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O'Brien v Michel's Patisserie (WA) P/L and Calmer P/L & Ors v Michel's Patisserie (WA) P/L & Anor [2010] FMCA 7 (15 January 2010)
Last Updated: 7 July 2010
FEDERAL MAGISTRATES COURT OF AUSTRALIA
O'BRIEN v MICHEL'S
PATISSERIE (WA) PTY LTD & ANOR and CALMER PTY LTD & ORS v MICHEL’S
PATISSERIE (WA) PTY LTD &
ANOR
|
|
PRACTICE AND PROCEDURE – Application to
strike out statement of claim – principles – principles applied to
pleadings
in proceedings in Federal Magistrates Court.
TRADE PRACTICES – Misleading and deceptive conduct – franchise
agreements.
CONTRACT – Whether duty of good faith an implied term of the
contract.
TORT – Whether negligent misrepresentations – whether reliance
on misrepresentations pleaded.
WORDS AND PHRASES – “trade or commerce”.
|
Fair Trading Act 1987 (WA), ss.9 and
79Federal Court Rules, O.11, rr.2(a) and 16 Federal Magistrates
Act 1999 (Cth), ss.3(2)(a) and (b), 43(2)(b) Federal Magistrates Court
Rules 2001 (Cth), rr.1.03 (4), 1.05(2), 14.10, Schedule 1 Trade
Practices Act 1974 (Cth), ss.4(1), 51A, 52, 82, 87
|
G Blainey, A Short History of the World (Camberwell: Penguin, 2001)
KE
Lindgren & CM Branson, Federal Civil Litigation Precedents (Butterworths:
Sydney, 1998)
NC Seddon & MP Ellinghaus, Cheshire and Fifoot’s Law
of Contract (Ninth Australian Edition) (Chatswood: LexisNexis Butterworths,
2008)
|
|
Respondent:
|
MICHEL'S PATISSERIE (WA) PTY LTD |
|
Delivered on:
|
15 January 2010
|
|
First Applicant:
|
CALMER PTY LTD AS TRUSTEES FOR THE MERCAL FAMILY TRUST
|
|
Second Applicant:
|
VICKI MERRITT
|
|
Third Applicant:
|
GLENN ALEXANDER CALDWELL
|
|
First Respondent:
|
MICHEL'S PATISSERIE (WA) PTY LTD
|
|
Second Respondent:
|
GRANT CADDY (WA) PTY LTD
|
|
File Number:
|
PEG 146 of 2008
|
|
Hearing date:
|
19 February 2009
|
|
Date of Last Submission:
|
19 February 2009
|
|
Delivered on:
|
15 January 2010
|
REPRESENTATION
Counsel for the
Applicants: |
Mr PDC Robinson
|
Solicitors for the Applicants: |
Williams & Hughes
|
Counsel for the Respondents: |
Ms K J Levy
|
Solicitors for the Respondents: |
QBM Lawyers
|
ORDERS
PEG 144 OF 2008
(1) That:
- (a) the words
“very good” in paragraph 9.5;
- (b) paragraphs
18 and 19;
- (c) the words
“and/or the disclosure pleaded at paragraph 18” in each of
paragraphs 20 and 21;
- (d) paragraphs
25-28 (inclusive);
- (e) paragraphs
29 to 33 (inclusive);
be struck out of the Statement
of Claim.
(2) An Amended Statement of Claim be filed on or before 5 February 2009.
(3) Costs in respect of both matters be reserved, and absent agreement between
the parties, be argued at the next directions hearing.
(4) The parties to confer as to appropriate directions for the future conduct of
the matter.
(5) The matter is adjourned to 12 noon on 12 February 2010 for further
directions.
PEG 146 OF 2008
(1) That:
- (a) the words
“very good” in paragraph 9.7(c);
- (b) paragraphs
18 and 19;
- (c) the words
“and/or to make the disclosure pleaded at paragraph 18” in paragraph
20;
- (d) the words
“and/or the failure to make the disclosure as pleaded at paragraph
18” in paragraph 21;
- (e) paragraphs
25-28 (inclusive);
be struck out of the Statement of
Claim.
(2) An Amended Statement of Claim be filed on or before 5 February 2009.
(3) Costs in respect of both matters be reserved, and absent agreement between
the parties, be argued at the next directions hearing.
(4) The parties to confer as to appropriate directions for the future conduct of
the matter.
(5) The matter is adjourned to 12 noon on 12 February 2010 for further
directions.
FEDERAL MAGISTRATESCOURT OF AUSTRALIA
ATPERTH
|
PEG 144 of 2008
Applicants
And
MICHEL'S PATISSERIE (WA) PTY LTD
|
First Respondent
Second Respondent
PEG 146 of 2008
|
CALMER PTY LTD AS TRUSTEES FOR THE MERCAL FAMILY TRUST
|
First Applicant
Second Applicant
Third Applicant
And
|
MICHEL'S PATISSERIE (WA) PTY LTD
|
First Respondent
Second Respondent
REASONS FOR JUDGMENT
Applications in a case
- The
first and second respondents in matter PEG 144 of
2008,[1] Michel’s
Patisserie (WA) Pty Ltd and Grant
Caddy,[2] filed an
application in a case on 3 February
2009[3] seeking orders
that:
- Pursuant to
Order 11 r
16:[4]
- 1. Paragraphs
5.2, 7 to 14, 16 to 22, 30 to 32, 34 and prayer for relief A(iii) be struck out
as they have a tendency to cause prejudice,
embarrassment or delay in the
proceedings;
- 2. Paragraphs
4 to 22, 23 to 24, 25 to 28 and 29 to 33 be struck out as they disclose no
reasonable cause of action; and further
or alternatively,
- 3. Paragraphs
4 to 22, 23 to 24, 25 to 28 and 29 to 33 be struck out as they are otherwise an
abuse of the process of the Court.
- 4. The
applicants pay the Respondents’ costs of and incidental to the
Application.
- 5. Such
further or other Orders as the Court considers
appropriate.[5]
- The
respondents in matter PEG 146 of 2008 have also filed a substantially identical
application in a case[6]
in that matter.[7]
- The
O’Brien Application and the Calmer Application are supported by the
affidavit of Kirsty Jane Ridling, a solicitor employed
by the solicitors for the
respondents, and sworn 3 February
2009.[8] The two
applications in a case were argued together, and for reasons of convenience the
court has primarily used the O’Brien
Matter pleading for the purposes of
the argument, but has referred to the Calmer Matter pleading where it relevantly
differs from
the O’Brien Matter pleading.
- Both
the O’Brien Application and the Calmer Application are opposed by the
applicants in each of the O’Brien Matter and
the Calmer
Matter.[9]
The issue
- The
issue is whether the statements of claim as pleaded in the O’Brien Matter
and the Calmer Matter are defective, and, if they
are, whether they should be
struck out as claimed.
The substantive applications
- In
each of the O’Brien Matter and the Calmer Matter the substantive
applications were filed on 9 September 2008 by way of application
and statement
of claim. In broad terms, the applicants were franchisees and operators of
retail patisserie businesses under agreements
with Michel’s Patisserie,
and claim:
- as
against Michel’s Patisserie:
- damages under
ss.82 and an order and 87 of the Trade Practices Act 1974
(Cth);[10]
- damages for
breach of contract; and
- damages for
negligence;
and
- as
against Mr Caddy:
Strike out - applicable principles
- Order
11 rule 16 of the Federal Court Rules relevantly provides
that:
- 16 Embarrassment
etc
- Where a
pleading:
- (a) discloses
no reasonable cause of action or defence or other case appropriate to the nature
of the pleading;
- (b) has a
tendency to cause prejudice, embarrassment or delay in the proceeding;
or
- (c) is
otherwise an abuse of the process of the Court,
- the Court
may at any stage of the proceeding order that the whole or any part of the
pleading be struck out.
- In
Guglielman v Trescowthick the Federal Court said:
- “Whether
a pleading should be struck out depends upon whether, in the particular
circumstances, it is necessary to do so in
the interests of justice. If the
object of pleadings is sufficiently met, the striking out of the pleading will
be unnecessary.”
[12]
- The
modern approach to litigation is to discourage interlocutory applications of the
type made here because they are extremely time
consuming and
costly.[13]
- A
proper pleading must put a respondent on notice of the case to be met and should
sufficiently define the issues for decision so
that the preparation of the case
and hearing can be
controlled.[14]
- The
statement of claim must plead the necessary facts for the purpose of formulating
a complete cause of
action.[15] While it
is not permissible to merely state a conclusion drawn from facts not set out in
the statement of
claim,[16]
consideration should be given to whether the conclusionary pleading still
achieves the objective of
pleadings.[17] A
pleading should be allowed to stand if it would be open to the applicant upon
the pleadings to prove facts at the trial which would
constitute a cause of
action.[18]
- Embarrassment
in the context of O.11 r.16 of the Federal Court Rules carries the
connotation of a pleading:
- which
is susceptible to various meanings; or
- which
contains inconsistent allegations; or
- in
which alternatives are confusingly intermixed; or
- in
which irrelevant allegations are made tending to increase
expense.[19]
- The
Court may protect its processes from abuse by summarily disposing of an action
as frivolous or vexatious, but only if it is so
obviously untenable that it
cannot possibly
succeed.[20]
- The
general rules concerning pleadings need to be considered in the context of the
FM Act which provides that the objects of the Court
are:
- to
enable the Federal Magistrates Court to operate as informally as possible in the
exercise of judicial power; and
- to
enable the Federal Magistrates Court to use streamlined
procedures.[21]
- The
Federal Court dealt with the issue and nature of pleadings required in this
Court in Sterling Commerce v Iliff.
[22]
- In
Iliff it was alleged that an issue determined by this Court was not
raised by the pleadings, evidence or
submissions.[23] The
Federal Court (on an appeal heard by a single Judge) said as
follows:
- 21. In
considering this ground of appeal, “the philosophy of the Federal
Magistrates Act and the intention of the Attorney-General at the time of the
introduction of the Federal Magistrates Bill” in establishing
the Federal
Magistrates Court cannot be ignored (per Lander J in Rana v University of South
Australia [2004] FCA 559; (2004) 136 FCR 344 at [34]): see also Granada Tavern v Smith [2008]
FCA 646; (2008) 173 IR 328 at [106]. As Lander J stated in Rana at
[37]:
- The Federal
Magistrates Court has abandoned pleadings in favour of affidavits. In doing so,
it has recognised that the Court has
been created to offer relatively
inexpensive and expeditious justice. It is a court which should proceed without
undue formality
and should ensure that the proceedings are not protracted: s 42.
