FEDERAL COURT OF AUSTRALIA Austral Dutch Kaolin Pty Ltd v Hanjin P&C Co Ltd (No. 2) [2011] FCA 1241 Citation: Austral Dutch Kaolin Pty Ltd v Hanjin P&C Co Ltd (No. 2) [2011] FCA 1241 Parties: AUSTRAL DUTCH KAOLIN PTY LTD (ACN 097 469 139) v HANJIN P&C CO LTD File number(s): QUD 108 of 2009 Judge: GREENWOOD J Date of judgment: 1 November 2011 Catchwords: PRACTICE AND PROCEDURE – consideration of an application for leave to file a notice of cross-claim under Rule 15.05 of the Federal Court Rules 2011 Legislation: Federal Court Rules 2011, Rule 15.05 Cases cited: Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) FCAFC 101; (2010) 273 ALR 147 - cited Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 33 ALR 127 - cited Date of hearing: 1 November 2011 Date of last submissions: 1 November 2011 Place: Brisbane Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 20 Counsel for the Applicant: Mr K Wilson SC Solicitor for the Applicant: Michael O'Brien Lawyers Counsel for the Respondent: Ms S Brown Solicitor for the Respondent: Freehills IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 108 of 2009 BETWEEN: AUSTRAL DUTCH KAOLIN PTY LTD (ACN 097 469 139) Applicant AND: HANJIN P&C CO LTD Respondent JUDGE: GREENWOOD J DATE OF ORDER: 1 NOVEMBER 2011 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. Hanjin P&C Co Ltd (the cross-claimant) file the notice of cross-claim and statement of cross-claim by 3 November 2011. 2. Austral Dutch Kaolin Pty Ltd (the cross-respondent) file its defence to the cross-claim by 2 December 2011. 3. The cross-claimant file its reply by 9 December 2011. 4. The cross-claimant provide the cross-respondent with a list of categories of documents that the cross-claimant requires to be disclosed (if any) by 16 December 2011. 5. The cross-respondent provide a response to the cross-claimant's list of categories of documents, and a list of categories of documents that the cross-respondent requires to be disclosed (if any), by 23 December 2011. 6. Unless there is a dispute as to the categories of documents to be disclosed, the parties file supplementary lists of documents in the categories as agreed between the parties by 13 January 2012. 7. The cross-claimant file and serve its affidavits (including any expert evidence) by 3 February 2012. 8. The cross-respondent file and serve its affidavits in reply (including any expert evidence) by 17 February 2012. 9. The matter be listed for a further directions hearing at 9.30am on 3 March 2011. 10. The parties have liberty to apply on three days notice. 11. The costs of Austral Dutch Kaolin Pty Ltd of and incidental to the application by Hanjin P&C Co Ltd for leave to file a notice of cross-claim be paid by Hanjin P&C Co Ltd. 12. Austral Dutch Kaolin Pty Ltd has leave to tax and recover the costs referred to in order 11 forthwith. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 108 of 2009 BETWEEN: AUSTRAL DUTCH KAOLIN PTY LTD (ACN 097 469 139) Applicant AND: HANJIN P&C CO LTD Respondent JUDGE: GREENWOOD J DATE: 1 NOVEMBER 2011 PLACE: BRISBANE REASONS FOR JUDGMENT Background 1 The present proceedings concern an application by the respondent in the principal proceeding, Hanjin P&C Co Ltd ("Hanjin") for leave under Rule 15.05 of the Federal Court Rules 2011 to file a notice of cross-claim. Rule 15.04 provides that a notice of cross-claim must be filed at the same time as the filing, relevantly, of the respondent's defence. In the event that a respondent has failed to comply with Rule 15.04, the respondent must apply to the Court for leave under Rule 15.05. The application is supported by an affidavit of Seung-Hyuk Han who is a partner in the firm Jipyong & Jisung, Lawyers. That firm acts on behalf of Hanjin in Korea. Hanjin's Australian lawyers are Freehills. 2 Rule 15.05 provides that the application must be supported by an affidavit setting out the nature of the cross-claim and its relationship to the subject matter of the proceedings. The affidavit must explain why the notice of cross-claim was not filed in accordance with Rule 15.04. The draft notice of cross-claim must comply with Rule 15.02. 3 The application was heard and determined today. 