FEDERAL COURT OF AUSTRALIA Willoughby v Clayton Utz [2003] FCA 120 PRACTICE AND PROCEDURE – jurisdiction – application for transfer to Supreme Court – no reliance on federal claim – continuing claims all non-federal – proceeding incapable of having been instituted in Federal Court – foreshadowed constitutional argument if Federal Court exercises jurisdiction to determine its jurisdiction – possibility of delay and costs not relevant to substantive issues - interests of justice favouring transfer Trade Practices Act 1974 (Cth) ss 10, 52, 82(2), 86A, Pt IVA Fair Trading Act 1987 (WA) s 10 Judiciary Act 1906 (Cth) s 78B Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) s 5(4), 5(4)(b)(ii), 5(4)(b)(ii)(D), 5(4)(b)(iii), 5(7), 10 Federal CourtRules O 42, r 4(1) Re Wakim; Ex parte McNally (1999) 198 CLR 511 referred to Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564 discussed Carlton & United Breweries Ltd v Castemaine Tooheys Ltd (1986) 161 CLR 543 referred to Fencott v Muller (1983) 152 CLR 570 referred to BERYL FRANCES WILLOUGHBY, JOHN FRANCIS WILLOUGHBY, MICHAEL STEPHEN WILLOUGHBY and MARK ROBERT WILLOUGHBY WAG 198 of 1998 RD NICHOLSON J 28 FEBRUARY 2003 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 183 OF 1998 BETWEEN: BERYL FRANCES WILLOUGHBY JOHN FRANCIS WILLOUGHBY MICHAEL STEPHEN WILLOUGHBY MARK ROBERT WILLOUGHBY APPLICANTS AND: CLAYTON UTZ RESPONDENT JUDGE: RD NICHOLSON J DATE OF ORDER: 28 FEBRUARY 2003 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. This proceeding be transferred to the Supreme Court of Western Australia. 2. The applicants pay the respondent's costs of the application for transfer. 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 WAG 183 OF 1998 BETWEEN: BERYL FRANCES WILLOUGHBY JOHN FRANCIS WILLOUGHBY MICHAEL STEPHEN WILLOUGHBY MARK ROBERT WILLOUGHBY APPLICANTS AND: CLAYTON UTZ RESPONDENT JUDGE: RD NICHOLSON J DATE: 28 FEBRUARY 2003 PLACE: PERTH REASONS FOR JUDGMENT 1 The respondent is a firm of solicitors against which a claim has been brought in the partnership name: Federal CourtRules O 42, r 4(1). The respondent brings a notice of motion filed on 5 August 2002 seeking to have the applicants' amended statement of claim (undated but served on 21 June 2000) struck out and to have their action dismissed. Alternatively the motion seeks that the action of the fourth named applicant be dismissed with costs. Although not expressed in terms in the motion, it was nevertheless argued in support of it that the Court should determine whether the proceeding should be transferred to the Supreme Court and only look to the relief claimed in the application in the alternative. 2 The context within which the respondent's motion is brought is determined by a motion brought on behalf of the applicants dated 16 August 2002 whereby the applicants seek liberty to amend their application. The terms of the proposed amended application and the prior format are: "AMENDED APPLICATION The Applicants claim is under s52 of the Trade Practices Act 1974 over misleading and deceptive conduct by the Respondents and for damages for breach of contract and/or negligence and/or breach of fiduciary duty and exemplary damages arising out of or in connection with the Respondents acting as solicitors for the Applicants in the determination of relief under 287 of the Trade Practices Act 1974 on the grounds set out in the Statement of Claim." For the purposes of the disposition of the respondent's motion, it was agreed on behalf of the applicants that their case would not be pressing any plea in relation to the application of the Trade Practices Act 1974 (Cth). The motion was therefore addressed as if the application had been amended in accordance with the proposed amended application. Factual circumstances 3 The applicants also bring a motion dated 9 July 2002 seeking leave to further amend their statement of claim. The case which they would seek to bring should leave be granted to amend the application and the statement, would assert the following facts. 4 The respondent is a firm of solicitors. The applicants were at the relevant date directors and shareholders or a shareholder of Willoughby Investments Pty Ltd and Contractor Services Pty Ltd ("the Family companies"). In 1990 the applicants together with each of the Family companies brought an action in the Federal Court against Esanda Finance Corporation Pty Ltd ("Esanda"). The action was for misleading and deceptive conduct said to have induced the applicants and their Family companies to purchase a hotel business known as the Leederville hotel. On 18 September 1990 their claim was dismissed by the primary judge. Pursuant to the judgment Esanda obtained a sequestration order resulting in the bankruptcy of the first three named applicants on or about 10 December 1990. On 9 February 1991 the Official Trustee in Bankruptcy assigned to the same three applicants the right to appeal against the judgment and to damages, subject to payment of creditors. On 25 October 1991 the applicants and their Family companies were successful in their appeal to the Full Court. The matter was remitted to the trial judge for the purpose of determination of relief. In December 1991 the applicants and the Family companies retained the services of the respondent to advise on the claim and in particular in relation to an application for special leave to the High Court. Around 28 October 1993 the respondent recommended the claim be compromised. They acted on that advice. The terms of the compromise were set out in a Deed of Release and Discharge dated around 23 November 1993 on which date settlement was effected by delivery of cheques for $400,000 and $1.5m to the respondent. 