It has abandoned the formal procedures of superior courts. That
course is
consistent with the Act and the FMCA Rules.
- See also
O’Neill v Medical Benefits Fund of Australia Ltd [2002] FCAFC 188; (2002) 122 FCR 455 where
the Full Court of the Federal Court (Carr, Moore and Marshall JJ) said at
[16]:
- We are
prepared to accept that in a case such as the present MBF was entitled to know,
as a matter of procedural fairness, that s
51A was relied on either expressly or
by clear implication. It is unnecessary to address the question of whether it
needed to be
pleaded in this case particularly having regard to the comparative
informality created by the legislative scheme governing the Federal
Magistrates
Court including its Rules.
- 22. What
then did the Federal Magistrate do? His Honour made the following finding at
[147]:
- On one view
[Sterling Commerce] might be thought to have been likely to have sought a
release from any employee with an enforceable
entitlement to return to work who
had ended up in dispute about that return. Nonetheless, it seems to me that the
return to work
provisions in the WR Act, involving civil penalties as they
clearly do, is more probably than not the reason why the Respondent required
a
release from Ms Iliff. Even if it was not the only reason, it was clearly part
of the reason, and this is enough (s 8 - SDA)
- 23.
Sterling Commerce submitted that the finding of Burchardt FM that Sterling
Commerce contravened the SDA in the manner outlined
above (see [17]) involved a
breach of procedural fairness. It relied on what was said in Kioa v West [1985] HCA 81; (1985)
159 CLR 550 (at 588 per Mason J, 628 per Brennan J and 634 per Deane J). It may
be doubted that the analogy with an administrative decision maker
is wholly apt.
It is true that a party to proceedings in the Federal Magistrates Court must be
put on notice of the case against
it and have an opportunity to respond. That
obligation is not of the same kind as the obligation of an administrative
decision maker
to accord procedural fairness. It is a fundamental principle of
justice that a Court must not determine an issue that is not raised
by the
pleadings, or in the evidence or submissions before
it.[24]
- The
Court recently dealt with the approach to be adopted in relation to a strike out
application in KSN Engineering where it said:
- 16. In
considering the relevant procedural rules it is appropriate to note that this
Court was not originally a court of pleadings.
In Rana v University of South
Australia the Federal Court observed that:
- a) the
Federal Magistrates Court Rules 2001 (Cth) do not require pleadings;
- b) parties
are not obliged to tender all their evidence when the Application and Response
is filed; and
- c) the
Court should be cautious about summarily dismissing a proceeding.
- 17. In some
respects, the role of this Court has changed since the judgment in Rana. The FMC
Rules were amended in 2007 to provide
that applications might be commenced by
the filing of a Statement of Claim or Points of Claim to which a Defence or
Points of Defence
might be filed in response, and in neither case was there a
requirement for the filing of an affidavit. Further, in 2006 this Court
obtained
significant jurisdiction under the WR Act, concurrent with that of the Federal
Court in those matters in relation to which
this Court was given jurisdiction.
It is fair to observe that, where, as here, claims under the WR Act involve
corporate entities
or statutory bodies then the matter usually proceeds on
pleadings, unless it is of such simplicity that pleadings are simply not
necessary.
- 18. Because
the FMC Rules are silent in respect of striking out pleadings the Federal Court
Rules (Cth) can apply so far as is necessary, because of the insufficiency of
the FMC Rules.
- 19. Because
the parties to this matter have agreed that the matter ought to proceed on the
pleadings, it is unnecessary to consider
the First and Second Respondents’
objections to the application, because an application is not a pleading and an
application
cannot be struck out, under the FC Rules. However, a pleading which
discloses no reasonable cause of action or which has a tendency
to cause
prejudice, embarrassment or delay, may be struck out at any stage of the
proceedings, either in whole or in part.
- 20. The
Court recognises that in determining to strike out all or part of a pleading it
must exercise a discretion, and that that
discretion is one to be exercised with
caution having regard to the objects of the Federal Magistrates Act 1999 (Cth)
and FMC Rules, and modern case management
techniques.[25]
- In
determining the application, the Court will apply the principles outlined in
Iliff and KSN Engineering, modifying the former to have regard to
the introduction of pleadings in the FMC
Rules.
Submissions
- The
respondents submit that the interests of justice require that the strike out
application be granted as it will:
- avoid
irreparable prejudice to them;
- avoid
prejudice at hearing; and
- result
in a more efficient utilisation of the resources of the parties and the Court
because the disputed pleadings, which they say
have no reasonable prospects of
success, will otherwise prolong the time in hearing preparation and the conduct
of the hearing.
- The
respondents claim that the pleadings are deficient in three broad categories,
namely:
- global
problems:
- a
complete cause of action has not been pleaded;
[26]
- the
pleading of a series of conclusions not supported by pleaded material facts;
and
- questions
of causation and loss are not articulated and are insufficient to allow the
respondents to determine whether or not the
losses are by reason of the alleged
wrongful behaviour;
- various
issues within each cause of action which are set out in more detail below;
and
- a
number of miscellaneous complaints arising from the pleadings, which are set out
in more detail below.
- The
respondents contend that on the above bases the claim should be struck out as
frivolous and vexatious.
- The
applicants submit that the FMC Rules provide litigants with three methods
of defining the issues: affidavits, points of claim or pleadings.
- The
applicants characterise the respondents’ objections into four categories,
as follows:
- technical
in nature;
- misconceived;
- requests
for particulars or evidence; or
- submissions
for hearing and not pleading points.
- The
applicants submit that the respondents’ reliance on Young and
Odhams Press is misplaced, as they are decades old English decisions, and
that the attitude of courts towards pleadings have changed significantly
over
the past century. In any event, they submit that whilst all relevant material
facts have been pleaded in their Statement of
Claim, it is not necessary to
plead every material fact to the cause of
action.[27]
Misleading and deceptive conduct claim
- The
respondents contend that no facts have been pleaded to establish there has been
misleading or deceptive conduct and that a pleading
should not leave the
respondents to speculate on the circumstances alleged, to give the facts alleged
the quality of being misleading
and
deceptive.[28] The
respondents identify the following paragraphs as lacking in sufficient detail to
establish any conduct or circumstances which
were misleading or
deceptive.
Paragraph 5.2
- Paragraph
5 pleads that a meeting was held between the applicants and Mr Caddy, where a
brochure and financials were provided to the
applicants. The particulars at
paragraph 5.2 state that those documents may be inspected at the
applicants’ solicitors’
office.
- The
respondents submit that paragraph 5.2 is embarrassing and should be struck out.
The respondents take issue with the assertion
that the documents may be
inspected at a particular location and say it does not assist the
respondents’ understanding of the
case against them. They say that the
plea raises a false issue and will cause additional time and expense to the
respondents.
- The
applicants submit that it is standard practice to refer to documents in a
pleading. The applicants say that r.14.10 of the FMC Rules provides for
parties to access documents referred to in Court documents and affidavits. The
documents are common to both parties.
The respondents have requested a copy of
each document and the applicants have subsequently provided copies to them. The
applicants
submit that no prejudice has been caused to the respondents.
- In
the Court’s view there is no reason to strike out paragraph 5.2. Paragraph
5 simply sets out that two documents (“the
Brochure” and “the
Financials”) were provided at a meeting, and the particulars at
paragraph5.2 say where they
may be inspected. Pleading the fact of the meeting
and the provision of the documents is part of the material factual matrix and
sets up the plea in paragraphs 7 and 8 of written representations in the two
documents. Read in that necessary context, as a part
of the pleading as a whole,
there is no basis for striking out paragraph 5.2. And whilst it might be
strictly unnecessary to particularise
where the two documents may be inspected,
it is a common feature of pleadings to do so, and to strike out paragraph 5.2 on
that basis
would be to adopt an unnecessarily formal
approach.[29]
Paragraphs 7, 8 and 9
- Paragraphs
7, 8 and 9 plead that:
7. By the Brochure, Michel’s
Patisserie and Mr Caddy...made a written representation regarding the
Michel’s Franchise
opportunity at the Whitfords City Store that:
Michel’s Patisserie would provide support in all aspects of running your
business
including administration, finance, coffee making, marketing and
customer service; (First Written Representation)
8. By the Financials, Michel’s Patisserie and Mr Caddy ... made the
following written representations regarding Michel’s
Patisserie Franchise
opportunity at the Whitfords City Store:
8.1 the average top 20% of Michel’s Patisserie store were achieving
turnover of $924,909 and an operating profit of $187,774...
8.2 expenses included wages of $137,710... and rent of $95,598...
8.3 the average middle 60% of Michel’s Patisserie stores:
(a) were achieving turnover of $511,731 and an operating profit of
$93,961...
(b) expenses included wages of $70,745... and rent of $55,515...
8.4 the average bottom 20% of Michel’s Patisserie stores:
(a) were achieving turnover of $315,317 and operating profit of
$51,019...
(b) expenses including wages of $33,592 ... and rent of $42,019...
8.5 the “average all stores”:
(a) were achieving turnover of $554,901 and operating profit of
$104,093...
(b) expenses including wages of $76,084 ... and rent of $60,810...
8.6 Michel’s Patisserie pursues possible locations and investigates
their suitability as Michel’s Patisserie site;
8.7 a comprehensive training programme is provided for all new owners
including theory, practical, coffee making and onsite assistance
at opening or
takeover stage;
8.8 by necessary implication from the First Written Representation, the
representations referred to at paragraphs 8.1 to 8.7 and
the Financials as a
whole if Mr & Mrs O’Brien acquired a Michel’s Franchise they
could reasonably expect:
(a) Michel’s Patisserie would only allow the Franchise to operate as
a Michel’s Franchise from a suitable location;
(b) Mr & Mrs O’Brien would derive a wage for working in the
Michel’s Franchise in addition to the operating profit;
(c) comprehensive training, instruction and ongoing assistance from
Michel’s Patisserie in relation to all matters pertaining
to the
successful operation of a Michel’s Franchise;
(d) to make an operating profit of approximately $100,000
(the Second Written Representations).
