FEDERAL COURT OF AUSTRALIA Scoway Pty Ltd v Faxon Pty Ltd [2004] FCA 249 PRACTICE AND PROCEDURE – whether proof of service on absent respondents required before affidavits can be read – leave required to read affidavits without service – leave granted TRADE AND COMMERCE – misleading and deceptive conduct – where the making of a contract containing warranties which are false constitutes misleading and deceptive conduct – degree to which indemnity may be given to a person who is a conduit for misleading or deceptive information – entitlement to indemnity is for the whole of the loss claimed – damages awarded Federal Court Rules O 32 r 2(1)(d), O 14 r 7, O 1 r 8, O 32 r 2 Federal Court of Australia Act 1976 (Cth) s 51A Supreme Court Rules 1970 (NSW) Schedule J Trade Practices Act 1974 (Cth) s 82 Fair Trading Act 1987 (NSW) s 68 Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 applied Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624 applied McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32 applied Pantalone v Alaouie (1989) 18 NSWLR 119 applied SCOWAY PTY LTD v FAXON PTY LTD & ORS N 1370 OF 2002 HELY J 19 MARCH 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1370 OF 2002 BETWEEN: SCOWAY PTY LTD ACN 003 476 239 APPLICANT AND: FAXON PTY LTD ACN 091 404 125 FIRST RESPONDENT DENIS CHRISTOPHER BARRY SECOND RESPONDENT ROBIN HENRY HARRISON THIRD RESPONDENT JOHN PATRICK GERAGHTY FOURTH RESPONDENT DATAGEM PTY LTD ACN 010 989 394 FIFTH RESPONDENT BETWEEN: DATAGEM PTY LTD ACN 010 989 394 FIRST CROSS CLAIMANT AND: JOHN PATRICK GERAGHTY CROSS RESPONDENT TO FIRST CROSS CLAIM BETWEEN: ROBIN HENRY HARRISON SECOND CROSS CLAIMANT AND: DATAGEM PTY LTD ACN 010 989 394 FIRST CROSS RESPONDENT TO SECOND CROSS CLAIM DENIS CHRISTOPHER BARRY SECOND CROSS RESPONDENT TO SECOND CROSS CLAIM JOHN PATRICK GERAGHTY THIRD CROSS RESPONDENT TO SECOND CROSS CLAIM BETWEEN: JOHN PATRICK GERAGHTY THIRD CROSS CLAIMANT AND: FAXON PTY LTD ACN 091 404 125 FIRST CROSS RESPONDENT TO THIRD CROSS CLAIM DENIS CHRISTOPHER BARRY SECOND CROSS RESPONDENT TO THIRD CROSS CLAIM ROBIN HENRY HARRISON THIRD CROSS RESPONDENT TO THIRD CROSS CLAIM DATE OF ORDER: 19 MARCH 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Judgment be entered in favour of the applicant against the first, second, third and fourth respondents in the sum of $639,538.87. 2. By consent, direct the entry of judgment in favour of the applicant against the fifth respondent in the sum of $639,538.87. 3. The respondents pay the applicant's costs of the proceedings. 4. Judgment be entered in favour of the fifth respondent on its cross claim against the fourth respondent in the sum of $200,000.00. 5. The fourth respondent pay the fifth respondent's costs of that cross claim. 6. The cross claim by the third respondent against the second, fourth and fifth respondents be dismissed with costs. 7. The cross claim by the fourth respondent against the first, second and third respondents be dismissed with costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1370 OF 2002 BETWEEN: SCOWAY PTY LTD ACN 003 476 239 APPLICANT AND: FAXON PTY LTD ACN 091 404 125 FIRST RESPONDENT DENIS CHRISTOPHER BARRY SECOND RESPONDENT ROBIN HENRY HARRISON THIRD RESPONDENT JOHN PATRICK GERAGHTY FOURTH RESPONDENT DATAGEM PTY LTD ACN 010 989 394 FIFTH RESPONDENT BETWEEN: DATAGEM PTY LTD ACN 010 989 394 CROSS CLAIMANT AND: JOHN PATRICK GERAGHTY CROSS RESPONDENT BETWEEN: ROBIN HENRY HARRISON SECOND CROSS CLAIMANT AND: DATAGEM PTY LTD ACN 010 989 394 FIRST CROSS RESPONDENT TO SECOND CROSS CLAIM DENIS CHRISTOPHER BARRY SECOND CROSS RESPONDENT TO SECOND CROSS CLAIM JOHN PATRICK GERAGHTY THIRD CROSS RESPONDENT TO SECOND CROSS CLAIM BETWEEN: JOHN PATRICK GERAGHTY THIRD CROSS CLAIMANT AND: FAXON PTY LTD ACN 091 404 125 FIRST CROSS RESPONDENT TO THIRD CROSS CLAIM DENIS CHRISTOPHER BARRY SECOND CROSS RESPONDENT TO THIRD CROSS CLAIM ROBIN HENRY HARRISON THIRD CROSS RESPONDENT TO THIRD CROSS CLAIM JUDGE: HELY J DATE: 19 MARCH 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 This matter was listed for hearing on Monday 1 March 2004. Neither the first, second, third or fourth respondents appeared when the matter was called on for hearing. I was informed by counsel for the applicant that the applicant wished to proceed against the first, second, third and fourth respondents. I was also informed by counsel that the matter had been settled as between the applicant and the fifth respondent on the basis that judgment would be entered against the fifth respondent, by consent, in such amount (if any) as the Court might determine in the proceedings against one or more of the other respondents. Cross Claims 2 The fifth respondent has filed a cross claim against the fourth respondent ('first cross claim'). The cross claim seeks indemnity from the fourth respondent for any amount which the fifth respondent is required to pay to the applicant. The basis on which that indemnity is sought is that the misleading and deceptive conduct relied upon by the applicant in its case against the fifth respondent is grounded in its entirety upon information supplied by the fourth respondent to the fifth respondent, and conveyed by the fifth respondent to the applicant. 