Re Challenge Finance Limited v Accolade Pty Ltd [1991] FCA 18; 28 FCR 31 103 ALR 707 (7 February 1991)

FEDERAL COURT OF AUSTRALIA

Re: CHALLENGE FINANCE LIMITED
And: ACCOLADE PTY LTD
No. WA G138 of 1990
FED No. 17
Trade Practices
[1991] FCA 18; 28 FCR 31
103 ALR 707

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Trade Practices - misleading or deceptive conduct - strike out application - time limitation - accrual of cause of action - financier acquiring goods for lease - invoice for goods from manufacturer with falsely inflated price - default on lease - goods of little value - loss sustained upon acquisition of goods - cause of action out of time.

Trade Practices Act 1974 ss. 52, 82

Cooke v. Gill (1873) LR 8 CP 107

Arcadi v. Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473

James v. ANZ Banking Group Ltd (1986) 64 ALR 347

Ikin v. Same and Lamborghini Tractors Pty Ltd (1985) ATPR 40- 595

Elna Australia Pty Ltd v. International Computers (Aust) Pty Ltd [1987] FCA 230; (1987) 16 FCR 410

Forster v. Outred and Co. (1982) 1 WLR 86

Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-853

D.W. Moore and Co. Ltd v. Ferrier (1988) 1 WLR 267

Hawkins v. Clayton (1986) 5 NSWLR 109

Hawkins v. Clayton (1988) 164 CLR 539

Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd [1989] FCA 46; (1989) ATPR (Digest) 46-048

Calmao Pty Ltd v. Stradbroke Waters Co-owners Co-operative Society Ltd [1989] FCA 407; (1989) 89 ALR 507

Darley Main Colliery Co. v. Mitchell (1886) 11 App Cas 127

Jobbins v. Capel Court Corporation Ltd (1989) 91 ALR 314

Zoneff v. Elcom Credit Union Limited (1990) 94 ALR 445

Cartledge v. E. Jopling and Sons Ltd (1963) AC 758

Zoneff v. Elcom Credit Union Ltd [1990] FCA 459; (1990) ATPR 41-058

HEARING

PERTH
7:2:1991

Counsel for the Applicant: Mr R.J. Ainslie

Solicitors for the Applicant: Mallesons Stephen Jaques

Counsel for the Respondent: Mr J.R.B. Ley

Solicitors for the Respondent: Freehill Hollingdale and Page

ORDER

Paragraphs 2, 9, 10, 11, 12 and the words "misleading and deceptive conduct or" in para.13 be struck out.

The applicant have leave to file and serve an amended statement of claim on or before 22 February 1991.

The applicant pay the respondent's costs of the motion and any costs thrown away by reason of the amendment.

NOTE: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.

DECISION

Accolade Pty Ltd ("Accolade") is a company which carries on business under the name Boyd Metal Industries. Challenge Finance Limited ("Challenge") is a financier incorporated in New South Wales. By an application filed in this Court on 29 November 1990, it claimed damages against Accolade for misleading or deceptive conduct in contravention of s.52 of the Trade Practices Act 1974. On 16 January 1991, Accolade filed a motion seeking to have the application dismissed or the statement of claim struck out on the basis that the cause of action is time barred. On 30 January 1991, Challenge filed an amended statement of claim adding an alternative cause of action in deceit based on substantially the same facts as those pleaded in support of the allegation of misleading or deceptive conduct.

2. By the amended statement of claim, Challenge alleges that Accolade and a company called Australian Carbon Limited ("ACL") made an agreement in May 1987 under which Accolade would, for a sum of $95,356, fabricate two steel plate silos for the storage of coal char at ACL's premises at Collie. On 16 June 1987, it is said, ACL approached Challenge for finance in respect of the silos and represented that the cost of fabrication under its agreement with Accolade would be $128,000. It requested that Challenge purchase the silos for that sum and lease them back to ACL.