5 It will be claimed that the advice given by the respondent was in breach of its retainer and duties. In those circumstances it will be pleaded that the respondent's negligence, breach of contract and/or breach of fiduciary duty have occasioned loss and damage to the applicants. The total of the damage particularised is $26,743,129.56. Additionally exemplary damages are claimed. 6 On 29 May 2002 the Official Receiver in Bankruptcy transferred to the first three named applicants this present action and underlying causes of action apart from causes of action under the Trade Practices Act pleaded in the action. 7 It is necessary also to understand the existing amended statement of claim so far as it contains pleadings in relation to the trade practice claims now to be abandoned. What was alleged was that by reason of the matters said to breach the retainer and the duty of care, the conduct of the respondent was misleading and/or deceptive. Reliance was placed in support on s 10 of the Fair Trading Act 1987 (WA). It is clear, however, that the plea has been taken by the parties to be a plea which could be made under the Trade Practices Act (given particularly that the pleading was apparently drafted without the benefit of legal assistance). Respondent's case 8 As the respondent's case does not press the motion in terms other than as an alternative, the starting point is to consider the way in which the argument has been put for the respondent. It is put succinctly. It is said that as a consequence of the abandonment by the applicants of any reliance upon a federal claim, a serious question has arisen in relation to jurisdiction. That is not a question which the Court should now decide because in the event the Court moves to decision of that question, the respondent will raise a constitutional issue having the effect of invoking the provisions for reference to Attorneys-General in accordance with s 78B of the Judiciary Act 1906 (Cth). The issue which would be raised would be to the effect that, following Re Wakim; Ex parte McNally (1999) 198 CLR 511, this Court does not have jurisdiction to decide whether it has jurisdiction when there is no federal claim to invoke that jurisdiction, contra the decision of the Full Court in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (2000) 104 FCR 564. It is submitted that determination of that issue would be unproductive of the resolution of the issue between the parties and would result in delays and costs to no purpose. In those circumstances it is submitted that a situation has arisen where the Court is bound to transfer the matter to the Supreme Court in obedience to s 5(4) of the Jurisdiction of Courts (Cross-vesting) Act 1987 (Cth) ("the Act") or the exercise of discretion in either s 10 of that Act or s 86A of the Trade Practices Act. Application of the Judiciary Act 9 The submissions for the respondent have proceeded on the basis that if the Court does not now decide the issue of jurisdiction, the constitutional issue will not arise. However, as the submissions for the applicants point out, the argument for transfer requires the Court to weigh the avoidance of the consequences of the determination of the constitutional issue. In my view that does not have the consequence that the matter now "involves a matter arising under the Constitution or involving its interpretation" because no such matter in substance comes before the Court. The purpose of s 78B of the Judiciary Act is to give to Attorneys-General the opportunity to make submissions on constitutional issues requiring to be determined and to give the court making the determination the benefit of those submissions. No constitutional point is required to be determined even if the avoidance of that possibility is weighed in the discretionary factors relevant to the transfer. 10 In any event, for reasons which will appear, I consider the decision to transfer may be reached without any involvement of the constitutional point – so that no issue of compliance with the processes of s 78B arises. Motion for transfer 11 The obligation to transfer is said to arise from s 5(4) of the Act which reads: "5(4) Where – (a) a proceeding (in sub-section referred to as the "relevant proceeding") is pending in the Federal Court or the Family Court (in this sub-section referred to as the "first court"); and (b) it appears to the first court that – (i) the relevant proceeding arises out of, or is related to, another proceeding pending in the Supreme Court of a State or Territory and it is more appropriate that the relevant proceeding be determined by that Supreme Court; (ii) having regard to: (A) whether, in the opinion of the first court, the relevant proceeding or a substantial part, of it would have been incapable of being instituted in that court, apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross-vesting