3 There is also a cross claim by the third respondent against the second, fourth and fifth respondents ('second cross claim'). The fifth respondent seeks the dismissal of that cross claim by reason of the non-appearance of the third respondent. 4 Finally, there is a cross claim by the fourth respondent against the first, second and third respondents ('third cross claim'). The fourth respondent asserts in the claim that he is entitled to indemnification from the cross respondents. The basis for this assertion is that, at the relevant times, the fourth respondent acted in reliance upon representations made by the cross respondents. Service 5 I accept the applicant's evidence as to service of the application and statement of claim on the first respondent at its then registered office, Unit 11, 3442 Pacific Highway, Springwood, Queensland. The first respondent has not filed an appearance or a defence. Nor has the first respondent appeared at any directions hearing. 6 On 18 March 2003 Registrar Hedge made an order for substituted service on the second respondent. The applicant has established service of the originating process on the second respondent in terms of that order. The second respondent has not filed an appearance or a defence. There is evidence that attempted communications from the applicant's solicitor addressed to the first and second respondents at the address of the second respondent disclosed in the application (20 Honeyeater Drive, Burleigh Waters, Queensland) have been returned unclaimed, with a request that the solicitors not continue to use this address for mail. 7 It is not entirely clear whether an applicant who seeks to proceed with the trial against absent respondents under Order 32 r 2(1)(d) of the Federal Court Rules is required to provide proof of service of the affidavits on the absent respondents. Order 14 r 7 suggests that this may be so. I gave leave, pursuant to Order 1 r 8 to the applicant to rely upon the affidavits which it has read against the first and second respondents, even though those affidavits may not have been served upon those respondents. 8 A factor which influenced me in granting that leave is that all respondents were notified by the prescribed form of application that if they or their legal representatives did not attend Court on the relevant date (3 February 2003) the application could be dealt with and judgment could be given, or an order made in their absence. On that date I gave directions for the filing of a defence by the respondents with which neither the first nor the second respondent has complied. 9 An appearance and a defence have been filed on behalf of the third and fourth respondents. I am satisfied that the affidavits read by the applicant have been served on those respondents or their former solicitors. I am also satisfied that letters were sent by the applicant's solicitors to the third and fourth respondents confirming that the matter has been listed for hearing to commence on 1 March 2004. On 5 February 2004 the fourth respondent wrote to the Registrar of the Court advising that it was not possible for him to travel to Sydney for the hearing, or to employ legal representation, because he was experiencing considerable financial difficulties. Decision 10 Counsel for the applicant, Mr Insall SC, helpfully prepared a document styled 'Applicant's Outline of Submissions' which I have had marked as filed in Court. It will therefore remain with the papers. That document identifies the misleading and deceptive conduct which is the subject of the claims under s 82 of the Trade Practices Act 1974 (Cth) ('the Trade Practices Act') and s 68 of the Fair Trading Act 1987 (NSW) ('the Fair Trading Act'). The document also indicates where the evidence as to the making of the pleaded representations and their falsity is to be found. 11 I have read that evidence. For the reasons contained in the outline of submissions I find that the pleaded representations were made, and that the applicant entered into the contract to purchase the business known as 'McGinty's Irish Bar and Restaurant' in reliance upon those representations. I also find that the representations were false in the respects outlined in the submission, and that the respondents engaged in misleading and deceptive conduct in contravention of the Trade Practices Act, and the Fair Trading Act in making the representations in question: Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470. That case establishes the principle that a corporation, by making a contract containing warranties which are false, may by that conduct alone be held to have engaged in misleading and deceptive conduct. 12 The statement of claim also includes claims for breach of warranty and negligence. Paragraph 32 of the applicant's written outline contains a submission that the same damages would be recoverable whether the action is under the Trade Practices Act, or for breach of warranty, or for breach of duty of care. In principle, I doubt that this is so. However, I need not pursue this aspect of the matter further as counsel for the applicant, in oral submissions, confined the applicant's claim to one based upon misleading and deceptive conduct. 