9. In or about July 2006, at a further meeting between Mr & Mrs
O’Brien and Mr Caddy, Mr Caddy represented orally to Mr
& Mrs
O’Brien:
9.1 the Financials were a reflection of the current trends in Western
Australia as no actual sates figures were available for Western
Australia;
9.2 Mr & Mrs O’Brien could expect to achieve sales of between
$12,000 -$15,000 per week in the Whitfords City Store;
9.3 In order to achieve sales of $12,000-$15,000 per week, Mr & Mrs
O’Brien would have to do better than the “average
middle 60%, but
not as well as the “average top 20”...
9.4 Mr & Mrs O’Brien would receive comprehensive training and
ongoing support;
9.5 By necessary implication from the representations referred to at
paragraphs 9.1 to 9.4 if Mr & Mrs O’Brien acquired
a Michel’s
Franchise and operated from the Whitfords City Store they could reasonably
expect to achieve turnover of approximately
$650,000 a year and make a very good
operating profit.
(together Oral Representations)
- The
respondents submit that the pleas are conclusory and are not supported by any
material facts. The respondents point to the fact
that the applicants have not
pleaded what conduct, or written words, give rise to the representations, nor
have they pleaded any
conduct or written words which are relied upon for the
representations that the average financial information provided could found
a
representation for any particular store in Western Australia.
- The
applicants contend that the words in the Brochure are, as in the pleading, that
it “would provide support in all aspects
of running a Michel’s
Franchise...” and that the representations, conduct or words relied upon
in the Financials are
pleaded from paragraph 8.1-8.7. The applicants say that
the implications from those representations are pleaded at paragraph 8.8
of the
Statement of Claim.
- In
the Court’s view the material facts are pleaded in the form of specific
written representations made in the Brochure (at
paragraph 7) and the Financials
(at paragraph 8). The written words are themselves the representations relied
upon. The implications
said to arise are pleaded at paragraph 8.8, and there is
nothing in what is pleaded to arise by implication which could not reasonably
be
said to be an available implication from the written representations pleaded at
paragraphs 7 and 8.1-8.7. This part of the pleading
is sufficient to raise an
arguable cause of action under s.52 of the TP Act, and inform the
respondents of this part of the case that has to be
met.[30] Whether the
pleaded case is made out at hearing is another matter.
- The
respondents submit that paragraphs 7, 8.6, 8.7, 8.8,
9.4[31] and
9.5[32] are vague and
embarrassing. They specifically question the effect of the terms used such as
“provide support”, “suitability”,
“comprehensive
training”, “suitable location”, “comprehensive training
and support” and “a
very good operating profit”.
- The
respondents further say that paragraph 8.8(c) and (d) are vague and embarrassing
as the applicants have failed to plead the facts
and matters relied upon which
link the pleaded representation to the pleaded expectation.
- The
applicants submit that:
- they
have pleaded material facts not evidence;
- the
effect of the pleadings is that the applicants were misled;
- the
respondents are making a request for further particulars;
- the
terms used were representations as to future matters, and were misleading and
deceptive.
- Save
for the phrase “a very good operating profit” which is dealt with
below, the words and phrases complained about by
the respondents are common
English words and phrases to which the Court can attribute a meaning. Whether
the evidence makes out that
meaning is a matter for any further affidavits which
might be filed on behalf of the applicants, to which the respondents will be
able to reply by the filing of further affidavits before hearing.
- Paragraph
8.8(c) is a plea which arguably flows by necessary implication from paragraphs 7
and 8.7, which respectively plead material
facts concerning:
- the
support to be provided in running “all aspects” of the business;
and
- the
provision of a “comprehensive training programme” and “onsite
assistance”.
- Likewise,
paragraph 8.8(d) is a plea which arguably flows by necessary implication from
paragraph 8.5(a), as well as paragraphs 8.1,
8.3(a) and 8.4(a).
- The
claim that paragraphs 7, 8.6, 8.7, 8.8 and 9.4 are vague and embarrassing is not
made out.
-
As to the phrase “a very good operating profit” in paragraph
9.5,[33] the Court
considers that the words “very good” in that phrase are subjective
and not apt to convey a single discernible
meaning, or even discrete discernible
meanings. The words “very good” should be struck out of paragraph
9.5. The Court
considers that there is an implication, as pleaded, of an
“operating profit” on the basis of the reasonably expected
turnover.
Paragraphs 8.8, 9.5 and 11.3
- Paragraphs
8.8, 9.5 and 11.3[34]
plead that the necessary implications from the representations made by the
respondents were that the applicants could reasonably
expect to achieve a
specific turnover and operate at a profit every year.
- Paragraphs
8.8 and 9.5 have been set out above. Paragraph 11.3 pleads as
follows:
11.3 by necessary implication from the representations
referred to in paragraphs 11.1 and 11.2 and the Second Written Representations
that if Mr & Mrs O’Brien entered into a franchise agreement and sale
of business agreement with Michel’s Patisserie
for the Whitfords City
Store they could reasonably expect to average turnover of not less than $36,795
a month and the Whitfords
City Store would operate at a profit...
- The
respondents claim that these paragraphs are embarrassing, and that the
applicants have failed to identify the material facts and
circumstances on which
it is alleged that expectations sought to be implied are:
- reasonable
and equitable, capable of clear expression, so obvious it goes without saying,
not contrary to express terms and necessary
to give commercial efficacy;
and
- alternatively,
a necessity, insofar as unless such an expectation be implied, the enjoyment of
the rights conferred by the contract
would or could be rendered
nugatory.
- The
applicants say that the basis of the expectations or implications arise from the
express written representations of the Financials,
Brochure and Oral
Representations, which have been pleaded. The applicants say that the
respondents’ submissions refer to criteria
necessary for the Court to
imply terms into a
contract,[35] but that
these principles do not apply to implications arising from a pleaded claim of
misleading or deceptive conduct.
- With
respect to paragraph 8.8, the necessary implication that:
- franchises
would only be allowed to operate from a “suitable location”
(paragraph 8.8(a)) arguably flows by implication
from paragraph 8.6 which refers
to the respondents’:
- pursuit
of possible locations for; and
- investigations
as to their suitability as,
Michel’s
Patisserie sites; and
- the
applicants would derive a wage for working as well as operating profits
(paragraph 8.8(b)) arguably flows from each of paragraphs
8.1-8.5 inclusive and
the references therein to wages and operating profits.
- For
reasons already set out
above,[36] the pleas
set out in paragraphs 8.8(c) and (d) arguably flow from the other paragraphs of
the Statement of Claim there referred to.
- The
necessary implication set out in paragraph 9.5, namely that a turnover of
$650,000 a year could be achieved, arguably flows from
the preceding paragraphs
9.1-9.4,[37] which set
out material facts in the form of alleged oral representations relating to sales
and turnover figures and the receipt of
“comprehensive training and
ongoing support”.
- The
necessary implication set out in paragraph 11.3, namely that if the applicants
entered into a franchise agreement, the Whitfords
store could have:
- an
average turnover of not less than $36,795 a month; and
- operate
at a profit,
are said to be able to be implied from:
- paragraphs
11.1 and 11.2[38]
which set out further written representations in the form of recorded sales
(described as “Turnover Figures”) at the
Whitfords store for the
months of April to June 2006, and what was alleged to be the average turnover
per calendar month;
and
- the
Second Written Representations, which are contained in paragraph
8.
- Once
again, the necessary implication set out arguably flows from the preceding
paragraph and the preceding written representations
referred to.
- In
respect of each of paragraphs 8.8, 9.5 and 11.3 therefore the necessary
implications pleaded arguably flow from other paragraphs
of the Statement of
Claim and the various representations alleged to have been made by the
respondents, save, for reasons set out
above,[39] as to the
words “very good’ in paragraph 9.5.
- The
respondents’ contention that tests used to imply terms into contracts at
law ought to be used to determine whether or not
the necessary implications
pleaded arise is misconceived. An action under s.52 of the TP Act is a
statutory action, not a common law contract action. Whether a representation is
misleading does not depend upon its contractual
efficacy. As such, the tests for
the implication of terms into a common law contract do not apply to pleadings in
a s.52 TP Act action, and need not be met in this case.
- In
the circumstances, the claims with respect to paragraphs 8.8, 9.5 (save as to
the words “very good”) and 11.3 have
not been made
out.
Paragraphs 9, 10 and 12
- Paragraph
9 is set out above. Paragraphs 10 and
12[40] of the
Statement of Claim read as follows:
10. The Oral Representations
were made by Mr Caddy on behalf of Michel’s Patisserie.
11. ...
12. Each of the Oral Representations, the First Written Representation,
the Second Written Representations, and the Third Written
Representations
(together the Representations) were conduct in trade or commerce as that
expression is used in the Act and the FTA.
- The
respondents submit that these paragraphs are conclusory and that no material
facts are pleaded to give rise to the conclusions
arrived at. The applicants in
response submit that:
-
paragraphs 9.1 to 9.5 plead the words used by Mr Caddy;
- Mr
Caddy’s involvement is pleaded at paragraph 2 as being “on behalf of
the Franchisor”, the “Franchisor”
being pleaded (at paragraph
1.3) to be Michel’s Patisserie; and
- that
paragraphs 1, 2, 3 and 4 of the Statement of Claim plead material facts, namely
that:
- Michel’s
Patisserie was a company duly incorporated, a “trading corporation”
as defined in the TP
Act,[41] and the
“Franchisor” under the franchise
agreement;[42]
- Mr
Caddy was an employee and representative of, and agent for, Michel’s
Patisserie;[43]
- Michel’s
Patisserie was the proprietor of a franchise system used in connection with, or
related to, the conduct of a retail
patisserie business supplied by a central
bakery that developed and refined business procedures and systems for the
conduct of the
business and granted franchises giving a right to conduct a
franchise business in a manner and from a location set out in the franchise
agreement;[44]
- Mr
and Mrs O’Brien are
franchisees.[45]
- There
is nothing that the Court can usefully add to the applicant’s submissions
on this point, save to say that it agrees with
them, and for reasons set out in
them, the claim made concerning paragraph 9 has not been made.
