the application (G8) before it. I take this course with some reluctance, since the proceedings were first instituted in the Supreme Court and that is an important consideration. However, the Federal Court is the only court which is fully invested with jurisdiction to decide all the questions that arise as between the parties to the contract of sale, since the Supreme Court has no jurisdiction to give relief under Pt. VI if a contravention of s.52 is established, and it seems better that all the questions should be decided in the Federal Court rather than that they should be decided piecemeal. Of course, if the Federal Court should reach the conclusion that there is no substance in the questions raised under the Trade Practices Act, or that 9. the questions raised under that statute are an insubstantial or severable part of the entire proceedings, or that for some other reason it would be more convenient for the matter to proceed in the Supreme Court, that Court should then order a stay of proceedings to enable the action in the Supreme Court to proceed." Mason, Brennan and Deane JJ. at 298 said:- "The first and paramount consideration in the exercise of this discretion is to do what is best in the interests of the litigants. In this respect the Federal Court can resolve the entire controversy; the Supreme Court cannot do so because the second limb of s.86 of the Act stands in its way. The court which can resolve the entire controversy has an obvious advantage. Generally speaking, its determination of all the issues will be made more effectively and more expeditiously and at less expense than the resolution of the controversy which depends on determinations made by two courts in separate proceedings in which the issues are necessarily fragmented. To offset this advantage offered by the Federal Court powerful countervailing reasons need to be shown. For example, it may appear that the federal issue is raised at such a late stage in the Supreme Court proceedings that it would be a waste of time and lead to needless expense and inconvenience not to proceed to a hearing in that Court. Or it may appear that the federal issue is so insubstantial or removed from the non-federal issues that the Supreme Court should proceed with the determination of those issues. It may even appear that the federal issue is but one of many issues making up the entire controversy and that it is indistinguishable from one of the non-federal issues in the sense that the resolution of one necessarily leads to a resolution of the other. In such a case there will be stronger ground for allowing the action to proceed in the Supreme Court." The same basic considerations arise in the case in which the Court is asked to order a stay of proceedings in its own jurisdiction pending the outcome of proceedings in a State Court. 10. Indeed the general proposition embodied in the joint judgment cited above, was relied upon by Spender J. ina _ recent case involving an application for a stay of proceedings in the Federal Court pending the outcome of litigation in the Queensland Supreme Court. Pillifeant v Colemma Pty Ltd £1985] ATPR 40-508 at 46,065. While conscious of these principles his Honour also said that the justice of any particular application had to be dealt with in the circumstances at the time of the application. There, an action in the Queensland Supreme Court had been instituted in May 1983, and in July 1984 had been entered for trial and was awaiting appointment to the callover and allocation of a trial date. The substance of the application in the Federal Court had not been instituted until September 1984. His Honour observed that when one had regard to the extent to which proceedings had gone in the Supreme Court it would have been a disgraceful duplication and waste of costs if the application in the Federal Court were to go ahead. There was in that case evidence of unconscionable delay on the part of the applicants and quite a substantial identity of factual issues which it was said if determined in the Supreme ll, Court, would go a long way to resolving the issues in the Federal Court proceedings. In the circumstances a stay of proceedings in the Federal Court was ordered. Particular circumstances in St. Justins Properties Pty Ltd v Rule Holdings Pty Ltd led Toohey J. to decline to restrain the respondent in that case from continuing proceedings in the Supreme Court of Western Australia. As in Pillifeant v Colemma Pty Ltd the Supreme Court action had reached the stage that it was ready for trial and was to be entered in the callover. It has been said that before the power to restrain a party from proceeding in a State Supreme Court is to be exercised, this Court should be satisfied that the claims made in the Federal Court are genuine and that the federal claims form a substantial aspect of the controversy between the parties. Whether or not that formulation is meant to place some kind of onus on applicants in Federal Court proceedings, it does not require that there should be evidence of the merits of the federal claim - Denpro Pty Ltd v Centrepoint Freeholds Pty Ltd (1983) 48 ALR 39 at 43 per Northrop J. 12. In Francis C. Mason Pty Ltd v Citicorp Australia Ltd (1984) 57 ALR 130 Northrop J. refused an application to restrain the respondent from proceedings which were underway in the State Supreme Court. The substantive Federal Court application there was instituted long after the sale of the land to which 1t related and some months after the institution of the proceedings by the respondent in the Supreme Court of Victoria. Further his Honour concluded that by reason of inconsistencies between affidavit evidence on behalf of the applicant and certain contemporaneous documents he was not satisfied that the federal claims were genuine. In the present case no challenge is made to the genuineness of the federal claims. There is nothing in the materials before me to suggest that they are made other than in good faith. The statement of claim filed in the Court is comprehensive and appears to reflect a genuine controversy of which the federal claims are a significant part. There was a substantial delay between the institution of proceedings in the Supreme Court and those in this Court, a period of just over 5 months. However no statement of claim was filed in the Supreme Court action until 7 July 1986 and the application in this Court was lodged about 2 weeks later. 13. The claim for the recovery of unpaid purchase price in the Supreme Court is part of the one controversy and within the accrued jurisdiction of this Court. There is therefore no factor that at present displaces the application of the general principle enunciated by the High Court in Stack v Coast Securities (No. 9) Pty Ltd. For these reasons I am prepared to make the order sought. One matter of concern arises from the inability of the Applicants so far to effect service on the Second and Third Respondents. If service is not able to be effected upon them within a reasonable time and the progress of the substantive application were to be delayed, then it would be unfair to continue to prevent the First Respondent from proceeding in the Supreme Court. There must therefore be liberty to apply to vary or discharge the injunction accordingly. In the circumstances I propose to make orders in the following terms:- 14. 1. The First Respondent be restrained until further order from further prosecuting Action No. 1178 of 1986 in the Supreme Court of Western Australia commenced by writ dated 14 February 1986. 2. There be liberty to the First Respondent to apply to vary or discharge Order 1 on 48 hours notice to the Applicant. 3. The costs of the Application be in the cause. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment of his Honour Mr Justice French Associate AF 6 Date : 2 December 1986