13 The loss or damage which the applicant claims in that regard is $586,321.00. There is evidence from a suitably qualified expert, Daryl Peter Holland, which quantifies the applicant's loss in this amount. The respondents have not sought to answer that evidence, or to appear at the hearing for the purpose of testing it. I accept the applicant's submission that it acted reasonably in continuing to conduct the business until it managed to effect a sale on 4 April 2003 for settlement on 24 June 2003, and as a consequence sustained losses in the sum claimed. A critical factor in coming to this conclusion is that if the applicant closed down the business earlier than it did, without effecting a sale of that business, then the potential losses may have been greater, having regard to the applicant's continuing liability under the lease of the wine bar premises. 14 Accordingly, I find that the applicant has established that it suffered damages in the sum of $586,321.00 as a result of the misleading and deceptive conduct of which it complains. Disposition of cross claims 15 The fourth respondent has filed a defence to the cross claim instituted by the fifth respondent. The affidavit of Michael Koolen of 5 December 2003 is unchallenged, and it establishes that the fourth respondent was the source of the information which the fifth respondent conveyed to the applicant and upon which the applicant's case of misleading and deceptive conduct is based. 16 In such circumstances the entire responsibility for the applicant's loss lies with the fourth respondent. The fifth respondent is entitled to indemnity or recoupment from the fourth respondent: Cockburn v GIO Finance Ltd (No 2) (2001) 51 NSWLR 624; Pantalone v Alaouie (1989) 18 NSWLR 119. 17 Short minutes of order were handed to me in which judgment in favour of the fifth respondent on its cross claim against the fourth cross respondent is sought in the sum of $200,000.00 plus costs. I infer that judgment is limited to that sum in the expectation that, notwithstanding the judgment which is entered in favour of the applicant against the fifth respondent, no greater sum than $200,000.00 will be payable by reason of private arrangements entered into between the fifth respondent and the applicant. 18 On these findings, the fifth respondent would be entitled to an order that the fourth respondent indemnify the fifth respondent for the sums payable by the fifth respondent pursuant to the judgment entered against the fifth respondent (cf Pantalone). However, as the fifth respondent seeks judgment against the fourth respondent in the sum of $200,000.00 only, judgment should be entered against the fourth respondent on the cross claim in that sum. 19 In relation to the second and third cross claims, only the second cross claimant (fourth respondent) lodged any affidavit evidence in support of his claim. However, as neither cross claimant appeared when the matter was called, none of the affidavit evidence was read. In the absence of each cross claimant, both the second and the third cross claims should, pursuant to Order 32 r 2(1)(c), be dismissed. Interest 20 The applicant sought an award of interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the sum of $102,718.60. I was informed by counsel that this sum was calculated by reference to an interest rate of 10˝ per cent, being the rate prescribed for interest after judgment. 21 However, the usual practice of the Federal Court when sitting in NSW and determining interest payable up to the date of judgment is to adopt the rates set out in Schedule J to the Rules of the Supreme Court of New South Wales: McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32. Schedule J prescribes an interest rate of 9 per cent after 28 February 2002. 22 The applicant's loss was incurred progressively. To avoid complexity of calculation, the applicant proposes that interest should be awarded at the rate of 9 per cent per annum: (a) on the amount of the loss as at June 2002 ($198,827.00) for the period from 1 July 2002 to 30 June 2003; and (b) on the amount of the loss as at June 2003 ($586,321.00) for the period from 1 July 2003 to 1 March 2004. 23 I accept that the applicant's proposal provides a reasonable basis for the interest calculation. I order that interest in the sum of $53,217.87 be included in the sum for which judgment is given. Orders 1. Judgment be entered in favour of the applicant against the first, second, third and fourth respondents in the sum of $639,538.87. 2. By consent, direct the entry of judgment in favour of the applicant against the fifth respondent in the sum of $639,538.87. 3. The respondents pay the applicant's costs of the proceedings. 4. Judgment be entered in favour of the fifth respondent on its cross claim against the fourth respondent in the sum of $200,000.00. 5. The fourth respondent pay the fifth respondent's costs of that cross claim. 6. The cross claim by the third respondent against the second, fourth and fifth respondents be dismissed with costs. 7. The cross claim by the fourth respondent against the first, second and third respondents be dismissed with costs. I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Hely. Associate: Dated: 19 March 2004 Counsel for the Applicant: Mr H Insall Solicitor for the Applicant: Conditsis & Associates Counsel for the Fifth Respondent: Mr K Eassie Solicitor for the Fifth Respondent: Carter Newell Date of Hearing: 1 March 2004 Date of Judgment: 19 March 2004