- As
to paragraph 10, the material facts as pleaded at paragraphs 1.3 and 2 are
sufficient to sustain a plea that the “Oral Representations”
were
made by Mr Caddy on behalf of Michel’s Patisserie. The respondents’
claim with respect to paragraph 10 of the Statement
of Claim has not therefore
been made out.
- As
to paragraph 12, under s.4(1) of the TP Act “trade or
commerce” is defined as including “trade or commerce within
Australia”. The term “trade or
commerce” is not a term of art,
but a term of common knowledge and wide import, covering intercourse for the
purposes of trade,
including the sale of
commodities.[46] It is
difficult to imagine a commercial activity more rooted in civilised human
history than
baking,[47] albeit, in
this case in the form of a retail
patisserie.[48] The
pleaded conduct of the sale of a business and entry into franchise, being a
retail franchise selling baked products in a shopping
centre in the Perth
suburbs, is “trade or commerce within Australia”. It is difficult,
in the face of the way in which
the case is pleaded, to understand how the
respondents came to contend to the contrary.
- The
respondents’ claims with respect to paragraph 12 of the Statement of Claim
have not therefore been made out.
Paragraph 13
- Paragraph
13[49] pleads that the
representations made were statements of opinion and statements as to future
matters as the expression is used in
s.51A of the TP Act and s.9 of the
FT Act.
- The
respondents contend that the applicants have failed, at paragraph 13, to plead
explicitly the alleged representations with respect
to future
matters.[50]
- The
applicants say the relevant representations as to future matters have been
pleaded. They also submit that the material facts to
determine if the pleaded
representations are as to future matters have also been pleaded.
- The
“Representations” referred to in paragraph 13 are defined in
paragraph 12, which is set out
above.[51] Each of the
Representations defined in paragraph 12 are expressly pleaded:
- paragraph
7: the First Written Representation is pleaded as a representation that
Michel’s Patisserie “would provide support
in all aspects of running
of your business including administration, finance, coffee making, marketing and
customer service”;
- paragraph
8: the Second Written Representations are pleaded on the basis that
“if” a franchise was acquired the applicants
“could reasonably
expect” certain things including:
- operating from a
“suitable location”;
- deriving a wage
in addition to operating profit;
- training,
instruction and ongoing assistance; and
- making an
operating profit.
- paragraph
9: the Oral Representations are pleaded on the basis that “if” a
franchise was acquired and operated from the
Whitford’s City store the
applicants “could reasonably expect” to achieve a particular
turnover figure and make
an operating profit;
- paragraph
11: the Third Written Representations are pleaded on the basis that
“if” a franchise agreement and a sale of
business agreement were
entered into for the Whitford’s City store the applicants “could
reasonably expect” a specified
average turnover a month and that the store
would operate at a profit.
- The
“applicability of s.51A is to be ascertained by a proper characterisation
of the representation made in each
case.”[52] The
mere fact that a representation as to profit or turnover generated by a business
in a particular period of time “was”
a particular sum would not
preclude that representation from being a representation, or part of a
representation, as to a future
matter.[53] The
Representations pleaded here assert that the applicants were told that the
profit and turn-over “could” be made if
the franchise was acquired,
and that various kinds of training and operational and administrative support
“would” be
provided in the running of the franchise business. The
representations were therefore, patently, representations as to future matters.
The respondents’ contentions to the contrary are seemingly based on an
extremely narrow and isolationist reading of paragraph
13, and a failure to have
regard to the pleading as a whole, and in particular paragraphs 7, 8, 9 and 11
where the Representations,
as defined in paragraph 12, are set out.
- The
material facts pleaded support the assertion in paragraph 13.2 that the
Representations were as to future matters. The respondents
claim with respect to
paragraph 13 has not been made out. Paragraph 13 will not be struck
out.
Paragraph 14
- Paragraph
14[54] pleads
that:
14. Implied in the representations referred to at
paragraphs 7, 8, 9 and 11 were the further representations that:
14.1 the opinions expressed were genuinely held;
14.2 the opinions expressed were based on reasonable grounds;
14.3 the opinions expressed were a product of the exercise of reasonable
care and skill.
- The
respondents submit that the material facts on which the implied representations
arise have not been pleaded and that the paragraph
is embarrassing and should be
struck out.
- The
applicants say that the basis of the implied representation is that the
respondents as the proprietors of the franchise would
only express opinions that
were genuinely held, based on reasonable grounds and the product of reasonable
care and skill.
- The
Court has already held that sufficient material facts are pleaded to support the
Representations pleaded at paragraphs 7, 8, 9
and 11. The question now is
whether it is arguable that those same material facts, and the nature of the
franchise system operated
by Michel’s Patisserie as proprietor (and Mr
Caddy as an alleged employee or representative of Michel’s Patisserie),
can give rise to the further implications pleaded in paragraph 14.
- The
purchase of a franchise was seemingly a serious business proposition for both
the applicants and respondents. In that context,
the production of the written
Brochure and the written Financials in the terms set out in paragraphs 7 and 8,
in connection with
the purchase of a franchise business for a not insubstantial
sum of money (allegedly
$275,000),[55] might
arguably imply that any opinion expressed in them was genuinely held, based on
reasonable grounds and the product of the exercise
of reasonable care and skill.
In the Court’s view that implication is certainly arguably open on the
basis of, at least, the
First Written Representation and the Second Written
Representations. There is further support for the implication in the making of
the alleged Oral Representations and Third Written Representations, as set out
in paragraphs 9 and 11, when considered in conjunction
with the First Written
Representation and the Second Written Representations, particularly when those
representations were alleged
to have been made by Mr Caddy on behalf of
Michel’s Patisserie, in his capacity as a representative or employee of
Michel’s
Patisserie.
- The
respondents claim with respect to paragraph 14 has not been made out. Paragraph
14 will not be struck out.
Paragraph 15
- Paragraph
15[56] of the
Statement of Claim provides that:
15. The making of the
representations was misleading and deceptive conduct or conduct likely to
mislead or deceive:
15.1 by Michel’s Patisserie – in contravention of section 52
of the Act;
15.2 by Mr Caddy – in contravention of section 10 FTA.
in that
(a) the opinions contained therein were not genuinely held;
(b) the opinions contained therein were not based on reasonable grounds;
and
(c) the opinions contained therein were not the product of reasonable care
and skill.
15.3 Insofar as the Representations were as to future matters, section 51A
of the Act and section 9 of the FTA are relied on.
- The
respondents submit that no material facts are pleaded to support the conclusory
statements made by the applicants.
- The
applicants claim the material facts are set out in paragraph 16 of the Statement
of Claim as follows:
- In
support of the averment in paragraph 15, Mr & Mrs O’Brien relies [sic]
on the following facts:
16.1 In reliance on the
Representations, on 13 November 2006 Mr & Mrs O’Brien entered
into:
(a) a sale of business agreement for the Whitfords City Store...;
and
(b) a franchise agreement for the franchise of the Whitfords City
Store....
16.2 Mr & Mrs O’Brien paid to Michel’s Patisserie the sum
of $300,027.00 pursuant to the Sale of Business Agreement
and Franchise
Agreement:
(a) purchase price for the Business - $275,000 (plant, equipment and
goodwill);
(b) Initial Training fee - $12,000.00;
(c) Franchisee’s legal costs - $1,250.00;
(d) Michel’s Patisserie’s legal costs - $1,850.00;
(e) stamp duty of $9,927.00
16.3 On 11 November 2006 Mr & Mrs O’Brien commenced trading at
the Whitfords City Store.
16.4 In the year ended 30 June 2007 Mr & Mrs O’Brien made a net
operating loss.
16.5 In the year ended 30 June 2008 Mr & Mrs O’Brien made a net
operating loss. Particulars of Mr & Mrs O’Brien’s
net operating
loss for 2006/07 and 2007/08 financial years will be provided prior to
trial.
16.6 Mr & Mrs O’Brien have been unable to consistently achieve
sales of $12,000 to $15,000 per week.
16.7 The Whitfords City Store operating expenses (excluding borrowing
costs) were significantly higher than that provided for in the
Representations:
(a) wages expense for November (from 11th) 2006 to 30 June 2007...was
$77,868.49 (25.71% of turnover);
(b) rent expense for the months of November (from 11th) 2006 to 30 June
2007...was $45,497.97 (15.02% of turnover);
(c) wage expense for the financial year ended 30 June 2008 was $138,812.68
(23.76% of turnover);
(d) rent expense for the financial year ended 30 June 2008 was $74,127.23
(12.69% of turnover).
16.8 Mr & Mrs O’Brien operated the Whitfords City Store in
accordance with the terms of the Franchise Agreement.
16.9 The Michel’s Patisserie failed to provide any, or any adequate,
training, marketing or operational support to Mr &
Mrs
O’Brien.[57]
- In
light of the facts alleged at paragraphs 16.1-16.9, which are expressly said to
be in support of the averment at paragraph 15,
the respondents’ contention
that no material facts have been pleaded in support of paragraph 15 must fail.
The facts alleged
at paragraph 16 are directly relevant to the pleas at
paragraph 15, and particularly the pleas that any opinion expressed in the
Representations was not genuinely held, based on reasonable grounds or the
product of the exercise of reasonable care and skill.
- The
respondents claim with respect to paragraph 15 has not been made out. Paragraph
15 will not be struck out.
Paragraph 16
- The
respondents submit that the applicants have failed to plead reliance, causation
or loss which is required where damages are sought
under s.82 of the TP
Act.[58] A claim
in damages requires a demonstration that there has been an inducement to do
something or refrain from doing something, which
gives rise to damage,
attributed to the conduct complained
of.[59] The applicants
are required to plead the circumstances which entitle the applicants to damages,
namely reliance on representation,
damages and
causation.[60] The
applicants agree with these
principles.[61]
- The
respondents identify paragraph 16 as being relevant to the pleadings of
reliance, causation and loss. The respondents say that
subparagraphs 16.7, 16.8
and 16.9 are conclusory and should be struck out.
- The
applicants submit that the reliance on the representations is not pleaded in
paragraph 16, which they say relates to material
facts. The applicants say that
reliance on the representations is pleaded at paragraph 21 and damages and
causation is pleaded at
paragraph 22.
- The
applicants contend that further pleadings of operating losses will be provided
prior to the trial and taking such a course would
not prejudice the respondents.
