FEDERAL COURT OF AUSTRALIA Emerald Ocean Distributors Pty Ltd v Australian Competition & Consumer Commission [2001] FCA 1920 TRADE PRACTICES – misleading or deceptive conduct – claim by alleged co-contravenors for indemnity – application for leave to cross-claim and to serve cross-claim out of the jurisdiction – primary judge refused leave to cross-claim – whether such refusal amounted to error of law. Bialkower v A Achos Pty Ltd (1999) ATPR 41-685 referred to Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 referred to EMERALD OCEAN DISTRIBUTORS PTY LTD, SLENDERTONE HEALTH AND BEAUTY PTY LTD and SEAN O'DONOGHUE v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION W345 of 2001 FRENCH, LEE & CARR JJ 23 NOVEMBER 2001 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W345 OF 2001 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: EMERALD OCEAN DISTRIBUTORS PTY LTD First Appellant SLENDERTONE HEALTH AND BEAUTY PTY LTD Second Appellant SEAN O'DONOGHUE Third Appellant AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent JUDGES: FRENCH, LEE & CARR JJ DATE OF ORDER: 23 NOVEMBER 2001 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The appellants' appeal from the whole of the judgment of R D Nicholson J given on 24 May 2001 whereby he refused the appellants' motion for leave to file a cross claim and ordered the appellants to pay the respondent's costs of the motion be allowed. 2. The Orders of Nicholson J on 24 May 2001 on the appellants' motion dated 14 February 2001 be set aside. 3. The appellants' motion dated 14 February 2001 be remitted to Nicholson J for determination. 4. The respondent pay the appellants' costs of the appeal and of the application for leave to appeal. 5. The costs of the appellants' motion before Nicholson J are reserved to him. 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 W345 OF 2001 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: EMERALD OCEAN DISTRIBUTORS PTY LTD First Appellant SLENDERTONE HEALTH AND BEAUTY PTY LTD Second Appellant SEAN O'DONOGHUE Third Appellant AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent JUDGES: FRENCH, LEE & CARR JJ DATE: 23 NOVEMBER 2001 PLACE: PERTH REASONS FOR JUDGMENT introduction 1 On 23 November 2001 the Court heard an appeal, in respect of which leave had previously been granted by French J, from an interlocutory decision of a Judge of this Court, made on 24 May 2001. At the conclusion of the hearing we made orders allowing the appeal, setting aside the orders of the learned primary judge in respect of the appellant's motion (to file a cross-claim and serve the proposed cross-respondent in Ireland) and remitting the motion to his Honour for re-hearing. We made orders that the respondent pay the costs of the appeal, including the costs of the motion for leave, and we referred the question of the costs of the appellants' motion to his Honour. We indicated that our reasons for making those orders would follow. These are our reasons. factual background 2 On 25 July 2001, French J published reasons for granting leave to the appellants to appeal. This summary of the factual background of the application is taken from his Honour's reasons. 3 On 19 July 2001, the applicant instituted proceedings against the first and second appellants and their common director, the third appellant. The application as it presently stands (the further amended application), seeks by way of relief various declarations, injunctions, orders for corrective advertising and for the third appellant to attend a Trade Practices Compliance Program seminar. Orders for refunds of money paid by members of the public who believe they may have been misled or deceived by the appellants are also sought. 4 The proceedings arise out of the supply and promotion by the first and second appellants of certain products described as "Slendertone Products". The products, which are marketed under six different names, electronically stimulate muscles, the result of which is said to tone and firm the body and abdominal muscles, reduce body measurements and remove cellulite. 5 The first and second appellants advertised their products in magazines called "Women's Health" and "Ultrafit" in December 1999 and in March 2000 respectively, in Slendertone pamphlets and on a Slendertone Website in June 2000. The applicant alleges that the advertising as described involved false statements about the products in contravention of the Trade Practices Act 1974 (Cth) ("the Act") and of the Fair Trading Acts of the various state and territories. The applicant claims that the third appellant was knowingly concerned in the contraventions. 6 The first appellant denies that it did any of the things alleged against it. The second appellant admits that it did some of the acts alleged against it but denies the implication of certain statements, and so far as it is said the statements were made in contravention of the Act, it is pleaded that the statements were ones which the appellants had reasonable grounds for making. Their case is, in substance, that all of the statements in question were based upon information and literature provided to them by or on behalf of a company called Bio-Medical Research Ltd. AppellantS' application for leave to file cross-claim 7 On 14 February 2001, the appellants filed a motion on notice seeking leave to file a cross-claim against two companies, BMR Ltd and Bio-Medical Research Ltd, both registered in the Republic of Ireland. By the time the motion came on for hearing, a minute of proposed amended cross-claim had been filed which sought relief only against Bio-Medical Research Ltd and not BMR Ltd. By the proposed cross-claim, the appellants sought indemnification by the proposed cross-respondent in the following terms: "1. An order that if any or all of the Cross Claimants are ordered to refund to customers of any or all of them any money paid by those customers for the purchase of Slendertone products, the Cross-Respondent indemnify the relevant Cross Claimants against the liability to make the refund. 2. If all or any of the Cross Claimants are ordered to carry out corrective advertising as sought by the Applicant, the Cross Respondent indemnify the relevant Cross Claimants against the costs of producing and placing such advertisements. 3. Damages; and 4. Costs." 8 In the proposed cross-claim the appellants say that they made the statements referred to in the statement of claim for the sole reason that they were made to the second appellant by the proposed cross-respondent and that the third appellant was advised by the proposed cross-respondent to repeat the statements to members of the Australian public in the course of carrying on the business of selling the Slendertone Products. It is also claimed that had the proposed cross-respondent not made the statements about the Slendertone Products to the third appellant, the third appellant would not have commenced the business of marketing the Slendertone Products, the second and third appellants would not have ceased a business of selling other electrotheraputic goods, and the third appellant would not have formed the second appellant or caused it to take over the business of selling Slendertone Products. 