of jurisdiction; and (B) whether, in the opinion of the first court, the relevant proceeding or a substantial part of it would have been capable of being instituted in the Supreme Court of a State or Territory, apart from this Act and any law of a State or Territory relating to cross-vesting of jurisdiction; and (C) the extent to which, in the opinion of the first court, the matters for determination in the relevant proceeding are matters arising under or involving questions as to the application, interpretation or validity of a law of the State or Territory referred to in sub-sub-paragraph (B) and not within the jurisdiction of the first court apart from this Act and any law of the Australian Capital Territory or the Northern Territory relating to cross-vesting of jurisdiction; and (D) the interests of justice; it is more appropriate that the relevant proceeding be determined by that Supreme Court; or (iii) it is otherwise in the interests of justice that the relevant proceeding be determined by the Supreme Court of a State or Territory, the first court shall transfer the relevant proceeding to that Supreme Court." 12 The discretion in s 10 of the same Act is provided for in the following terms: "10. Where: (a) a proceeding is pending in the Federal Court, the Family Court or the Supreme Court of a State or Territory; (b) a matter for determination in the proceeding is a matter arising under Part IVA or Division 1 or 1A of Part V of the Trade Practices Act 1974; (c) no matter for determination in the proceeding is a special federal matter; (d) the proceeding is not a proceeding by way of an appeal from a judgment of a court; and (e) a court of a State or Territory, other than the Supreme Court of that State or Territory, has jurisdiction with respect to all of the matters for determination in the proceeding, the court referred to in paragraph (a) may, on the application of a party to the proceeding or of its own motion, transfer the proceeding to the court referred to in paragraph (e)." 13 Section 5(7) of the Act also provides that transfer may occur either on application of a party or an Attorney-General or on the motion of the court. While no exception has been taken for the applicants to the absence of any application for transfer in the respondents motion, if I reach the view that transfer should occur I would regard it as supported not only by the oral application in that behalf but also by the Court's own motion. 14 It is a precondition to the application of s 86A of the Trade Practices Act that a matter arises for determination in relation to specified provisions of that Act. As this is not the case here and no particular reliance is placed on this section I do not propose to consider it further. 15 Turning to the elements of s 5(4) of the Act, they are satisfied as follows: (a): the proceeding is pending in this Court. (b)(i): not applicable. (b)(ii)(A): as a proceeding now only directed to non-federal claims, this proceeding would have been incapable of being instituted in this Court. (b)(ii)(B): it would have been capable of being instituted in the Supreme Court. (b)(ii)(C): the proceeding now involves only the application of the law of the State. (b)(ii)(D): the interests of justice do not raise factors to the contrary so that it is more appropriate that the relevant proceeding be determined by the Supreme Court. (b)(iii): it is otherwise in the interests of justice because transfer would enable the substantive dispute to be decided without interference of the constitutional issue in circumstances where there is no persisting federal claim. 16 In considering the interests of justice under s 5(4)(b)(ii)(D) and (iii) I have taken into account matters raised for the applicants. This is not a case in which there has been expended considerable time and substantial costs incurred in the proceeding in this Court. It is the case that the present primary judge has delivered three judgments in the matter of Willoughby v Official Trustee in Bankruptcy. It is not the case that he has expended considerable time on this present proceeding. The application was filed on 22 December 1998. No activity occurred in the file between 22 August 2000 and 28 February 2002. 17 The qualification of this matter for obligatory transfer pursuant to the section is not, as was submitted for the applicants, solely dependent upon the possibility that if the matter proceeded in this Court the constitutional issue would arise. In my view satisfaction of s 5(4)(b)(ii) may be reached as set out above without reference to that factor. I cannot place any weight on the contention for the applicants that if the matter is transferred to the Supreme Court it may be possible the Official Trustee in Bankruptcy would be joined and it would be preferable for the matter to remain in this court which has jurisdiction in bankruptcy. The possibility is a conjecture and in any event there would be no obstacle to the Supreme Court proceeding if that transpired. 