4 Leave has been given to the respondent to file a notice of cross-claim in terms of the draft document handed to the Court in the course of the application which is substantially in the terms of the draft marked SHH-1 to the affidavit of Mr Han. 5 I advised the parties that I would provide short written reasons explaining the factors informing the exercise of the discretion under Rule 15.05. I do not propose to recite in any extensive way the current formulation of the controversy between the parties reflected in the state of the current pleadings which consist of an amended statement of claim, an amended defence and an amended reply. Nor do I propose to recite extensively the content of the proposed cross-claim. I simply propose to provide some contextual explanation to the issues and then identify the factors balanced in exercising the discretion in favour of granting leave. The present proceeding and proposed cross-claim 6 In the principal proceeding the applicant, Austral Dutch Kaolin Pty Ltd ("ADK"), contends that ADK and Hanjin on 5 July 2008 entered into an option agreement by which ADK agreed to sell and Hanjin agreed to buy the right to a thirty month option to purchase the relevant interest of ADK in certain mining tenements in Queensland for $3.5m. The express terms of the option agreement are pleaded. The payment of the option fee is pleaded. ADK contends that Hanjin by its Chairman, Chong-Sang Lee, made certain representations to ADK by email on 24 July 2008 (which were also communicated to the solicitors for ADK). ADK also contends that on 31 July 2008 Kye-Chun Lee, the Chief Director of Resources employed by Hanjin also made representations to ADK. ADK contends that those representations (in both cases) were made so as to induce ADK to repay the option fee and in reliance upon those representations ADK repaid the monies. ADK contends that Hanjin's conduct in making the representations contravened s 52 of the Trade Practices Act 1974 (Cth). Other formulations of the legal quality of Hanjin's conduct are pleaded and, by way of relief, ADK claims recovery of the monies as damages, remedial compensation on the footing that the conduct is unconscionable and, in the alternative, a declaration that Hanjin holds the sum of $3.5m on trust for ADK. 7 By the amended defence, Hanjin puts many of those contentions in issue although the communications reflected by the emails are in substance not disputed. The content of the emails needs to be considered, says Hanjin, in context and in full and understood against the background of the entirety of the terms of the option agreement. More particularly, Hanjin contends that at all material times in terms of the chronology of events, Soo-Hyun Chung (Dr Chung) and Jong Wan Rhee (Mr Ree) acted either as an agent or partner of ADK when making statements or giving advice to ADK about material matters related to Hanjin's demands for repayment of the $3.5m with the result that when ADK elected to repay the monies it did so in reliance upon its own enquiries, the advice of its solicitor, its own assessment of the relevant commercial considerations and in reliance upon information and advice given to it by its own agents or partners, namely, Mr Rhee and Dr Chung. 8 In the amended reply, relevantly for present purposes, ADK admits that Mr Rhee and Dr Chung acted as agents of ADK for the purpose of finding a buyer for the mining tenements the subject of the option agreement but for no other purpose. ADK says that Mr Rhee was Hanjin's agent for the purpose of communicating with ADK or ADK's solicitors under the option agreement. 9 By the proposed cross-claim, Hanjin contends that ADK in negotiating the option agreement engaged in misleading and deceptive conduct by making representations to Hanjin which were false and by failing to disclose to Hanjin that Mr Rhee and Dr Chung were acting as agents of ADK and payments were to be made to them based upon the amount of the purchase price secured in the proposed ultimate sale of the mining interests by ADK to Hanjin. Hanjin contends that in reliance upon the misleading and deceptive conduct, Hanjin entered into the option agreement and paid the sum of $3.5m. Hanjin seeks relief under s 87 of the Trade Practices Act which remains the relevant Act having regard to ss 6 and 7, Trade Practices Amendment (Australian Consumer Law) Act (No. 2) (2010) (Cth), Schedule 7. Discretionary factors 10 The factors informing the exercise of the discretion are these. 