3. Challenge says it agreed to provide the leasing finance as requested, subject to the fabricated cost of the silos being $128,000. In August 1987, according to Challenge, ACL told Accolade that it had obtained finance and asked it to send Challenge an invoice stating the fabricated cost of the silos to be $128,000. On or about 17 August 1987, it is said, Accolade issued an invoice to Challenge in that amount thereby representing that that was the cost of fabricating the silos. Challenge alleges that it acted upon the representation by purchasing the silos from Accolade for $128,000 paid by a cheque sent on 21 August 1987. It says also that it entered into a written agreement under which it leased the silos to ACL for a term of 4 years. On or about 21 August 1987, Accolade is said to have endorsed Challenge's cheque to ACL and invoiced ACL for the actual fabricated cost of the silos, namely $95,356. Challenge claims that the issue of the invoice was misleading or deceptive or likely to mislead or deceive, in that the sum shown of $128,000 was expressed to be the fabricated cost of the silos, when the true cost was $95,356.

4. In support of the cause of action in deceit, it is additionally alleged that Accolade made the representation as to the fabricated costs of the silos in order to induce Challenge to provide the lease finance to ACL in the sum of $128,000. And it is said that the representation was made fraudulently in that Accolade knew it to be false. And again Challenge says that in reliance upon that representation, it provided the cheque and entered into the lease agreement. Damages are pleaded in para.13 of the amended statement of claim in the following terms:
"The applicant has suffered loss and damage as a

result of the respondent's misleading and deceptive conduct
or alternatively fraudulently misrepresentation in that ACL
has defaulted under the lease agreement and the applicant
would not have entered into the lease agreement with ACL and
paid to the respondent the sum of $128,000.00 if not for the
respondent falsely representing the cost of fabricating the
silos was $128,000.00.
Particulars of Loss and Damage
(a) On 21 March 1988 ACL made default under the
agreement and in May 1988 went into liquidation. There is
no prospect of recovering the lease payment payable under
the lease.
(b) As at May 1988 the value of the silos was no more
than $2,000.00 the silos being unsuitable for use by any
other person other than ACL and were not movable without
complete dismantling which was not economical.
(c) In the premises the applicant has lost the sum of
$126,000.00 plus interest at the rate at which it invests
its funds namely 19% per annum from 21 March 1988."

5. The statutory provisions which give rise to the cause of action for misleading or deceptive conduct are ss.52 and 82 of the Trade Practices Act 1974:

"52(1) A corporation shall not, in trade or commerce,
engage in conduct that is misleading or deceptive or is
likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this
Division shall be taken as limiting by implication the
generality of sub-section (1).
.
.
.
82(1) A person who suffers loss or damage by conduct
of another person that was done in contravention of a
provision of Part IV or V may recover the amount of the loss
or damage by action against that other person or against any
person involved in the contravention.
(2) An action under sub-section (1) may be
commenced at any time within 3 years after the date on which
the cause of action accrued.
(3) Sub-section (1) does not apply in relation to
conduct done in contravention of s. 52A."

Accolade contends that on the pleaded facts, Challenge's cause of action arose on 21 August 1987 when it paid Accolade the sum of $128,000 for the silos. Challenge, it submits, cannot rely upon the loss said to have arisen as a result of ACL's default on the lease and subsequent liquidation.

6. A cause of action means "every fact which it would be necessary for the plaintiff to prove, if traversed, in order to support his right to the judgment of the Court" - Cooke v. Gill (1873) LR 8 CP 107 at 116. After citing the above and other authorities, Toohey J. in Arcadi v. Colonial Mutual Life Assurance Society Ltd (1984) ATPR 40-473 identified as the elements of the cause of action established by sub-s.82(1), conduct by a person in contravention of a provision of Pt. IV or V of the Act and the suffering of loss or damage by reason of that conduct. And it follows, as his Honour said, that a cause of action under s.82 accrues, not when there is a contravention of s.52 but when loss or damage is suffered in consequence of it. He further observed that there may be several distinct losses flowing from conduct in contravention of the Act and that the cause of action is not complete until those losses have occurred. But in James v. ANZ Banking Group Ltd (1986) 64 ALR 347 at 392, he pointed out that "this statement was not meant to suggest that a cause of action is kept alive so long as any loss or damage is being suffered. Once an applicant has suffered loss or damage relevant to his claim, time begins to run." The practical application of that dictum can be attended with difficulty. It has been said that it is not sufficient to show that the potentiality for damage has arisen, actual loss or damage must have occurred - Ikin v. Same and Lamborghini Tractors Pty Ltd (1985) ATPR 40-595. In Elna Australia Pty Ltd v. International Computers (Aust) Pty Ltd [1987] FCA 230; (1987) 16 FCR 410, Gummow J. adopted a cautious approach to examples drawn from the common law. He referred to the decision of the English Court of Appeal in Forster v. Outred and Co. (1982) 1 WLR 86, where a plaintiff's claim against her solicitors for negligence was complete when she entered into a certain mortgage and not delayed until the financial consequences of that entry were played out, and commented at 417:

