JUDGMENT No. $30./21. ws T' ORD: Private International Law - Service out of Jurisdiction - Service under State or Territory Legislation or Rules of Court - Procedural Matters - Conditional Appearance and Setting Aside Service - Application to set aside service - Question for court - Onus of proof - 0.9 R.7 (Federal Court of Australia). Trade Practices - Enforcement and Remedies - Servants or Agents of Body Corporate - "On behalf of any other person". Trade Practices Act 1974 - 5.84(2) c tree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising & Addressing Co. Pty. Ltd. (1975) 133 C.L.R. 72. Trade Practices Commission v. ueensland Aggregate Pty. Ltd. (1982) 44 A.L.R. 491 Walplan Pty. Ltd. v. Wallace (1985) 63 A.L.R. 453. British Thomson-Houston v. Sterling Accessories Ltd.£19241] 2 Ch. 33. AMUST COMPUTER CORPORATION PTY. LTD., X.A.B.S. PTY. LTD., ROBERT ALAN KNOWLES, ANTHONY RICHARD WARR, GARY WILLIAM SMITH, CALDANDRA PTY. LTD. and B COBURN v. AUSTRALIA ENTRE BUSINESS CENTRES PTY. LTD., ENTRE COMPUTER CENTERS INTERNATIONAL INC. , ENTRE COMPUTER CENTERS INC., JAMES DUDLEY GALLAGHER, JAMES JOSEPH WEBSTER and KERRY GEORGE PENNA VG118 of 1987 Jenkinson J. Melbourne 28 October, 1987 3 00CT 1987 FEDERAL COURT OF AUSTRALIA IN THE FEDERAL COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) No. VG118 of 1987 GENERAL DIVISION ) BETWEEN: AMUST COMPUTER CORPORATION PTY. LTD. , X.A.B.S. PTY. LTD., ROBERT ALAN KNOWLES , ANTHONY RICHARD WARR, GARY WILLIAM SMITH CALDANDRA PTY. LTD. and PETER BENNETT COBURN Applicants AND: AUSTRALIA ENTRE BUSINESS CENTRES PTY. LTD., ENTRE COMPUTER CENTERS INTERNATIONAL INC., ENTRE COMPUTER CENTERS INC. , JAMES DUDLEY GALLAGHER, JAMES JOSEPH WEBSTER and KERRY GEORGE PENNA Respondents MINUTE OF ORDER CORAM: Jenkinson J. PLACE: Melbourne DATE: 28 October, 1987 THE COURT ORDERS THAT: 1. The originating process be set aside as against Entre Computer Centers Inc. 2. Consideration of the question of costs be reserved. a] cr im Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. In FED) COURT OF AUSTRALIA ) VICTORIAN DISTRICT REGISTRY ) No. VG118 of 1987 G DIVISION ) BETWEEN: AMUST CC COMPUTER CORPORATION PTY. LID. X.A.B.S. Pry. LTD. ROBERT ALAN KNOWLES, ANTHONY RICHARD WARR, GARY WILLIAM SMITH, CALDANDRA PTY LTD. and PETER BENNETT COBURN Applicants AND: AUS IA ENTRE BUSINESS CENTRES PTY. LTD., ENTRE COMPUTER CENTERS pe AATIONAL INC. , ENTRE COMPUTER CENTERS INC., JAMES DUDLEY GALLAGHER JAMES JOSEPH WEBSTER and KERRY GEORGE PENNA Respondents Jenkinson J. 28 October, 1987 REASONS FOR JUDGMENT Motion by the third-named respondent for an order, pursuant to 0.9 R.7, setting aside as against it the originating process served on it in the United States of America, or an order setting aside that service. In April 1986 the applicant X.A.B.S. Pty. Ltd. ("Amust") entered into an agreement in writing with the first and second-named respondents. By the agreement the second-named 2. respondent ("Entre International") granted Amust the right to operate a business, within a particular area in Victoria, of selling by retail computers and materials for use in or in connection with computers under the name "Australia Entre Business Centre", for ten years. An option to renew for a further ten years was granted. The right to use certain trade marks in connection with the business was granted to Amust. The first-named respondent ("Entre Australia") agreed to provide Amust with advice, training and support in relation to the establishment and operation of the business and Amust agreed to observe in its conduct of the business directions of various kinds by Entre Australia. Amust 1s a wholly owned subsidiary of the applicant Amust Computer Corporation Pty. Ltd. (""Amust Computer"). The applicants Knowles, Warr and Smith were at material times the directors of Amust and Amust Computer. They were parties to the agreement as guarantors of certain obligations imposed by the agreement on Amust. Entre International and Entre Australia were at material times wholly owned subsidiaries of the third-named respondent ("Entre Incorporated"). Both Entre Incorporated and Entre International were incorporated in the State of Delaware in the United States of America, but the other companies which are parties to the proceeding were incorporated in the State of Victoria. It is alleged that natural persons some of whom are respondents in the proceeding induced the making of the agreement by making to Amust Computer, Knowles, Warr and Smith 3. representations which constituted misleading conduct done in contravention of 5.52 of the Trade Practices Act 1974. Each of the three respondents which are bodies corporate was alleged to have engaged in misleading conduct in breach of that section by reason of the making of those representations. None of the natural persons alleged to have made the respresentations was ata relevant time an officer or servant of Entre Incorporated. It was alleged that the representations were "partly oral, partly in writing and partly to be implied." One of the documents in which it is alleged that representations may be found is the annual report of Entre Incorporated for the year ended August 1984. As will appear, that is a document some of the contents of which may be said to contribute to a conclusion that the oral representations were conduct for which Entre Incorporated is legally responsible, but none of the contents of the report expresses any