Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119 (10 May 2004)

Last Updated: 12 May 2004

FEDERAL COURT OF AUSTRALIA
Arktos Pty Ltd v Idyllic Nominees Pty Ltd [2004] FCAFC 119

PRACTICE AND PROCEDURE –appellants sued respondents in respect of misleading or deceptive conduct – claims made in the alternative under the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA) – first respondent a trading corporation – second and third respondents directors of the first respondent – judgment recovered against first respondent – trial judge declined to enter judgment against second and third respondents because no pleading that either of them engaged in trade or commerce "on his own account" – whether necessary so to plead in relation to the Fair Trading Act claim – whether in any event the appellants were entitled to judgment against the third respondent on the facts pleaded and proved.


Fair Trading Act 1987 (WA), s 79
Trade Practices Act 1974 (Cth), s 52


Cleary v Australian Co-operative Foods Ltd (1999) 32 ACSR 701 referred to
Lauriana Pty Ltd v Corfield Food Warehouse Pty Ltd, unreported, Supreme Court of Western Australia, Wallwork J, 28 April 1995 referred to
Citibank Ltd v Liu [2003] NSWSC 569 referred to
Miba Pty Ltd v Nescor Industries Group Pty Ltd [1996] 834 FCA 1; (1996) 141 ALR 525 referred to
Ravinder Rohini Pty Ltd v Krizaic [1991] FCA 318; (1991) 30 FCR 300 followed
Cubillo v The Commonwealth [2001] FCA 1213; (2001) 112 FCR 455 followed




ARKTOS PTY LTD and LINDA DAVIES v IDYLLIC NOMINEES PTY LTD, DONALD GEORGE MOORE, DAVID IAN PRICE and SKYCORP INVESTMENTS PTY LTD
W89 OF 2003




CARR, TAMBERLIN & RD NICHOLSON JJ
10 MAY 2004
PERTH

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W89 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ARKTOS PTY LTD (ACN 093 410 247) FIRST APPELLANT LINDA DAVIES SECOND APPELLANT
AND:	IDYLLIC NOMINEES PTY LTD (ACN 085 028 057) FIRST RESPONDENT DONALD GEORGE MOORE SECOND RESPONDENT DAVID IAN PRICE THIRD RESPONDENT SKYCORP INVESTMENTS PTY LTD (ACN 078 131 534) FOURTH RESPONDENT
JUDGES:	CARR, TAMBERLIN & RD NICHOLSON JJ
DATE OF ORDER:	10 MAY 2004
WHERE MADE:	PERTH

THE COURT ORDERS THAT:

1. The appeal be allowed.

2. Each of the orders made on 11 April 2003 be varied by adding the words "and the Third Respondent" immediately after the reference to "The First Respondent".

3. The third respondent pay the appellants’ costs of the appeal.

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

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY	W89 OF 2003

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ARKTOS PTY LTD (ACN 093 410 247) FIRST APPELLANT LINDA DAVIES SECOND APPELLANT
AND:	IDYLLIC NOMINEES PTY LTD (ACN 085 028 057) FIRST RESPONDENT DONALD GEORGE MOORE SECOND RESPONDENT DAVID IAN PRICE THIRD RESPONDENT SKYCORP INVESTMENTS PTY LTD (ACN 078 131 534) FOURTH RESPONDENT
JUDGES:	CARR, TAMBERLIN & RD NICHOLSON JJ
DATE:	10 MAY 2004
PLACE:	PERTH

REASONS FOR JUDGMENT

THE COURT:
INTRODUCTION

1 This is an appeal against what is said to be part of the judgment of a judge of this Court, given on 11 April 2003, to dismiss the appellants’ claims against the third respondent. Alternatively (and we think this is probably more accurate), the appellants appeal against his Honour’s decision not to enter judgment in their favour against the third respondent for damages under s 79 of the Fair Trading Act 1987 (WA) ("the FTA"), or not to make an order against the third respondent under s 77 of the FTA.

FACTUAL AND PROCEDURAL BACKGROUND

2 The second appellant ("Ms Davies") is the sole director and shareholder of the first appellant ("Arktos"). Arktos purchased a bakery and delicatessen business ("the Business") from the first respondent ("Idyllic") on 30 June 2000. Ms Davies guaranteed obligations undertaken by Arktos as purchaser of the Business.

3 The learned primary judge found that the third respondent ("Mr Price") made misleading pre-contract representations, within the scope of his authority as a director or as an agent of Idyllic, and held that Idyllic thereby engaged in misleading conduct in trade or commerce, contrary to s 52 of the Trade Practices Act 1974 (Cth) ("the TPA"). The misleading representations which caused the relevant conduct to be found to be misleading related, essentially, to the profitability and value of the Business. His Honour found that Ms Davies relied on the misleading conduct engaged in by Idyllic when she decided on behalf of Arktos to enter into the agreement to purchase the Business. His Honour ordered, relevantly, that Idyllic pay to the appellants certain assessed sums by way of damages.