9 On 24 May 2001, the learned primary judge delivered his reasons for refusing the appellants' motion for leave to file the cross-claim. After referring to the pleadings and affidavit material filed by the appellants, his Honour turned to consider the respondent's objections to the grant of leave. The principal contention of the respondent identified by his Honour was that leave should not be granted because there was no cause of action open to the appellants by which they could seek indemnification as sought in the proposed cross-claim. The contention was based on the following: 1. The source of power to order indemnity or contribution as claimed by the appellants in the minute of proposed cross-claim was founded in s 87(1A) of the Act, and that it is an established principle that the applicant for relief under s 87(1A) is not a person who commits the contravention: Re La Rosa; Ex parte Norgard v Rogpat Nominees Pty Ltd (1991) 104 ALR 237; Bialkower v Achos Pty Ltd (1999) ATPR 41-685. 2. There could be no claim for indemnity or contribution by the appellants against the proposed cross-respondent, pursuant to s 87(1A) or otherwise, in relation to the claim made by the applicant unless it was in some way engaged or involved in the appellants' conduct in breach of the Act: Bialkower; 3. Section 87 of the Act confers no power on the Court to order contribution: Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535; 4. Any order for contribution can only be made on equitable grounds: Bialkower, and to establish a claim for equitable relief against the proposed cross-respondent, there must be some common or "co-ordinate" liability on it to share or shoulder the burden should the applicant succeed in the matter: Re La Rosa and Bialkower. 5. The claim by the appellants against the proposed cross-respondent is in essence, a separate claim for separate relief from that claimed by the applicant. 10 After considering the authorities cited by the applicant and the judgment of the High Court in Yorke v Lucas (1985) 158 CLR 661, his Honour applied the authorities (at paragraph [27] of his reasons) as follows: "(1) As to the claim being founded on s 87(1A) of the Act: (a) There is no evidence brought on behalf of the applicant in relation to the intention or state of knowledge of the proposed cross-respondent in relation to the advertisements, publication of a pamphlet and establishment of a website being conduct alleged against the respondents as having given rise to the contravention of the Act. Unlike the proposition in Bialkower, there is no evidence making that matter arguable at this point in time. There is the pleading that the proposed cross-respondent advised the third respondent to repeat those statements to the members of the public in Australia but no evidence is bought to show that contention to be arguable. (b) In any event, the second and third respondents have made admissions of contravention. They are not therefore persons to whom the subsection can assist: La Rosa at 242. (c) The subsection provides no power to order contribution (if the claims in the proposed cross-claim could even arguably be so construed): Lezam and Bialkower. (2) As to the claim being founded in common law or equity: (a) Here the respondents do not allege the existence of an agency or contract nor do they make any argument for any other express or implied foundation of indemnity save reliance upon s 87(1A) of the act. See Lezam at 40, 345 – 355. (b) No argument is made that there is any authority relevant in the present circumstances to support complete indemnity at common law or in equity as proposed to be claimed: cf La Rosa at 244. (c) No case is made that the proposed cross-respondent and the respondents shared a common obligation upon which the equitable doctrine of contribution could operate – cf La Rosa at 244 – and none is apparent on the evidence. No evidence is bought to support the allegations of involvement in the proposed cross-respondent in the contraventions. 11 For those reasons, and also the fact that the respondents would not be precluded from bringing a separate action against the proposed cross-respondent if it had some unidentified basis for properly seeking indemnity or contribution, his Honour refused the motion. the appeal 12 The appellants based their appeal on the proposition that in their proposed cross-claim they were not seeking contribution from the proposed cross-respondent, but an indemnity. They argued that they had an inchoate cause of action for damages under s 82 and/or s 87 of the Act which would accrue if and when they were found liable for misleading or deceptive conduct, ordered to make refunds or engage in corrective advertising. our reasoning 13 In our view the appellants' submissions were correct. Their proposed cross-claim is for indemnity for losses said to have been caused by conduct of the proposed cross-respondent which was in trade or commerce and was misleading or deceptive. The relevant conduct was said to be the making of representations in substantially the same terms as the applicant alleges were made by the appellants. Bialkower did not involve a claim for indemnity, the claim was for contribution. In Lezam there was no claim for indemnity under the Act until the matter reached the Full Court. In our opinion it was implicit in the Full Court's reasoning that an indemnity would be available under the Act, depending upon how the facts were found. 14 But it is not necessary for us to decide that the facts pleaded in the proposed cross-claim give rise to a cause of action. It is sufficient for us to hold, as we do, that a sufficiently arguable case has been demonstrated to warrant granting leave to file such a cross-claim for indemnity against the proposed cross-respondent. 15 Given the substantial similarity of the facts pleaded in the applicant's statement of claim and by the appellants in the proposed cross-claim, we think that it would be desirable that the issues thereby raised should be decided in the one set of proceedings, rather than require the appellants to institute fresh proceedings to obtain the indemnity sought. There is very clear authority for the desirability of this course being taken – see Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 16 Accordingly, we allowed the appeal. 17 In view of his Honour's decision in relation to the proposed cross-claim (to refuse leave to cross-claim) he did not consider whether leave should be granted to serve the cross-claim out of the jurisdiction. It was for that reason that we remitted the motion for re-hearing by his Honour. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. . Associate: Dated: 3 January 2003 Counsel for the Appellants: Mr K G Robson Solicitor for the Appellants: Messrs Gethin and Gethin Counsel for the Respondent: Mr I R Freeman Solicitor for the Respondent: Messrs Phillips Fox Date of Hearing: 23 November 2001 Date of Judgment: 23 November 2001