of those representations. None of the other decuments contributes in any way, in my opinion, to constitute a cause of action against Entre Incorporated. Implication of the representations is alleged to be derived "from the nature and terms of the Cagreement] and from the fact of making the said representations in all the circumstances". Pursuant to leave granted by Ryan J. Entre International and Entre Incorporated were served with the originating application (as amended) in the United States of America. Having entered a conditional appearance, Entre Incorporated moves for an order setting aside the application, or service thereof, on the ground that it did not engage in any misleading conduct. Other causes of action were alleged against Entre Incorporated, but 4. counsel for the parties framed their submissions for and against the motion on the tacit assumption that, if service out of the jurisdiction could not be justified by reference to a cause of action founded on contravention of 5.52 of the Trade Practices Act 1974, it could not be justified by reference to any other cause of action. The written and oral communications received by the applicants before the agreement was made demonstrated clearly, in my opinion, that the contractual relations which were being proposed to the applicants were to be with Entre International and Entre Australia, not with Entre Incorporated. Just as clearly was it disclosed to the applicants that each of Entre International and Entre Australia was a subsidiary of Entre Incorporated. Purther, the material furnished to the applicants before the agreement was made justified the confident inference, if it did not in terms assert, that the business which Entre Incorporated carried on in the United States was the very same kind of business which the subsidiaries were commencing to carry on in this country, and that the methods and techniques and trade marks and Slogans and contractual and other business relations with retailers were to be substantially the same in both those countries, and in other parts of the world in which Entre Incorporated''s subsidiaries were, or would be, carrying on business. The annual report of Entre Incorporated for the year ended 31 August 1984, a document submitted to the applicants by officers of Entre Australia in the course of the negotiations which preceded the making of the agreement, describes Entre Incorporated as "an international franchisor of Retail Computer 5. Centers" and describes its business system and business relations with retailers in terms which imply that no subsidiary is interposed between it and retailers in the course of trading outside the United States of America. Yet the same document also discloses the existence of subsidiaries and discloses their roles in commerce to be the same beyond the United States as is the role of Entre Incorporated within the United States. Mr. O''Callaghnan, 9.C., who appeared with Mr. Lucarelli for the applicants, submitted that the assertions of Entre Incorporated in 1ts annual report justified the conclusion that the activities in trade and commerce in this country which were directed to the "franchising" of retailers to trade under the Dusiness names, and in accordance with agreements of the kind, which Amust accepted were activities of Entre Incorporated, albeit carried on by agents, namely the two subsidiaries and their officers and servants. If those agents made representations in the course of carrying on those activities, they were representations aiso of Entre Incorporated, it was submitted, because Entre Incorporated had declared itself the actor. Mr. O'Callaghan did not contend that anything written or said to the applicants had induced in any of them a suspicion that Entre Incorporated would be party to any contract proposed to any of the applicants. The verbiage of the documents placed before the applicants is too plainly contradictory of such a suspicion. If the 1984 annual report of Entre Incorporated be put to one side, there was no evidence on which to base a conclusion 6. that any of the natural persons whose conduct is alleged to have contravened 5.52 of the Trade Practices Act 1974 had actual authority to make any representation as agent for Entre Incorporated and directors of that company have given evidence denying the existence of any such an authority. If, again, the 1984 annual report be put aside, there was no representation or holding out of any of those natural persons as agents to speak for Entre Incorporated by any person whose representation or holding out would bind that company, in my opinion. None of those natural persons was clothed with an authority whereby the company might be so bound. (Cf. Crabtree-Vickers Pty. Ltd. v. Australian Direct Mail Advertising & Addressing Co. Pty. Ltd. (1975) 133 C.L.R. 72.) Mr. OQO'Callaghan relied upon s.84(2) of the Trade Practices Act 1974, which provides: "Any conduct engaged inon behalf of a body corporate - (a) by a director, servant or agent of the body corporate within the scope of the person's actual or apparent authority; or (b) by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction,consent or agreement 1s within the scope of the actual or apparent authority of the director, servant or agent, shall be deemed, for the purposes of this Act, to have been engaged inalso by the body corporate." It was submitted that the statements in the 1984 annual report which