18 For these reasons I consider the proceeding should be transferred to the Supreme Court. It is not necessary therefore to rely on the discretionary provision for transfer. Preliminary consideration of the jurisdictional approach 19 Given the strong views of the applicants that the proceeding should remain in this Court, I have given preliminary consideration to the jurisdictional approach on the basis that the constitutional issue either does not arise or was found to be without substance. The present tentative view I have reached is that the application of the law in that respect as currently understood would lead to the same result. 20 In Johnson Tiles the Full Court considered issues arising on leave to appeal from orders striking out a trade practices claim, allowing it to be repleaded and allowing a claim for negligence to go on. There the trade practices claim was held not to be viable. The negligence claim was held not to be untenable. It was further held that there was sufficient overlap between the factual issues raised by the negligence claim and the untenable trade practices claim for misleading and deceptive conduct so that the former could be said to form part of the same matter. The negligence claim was therefore within the accrued jurisdiction of the Court. On consideration of the discretionary character of the accrued jurisdiction, it was held that the Court ought not to decline the jurisdiction and the negligence claim should continue in the Court. In reaching that view, French J, with whom Beaumont and Finkelstein JJ agreed, said (at 602): "The question whether the common law claim should continue in this Court or should be stayed on the basis that it be pursued in the Supreme Court of Victoria is to be decided by determining whether or not this Court should decline to exercise its jurisdiction properly invoked in this matter. There can be no doubt that the Supreme Court of the State of Victoria is as well equipped as this Court to deal with a claim in negligence and the associated cross-claims. The action for negligence is one which could well have been commenced in the State Supreme Court. Nevertheless, the applicants having commenced their proceedings in this Court and having properly invoked federal jurisdiction, there would need to be demonstrated some reason for this Court declining to fulfil what would ordinarily be its obligation to exercise its jurisdiction. While the claim is a non-federal claim it is based not upon a Statute peculiar to Victoria but upon the common law of Australia, albeit the question of liability may turn in part upon at least one Act of the Victorian Parliament, namely the Gas Industry Act and the Victorian Gas Customer Service Code which is incorporated into the terms of gas retail licences issued under the Act. Further, and from a practical point of view, all parties have expended considerable time and incurred substantial costs in the proceedings in this Court. The statement of claim has been through a process of refinement. The discovery process is about eighty percent complete and has cost millions of dollars according to counsel for the State Entities. The case is in the docket of a judge who is thoroughly familiar with it. There is no reason now to impose upon the parties the additional burdens associated with this Court declining further to exercise its jurisdiction notwithstanding that it has before it an arguable claim of considerable importance and complexity. In my opinion, the Court ought not to decline the jurisdiction which it has. The negligence claim should therefore continue in this Court. Earlier in his reasons (at 601) French J said the court must take an evaluative rather than a discretionary approach, looking to the functional considerations. 21 On 12 April 2001 the issue of transfer again arose before Merkel J. The circumstances had changed in that the High Court had granted special leave to appeal against the decision of the Full Court in Johnson Tiles. Additionally Esso applied to amend its defence to challenge the constitutional validity of Pt 1VA with the consequence that the jurisdictional issue was listed before the High Court which would have occasioned some significant period of time before the hearing and resolution of the jurisdictional challenge. In those circumstances Merkel J on the Court's own motion ordered that it was in the interests of justice that the proceeding be transferred pursuant to s 5(4)(b)(iii) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth). Untenability of federal claim 22 In the present proceeding the applicants have themselves accepted the untenability of the trade practices pleading in misleading and deceptive conduct. There is no challenge to the viability of the claim in negligence. Whether federal jurisdiction invoked 23 There is an issue of whether the negligence claim is within the accrued jurisdiction of the Court. The nature of that accrued jurisdiction was examined by French J in Johnson Tiles at 596-599. There is a preliminary question whether the federal jurisdiction has been properly invoked so that there can be no accrued jurisdiction: Carlton & United Breweries Ltd v Castemaine Tooheys Ltd (1986) 161 CLR 543 at 553 cited in Johnson Tiles at 598. The pleading in the amended statement invokes a state act rather than the Trade Practices Act. Given, however, that the parties have treated that pleading (made without the benefit of legal assistance) as seeking to invoke federal jurisdiction, I do not consider that factor alone should occasion the issue to be determined adversely to the applicants. 