Miba Pty Ltd & Ors v Nescor Industries Group Pty Ltd & Anor [1997] FCA 89 (20 February 1997)

CATCHWORDS

Courts - Practice and Procedure - Applicants succeeded on a claim of misleading conduct which was not pleaded - Whether the failure to plead the misleading conduct precluded the applicants from being entitled to judgment in respect of the claim on which they succeeded - Whether the issue on which the applicants succeeded emerged and was litigated by the parties at trial - Whether it is open to the respondents to treat the pleadings as governing the area of dispute.

Cases

Banque Commerciale SA En Liquidation v. Akhil Holdings Ltd. [1990] HCA 11; (1990) 169 CLR 279

Water Board v. Moustakas [1988] HCA 12; (1987) 180 CLR 491

Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. [1916] HCA 81; (1916) 22 CLR 490

NO. VG 433/92 MIBA PTY. LTD. & ORS. V. NESCOR INDUSTRIES GROUP PTY. LTD. & ANOR.

Court: Merkel J

Place: Melbourne

Date: 20 February 1997

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIAN DISTRICT REGISTRY

GENERAL DIVISION No. VG 433/92

BETWEEN:

MIBA PTY. LTD. A.C.N. 007 440 146, MICHAEL VITTOURIS

and BRONWYN MARIE VITTOURIS

Applicants

and

NESCOR INDUSTRIES GROUP PTY. LTD. A.C.N. 007 145 057 and

ROBERT KENNETH NELSON

Respondents

Court: Merkel J

Place: Melbourne

Date: 20 February 1997

ORDER

THE COURT ORDERS THAT:

1. The respondents pay to the applicants the sum of $225,000.00.

2. I reserve the questions of interest and the costs of the proceeding.

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

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIAN DISTRICT REGISTRY

GENERAL DIVISION No. VG 433/92

BETWEEN:

MIBA PTY. LTD. A.C.N. 007 440 146, MICHAEL VITTOURIS

and BRONWYN MARIE VITTOURIS

Applicants

and

NESCOR INDUSTRIES GROUP PTY. LTD. A.C.N. 007 145 057 and

ROBERT KENNETH NELSON

Respondents

Court: Merkel J

Place: Melbourne

Date: 20 February 1997

REASONS FOR JUDGMENT

Introduction

On 17 September 1996 I delivered Reasons for Judgment in this matter. In those reasons, which should be read together with these reasons, I concluded that:

* the respondents engaged in misleading conduct in delivering the letter dated 3 July 1990 to the applicants;

* the applicants acted in reliance upon the statements contained in the letter and were induced by those statements to establish the Muffin Break franchise at Northland.

The parties agreed at the commencement of the hearing that if the applicants succeeded in establishing liability they were to be entitled to judgement in the sum of $225,000 together with statutory interest as from 1 February 1996. Accordingly, save for three matters which I raised at the conclusion of my reasons, the applicants, having succeeded on liability, were entitled to judgment in the sum of $225,000 together with statutory interest.

The three issues raised by me were:

* whether the failure of the applicants to plead the misleading conduct in the terms found by me precluded them from succeeding on their claim;

* whether the agreement as to quantum was limited to the case as pleaded;

* whether the claim on which the applicants succeeded was statute barred or otherwise out of time.

The parties filed written submissions on each of these matters.

The Pleadings issue

I discussed the pleadings issue at 34-37 of my Reasons and concluded:

The view to which I am presently disposed is that although the misleading conduct has not been pleaded in the terms I have found it to have occurred the respondents were on notice that conduct formed part of the case they were to meet and the case has been conducted by them on that basis. It also seems to me that the essential facts and allegations giving rise to the misleading conduct I have found to have occurred were treated by the parties during the trial as being "in the ring". To date no submission to the contrary has been put by the respondents' counsel. If that view is correct then it would not be open for the respondents to contend that the applicants' case must fail as the misleading conduct as found was not as pleaded. See: Banque Commerciale S.A. En Liquidation v. Akhil Holdings Ltd. [1990] HCA 11; (1990) 169 CLR 279 at 286-7, 288 and 293, Water Board v. Moustakas [1988] HCA 12; (1988) 180 CLR 491 at 497 and Qantas Airways Limited v. Cameron (Full Court of Federal Court of Australia unreported, 14 August 1996).

The respondents have filed detailed submissions. In summary, the respondents contend that:

* the misleading conduct found by me was not pleaded and has not been litigated;

* upholding the claim of the applicants on the basis of the unpleaded misleading conduct would be a denial of natural justice to the respondents;

* had the misleading conduct been pleaded it is likely that the landlord, Gandel Group Ltd. and its agent Macrae would have been joined as third parties;

* it is now too late, and it would be unjust, for leave to amend to be granted at this stage of the proceeding.

The applicants' filed responding submissions. They contend that the respondents adduced the evidence that revealed the misleading conduct in relation to the takings of Food Court operators at Northland and thereby put that matter "into the ring" in the litigation. Accordingly, the respondents cannot now limit the area of contest back to that which was pleaded.