11 There is no doubt that the claim advanced by the cross-claim is a new claim and travels significantly beyond the present formulation of the relevance of the role of Mr Rhee and Dr Chung in the events in question concerning the substantive questions going to the option agreement. The existing pleadings give rise to a controversy as to whether Mr Rhee and Dr Chung were acting at all material times as the agents of ADK and whether in electing to transfer $3.5m to Hanjin, ADK acted in reliance upon, in part at least, the information and advice of those two individuals in a capacity described as agents or partners of ADK. ADK, of course, contends that those individuals were agents solely for the purpose of finding a buyer. The proposed cross-claim asserts that those individuals were agents in relation to the making of the pleaded misleading representations upon which Hanjin is said to have relied. The existing controversy engages the question of whether those individuals acted as agents of ADK in any wider sense. The controversy involves the same individuals in relation to the same events concerning the same commercial transactions. The proposed cross-claim necessary broadens the scope of the matters in controversy but there is nevertheless a central matrix of fact which is inherently related to the new matters in controversy raised by the cross-claim. 12 Secondly, the principal proceeding has not been set down for trial. It is true that the proceeding has progressed substantially. The amended statement of claim was filed on 28 May 2010. The amended defence was filed on 7 July 2010. An amended reply was filed on 9 December 2010 and disclosure of documents occurred on 3 March 2011. The principal affidavit of Mr Hayes, a director of ADK, was filed on 11 August 2011. The affidavit of Mr Rhee was filed, on behalf of ADK, on 11 August 2011. The affidavit of Seung-Hyuk Han comprising the translation of the affidavits of Chong-Sang Lee and Kye-Chun Lee was filed on 6 October 2011. Hanjin, after some delay, was ordered to file and serve on ADK executed copies of its affidavits in answer to ADK's material, by 4 October 2011. That step occurred. The translation affidavit was filed on 6 October 2011. The short point is that a trial of the action cannot occur this year and is likely to take place in March 2012. There is therefore time available to enable the cross-claim to be filed and served and directions to be made which would enable all of the issues in controversy to be properly addressed. 13 Thirdly, the guiding consideration in exercising the discretion is determining that course which would best enable the controversy and all matters sought to be put in controversy, to be determined on the merits so that the entirety of the controversy between the parties can be quelled as an exercise of judicial power. The proposed cross-claim has not been raised on the cusp of trial or at the commencement or in the course of the trial. There is time to reach an informed and disciplined position of the scope of the controversy to be quelled. I find it difficult to identify real prejudice to ADK in enabling Hanjin to ventilate its cross-claim and it seems to me an inappropriate exercise of the discretion to foreclose Hanjin's opportunity to make its cross-claim arising, as it does, substantially out of the same body of fact between the same actors concerning the same subject matter to be canvassed in the existing proceeding, notwithstanding that the cross-claim undoubtedly extends the scope of the controversy. 14 Fourthly, and importantly, there has undoubtedly been substantial delay on the part of Hanjin. ADK says that Hanjin has unmeritoriously elected to sit on its hands and do nothing to advance a cross-claim until after the service of ADK's principal affidavit material in the action. ADK says that Hanjin was alive to the material facts upon which the cross-claim rests as early as the period from April to August 2008 and yet Hanjin has done nothing to formulate its cross-claim. ADK says that Hanjin could have formulated its cross-claim at the time of the filing of its defence but it chose not to take that course. ADK does not say that Hanjin has engaged in an abuse of process by staying its hand in this way and nor does ADK contend that Hanjin ought to be refused leave to now make its cross-claim on the footing that the exercise of the discretion should involve some notion of penalising Hanjin. ADK however contends that in balancing the factors it is relevant to recognise that Hanjin has delayed for a long time in making its cross-claim and the explanation for the delay is uncompelling. The explanation is that until discovery occurred on 3 March 2011, Hanjin did not known the material fact that agreements providing for relevant payments and remuneration as between ADK and Mr Rhee, and ADK and Dr Chung, had been executed. ADK says that such an explanation is uncompelling because Hanjin knew in July 2008 or at least by no later than August 2008 that these agreements existed in draft and by 19 August 2008 the Chairman of Hanjin, Chong-Sang Lee, knew sufficient information about the arrangements between ADK and Mr Rhee, and ADK and Dr Chung, to be able to assert at a meeting in Sydney on that day that Mr Rhee had been "playing both sides of the fence". 