Also the cause of action is intentionally formulated without these particulars
because trading losses
are not the applicants’ only losses, and that the
cause of action is made out because other losses are claimed.
- The
applicants argue that it is unnecessary to plead every fact to the cause of
action, and that a level of generality is
permissible.[62] The
applicants submit that the respondents are on notice of the case they must meet.
The applicants say further that the relevant
documents in relation to paragraph
16 will be discovered in due course and this is an attempt by the respondents to
obtain particulars
or evidence.
- In
the Court’s view reliance, damages and causation are pleaded at paragraphs
21 and 22, and therefore the objection to paragraph
16, which seeks to set out
material facts, is misconceived. Further, the Court is of the view, subject to
what is said below in relation
to paragraphs 21 and
22,[63] that reliance,
damages and causation are adequately, or at least sufficiently, pleaded at
paragraphs 21 and 22, to put the respondents
on notice of the case to be
met.
- The
other objections to paragraphs 16.4, 16.5, 16.7, 16.8 and 16.9, and to
paragraphs 16.2 and 16.3 of the Calmer Matter pleading
are, in the Court’s
view, objections which seek particulars or evidence, and they cannot therefore
be made out. Facts which
are merely evidentiary are not material facts, and
evidence should not be disclosed in a
pleading.[64]
- The
respondents’ claim with respect to paragraph 16 has not been made out.
Paragraph 16 will not be struck out.
Paragraph 17
- Paragraph
17 of the Statement of Claim pleads as follows:
17. The
Representations were continuing representations which continued from the date
they were made until Mr & Mrs O’Brien
made the Franchise Agreement and
the Sale of Business Agreement on or about 13 November 2006. Between the making
of the Representations
and the making of the Franchise Agreement:
17.1 Mr & Mrs O’Brien negotiated with Mr Caddy, on behalf of
Michel’s Patisserie for the Sale of Business Agreement
and the Franchise
Agreement;
17.2 neither Michel’s Patisserie nor Mr Caddy corrected or modified,
in any way, the Representations and thereby further impliedly
represented:
(a) the turnover figures referred to in the Second Written
Representations, the Oral Representations and the Third Written Representations
were reasonable;
(b) the operating profit referred to in the Second Written
Representations, the Oral Representations and the Third Written Representations
was achievable.
- The
respondents contend that paragraph 17 is conclusory and that the applicants have
not pleaded material facts, particularly as to
how negotiations prior to entry
into a contract give rise to a continuing representation. The respondents also
say that paragraph
17.2 of the O’Brien Matter pleading (which is paragraph
17.3 in the Calmer Matter pleading) is a bundled conclusory plea because
the
applicants have not pleaded the facts and matters that they say the respondents
have failed to correct or modify that give rise
to the implied representation.
Further, the respondents say that the use of the word “achievable”
in paragraph 17.2(b)
is vague and embarrassing. The respondents also say that
paragraph 17.2 of the Calmer Matter pleading is internally inconsistent
and
thereby vague and embarrassing, and say that the plea that Michel’s
Patisserie selected the store is inconsistent with
it being a newly established
store.
- The
applicants submit that paragraph 17 is adequately pleaded. They argue that the
continuing nature of the representations arise
from the failure to correct or
modify the Representations between when they were made and when the Franchise
Agreement was entered
into. The applicants say further that paragraph 17.2 is
not a “bare” pleading, and refers to the failure to correct or
modify the Representations, and should be read in the context of paragraphs 18
and 20. Paragraphs 18 and 20 provide as follows:
18. Mr & Mrs
O’Brien had a reasonable expectation that if:
18.1 the level of profits and the turnover referred to in the Second
Written Representations, the Oral Representations and the Third
Written
Representation was not reasonably achievable; or
18.2 Mr & Mrs O’Brien were not suited to operate a
Michele’s Patisserie franchise, alternatively, was not likely to
operate a
Michel’s Patisserie franchise profitably,
then Michel’s Patisserie and/or Mr Caddy would disclose such facts
to Mr & Mrs O’Brien.
20. The failure by Michel’s Patisserie and Mr Caddy to make the
correction or modification referred to at paragraph 17 and/
or the disclosure
pleaded at paragraph 18 was misleading conduct or conduct likely to mislead or
deceive in contravention of section
52 of the Act and section 10 of the
FTA.
- The
applicants say that the facts giving rise to the further implied representations
in paragraph 17.2 are the failure to correct
or modify the Representations.
- The
applicants submit that the use of the word “achievable” is obvious.
Paragraph 17.2(b) refers to the operating profit
representations made in
relation to the Second Written Representations and the Oral Representations,
which are defined at paragraphs
8.8 and 9.
- From
the pleading it is clear that it is contended that the continuing
representations are said to arise from the time the Representations
were made.
It is immaterial, and not unusual, that representations are made during
negotiations and prior to entry into a relevant
contract. The applicants have
pleaded the facts and matters that they say the respondents have failed to
correct or modify, namely,
the Representations (as pleaded at paragraphs 7, 8, 9
and 11), and which they say are the continuing representations, and in paragraph
20 have asserted that this constitutes misleading and deceptive conduct or
conduct likely to mislead or deceive.
- When
paragraph 17 is read in conjunction with:
- the
material facts alleged to give rise to the Representations (the Representations
being variously referred to in paragraph 17);
and
- the
plea in paragraph 20 of failure to correct or modify being misleading or
deceptive conduct or conduct likely to mislead or
deceive,
it has been sufficiently pleaded to make the
propositions concerning continuing representations in paragraph 17 clear and
arguable.
- The
respondents’ arguments concerning the use of the word
“achievable” in paragraph 17(2)(b) are an example of the
kind of
interlocutory argument which ought to be “actively discouraged” in
modern litigation,[65]
especially, for reasons set out
above,[66] in a court
such as this Court. The respondents ask: “What is meant by
“achievable”?”.[67]
The word “achievable” is an ordinary English word the meaning of
which is readily ascertainable, and when regard is had
to the pleading as a
whole, and in particular to those of the Representations referred to in
paragraph 17.2(b), it is tolerably clear
that it means operating profit
achievable by the applicants after the completed purchase of the franchise
business. The argument
that the plea in paragraph 17.2 of the Calmer Matter
pleading is inconsistent is not, in the Court’s view, an obviously
sustainable
argument. There is nothing to prevent a newly established store from
having been selected by Michel’s Patisserie as the site
of a store to be
run by a Michel’s Patisserie franchisee, which fairly clearly appears to
be what is pleaded.
- The
respondents’ claim with respect to paragraph 17 has not been made out.
Paragraph 17 will not be struck out.
Paragraphs 18, 19 and 20
- Paragraphs
18 and 20 are set out
above,[68] and
paragraph 19 is as follows:
19. In fact the operating profit and
level of turnover referred to in the Second Written Representations, the Oral
Representations
and the Third Written Representations were unlikely to be
achieved by Mr & Mrs O’Brien operating the Whitfords City
Store;
- The
respondents submit that paragraph 18 is conclusory, vague and embarrassing. The
respondents say that paragraph 18 does not outline:
- the
facts and matters as to why there was a reasonable expectation;
- the
meaning of “not suited to operate” and “not likely to
operate”; and
- no
material facts have been pleaded to identify why the applicants were not suited
to operate or not likely to operate.
- The
respondents say that if a plea of misrepresentation by silence arises in
paragraph 18, the material facts which would give rise
to such a claim have not
been pleaded, and that silence may only constitute misleading and deceptive
conduct where there is a duty
to reveal relevant
facts.[69]
- The
applicants submit that the facts giving rise to the expectations are pleaded,
being:
- the
Representations; and
- the
failure to correct or modify the Representations or make the relevant
disclosures, these being matters pleaded in paragraph 20.
- The
applicants say that the pleading is not that they were not suited or not,
inherently at least, likely to operate, but rather that
if the respondents
considered the applicants were not suited or not likely to operate, this ought
to have been disclosed, and failure
to do so was misleading and deceptive. They
say that suitability is a matter within the respondents’ knowledge and
that this
is, in effect, a request for particulars.
- The
applicants contend that they are only required to plead material facts and not
causes of action. The applicants contend that s.52
of the TP Act:
- only
requires there to be misleading and deceptive conduct, or conduct which is
likely to mislead or deceive; and
- does
not require separate elements, such as misleading and deceptive conduct by
silence, to be
pleaded.[70]
- The
basis for the reasonable expectation allegedly held by the applicants is not
pleaded in paragraph 18. It may be that, as the applicants
submit, the facts
giving rise to the expectations pleaded are:
- the
Representations; and
- the
failure to correct or modify the Representations or make the relevant
disclosures, these being matters pleaded in paragraph
20,
but this is not what is pleaded, nor is it
sufficiently apparent from what is pleaded, for the Court to be able to say that
it is
otherwise clear that this is what is meant in paragraph 18. It is not
apparent what material facts give rise to the alleged expectation
of disclosure.
- The
respondents’ claim with respect to paragraph 18 has been made out.
Paragraph 18 will therefore be struck out.
- The
respondents say that paragraph 19 is conclusory and unsupported by material
facts. The applicants say that paragraph 19 is supported
by the plea at
paragraph 16 relating to turnover and levels of profitability, and that the
respondents are effectively seeking particulars.
- It
may be, as the applicants submit, that the material facts supporting the
pleading in paragraph 19 are the matters pleaded in paragraph
16, but this is
not what is pleaded, nor is it sufficiently apparent from what is pleaded, for
the Court to be able to say that it
is otherwise clear that this is what is
meant in paragraph 19. It is not sufficiently apparent what material facts give
rise to the
allegation that the levels of turnover and operating profit were
unlikely to be achieved. Paragraph 19 amounts to a submission not
a
pleading.
- The
respondents’ claim with respect to paragraph 19 has been made out.
Paragraph 19 will therefore be struck out.