The central issue arising in the cases to which I referred is whether the issue on which the applicants succeeded emerged and was litigated by the parties at the trial: see Water Board v. Moustakas [1988] HCA 12; (1987) 180 CLR 491 at 497 and Banque Commerciale SA En Liquidation v. Akhil Holdings Ltd. [1990] HCA 11; (1990) 169 CLR 279 at 286-7, 288 and 293. If that has occurred then notwithstanding that the issue was not pleaded originally or by way of amendment during the trial it is not open to either of the parties to treat the pleadings as "governing the area of contest". In Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. [1916] HCA 81; (1916) 22 CLR 490 Isaacs and Rich JJ said at p 517:

But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.

In my view that is precisely what has occurred in the present case. The issue of whether the statement made by Macrae on

behalf of the landlord, and adopted by Nelson, that the average Food Court operator at Northland had takings of $10,000 per week was misleading emerged and was litigated at the trial.

The respondents called Mr. Macrae and tendered evidence from him explaining how he arrived at the figure of $10,000 for the average takings for Food Court operators at Northland. As a consequence the accuracy of Macrae's calculations and his methodology became an issue at trial. In any event it was raised in paragraph 9(b) of the Statement of Claim. The issue was the subject of examination, cross examination, exhibits and submissions.

At 34-37 I explained why I was disposed to the view that the:

"essential facts and allegations giving rise to the misleading conduct I have found to have occurred were treated by the parties during the trial as being 'in the ring'."

After considering the submissions of the parties and reviewing the evidence again I am confirmed in that view.

It seems to me that conclusion disposes of the other grounds relied upon by the respondents on the pleadings issue. As the issue on which the applicants have succeeded was litigated by both parties at trial it is now too late for the respondents to contend there was a denial of natural justice to them on that issue, that an amendment is now required or that the respondents have been denied the opportunity of joining third parties.

However, I would add that in my view there has been no denial of natural justice. The possibility of this issue in question emerging as an important issue was clearly adverted to at the trial. If there was to be complaint on the grounds of a failure to amend or unfairness the time for it was at trial and not after judgment.

Also, it was always open to the respondents to apply to join the landlord and Macrae. As I commented in my Reasons the figures for estimated weekly takings for the respondents outlet, of $8,000 to $12,000, were not accidental. In my view the figures were significantly, if not wholly, influenced by or based upon Macrae's misleading statement of average takings and the adoption of his figure by Mr. Nelson. The inaccuracy of Macrae's figures was pleaded in paragraph 9(b) of the Statement of Claim. I note that as far back as 20 August 1993, on the application of the applicants, Sweeney J ordered third party discovery by the landlord of the turnover of Food Court operators at Northland from 1 May 1990 to 3 August 1990. I cannot accept that the respondents were not aware or had no capacity to become aware, prior to the issue arising at trial, that the source of the problem in the present case might have been Macrae's misleading statements as to takings.

The Agreement on Quantum

The only evidence before me as to the agreement on quantum was the explanation given to me of that agreement as recorded in the transcript at 2-6 at the commencement of the trial on 20 May 1996. Counsel for the applicants and the respondents both described the agreed quantification of loss as applying in the event that the applicants succeed on liability (T4 lines 8-10 and T6 lines 1-10). That is precisely what has occurred.

However, the problem I adverted to in my reasons arises from the statement in an earlier passage in the transcript that the agreement was to apply if the representations "were made as alleged". (T3 lines 5-20). It is appropriate to set out the relevant passage in full:

.....Your Honour, the parties have also shown a good deal of common sense and agreement has been reached on the issues to be determined by the Court which means that the remaining issues are considerably limited in their scope. They have agreed, in respect of the allegations, as to representations that if they were made as alleged and the Court finds that consistent with the dicta of Wilson J in [Gould] v. Vaggellas and applied Dominelli Ford that such representations were an inducement which played some part in causing the applicants - I suppose when you read the pleading and indeed they are bankers, to do as is alleged in paragraph 7 of the further amended statement of claim, then the applicants are entitled to damages in the sum of $225,000 together with statutory interest calculated from 1 February '96.

Several observations can be made:

* the parties appeared to have reached agreement in general rather than precise terms;

* the parties did not appear to have committed their agreement to writing;

* no evidence has been adduced in respect of the agreement other than the references to it in the transcript to which I have referred;

* the terms of the agreement are therefore to be ascertained not only from the two descriptions of it but with due regard to the context in which it was made.

The context is important. It is fairly clear that the complexity of and costs involved in contesting the applicants' damages claims led the parties to agree on quantum if the applicants succeed on liability. As a cautionary note the agreement was based on the claims "as alleged". That was sensible as the concessions by the respondents on quantum were based on the applicants succeeding on their allegation that they were induced to enter into the Muffin Break franchise agreement in reliance upon the misleading conduct of the respondents. If that finding was made in the applicants' favour the loss was agreed to be quantified in the sum of $225,000.