15 Hanjin says that until it saw the executed documents in the course of discovery it did not know that those agreements actually represented the content of the arrangements between ADK and Mr Rhee and ADK and Dr Chung. 16 ADK also says that Hanjin's formulation of elements of the cross-claim shows that Hanjin relies upon a sequence of oral representations which have nothing to do with any revelations that might have come to pass in the course of discovery. As to those matters, Hanjin knew the relevant facts at the moment in time that the matters were asserted. Hanjin says that the precise understanding of the quality of those oral matters is ultimately informed by an understanding, informed by the discovered documents, of the precise legal arrangements between ADK, Mr Rhee and Dr Chung. 17 There is no doubt that Hanjin was alive to almost every material fact pleaded in the proposed cross-claim, apart from the supplementary fact of execution of the documents seen earlier in draft form, in the period April to August 2008. The explanation for the delay in formulating the cross-claim (that is, the importance of discovery of the executed documents and the peculiar difficulties created in dealing with a Korean party and consequential difficulties of translation) is not particularly compelling. It would not have required great intellectual rigour to formulate the cross-claim at the time of filing the defence and, at the very latest, a cross-claim could have been formulated quite quickly upon an examination of the discovered executed documents if that fact provided the material transformative revelation enabling the crystallisation of the cross-claim. Accepting that Hanjin has elected to sit on its hands in this way which has been productive of delay, the question nevertheless becomes not one of whether Hanjin ought to be penalised for doing so but whether the interests of justice are served by enabling the claim to be advanced and quelled at the same time as the controversy to be quelled in the existing proceeding. Since the trial has not been set and time is at hand to deal with all relevant directions in a disciplined way, it would be inappropriate to exercise the discretion in a way which foreclosed Hanjin's opportunity to now raise the matters pleaded in the draft cross-claim: see Cement Australia Pty Ltd v Australian Competition and Consumer Commission (2010) FCAFC 101; (2010) 273 ALR 147 per the Court at [67] and [68]; Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 33 ALR 127 per Sheppard J at 133. 18 ADK also says that there has been delay from 3 March 2011 until the making of this application by filing the application on 4 October 2011 and that delay compounds and aggravates the earlier delay. That may be so in the sense that Hanjin could have acted much more quickly after discovery in formulating a cross-claim and filing an application for leave. Hanjin is assisted by a lawyer in Korea who has fluent English language skills and is a lawyer admitted to practice in Victoria who holds a Masters of Law degree from the University of Korea. Although plainly enough there are logistical difficulties in dealing with a foreign corporation, those logistical difficulties are not such that decisions cannot be made within reasonable and disciplined time frames. Nevertheless, the question in the context of a trial next year, is whether the interests of justice are served by allowing the cross-claim to proceed so that all issues in controversy might be quelled in one place at one time. 19 Fifthly, Hanjin contends that the pleaded cross-claim is so weak that in the exercise of the discretion, in the context of the other factors, leave ought to be refused. However, the cross-claim is not frivolous. It formulates an arguable claim and it seems to me inappropriate to weigh the discretion by reference to any preliminary assessment of the merits of the cross-claim. 20 For all these reasons, in weighing and balancing these considerations, it seems to me that the proper exercise of the discretion involves granting leave under Rule 15.05 to file a notice of cross-claim. The costs of ADK of and incidental to the application are to be paid by Hanjin and leave will be given to tax and recover those costs forthwith. Directions will be made for the further conduct of the proceeding. I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood. Associate: Dated: 1 November 2011