"I am far from satisfied that in giving effect to the
terms of s.82(2) of the TP Act resort may sufficiently or
even safely be had to examples of the impact of other
statutes in other jurisdictions upon common law causes of
action. The prime concern must always be to construe the
present statute, with particular attention to the
interrelation between s.82 and the provision of Pt. IV or
Pt. V of which there has been a contravention: Arcadi v
Colonial Mutual Life Assurance Society Ltd (1984) ATPR
45-450 at 45,453."

The point made by Toohey J. in Arcadi that there may be several distinct losses flowing from conduct in contravention of Pt. IV or V of the Act was said by Gummow J. to illustrate the encapsulation within s.82 of concepts of causation, remoteness and measure of damages. His Honour then observed that the meaning, scope and operation of s.82(2) "have not yet scarcely been explored". In the three and a half years since that judgment was delivered, some of that exploration has been undertaken and a somewhat more restrictive picture has emerged than may have been contemplated in the decisions up to that time.

7. In Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd (1988) ATPR 40-853, an action was begun for alleged misrepresentation in relation to a proposed shopping centre inducing prospective tenants to sign leases for premises in the centre. Having suffered losses during their periods of trading, they instituted proceedings under the Trade Practices Act more than 3 years after the leases had been signed, but less than 3 years after some of their claimed losses. Pincus J. concluded that the respondent had engaged in misleading or deceptive conduct. He found that the conduct was productive of loss but that the action was statute barred, as the leases had been executed more than 3 years before it was commenced. His Honour held that the words "date on which the cause of action accrued" in s.82(2) were intended to have a similar meaning to that worked out under earlier time limitation statutes. He agreed with the dicta of Toohey and Gummow JJ. already mentioned, that there may be several distinct losses and several distinct claims flowing from, for example, breaches of s.52 of the Trade Practices Act, but went on to say at 49,195:

"But it is my view that in the ordinary case, where an
applicant claiming relief on the basis of misleading conduct
inducing him to enter into obligations under a contract
points to a series of losses of various kinds flowing from
the transaction, there are not as many causes of action as
distinct losses. I think the cause of action accrues by the
time the applicant has entered into the relevant
transaction; where the applicant has taken a lease, that
will be not later than the execution of the lease."

His Honour found a reasonably close analogy to the case before him in the decision of the Court of Appeal in Forster v. Outred and Co. (1982) 1 WLR 86, followed by the same court in D.W. Moore and Co. Ltd v. Ferrier (1988) 1 WLR 267. He also referred to the general principle enunciated by Kirby P and Glass JA in the New South Wales Court of Appeal in Hawkins v. Clayton (1986) 5 NSWLR 109 that a tort liability accrues as soon as any damage is suffered. That principle was not affected by the judgment of the High Court in Hawkins v. Clayton (1988) 164 CLR 539 which reversed that of the Court of Appeal; see at 561 per Brennan J., 587 per Deane J. and 599 per Gaudron J. But it does not in its terms provide an answer to the question, when does loss or damage first occur? The judgment in Keen Mar went on appeal, where Morling and Wilcox JJ. disagreed with the finding that there had been misleading or deceptive conduct and therefore found it unnecessary to consider the limitation point - Keen Mar Corporation Pty Ltd v. Labrador Park Shopping Centre Pty Ltd [1989] FCA 46; (1989) ATPR (Digest) 46-048. The third member of the Court, Spender J., did not agree with the majority view that there had not been any misleading or deceptive conduct, but held, as had Pincus J., that the causes of action had accrued upon the execution of the leases. He based that conclusion on the proposition that when the leases were executed the lessees had at the time suffered quantifiable loss because the price paid for the leasehold interest, ex hypothesi reflecting the representations which induced the execution of the leases, was higher than the value of that interest on the true facts.