4 In relation to the conduct of Mr Price and a Mr Moore (another director of Idyllic), the primary judge said this:

‘75. In respect of that part of the conduct by Idyllic in trade or commerce done on behalf of Idyllic by Price or Moore, it was pleaded that Price and Moore acted within the scope of their actual or apparent authority as directors of Idyllic or, alternatively, as agents for Idyllic. That pleading did not allege that either Price or Moore engaged in conduct in trade or commerce on his own account. The conduct described as the conduct of Idyllic was pleaded as conduct which contravened s 52 of the Act, and s 10 of the Fair Trading Act 1987 (WA), and the applicants sought damages and orders pursuant to ss 82 and 87 of the Act, and ss 79 and 77 of the Fair Trading Act. Although such a pleading raises the issue whether the Fair Trading Act applies to conduct of a corporation that is conduct to which the Act applies, it is unnecessary for the outcome of this case to decide that question.

76. Section 82 of the Act (or s 79 of the Fair Trading Act) permits a person who suffers loss or damage by the conduct of a corporation done in contravention of s 52 of the Act (or s 10 of the Fair Trading Act) to recover the amount of loss or damage from "a person involved in that contravention" as that expression is defined in s 75B of the Act (or s 68 of the Fair Trading Act). It was not pleaded against Moore or Price that either was a person involved in a contravention by Idyllic of s 52 of the Act (or s 10 of the Fair Trading Act). Accordingly, it was not pleaded how Price or Moore came to be "a person involved in such a contravention" as defined in s 75B (or s 68 of the Fair Trading Act). If it were contended that each was "knowingly concerned" in the contravention of s 52 of the Act by Idyllic, there was no pleading of that contention nor of any material facts relied upon by the applicants to prove knowledge was held by Moore, or Price, of the facts which gave Idyllic’s conduct the character of a contravention of s 52 of the Act. (See: Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189 at 209). In particular, no assertion was made that Moore or Price, severally, had knowledge that Idyllic had no reasonable grounds for any representation made by Idyllic as to future matters. (See: ACCC v Michigan Group Pty Ltd [2002] FCA 1439 per Dowsett J at [303]).

77. In addition to the absence of any pleading of the foregoing issue, no submissions were made on the point. It follows that no derivative liability under the Act, or the Fair Trading Act, was made out against Price or Moore in respect of conduct by Idyllic held to contravene s 52 of the Act, or s 10 of the Fair Trading Act.’

5 Idyllic did not appeal. It has since been placed into liquidation and has not paid to the appellants any part of the damages which it was ordered to pay.

THE APPEAL

6 The appellants say that the primary judge should have granted them relief not just against Idyllic but also against Mr Price. They make four points.

7 The first is that the conduct of Mr Price, which was the conduct of Idyllic in this matter, was itself in trade or commerce and attracted primary liability under ss 10, 77 and 79 of the FTA, because that conduct was misleading.

8 Secondly, the appellants contend that it is no part of a cause of action under those sections that a director or agent engages in misleading conduct "on his own account".

9 Thirdly, the appellants say that the statement of claim adequately raised a cause of action under those sections of the FTA against Mr Price.

10 Finally, the appellants say that, if they do not succeed on their third point, the statement of claim pleaded all the facts found at trial sufficient to sustain a cause of action under ss 10, 77 and 79 of the FTA against Mr Price and he would have been afforded procedural fairness had judgment been entered against him.

11 The appellants submit that the primary judge fell into error when, in paragraph 75 of the passages reproduced above he noted that there was no allegation in the pleading that Mr Price engaged in conduct in trade or commerce "on his own account".

OUR REASONING

12 The appellants did not sue only the company. They joined, relevantly, its directors, Mr Price and Mr Moore, as respondents. Mr Price was the third respondent. That circumstance alone, in our view, indicated the likelihood that the appellants wanted relief against Mr Price.

13 The authorities show that a director of a corporation who acts on its behalf in the course of trade or commerce also acts himself or herself in trade or commerce and, if the corporation is liable under a State Fair Trading Act for their conduct, they also attract primary liability under the same statute: Cleary v Australian Co-operative Foods Ltd (1999) 32 ACSR 701 at [54]-[57]; Lauriana Pty Ltd v Corfield Food Warehouse Pty Ltd, unreported, Supreme Court of Western Australia, Wallwork J, 28 April 1995 at 6 and 22; Citibank Ltd v Liu [2003] NSWSC 569 at [53] and the cases there discussed, and Miba Pty Ltd v Nescor Industries Group Pty Ltd [1996] 834 FCA 1; (1996) 141 ALR 525 at 541. That is supported in particular by the provision in s 84(2) of the TPA and s 82(2) of the FTA that conduct engaged in on behalf of a body corporate by a director within the scope of actual or apparent authority is deemed ‘also’ to have been engaged in by the body corporate. It is not correct, as the case for the third respondent asserted, that the principle recognized in these authorities is applicable only when there is a finding of ‘separate conduct’ by the director; that is, conduct other than in the capacity of director or agent. It is accepted in J D Heydon, Trade Practices Law, Law Book Company, Sydney, 1989 at 18.350 that corporate officers acting in the course of their employment, or in the scope of their authority as agents causing the corporation to be liable under s 84(2) also have personal liability. It is added there that in normal circumstances such officers will be knowingly concerned in the conduct: s 75B(c).