24 There are additional considerations. The first is that the federal trade practices claims were absolutely barred by statute before the proceeding commenced: Trade Practices Act 1974 (Cth) s 82(2). Secondly, there has not been any allegation in the statement of claim or any proposed statement of claim which would have brought the respondent (comprised as it is of natural persons) within s 52 of the Trade Practices Act. Thirdly, the claims of the three first named applicants were expressly excluded from the assignment effected by the deed dated 29 May 2002. 25 Furthermore, the applicants have abandoned all federal claims before the respondent has joined issue and before the Court has entered upon the adjudication of any matter in controversy between the parties. 26 In these circumstances I consider the application of the law without argument of the constitutional point would be likely to lead to the conclusion that the jurisdiction of this court has not been invoked. Accordingly there could not be any accrued jurisdiction in respect of the common law claim of negligence. If jurisdiction invoked, whether non-federal claim within the one controversy 27 If contrary to that view the correct position was found to be that the jurisdiction of this court was invoked, it would be necessary to consider whether the federal claim, now not to be pursued, and the non-federal claim for negligence are "within the scope of one controversy and thus within the ambit of a matter": Fencott v Muller (1983) 152 CLR 570 at 608 cited in Johnson Tiles at 596. This will be, in the well known phrase, "a matter of impression and practical judgment": Fencott v Muller at 608. In deciding whether the federal claim was a substantial aspect of the controversy – cf Fencott v Muller at 609 – it should be noted the federal claim follows the negligence claim in the amended statement and is dependent upon it. The pleading is not the product of the application of appropriate professional expertise. Nevertheless it would appear unlikely that it could be said from consideration of it as it stands that the federal claim is a trivial or insubstantial aspect of the controversy. There is a congruence between the factual issues relating to the federal and non-federal claims. It follows that if the jurisdiction had been invoked, the negligence claim would be likely to be found to be within the accrued jurisdiction of the Court. Discretionary considerations to exercise of any accrued jurisdiction 28 If the negligence claim was found to be within the accrued jurisdiction of the Court, it would also be necessary to determine whether the common law claim should continue in the Court or be transferred to the Supreme Court; that is, to determine the discretionary aspect of the issue of accrued jurisdiction. Like the issue in Johnson Tiles (at 602), the Supreme Court of Western Australia is as well equipped as this Court to deal with a claim in negligence and associated issues. The action in negligence is one which could well have been commenced in that Court. 29 Unlike the facts pertaining in Johnson Tiles and as has been stated above, there is no extensive past judicial involvement in this particular proceeding. 30 Nor is this a matter in which the statement of claim has yet been through a process of refinement. The discovery process has not yet commenced. 31 It would be likely to follow therefore that the functional evaluation in this case would not disclose any reasons of substance why the claim for negligence should be heard in the accrued jurisdiction of the Court if that jurisdiction existed in this case. That is, my present preliminary view is that if the Court had that jurisdiction, it would be appropriate that it should decline it. 32 Although I do not decide the matter on that basis because I was not asked to do so in view of the foreshadowed constitutional point, it may be comforting to the applicants to know that my present preliminary view is that if the jurisdiction of the Court to determine its jurisdiction was found to be in this Court as a consequence of the foreshadowed constitutional point being rejected, the matter would be likely to be determined adversely to the applicants in any event. In short, I do not see the foreshadowing of the constitutional point as either solely making the respondent's case for transfer or as likely to lead to a different result if argued and rejected by the High Court. Of course, if the foreshadowed constitutional point was upheld by the High Court, this Court would have been found not to have jurisdiction in the circumstances to embark on the matter of determining its jurisdiction so that the matter could not proceed further. Conclusion 33 For these reasons I accept the submission for the respondent that this proceeding must be transferred to the Supreme Court of Western Australia. I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson. Associate: Dated: 28 February 2003 Counsel for the Applicants: Mr K Kimball Solicitor for the Applicants: Kimballs Lawyers Counsel for the Respondent: Mr P Van Hattem Solicitor for the Respondent: Freehills Date of Hearing: 18 November 2002 Date of Judgment: 28 February 2003