8. In Calmao Pty Ltd v. Stradbroke Waters Co-owners Co-operative Society Ltd [1989] FCA 407; (1989) 89 ALR 507, Pincus J. adhered to the views he had expressed in the Keen Mar case and added (at 510) that "the tendency has been to construe statutes of limitation as not contemplating that a new cause of action will arise every time there is a fresh loss for the same basic wrong". And he relied upon the general principle, rather than the exception to it, stated by Lord Halsbury in Darley Main Colliery Co. v. Mitchell (1886) 11 App Cas 127 that:

"No-one will think of disputing the proposition that
for one cause of action you must recover all damages
incident to it by law once and forever."

Pincus J. accepted that the date of accrual of a cause of action for damages based upon a breach of s.52 of the Trade Practices Act is not necessarily to be equated to that in an action for negligence. But he saw the unelaborated use of the expression "date on which the cause of action accrued" in s.82(2) as suggesting that the established law with respect to other statutory limitation provisions should apply:

"Since 'most causes of action for negligence first
accrue when the plaintiff first suffers damage caused by the
defendant's breach of duty' (see Hawkins v. Clayton (1988)
164 CLR 539 at 561), I assume the same applies to causes of
action based, not on negligent misstatement, but on s.52 of
the Trade Practices Act."

9. This was a point on which Gummow J. had been "far from satisfied" in the Elna case. The Full Court effectively approved the approach taken by Pincus J. in Keen Mar and Calmao by its decision in Jobbins v. Capel Court Corporation Ltd (1989) 91 ALR 314. At 316-317 in the joint judgment it was said:

"Section 82(2), by being expressed to turn on 'the
date on which the cause of action accrued', echoes familiar
concepts of the law in respect of the limitation of actions:
see Halsbury's Laws of England 4th ed, vol 28, para 622; and
see Hawkins v. Clayton (1988) 164 CLR 539 at 561-2, 587-8,
599. There is every reason to understand this language in
the sense it which has come to be understood in statutes of
limitations. For the purposes of those statutes, a number
of principles have been worked out. In the first place,
where the incurring of damage is an essential element of a
cause of action, the suffering of some damage (the other
elements of the cause of action having already occurred)
will, in general, start time running even although the
damage continues to grow. The running of time is not
suspended until all the damage which will be suffered has
ceased to flow, nor does further damage constitute a fresh
cause of action..."

And it cited with evident approval the decisions, inter alia, of the Court of Appeal in Forster v. Outred (supra) and D.W. Moore and Co. Ltd v. Ferrier (supra). After referring to the judgments of Toohey J. in Arcadi and James and that of Gummow J. in Elna, their Honours went on at 318:

"Nevertheless, there is no doubt that Pincus J. was
correct when he said in Calmao Pty Ltd v. Stradbroke Waters
Co-owners Co-Op Society Ltd ...: "The tendency has been to
construe statutes of limitation as not contemplating that a
new cause of action will arise every time there is a fresh
loss from the same basic wrong". The reason for this, and
the exception where a fresh breach of a continuing duty
causes loss beyond the loss resulting from a barred cause of
action are explained by Glass J.A. in Hawkins v. Clayton
(1986) 5 NSWLR 109 at 124-5."

And referring to the past judicial reluctance to strike out a statement of claim as out of time, their Honours said at 319- 320 that where it is clear that s.82(2) will be a complete answer to the claim, the Court should not merely defer the inevitable.

