Ling v Commonwealth

(1996) 68 FCR 180
(1996) 139 ALR 159

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(Judgment by: Wilcox J)

Noel Ling v
Commonwealth

Court:

Judge:
Wilcox

Subject References:
Practice and Procedure
Estoppel
Anshun estoppel
Successful claim by Commonwealth for refund of fees charged by provider of educational services to Asian students
Subsequent claim by provider for damages against Commonwealth for misleading conduct inducing him to establish educational institutions for Asian students
Whether provider's claim should have been set up as cross-claim in Commonwealth proceeding
Whether Anshun estoppel applies to cross-claims
Jurisdiction of Court to entertain cross-claim
Associated jurisdiction
Whether jurisdiction denied by O.5 r.1
Whether consent of Commonwealth confers jurisdiction
Whether appellant's failure to raise cross-claim 'unreasonable'

Legislative References:
Bankruptcy Act 1966 -
Federal Court Rules O.1 r.8, O.5 r.1 -

Case References:
Henderson v. Henderson - (1843) 3 Hare 110
Port of Melbourne Authority v. Anshun Pty Ltd - (1981) 147 CLR 589
Bryant v. Commonwealth Bank of Australia - (1995) 57 FCR 287
Phillip Morris Inc v. Adam P Brown Male Fashions Pty Ltd - (1981) 148 CLR 457
Sutton v. Sharp - (1994) 125 ALR 643
Edward Ward & Co v. McDougall - [1972] VR 43
Eagle Star Nominees Ltd v. Merril - [1982] VR 55
Indrisie v. General Credits Ltd - [1985] VR 25
James v. Commonwealth Bank of Australia - (1992) 37 FCR 445
Obacelo Pty Ltd v. Taveraft Pty Ltd - (1985) 5 FCR 210
Pilecki & Turner Pty Ltd v. Chen - unreported 23 April 1993 FCA
163 Clarence Street Pty Ltd v. New World Oil and Developments Pty Ltd - unreported 31 May 1994 FCA
Australasian Jam Co Pty Ltd v. Federal Commissioner of Taxation - (1953) 88 CLR 23
Breavington v. Godleman - (1988) 169 CLR 41
Yat Tung Investments Co Ltd v. Dao Heng Bank Ltd - [1975] AC 58
Re Schmidt; Ex parte Anglewood Pty Ltd - (1968) 13 FLR 111
Re James; Ex parte Carter Holt Harvey Roofing (Australia) Pty Ltd [No 2] - (1994) 51 FCR 14

Hearing date: 28 May 1996
Judgment date: 25 July 1996

Sydney

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Judgment by:
Wilcox J

I have had the advantage of reading in draft form the reasons of Sundberg J. I agree with him but wish to make some additional observations.

The principle applied by the High Court of Australia in Port of Melbourne Authority v Anshun Proprietary Limited (1981) 147 CLR 589 is designed to minimise the burden of litigation. It enables courts to ensure that parties put their whole case forward at one time, thereby eliminating duplication of effort and expense and reducing the opportunity for a party to harass a weaker opponent with repeated suits. However, these benefits come at a price. The result of a court applying the principle is to shut out a claim or defence that a party wishes to pursue, without determination of its intrinsic merit, on the ground that it ought to have been raised in earlier litigation. As the Judicial Committee of the Privy Council pointed out in Yat Tung Investment Co Ltd v Dao Heng Bank Ltd (1975) AC 581 at 590, this is a serious step, a power not to be exercised except "after a scrupulous examination of all the circumstances". If the Anshun principle is too readily applied, there is a possibility of serious injustices.

As it seems to me, application of the principle to a failure to plead a defence will ordinarily not present a problem. It is not unreasonable to expect people who are sued promptly to consider what defences are available to them and put forward any that seem to have substance. The same statement may be made about a claim for indemnity, as between parties to the first proceeding, in relation to the claim made in that proceeding; as in Anshun itself. However, it cannot be made about cross-claims generally. As a member of the Full Court in Bryant v Commonwealth Bank of Australia (1995) 57 FCR 287, I joined in holding that the Anshun principle might apply to a cross-claim. I adhere to that view, and also the actual decision in the case. Bryant was, in my opinion, a clear case for the application of the Anshun principle. The claim that Mr Bryant sought to make in the second action was intimately connected to the bank's claim against him in the first action. Both claims arose out of substantially the same facts and Mr Bryant had originally pleaded the matters raised in the second case as a defence to the first.

The decision in Bryant does not mean that it will always be appropriate to apply the Anshun principle to cross-claims. Some cross-claims have little or no connection with the claim in the action. There may be no more than an identicality of parties. It is difficult to see any justification for applying the Anshun principle to a case of that kind. Some cross-claims overlap the facts of the principal claim but involve additional facts. Where this occurs, a question of degree arises. It would be wrong to say that the Anshun principle is excluded whenever there are additional facts; to go so far would be to render it nugatory. However, where the additional facts are substantial, it may be appropriate to accept the reasonableness of separate proceedings.