- Consistent
with their earlier submissions the respondents argued that paragraph 20 was
unsupported by the earlier pleas, and the applicants
argued that it was
supported by the earlier pleas. Having regard to the Court’s findings
concerning paragraphs 17, 18 and 19,
it follows that the words “and/or the
disclosure pleaded at paragraph 18” should be struck out of paragraph
20.[71]
Paragraphs 21 and 22
- Paragraphs
21 and 22 are as follows:
21. In reliance on the Representations
and/or the failure to make the correction or modification pleaded at paragraph
17 and/ or the
disclosure pleaded at paragraph 18, Mr & Mrs
O’Brien:
21.1 on or about 13 November 2006 made the:
(a) Sale of Business Agreement; and
(b) Whitfords Franchise Agreement;
21.2 paid to Michel’s Patisserie the following sums on or about the
following dates:
(a) 11 November 2006 $275,000.00 (Purchase price of the Whitfords City
Store comprising plant and equipment and goodwill)
(b) 11 November 2006 $12,000.00 initial training fee
(c) 11 November 2006 $1,850.00 (Michel’s Patisserie’s legal
costs)
(d) 11 November 2006 $1,250 (Michel’s Patisserie’s legal
costs)
(e) 24 June 2007 $9,927.00 (Stamp duty and penalties).
22. By reason of the misleading and deceptive conduct pleaded at paragraph
15, and conduct pleaded at paragraph 16, Mr & Mrs O’Brien
has suffered
loss and damage.
Particulars
Paragraphs 16.2, 16.4 and 16.5 are repeated.
- The
respondents submit that paragraph 21 is conclusory and embarrassing and ask on
the basis of what facts and matters it is alleged
that the applicants relied on
the Representations. The respondents also say the use of the word
“made” in paragraph 21.1
is vague and query whether it is alleged
that the relevant agreement was “entered into” or whether some other
allegation
is
made.[72]
- The
applicants say that paragraph 21 is properly pleaded and that the facts and
matters upon which the applicants rely are set out,
namely the Representations,
the failure to correct or modify pleaded at paragraph 17 and the failure to
disclose at paragraph 18.
For the avoidance of doubt the applicants submit that
“made” means “entered
into”.[73]
- Little
need be said concerning paragraph 21. It is a relatively standard TP Act
reliance plea,[74] and
is properly pleaded, save that the words “and/or the disclosure pleaded at
paragraph 18” should be struck out for
reasons set out
above.[75] As to the
use of “made” in paragraph 21.1, it may not be elegant but it is
obvious, both in its immediate context and
reading the pleading as a whole that
it means “entered into”. The Court repeats its observations, set out
above,[76] concerning
arguments that ought to be actively discouraged in modern litigation.
- The
respondents’ claim with respect to paragraph 21 has not been made out,
save that the words “and/or the disclosure
pleaded at paragraph 18”
should be struck out, and but for those words paragraph 21 will not otherwise be
struck out.[77]
- The
respondents argue that paragraph 22 it is not supported by any claim that the
loss was “by reason of” the “alleged
representation”,
and that in support of the plea material facts “from entry into the
contract to the incurrence of loss”
must be pleaded. The respondents
further contend that there is therefore no basis for finding that the loss was
“by reason
of” any representation.
- The
applicants say that the loss claimed is clearly identified by reference to the
conduct pleaded in paragraphs 15 and 16 (which
have not been struck out). In the
Court’s view, the plea is a relatively standard TP Act
plea,[78] and is
properly pleaded,
- The
respondents’ claim with respect to paragraph 22 has not been made out.
Paragraph 22 will not be struck out.
Breach of Franchising Code Claim
- Paragraphs
23 and 24 relevantly plead as follows:
23. Further, or in the
alternative, the provisions of:
23.1 the Financials; and
23.2 the Turnover Figures,
by Michel’s Patisserie to Mr & Mrs O’Brien:
23.3 was conduct in trade or commerce as that expression is used in the
Act and the FTA;
23.4 contained information that was not set out in accordance with
Regulation 7/ Annexure 1 of the Trade Practices (Industry Codes
–
Franchising) Regulations (Code);
23.5 was earnings information for the purposes of clause 19 of Annexure 1
of the Code (Earnings Information);
23.6 contained Earnings Information that was not based on reasonable
grounds;
23.7 contained Earnings Information that did not permit analysis of the
historical or future financial performance of the Whitfords
City Store;
23.8 contained Earnings Information that did not provide:
(a) the facts and assumptions on which the Financials or the Turnover
Figures were based;
(b) the extent of the inquiries and research undertaken by Michel’s
Patisserie and any other compiler of the Financials or the
Turnover
Figures;
(c) an explanation of the choice of the period covered by the Financials
or the Turnover Figures;
(d) whether the Financials or the Turnover Figures included
depreciation;
(e) assumptions about interest and tax.
24. In the premises pleaded at paragraph 23 Michel’s
Patisserie:
24.1 contravened:
(a) the Code; and
(b) Section 51AD of the Act; and
24.2 caused Mr & Mrs J O’Brien to suffer loss and
damage.
Particulars
Paragraphs 16.2, 16.4 and 16.5 are repeated.
- The
respondents say that this claim is misconceived because the pleaded document is
not, nor does it purport to be, a disclosure statement
within the meaning of the
Franchise Code. The respondents say that an actual disclosure statement was
given to the applicants, and
any claim under this heading should be made in
relation to that document. The respondents say that the claim is an abuse of
process
and should for that reason be struck
out.[79]
- The
applicants do not dispute that they were given a disclosure statement by the
respondents. The applicants submit that the paragraphs
are not misconceived and
if the respondents believe the Financials and Turnover Figures were not Earnings
Information, then that
is a matter to be proven at hearing.
- The
existence of a disclosure statement already provided by the respondents does not
preclude the Financials and Turnover Figures
from being Earnings Information,
and the factual question as to whether the Financials and Turnover Figures are
Earnings Information
is obviously arguable. The:
- factual
question as to whether the Financials and Turnover Figures are Earnings
Information; and
- issue
of whether there is any contravention arising from any proven facts,
are matters for hearing. The plea cannot therefore
constitute an abuse of process as claimed by the respondents.
- The
respondents’ claim with respect to paragraphs 23 and 24 has not been made
out. Paragraphs 23 and 24 will not be struck out.
Negligence Claim
- Paragraphs
25-28 set out the applicants’ negligence claim. The paragraphs plead
that:
25. Further, or in the alternative, the Respondents and
each of them knew that:
25.1 If Mr & Mrs O’Brien decided to enter into a sale of
business agreement and a franchise agreement of the type referred
to at
paragraph 16 and the franchise business was not successful, Mr & Mrs
O’Brien would suffer economic loss.
25.2 Mr & Mrs O’Brien would rely on representations made to it
by, or on behalf of, the Respondents (and in particular the
Representations) in
making the decision whether to enter into the Franchise Agreement and the Sale
of Business Agreement.
26. In the premises each of the Respondents owed to Mr & Mrs
O’Brien a duty not to cause them avoidable economic loss.
27. Each of the representations were made negligently: paragraphs 14 and
15 are repeated.
28. By reason of the Respondent’s negligence, Mr & Mrs
O’Brien have suffered loss and damage.
Particulars
Paragraphs 16.2, 16.4 and 16.5 are repeated.
- The
respondents submit that these paragraphs are frivolous and vexatious as they
disclose no cause of action. The respondents submit
that the pleadings do not
identify any facts to support the finding of a relationship of sufficient
proximity between the applicants
and the respondents as to find that the
respondents assumed a responsibility to supply
information.[80] The
respondents say it is unclear what duty the respondents allegedly owed to the
applicants; or, whether it is a duty:
- to
take reasonable steps to ensure that the applicants’ businesses will be a
success, which the respondents say should not be
recognised;[81]
or
- of a
fiduciary nature, and if so the respondents submit that the cause of action is
incomplete in that it fails to plead whether the
applicants were vulnerable to
risk of loss or under a special disability.
- If
the claim is for pure economic loss, then the respondents say there is no plea
of a duty to provide advice, nor that the respondents
knew, or ought to have
known, that the applicants would enter the transaction in reliance on the
information or advice without further
inquiry and that the applicants, did in
fact, rely upon the information or advice.
[82]
- The
applicants submit that a franchisor making negligent representations to
franchisees is a recognised cause of action. The applicants
claim that the duty
owed is not a fiduciary duty, but a duty not to cause the applicants avoidable
economic loss by making the misleading
and deceptive representations which the
applicants would rely upon. The applicants cited Williams & Anor v
Natural Life Foods &
Anor.[83]
That case, on appeal before the House of Lords, related to whether the
managing director of the respondent company was personally
liable to the
franchisees on the basis that he had assumed personal responsibility for advice
given to the franchisees. The House
of Lords held that:
...a
director of a contracting company may only be held liable where it is
established by evidence that he assumed personal liability
and that there was
the necessary
reliance.[84]
-
In so holding, the House of Lords upheld the majority view on this point in the
Court of Appeal.[85]
The House of Lords allowed the appeal however because it said there was
insufficient evidence of assumption of personal responsibility
by the managing
director.[86] At first
instance, in the Queen’s Bench Division, the first issue which arose for
resolution was whether the defendant company,
the franchisor, owed a duty to the
putative franchisees by reason of the making of negligent misstatements or for
the giving of negligent
advice. At first instance, the court said it
had:
...no doubt that the defendant company was in a relationship
in which its advice on the financial viability of the proposed franchise
was a
vital part of the service it offered and that it knew and intended that that
advice would be relied on by the plaintiffs, as
I find it in fact
was.[87]
- The
facts in Natural Life Foods are sufficiently similar to those in the
O’Brien Matter for the Court to find that a similar duty is applicable in
this case,
and the respondents contention that there is no duty, or no proximate
relationship giving rise to a duty, cannot be sustained. This
finding does not
however dispose of the matter, because in order to establish the cause of action
there must be reliance by the applicants,
otherwise the negligence has no
causative effect.[88]
And it is at this point that the applicants run into difficulty. Having pleaded
in paragraph 25.2 that the respondents knew that
the applicants “would
rely” on the representations, the applicants then plead:
- in
paragraph 27, negligence relying on a repetition of paragraphs 14 and 15; and
- in
paragraph 28, loss and damage by reason of the alleged negligence, and repeat
the particulars of paragraphs 16.2, 16.4 and 16.5.
- The
applicants do not go on to expressly plead that the applicants did rely on the
Representations. It might be argued that the repetition
of paragraph 15 imports
the reliance on the Representations as pleaded in paragraph 16.1, given that
paragraph 16 sets out certain
alleged facts in support of the averment in
paragraph 15, that averment being that the Representations were misleading and
deceptive
conduct or conduct likely to mislead or deceive. A number of things
tell against that argument. First, paragraph 15 is repeated in
relation to a
plea that “[e]ach of the Representations were made negligently”, not
that the Representations were relied
upon by the applicants. Second, paragraph
15 is an averment in relation to the making of the representations, not reliance
on them.