10. Jobbins was a case in which the cause of action accrued upon entry into an agreement to invest $60,000 in a film which had allegedly been misrepresented as carrying a guaranteed return. And it was the date of agreement and payment from which time began to run. In Zoneff v. Elcom Credit Union Limited (1990) 94 ALR 445, however, Hill J., who had been a member of the Court in Jobbins, was not prepared to hold that a cause of action had accrued at the time the applicant entered into a contract of insurance which did not provide represented cover. It might be said he held that there was some, albeit negligible, loss on that occasion because of the loss of opportunity to enter into an alternative contract providing the requisite protection. But there was no evidence that the contract entered into was worth less than what was paid for it, and the loss of opportunity was negligible. His Honour referred to the statement of Lord Reid in Cartledge v. E. Jopling and Sons Ltd (1963) AC 758 at 771 that "(a) cause of action accrues as soon as a wrongful act has caused personal injury beyond what can be regarded as negligible, even when that injury is unknown to and cannot be discovered by the sufferer". He went on:

"That statement which was cited with approval by the
Full Court in Jobbins is applicable in a case such as the
present. If the lost opportunity had any value at the time
the contract of insurance induced by the misrepresentation
was entered into having regard to the contingency of
accidents happening in the future, such a loss can be
regarded as negligible. It is only when the contingency
happened that the real loss was suffered by Mr Zoneff and it
is then that the cause of action would have accrued."

The Full Court dismissed both an appeal by Zoneff and a cross-appeal by Elcom Credit Union Limited - reported as Zoneff v. Elcom Credit Union Ltd [1990] FCA 459; (1990) ATPR 41-058. The Court agreed with the trial judge that if Zoneff had sought an alternative policy with the appropriate cover, he could not have obtained it except at an increased premium, which the evidence simply provided no basis for thinking he would have been prepared to pay. That conclusion made it unnecessary to consider whether his claim under s.52 for damages arising out of the alleged inadequacy of the insurance policy would, in any event, have been barred by lapse of time. A decision on that point would have required a consideration of whether the issue of a valid insurance policy involves the incurring of loss at that time because it does not cover an eventuality the insured wishes to cover, even though it remains open to him to take out further insurance up to the time the contingency occurs. That question could not have been resolved without an examination of conflicting considerations discussed in a number of authorities to which reference was made. And returning to the limitation point in the context of the cross-appeal their Honours rejected the contention by counsel for the cross-appellant that the claim to recover damages was statute barred. At 51,747 they said:

"But this contention rests on the proposition that the
cause of action accrued at the time when the policy of
insurance was taken out upon the inducement of the
representation. That proposition is inconsistent with the
conclusion already reached, which formed the basis of the
rejection of the appellant's larger claims, that no loss was
suffered at that time. As was made clear in Jobbins (supra)
at p 319, the relevant cause of action can accrue only when
a misrepresentation leads to the incurring of damage. The
respondent has been successful in its argument...because it
has not appeared that the appellant lost, by the
representation, any opportunity to improve his position
through the obtaining of other insurance. It was not
suggested that the insurance he did obtain was not worth the
money he paid for it, and in fact he received value for that
money when indemnity was granted to him for a period
following his injury. The first and only time when he
incurred damage was when, upon the extent to which he had
been misled being brought home to him, he suffered the
distress for which he was awarded $1,000.00."

On the pleadings in the present case, it is alleged that Challenge purchased the silos from Accolade on 21 August 1987 for $128,000 relying upon a representation that ACL had been charged that much for their construction. But the loss it relies upon is that flowing from ACL's default under the lease agreement in March 1988, the absence of any prospect of recovering the lease payments, and the fact that the silos were only worth $2,000 "being unsuitable for use by any other person other than ACL and were not movable without complete dismantling which was not economical".

11. If the basis of the loss or part thereof is that the silos were of little value because they were made specifically for ACL and could not economically be moved, then that must in logic have been the position from the outset and the loss incurred at the time that the silos were acquired. In any event that seems implicit in Challenge's pleading, which substantially complains of the difference between the represented and actual cost of construction. On that basis I am satisfied, applying particularly the approach taken by the Full Court in Jobbins v. Capel Court Corporation Pty Ltd (supra) and Zoneff v. Elcom Credit Union (supra) that the relevant loss was sustained at the time that Challenge acquired the silos. Thus the cause of action under ss.52 and 82 of the Trade Practices Act arose on 21 August 1987 and became statute barred on 21 August 1990. The present application was instituted on 29 November 1990. On that basis I am satisfied that the cause of action in misleading or deceptive conduct is out of time, and that so much of the amended statement of claim as pleads facts relevant only to that cause of action and not to the cause of action in deceit should be struck out.