The quantification would not be affected if the applicants succeeded on only part of their claim based on misleading conduct and failed on another part. Either way they would have succeeded in establishing liability.

Accordingly, the central thrust of the agreement was that it was to apply if the applicants succeeded on liability. Both counsel described it as applying in that circumstance. The reference to the representations "alleged" was in my view directed to the misleading conduct as particularised rather than to the literal wording of the representations pleaded. That is consistent with the obvious intention of the parties that if the applicants succeeded in establishing that the conduct relied upon and particularised was misleading their entitlement to damages, as agreed, should arise.

It is necessary to examine the pleadings as at 20 May 1996 to determine the misleading conduct which was relied upon and particularised by the applicants.

The Application as amended from time to time sought relief, which included damages, in respect of the conduct described in certain paragraphs of the Statement of Claim. The final reference was to paragraphs 5-13. The conduct so referred to was alleged to constitute misleading conduct in contravention of s.52 of the TPA and s.11 of the FTA.

Paragraphs 5-13, as particularised, relied upon the extensive oral and written negotiations between the parties which included the letter of 3 July 1990. In the original pleadings and particulars delivered in 1992, and at all times since, the letter of 3 July 1990 was relied upon and central to the applicants' case of misleading conduct. However, the applicants' encountered difficulty in describing or stating the misleading representations contained in the letter. The closest the applicants got to summarising the statement, the subject of my finding, was in paragraph 6(f) which relied inter alia on the letter of 3 July 1990. The statement was said to contain a representation that:

(f) .... the Respondents believed on reasonable and proper grounds that the average Food Court operator in the Northland Shopping Centre then achieved sales in the order of $10,000.00 per week.

The statement in the letter which gave rise to paragraph 6(f) was said to be based on Nelson's "understanding". I discussed the significance of that word in my reasons and arrived at a different interpretation to that pleaded. However, the sentence giving rise to the pleading and the letter itself were pleaded and relied upon as an important aspect of the applicants' case on misleading conduct. The case that ultimately succeeded was based on the same statement and letter albeit with a different interpretation given to it than that pleaded.

The matter does not rest there. Paragraph 9(b) of the Statement of claim pleads that the representation in paragraph 6(f) was false and untrue in that, inter alia:

as at 3 July 1990 the average Food Court operator in the Northland Shopping Centre did not achieve sales in the order of $10,000.00 per week, but achieved sales averaging approximately $7,000.00 per week.

Finally, in paragraph 12 the applicants pleaded, inter alia, that by making the representation in paragraph 6(f) the respondents engaged in misleading conduct in contravention of s.52 of the TPA and s.11 of the FTA. As pointed out the representation in question was made by the delivery of the letter of 3 July 1990.

In my view, given these circumstances, the misleading conduct I have found can be fairly described as that alleged in the Application and particularised in the Statement of Claim as amended.

Accordingly, the quantum agreement is applicable as the conduct the subject of the Application, and particularised in the Statement of Claim, was found to have contravened s.52 of the TPA or s.11 of the FTA.

Statute barred claims

The proceeding was commenced on 16 November 1992. The conduct which was then relied upon as constituting a contravention of s.52 of the TPA and s.11 of the FTA included the letter of 3 July 1990. The cause of action for damages in relation to misleading conduct accrued, at the earliest, when loss was first suffered in the conduct of the franchised business during the second half of 1990. On any view the proceeding was commenced within 3 years of that date. The relief to be granted, being the claim for damages for misleading conduct, was sought in the Application.

Accordingly, the proceeding was not issued out of time and is not statute barred.

As there has been no application by the applicants to amend the Statement of Claim it is unnecessary to consider the effect of an amendment. However, it is to be noted that Order 13 Rule 2(7) of the Rules of Court enables an amendment adding or substituting a new claim out of time if that:

"claim arises out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief by the party applying for leave to make the amendment."

See Harris & Others v. Western Australian Exim Corporation (1994) 129 ALR 387 at 389-396 per Hill J and Lidden v. Composite Buyers Ltd. (1996) 139 ALR 549 at 556-7 per Finn J.

For the reasons set out above any amendment to the Statement of Claim, to make it accord with my finding, would have fallen within the terms of Order 13 Rule 2.

Conclusion

I have concluded that the applicants are entitled to judgment in the sum of $225,000 together with statutory interest from 1 February 1996.

I propose to hear the parties on the question of the rate of interest and costs.

I certify that this and the preceding 11 pages are a true copy of the Reasons for Judgment of the Honourable Justice

Associate:

Date:

HEARD: 20-24 May 1996 and 17 September 1996

PLACE: Melbourne

JUDGMENT: 20 February 1997

WRITTEN SUBMISSIONS: Mr. M. Shatin Q.C. for the applicants

Mr. P. Searle for the respondents