Thirdly, the drafter of the pleading has expressly referred, in the
negligence pleading, to specific parts of paragraph 16, but not
to paragraph
16.1 which pleads reliance on the Representations in entering into the Sale of
Business Agreement and the Franchise
Agreement. Either advertently or
inadvertently the reliance plea has not been made expressly, or adverted to in
such as way as to
enable the Court to say that it ought to be, or is, implied in
the pleading. An essential element of the cause of action is therefore
not
pleaded, and the cause of action in negligence cannot be sustained.
-
The respondents’ claim with respect to paragraphs 25-28 (inclusive) has
been made out. Paragraphs 25-28 (inclusive) will therefore
be struck out.
Breach of Contract Claim
Paragraphs 29-33
- Paragraphs
29-33 set out the applicants’ contract claim. Paragraph 29 pleads certain
alleged express terms. Paragraphs 30-33
plead that:
30. There was
an implied term of the Franchise Agreement that Michel’s Patisserie would
act in good faith and in the interests
of Mr & Mrs O’Brien. The term
was implied as a matter of law.
31. In breach of the express and implied terms referred to at paragraphs
29 and 30 Michel’s Patisserie:
31.1 did not provide to Mr & Mrs O’Brien any, or any adequate
training, sales, marketing or business development support
in connection with Mr
& Mrs O’Brien’s operation of the Whitfords City Store;
and
31.2 in the premises pleaded at paragraphs 29, 30 and 31.1 Michel’s
Patisserie did not act in good faith.
32. In further support of the averment made at paragraph 31, paragraphs 14
and 15 are repeated.
33. By its conduct (paragraph 31 is repeated) Michel’s Patisserie
repudiated the Franchise Agreement. By letter dated 5 September
2008 Mr &
Mrs O’Brien accepted Michel’s Patisserie’s repudiation and
terminated the Franchise Agreement.
- The
respondents seek to strike out paragraphs 30-33 on the following
bases:
- that
paragraph 30 is embarrassing in that:
- there is no
settled law in relation to the implication of a term as to good faith in a
contract between a franchisor and
franchisee;[89]
- the applicants
have failed to identify that the facts and circumstances sought to be implied
are reasonable and equitable, capable
of clear expression, so obvious it goes
without saying, not contrary to an express term and necessary to give the
contract commercial
efficacy; and
- alternatively,
the applicants have not pleaded the material facts relied upon to establish that
the term sought to be implied is a
necessity, insofar as unless such a term is
to be implied the enjoyment of the rights conferred by the contract would be
rendered
nugatory;
- that
paragraph 31 is vague and embarrassing because:
- paragraph 31.1
is a bundled plea in which no material facts have been pleaded in support; and
- in paragraph
31.2 no duty of “good faith” is sustainable and the pleaded
conclusion is unsupported by material facts;
- paragraph
32 is conclusory and unsupported by material facts; and
- paragraph
33 is a causation plea, however no facts or matters pleaded would enable the
Court to find that a breach of contract lead
to a chain of events (which are not
pleaded) that gave rise to losses (also not pleaded).
- The
applicants contend that the respondents’ complaint is misconceived
because:
- the
respondents’ criterion relates to a term of good faith implied as a matter
of fact, whereas the applicants allege that
the implied term is implied as a
matter of
law;[90]
- in
relation to paragraph 31.1 the respondents are requesting particulars or
evidence, and that the respondents have failed to appreciate
the distinction
between terms implied as a matter of fact and terms implied at law in paragraph
31.2; and
- it
is trite law that an implied term of good faith is available in contract between
a franchisor and
franchisee,[91] and in
a franchise agreement is implied as a matter of law not fact. The applicants say
they will invite the Court to infer that
the representations pleaded at
paragraphs 14 and 15 are the same representations which constitute a breach of
an implied term of
good faith, but in any event, this is a submission for trial
and not a pleading point.
Can a duty of good faith be implied into a contract?
- Australian
courts have recognised a duty of good faith implied in many
contracts,[92]
but it has not been unequivocally recognised as a mandatory obligation in
all
contracts.[93]
- Leading
text writers have observed that the preponderance of authority favours
implication in contracts of a duty of good faith either
on a generic basis, or
by the criteria of ad hoc implication of specific
terms,[94] but qualify
that by saying that despite Australian courts reluctance “to treat good
faith as a term implied in all contracts,
it can scarcely be understood in any
other way.”[95]
Certainly in Burger King the New South Wales Court of Appeal observed
that:
There appears to be increasing acceptance ... that if terms
of good faith are to be implied, they are to be implied as a matter of
law.[96]
- For
a term to be implied at law in a new category of case, it must be both
reasonable and
necessary.[97] In
Renard Constructions it was said that necessity should not be used in the
absolute sense, because it was not that the terms are so imperative that the
contract would not work without the implied term:
- ...but
because the Court decided it would be better or more appropriate or more
reasonable in accordance with the contemporary thinking
of the judges and
parties concerned with such contracts that the term should be implied than that
it should
not.[98]
Franchise related cases
- Burger
King involved an appeal from an award of damages in relation to alleged
wrongful termination by Burger King of an agreement granting Hungry
Jack’s
a non-exclusive right to develop and to be franchised to operate, Burger King
restaurants in
Australia.[99]
- Under
a development agreement, Hungry Jack’s was required to develop at least
four restaurants a year either by itself or through
a third party. Each
restaurant was to come under an individual franchise agreement and was required
to comply with a number of preliminary
issues. Burger King imposed a freeze on
Hungry Jack’s recruitment of third party franchisees, and withdrew
financial and operational
approval for the opening of new Burger King
restaurants, which affected Hungry Jacks’ ability to comply with the
development
agreement. After a number of franchise agreements expired, Burger
King did not offer new agreements in accordance with the original
agreement.
- Burger
King served notices of termination of the development agreement, based on Hungry
Jacks’ breach in failing to develop
the required number of stores, and on
the basis that Hungry Jack’s continued to operate stores despite the
expiry of franchise
agreements.
- Hungry
Jack’s claimed that there was an implied term in the development agreement
that Burger King would do all that was reasonably
necessary to enable Hungry
Jacks to enjoy the benefits of the
agreement.[100]
- The
New South Wales Court of Appeal held that in a commercial contract there will
ordinarily be implied, as a matter of law, as an
incident of such a contract, a
term of good faith, especially in a standard form contract containing a general
power of
termination.[101]
- In
Garry Rogers Motors (decided two years before Burger King) the
Federal Court said that:
Recent cases make it clear that in
appropriate contracts, perhaps even in all commercial contracts, such a term
will ordinarily be
implied; not as an ad hoc term (based on a presumed intention
of the parties) but as a legal incident of the relationship
...[102]
- In
Far Horizons McDonalds had an expansion policy which allowed for licensed
franchisees to be eligible to be granted further licences if certain
criteria
were satisfied. Far Horizons claimed that its agreement with McDonalds had
implied into it a term that McDonalds was under
a duty to act fairly and in good
faith towards Far
Horizons.[103]
- In
Far Horizons (decided a year before Burger King) the Victorian
Supreme Court said it would not depart from the authorities following Renard
Constructions, and therefore it proceeded:
... on the basis
that there is to be implied in a franchise agreement a term of good faith and
fair dealing which obliges each party
to exercise the powers conferred upon it
by the agreement in good faith and reasonably, and not capriciously or for some
extraneous
purpose. Such a term is a legal incident of such a
contract.[104]
Consideration – duty of good faith
- In
the circumstances it is clearly arguable that a duty of good faith can be
implied as a matter of law into a commercial franchising
contract, and contracts
associated with a commercial franchising contract. Furthermore, it is arguable
that the implication of a
term of good faith may not depend upon traditional
tests for the implication of a term into a contract, and in particular whether
the term is reasonable or necessary in the strict
sense.[105] In
circumstances where a matter is arguable, but the law is not settled, a motion
to strike out ought not to be used as a vehicle
to stultify the possible
development, or further development, of the law.
- Paragraph
30, and likewise paragraph 31.2, is therefore sustainable on the basis that a
duty of good faith can be implied as a matter
of law into a commercial
franchising contract, and contracts associated with a commercial franchising
contract.
- Ought
paragraph 30 be struck out because particulars of reasonableness and necessity
have not been provided? In the Court’s
view it would be unnecessary to do
so in this case because the implication of a term of good faith in relation to a
franchise contract
as a matter of law is not being considered for the first
time.[106] If, after
further consideration, the respondents still consider that particulars of the
alleged implied term are necessary, an application
for particulars could be made
in the usual
way.[107]
Consideration – remainder of breach of contract claims
- Paragraph
31.1 sufficiently sets out the breaches of terms alleged, and sufficient
material facts are otherwise set out in the Statement
of Claim (see, for
example, paragraphs 29 and 32, and paragraphs 14 and 15 - which are repeated for
the purposes of paragraph 32
- and the Representations referred to in paragraphs
14 and 15), for what is alleged:
- to be
properly understood; and
- to,
for present purposes, allow the parties to prepare for the next phase of the
matter, and for the Court to control the conduct
of the
matter.[108]
- Paragraph
32 refers to other paragraphs - which are repeated - of the Statement of Claim,
which are then said to be relied on for
the purposes of paragraph 31.
- Paragraph
33 is a basic but understandable plea that the Franchise Agreement has been
repudiated, which includes reference to material
facts, being the letter by
which the repudiation was said to be accepted and the Franchise Agreement
terminated.
- Paragraphs
31.1, 32 and 33 would not ordinarily be struck out. However, a fundamental
problem besets the applicants in that there
are no particulars of damage claimed
for the alleged breach of contract in the O’Brien Matter pleading. In the
complete absence
of particulars of the claim for damages for breach of contract
the breach of contract claim in the O’Brien Matter must be struck
out.
Therefore paragraphs 29 to 33 (inclusive) of the O’Brien Matter pleading
will be struck out.
- The
same problem does not beset the Calmer Matter pleading where the contractual
damage and particulars are pleaded at paragraph 34.