asserted that the activities undertaken outside the United States of America in furtherence of the establishment and operation of franchised "computer centers" were activities of Entre Incorporated constituted, or evidenced, the implied agreement of that company's directors that the conduct of its subsidiaries and of the officers and servants of its subsidiaries in this country in furtherance of those commercial objectives should be conduct engaged in on its behalf, in the sense which the words "conduct engaged in on behalf of a body corporate" bear in sub-section 94(2). Whatever appears in the annual report may be taken to give expression to the will of the directors of Entre Incorporated. If a statement in the report may be taken to constitute, or to evidence, consent or agreement, the statement may be taken to express the consent or agreement of Entre Incorporated, and of its directors within the scope of their authority. But the statements in the report are not in my opinion capable of being understood as constituting, or as evidencing, the giving of consent or agreement to the subsidiaries' engaging in conduct on behalf of Entre Incorporated, or to the engaging in conduct on its behalf by officers or servants of its subsidiaries, in any sense which sub-section 84(2) might comprehend. The statements in the report really go too far to provide support for the submissions Mr. O'Callaghan made. The statements assert, if they be taken literally, that it is Entre Incorporated which does, and will, grant "franchises" outside the United States : that it 8. - is Entre Incorporated which does, and will, make contracts with retailers throughout the world. But it is perfectly plain from other passages in the report and from other materials placed before the applicants that no such a thing was proposed. The statements on which Mr. O'Callaghan would wish to rely must be understood, a propos contractual relations, as deliberately and obviously metaphorical. So understood, their value beyond the realm of contract is in my opinion destroyed. They cannot be understood as within the realm of legally significant discourse. Whether the expression "on behalf of a body corporate" means "for" or "as agent for" (see Trade _ Practrces Commission v. Queensland Aggregates Pty. Ltd. (1982) 44 A.L.R. 391 at 405) or "in the course of the body corporate's affairs or activities" (see Walplian Pty. Ltd. v. Wallace (1985) 63 A.L.R. 453 at 462-463), 1t is an expression contemplating a relationship between the body corporate and, where paragraph 84(2)(b) is in question, another person. The statements on which reliance is sought to be placed, however, simply deny, impliedly, the existence of each of the persons (subsidiaries and their servants and agents) which or who it is submitted fills the role designated by the phrase "any other person" in that paragraph. The same considerations make it impossible, in my epinion, to extract from the metaphorical observations in the annual report a ground for concluding that actual authority was given to any of the persons who are alleged to have made the representations, or that any of them were held out as having authority to make representations on behalf of Entre Incorporated of the kind here in question. A pretence, revealed to be a 3. pretence, that the totality of the activities of a company and its subsidiaries is the activity of the parent alone does not in my opinion justify a conclusion that any subsidiary or an officer or servant of a subsidiary is thereby held out as having authority to act for the parent company. The pretence is easily recognised, by persons of sufficient business experience to be concerned in a transaction of the kind here in question, as a not uncommon advertising device. I find no basis for involving Entre Incorporated in any liability of the kind sought to be imputed to 1t. The case is, I think, within the principle stated by Tomlin J., in British Thomson-Houston v. Sterlin ccessories Ltd. £1924] 2 Ch. 33 at 38, that it is not possible, either in contract or in tort, to "go behind the legal corporate entity of the company and treat the creator and controller of the company as the real contractor merely because he is the creator and controller ...... Nor does the matter stand otherwise in regard to liability for tortious acts." Because 0.8 R.2(2)(c) requires no more than "a prima facie case" I have assumed, but without deciding, that the motion to set aside the originating process should be dismissed unless there appears not even "a prima facie case" on the evidence before me, which was much more extensive than the evidence before Ryan J. I do not consider that there is a prima facie case. It will he ordered that the originating process be set aside as against Entre Computer Centers Inc. and that the costs of that company of 10. entering conditional appearance and of the motion of which notice was filed on 10 September 1987 be paid by the applicants. I certify that this and the 93 preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Jenkinson. Associate Dated: 28 October, 1987 Counsel for the Applicants 3 Mr. P.J. O'Callaghan Q.C. and Mr. N. Lucarelli Solicitors for the Applicants : Barton and Partners Counsel for the First and 3 Mr. A.C. Archibald Q.C. and Mr. Third-named Respondent P.J. Jopling Solicitors for the First and Arnold Block Liebler Third-named Respondents ory Dates of Hearing 9 and 12 October, 1987