14 The question is not, as the third respondent maintained in his submission, whether Mr Price was liable derivatively under s 68 of the FTA (which is the analogue of s 75B of the TPA). The question is whether in their statement of claim the appellants adequately raised a cause of action against Mr Price based upon his contravention of s 10 of the FTA (which is the equivalent of s 52 of the TPA). As part of that question it may be necessary to consider whether, to establish their entitlement to relief, the appellants should have pleaded that Mr Price engaged in trade or commerce "on his own account". We now turn to the application and the appellants’ pleading.

15 In paragraph 3 of the application, the appellants, after stating their claims to an order pursuant to s 87 of the TPA rescinding the agreement whereby they purchased the Business, and damages pursuant to s 82 of the TPA, claimed:

‘Further, or alternatively, damages pursuant to Section 79 Fair Trading Act 1987 in respect of contraventions of Section 10 of that Act.’

They did not, in that document, stipulate any particular parties against whom those claims were made.

16 But in the prayer for relief in the statement of claim the appellants claimed as against the first, second and third respondents, relevantly, damages pursuant to s 82 of the TPA alternatively s 79 of the FTA.

17 In paragraph 5 of the re-amended statement of claim (henceforth the statement of claim) the appellants pleaded, relevantly, that in the course of the negotiations Mr Price, "... acting within the scope of his actual or apparent authority as director of Idyllic, alternatively as agent for Idyllic" delivered to Ms Davies the documents in which the misrepresentations (found by his Honour to be such) were contained.

18 In paragraph 11 of the statement of claim the appellants pleaded, again relevantly, that this conduct was conduct in trade or commerce as that expression was used in the TPA and the FTA and, in paragraph 14, that it was misleading conduct or likely to mislead or deceive in contravention of s 52 of the TPA and s 10 of the FTA.

19 The three respondents filed a joint defence in which their position in relation to each allegation was expressed in terms of "... the first, second and third respondents ...". In the defence the respondents (i.e. including Mr Price) admitted paragraph 5 of the statement of claim and admitted that what they described as "the Admitted Representations" were made in trade or commerce. His Honour found that the relevant conduct took place in trade or commerce and that the appellants relied upon it and had suffered loss by reason of the misleading conduct.

20 All of the relevant conduct which his Honour found to be the conduct of Idyllic, and to be misleading, was conduct engaged in by Mr Price. The relevant representations were pleaded in paragraphs 6 and 6A of the statement of claim.

21 One of the third respondent’s submissions was that if s 10 of the FTA applied to the personal conduct of a person acting as a director, then s 68 of that Act (equivalent to s 75B of the TPA) would be unnecessary. One answer to that submission is that s 68 of the FTA extends beyond directors, employees or agents of a body corporate to those who, for example, aid and abet contraventions of s 10 by natural persons.

22 In our opinion, it was not necessary for the appellants to plead that the conduct in which Mr Price engaged as a director of or agent for Idyllic also constituted conduct for which he was liable as a principal under the FTA.

23 Of course, it might have made the appellants’ claim clearer, but we do not think such a plea was essential – see the authorities cited at paragraph [13] above. The circumstance that, as his Honour noted in the passages reproduced above, no attempt was made to plead that Messrs Moore or Price were persons involved in the contravention by Idyllic of the relevant sections in the two Acts should have pointed to the fact that they were joined to the proceedings as persons primarily liable with Idyllic. In our view, the legal consequences flowed from the facts as pleaded in the statement of claim and the findings made by his Honour.

24 If we are wrong in that conclusion, then we consider the appellants are entitled to judgment against Mr Price on the facts pleaded and proved. He defended the application which was clearly, so far as is relevant, a claim under s 79 of the FTA. He was afforded procedural fairness and no injustice would be done to him in entering judgment against him: Ravinder Rohini Pty Ltd v Krizaic [1991] FCA 318; (1991) 30 FCR 300 at 314-315 and the cases there discussed; see also Cubillo v The Commonwealth [2001] FCA 1213; (2001) 112 FCR 455 at [440].

25 Nor is it the position that the third respondent’s case suffered from any prejudice as a consequence of the view we have taken of his liability at law. When asked the question whether he would have conducted that case in any different way counsel for the third respondent identified a possible need to have investigated the question of capacity. However, on the view we consider we are required to take of the pleadings by the authorities, no issue of capacity arose. The only pleaded capacities of director or agent were admitted on behalf of the third respondent.

CONCLUSION

26 For the foregoing reasons we would allow the appeal and in each of the orders made at first instance add the words "and the Third Respondent" immediately after the reference to the first respondent. The third respondent should pay the appellants’ costs of the appeal.

I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

Associate:

Dated: 10 May 2004

Counsel for the Appellants:	Mr D M Stone
Solicitors for the Appellants:	Messrs Williams & Hughes
Counsel for the Third Respondent:	Mr J C Curthoys
Solicitors for the Respondent:	Messrs Karp Steedman Ross-Adjie
Date of Hearing:	25 November 2003
Date of Judgment:	10 May 2004