I think the present case is of this type. There is a factual connection between the claim that was brought by the Commonwealth against Mr Ling and the claim he seeks to make against the Commonwealth. Both actions arose out of Mr Ling's involvement in businesses providing English language instruction to Chinese students and the 1989 government decision to restrict student entry visas. Also, one of the items of damage claimed by Mr Ling in his action against the Commonwealth is the sum of damages awarded against him by Beaumont J in the first action. But thereafter the facts diverge. The Commonwealth's claim was based upon assignments to it, by students denied visas, of their right to enforce an implied term of their agreements with Mr Ling. The primary issues in the case were the existence or otherwise of the alleged implied term, the validity of the assignments and the situation of each of the students - in particular the fees paid by that student and whether or not he or she was denied a visa. There were also legal issues about the Commonwealth's competence to take the course it did. In contrast, the major issues that seem to arise in Mr Ling's claim concern statements allegedly made by various government functionaries in 1985 and 1987 about promotion of Asian educational services and the effect in law of these statements, including their capacity to give rise to tortious liability, the effect of the 1989 change in government policy and the nature and extent of any damage suffered by Mr Ling, especially having regard to the 1990 sale of his relevant business interests. While there is some factual overlap, clearly each of the actions involves substantial facts immaterial to the other action.

I cannot, with respect, accept the view of the learned primary Judge, Lehane J, equating the situation in this case with that in Bryant or his Honour's statement that "Mr Ling's claim against the Commonwealth arises substantially out of the same matters of fact" as the Commonwealth's claim against him. If that were so, it is unlikely that anybody would have doubted the Federal Court's jurisdiction to deal with Mr Ling's claims. It would clearly have involved the concept of "same substratum of facts", a basis of jurisdiction under s.32 of the Federal Court of Australia Act 1976 that has been well understood since the decision in Fencott v Muller (1983) 152 CLR 570. Yet, in dealing with Mr Ling's application to set aside the bankruptcy notice issued by the Commonwealth in enforcement of the judgment entered by Beaumont J, Hill J was prepared to assume that Mr Ling "could not have brought the claims in tort directly as cross-claims in the Commonwealth proceedings": see Re Ling; Ex parte Commonwealth of Australia (1995) 58 FCR 129 at 133-134. In order to hold that the claim was one that Mr Ling might have set up in the case brought against him by the Commonwealth, Hill J postulated what he called the "tortuous route" of an action brought by Mr Ling in the High Court, pursuant to s.75(iii) of the Constitution, and remitted to this Court under s.44 of the Judiciary Act 1903.

This Court does not have a general jurisdiction to determine actions against the Commonwealth, notwithstanding that it is within the province of Parliament to confer that jurisdiction on the Court: see s.77(i) of the Constitution. The continuing failure of Parliament to confer that jurisdiction is remarkable in the light of the exposure in 1988 of the injustice which it may create: see Kodak (Australasia) Pty Ltd v Commonwealth of Australia (1988) 22 FCR 197. Nonetheless, I am satisfied that, in the present case, the Court would have had jurisdiction to entertain the action, without the necessity for a transfer order under the cross-vesting legislation. It would have had that jurisdiction under s.32 of the Federal Court of Australia Act, not on the basis that Mr Ling's claim arose out of the same substratum of facts as the Commonwealth's action, but because it was an action of the type referred to in s.75 (iii) of the Constitution and so capable of being committed by Parliament to this Court. As Sundberg J points out, s.32 covers such cases.

The fundamental issue in the application of the Anshun principle is whether it was reasonable for the party bringing the second action to have failed to raise its subject in the first action. In Anshun at 602, Gibbs CJ, Mason and Aitkin JJ stated the relevant principle in these words:

"... there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it."

Although their Honours were dealing with failure to raise a defence, the concept of reasonableness has been applied to failure to raise a claim: see Priestley JA in Rahme v Commonwealth Bank of Australia (New South Wales Court of Appeal, 20 December 1991, not reported) which is discussed in Bryant at 297.

In considering reasonableness, as it seems to me, consideration must be given to all aspects of the case. They include the extent of the overlap between the facts underlying each claim; the greater the overlap, the easier it is to argue that it was unreasonable not to raise the matter in the first case. They also include any difficulties that existed, or might reasonably have been perceived, in raising the matter earlier. Where the matter can be raised only by way of cross-claim, as distinct from defence, and there was a serious question about the entitlement of the Court to consider the cross-claim, there is an obvious difficulty in arguing that it was unreasonable for the party not to have done so.

Order 5 rule 1 of the Federal Court Rules presented an obstacle to any cross-claim that Mr Ling might have wished to bring. However, the Rules are not immutable. A Judge may dispense with compliance with any of their requirements at any time: see Order 1 rule 8. So I would not treat Order 5 rule 1 as critical to the result of the case. But I think it is relevant. In assessing the reasonableness of Mr Ling's failure to raise his claim against the Commonwealth when he was sued by it in the earlier action, it is necessary to look at the whole of the circumstances that he then confronted. His claim involved facts that overlapped the Commonwealth's case to some extent but were substantially extraneous to that case. The Court's jurisdiction to entertain his claim was not blindingly obvious. What might be called the "Philip Morris" aspect of s.32 was probably not then widely appreciated. And Mr Ling's claim would have failed to comply with the requirements of Order 5 rule 1; so a dispensation would have been necessary before it could be brought. Taking those matters in combination, I think it was not unreasonable for Mr Ling to fail to raise in the first action the matters he now seeks to raise in his action against the Commonwealth.

I would allow Mr Ling's appeal against the order of Lehane J dismissing his statement of claim and, in lieu thereof, order that the Commonwealth's motion for dismissal be dismissed and the proceeding be remitted to Lehane J for pre-trial directions. Having regard to the issues involved, it ought to be possible to arrange a relatively early trial. So I share the view of Sundberg J that the appropriate course in the bankruptcy proceedings is to allow the appeal and to make orders setting aside the sequestration order and adjourning the hearing of the petition until the determination of Mr Ling's action for damages or any earlier date determined by a Judge of the Court.