The pleading is a little
awkward, because of the use of “loss and damage” rather than just
“damage”, and
because the particulars of damage repeat themselves by
reference to paragraphs 16.4 and 21. Adopting an informal
approach,[109] it is
both appropriate and a matter of commonsense, to view the repeated particulars
of damage as being a single set of particulars
of damage. Taking that view,
paragraph 34 is sufficiently identifiable as a claim for damages in contract,
with appropriate supporting
particulars.
- It
follows that the respondents have mot made out their claims concerning
paragraphs 29-34 (inclusive) of the Calmer Matter pleading,
and therefore those
paragraphs will not be struck out.
Calmer Matter - second applicant’s misleading and deceptive conduct
claim
- The
respondents argue that paragraph 35 of the Calmer Matter pleading is not
supported by pleaded material facts and amounts to ‘double
dipping”[110]
in relation to loss and damage because the second applicant, Ms Merritt, cannot
claim loss of profit and loss of salary. In the Court’s
view, the material
facts are sufficiently pleaded: the giving up of employment and the non-receipt
of salary whilst operating the
Park Centre Store. The claimed “double
dipping” is misconceived as there is no claim by Ms Merritt for loss of
profit.
- The
respondents have mot made out their claims concerning paragraph 35 of the Calmer
Matter pleading, and that those paragraph will
not be struck
out.
Prayer for relief – order 87
- The
respondents argue that the relief claimed by way of an order under s.87 of the
TP Act is at large and ought to be struck out. The complaint belies the
very nature of s.87 as a “remedial
smorgasbord”[111]
in relation to which the Court itself has extensive discretion as to what order
or orders it may make. There will no doubt come a
time when the applicants will
necessarily have to indicate to the respondents, and the Court, what specific
orders they seek under
s.87 of the TP Act, but it is unnecessary for them
to do so at this early stage. The respondents’ claim with respect to this
part of the prayer
for relief has not been made out. This part of the prayer for
relief will not be struck out.
Whether the applicants should have leave to re-plead
- The
findings made by the Court require that parts of the Statement of Claim be
struck out, and proposes that orders be made accordingly.
This is the first
occasion on which these pleadings have been subject to scrutiny by the Court.
The applicants ought to therefore
have an opportunity to amend the Statement of
Claim.
Conclusion and Orders
- Having
regard to the findings set out above the Court proposes that the orders set out
below be made.
- In
the O’Brien Matter (PEG 144 of 2008) orders that:
- the
words “very good” be struck out of paragraph 9.5;
- paragraphs
18 and 19 be struck out;
- the
words “and/or the disclosure pleaded at paragraph 18” be struck out
of paragraphs 20 and 21;
- paragraphs
25-28 (inclusive) be struck out; and
- an
Amended Statement of Claim be filed on or before 5 February 2009.
- In
the Calmer Matter (PEG 146 of 2008) orders that:
- the
words “very good” be struck out of paragraph 9.7(c);
- paragraphs
18 and 19 be struck out;
- the
words “and/or to make the disclosure pleaded at paragraph 18” be
struck out of paragraph 20;
- the
words “and/or the failure to make the disclosure as pleaded at paragraph
18” be struck out of paragraph 21;
- paragraphs
25-28 (inclusive) be struck out; and
- an
Amended Statement of Claim be filed on or before 5 February 2009.
- Costs
in respect of both matters will be reserved, and absent agreement between the
parties, can be argued at the next directions
hearing.[112]
- The
parties will be ordered to confer as to appropriate directions for the future
programming of both matters, and both matters will
be adjourned to 12 noon on 12
February 2010 for further directions.
I certify that the
preceding one-hundred and fifty-eight (158) paragraphs are a true copy of the
reasons for judgment of Lucev FM
Associate: S. Gough
Date: 15 January 2010
[1]
“O’Brien
Matter”.
[2]
Respectively, “Michel’s Patisserie” and “Mr Caddy”
(collectively “the
respondents”).
[3]
“O’Brien
Application”.
[4]
In the absence of express provisions in the Federal Magistrates Court Rules
2001 (Cth) (“FMC Rules”) allowing for an application to
strike out the contents of a statement of claim, the O’Brien Application
and the Calmer
Application have been made under O.11 r.16 of the Federal
Court Rules (“FC Rules”), as provided for by s.43(2)(b)
of the Federal Magistrates Act 1999 (Cth) (“FM
Act”) and r.1.05(2) of the FMC
Rules.
[5]
Ultimately the respondents did not make submissions with respect to all of the
paragraphs the subject of the applications, and the
Reasons for Judgment
therefore only deal with those paragraphs on which submissions were
made.
[6]
“Calmer
Application”.
[7]
“Calmer
Matter”.
[8]
“Ms Ridling’s
Affidavit”.
[9]
In the O’Brien Matter the applicants are Alan and Joanne O’Brien
(“Mr and Mrs O’Brien”) and in the
Calmer Matter the applicants
are Calmer Pty Ltd as Trustees for the Mercal Family Trust (“Calmer Pty
Ltd”) and Vicki
Merritt (“Ms Merritt”) and Glenn Alexander
Caldwell (“Mr Caldwell”) (collectively, “the
applicants”).
[10]
“TP
Act”.
[11]
“FT
Act”.
[12]
[2004] FCA 326 at para.8 per Mansfield
J.
[13]Youlden
Enterprises Pty Ltd v Health Solutions (WA) Pty Ltd [2006] WASC 161; (2006) 33 WAR 1 at 2;
[2006] WASC 161 at para.2 per Martin CJ (“Youlden
Enterprises”).
[14]
State of Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] FCA 499; (1999) ATPR 41-691
at 42,827 per Drummond J; [1999] FCA 499 at para.12 per Drummond J
(“Pioneer Concrete”); Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658
at 664 per Murphy, Wilson, Brennan, Deane and Dawson JJ; Buckingham v KSN
Engineering Pty Ltd [2008] FMCA 546; (2008) 177 IR 427 at 433 per Lucev FM; [2008] FMCA 546
at para.21 per Lucev FM (“KSN
Engineering”).
[15]
Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712-713 per Scott LJ
(“Odhams
Press”).
[16]
Davids Holdings Pty Ltd v Coles Myer Limited & Ors (1993) ATPR 41-227
at 41,148 per Spender
J.
[17] Pioneer
Concrete ATPR at 42,829 per Drummond J; FCA at para.20 per Drummond
J.
[18] Mutual
Life & Citizens’ Assurance Co Ltd v Evatt [1970] UKPCHCA 2; (1970) 122 CLR 628 at
631 per Lords Hodson, Guest and Diplock; Pancontinental Mining Ltd v Posgold
Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405 at
414 per Beaumont
J.
[19] Bartlett
v Swan Television & Radio Broadcasters Pty Ltd [1995] FCA 1429; (1995) ATPR 41-434;
Shelton v National Roads and Motorists Association Ltd [2004] FCA 1393; (2004) 51 ACSR 278
at 283-284 per Tamberlin J; [2004] FCA 1393 at para.18 per Tamberlin
J.
[20] Burton v
Shire of Bairnsdale [1908] HCA 57; (1908) 7 CLR 76 at 92 per O’Connor
J.
[21] FM
Act, s.3(2)(a) and
(b).
[22] (2008)
173 IR 378; [2008] FCA 702
(“Iliff”).
[23]
Iliff IR at 387 per Gordon J; FCA at paras.18-19 per Gordon
J.
[24]
Iliff IR at 387-388 per Gordon J; FCA at paras.21-23 per Gordon
J.
[25] IR at
432-433 per Lucev FM; FMCA at paras.16-20 per Lucev FM (footnotes
omitted).
[26]
Odhams Press at 705 per Greer LJ (“casue of action must be alleged
with
particularity”).
[27]
Pioneer Concrete at 42,829 per Drummond
J.
[28] Harris v
Cigna Insurance Australia Ltd (1995) ATPR 41-445 at 41,009 per Kiefel
J.
[29] See
Iliff and KSN Engineering above at paras.16 and 17
respectively.
[30]
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82
at 84 per Martin CJ; [2006] WASC 281 at para.7 per Martin CJ (“Barclay
Mowlem”).
[31]
Paragraph 9.6 in the Calmer
Pleading.
[32]
Paragraph 9.7 in the Calmer
Pleading.
[33] At
paragraph 9.7(c) in the Calmer
Pleading.
[34]
Paragraph 11.3 has no equivalent in the Calmer
Pleading.
[35]
Codelpha Construction Pty Ltd v State Rail Authority NSW (1982) 149 CLR
337; Byrne & Anor v Australian Airlines Limited [1995] HCA 24; (1995) 185 CLR 410 at
422-423 per Brennan CJ, Dawson and Toohey JJ; and 441-453 per McHugh and Gummow
JJ
(“Byrne”).
[36]
See paras.38 and 39
above.
[37]
Paragraphs 9.1-9.4 of the Statement of Claim are set out at para.30
above.
[38]
Paragraphs 11.1 and 11.2 have no equivalent in the Calmer
Pleading.
[39]
See para.41
above.
[40]
Paragraph 11 in the Calmer
Pleading.
[41]
TP Act,
s.4(1).
[42]
Statement of Claim, paragraph
1.
[43] Statement
of Claim, paragraph
2.
[44] Statement
of Claim, paragraph
3.
[45] Statement
of Claim, paragraph
4.
[46] Welton v
Missouri [1875] USSC 187; 91 US 275 (1875) at 280 per Field J; W & A McArthur Ltd v
Queensland [1920] HCA 77; (1920) 28 CLR 530 at 545-550 per Knox CJ, Isaacs and Starke JJ;
Re Ku-ring-gai Co-operative Building Society (No.12) Ltd [1978] FCA 50; (1978) 36 FLR
134 at 167 per Deane J (with whom Brennan J agreed: at
146).
[47] The
Egyptians were the first known bakers of a modern style yeast bread in about
2600BC, and they invented the baking stove with
the oven on top and firebox
below: G Blainey, A Short History of the World (Camberwell: Penguin, 2001), page
84 (“Blainey”).
“In Europe the bakehouse in the village street
was in effect a simple supermarket with two kinds of bread for sale... Their
bread being central to daily existence, bakers were often controlled by special
laws, and could be hanged for selling underweight
bread. The price of bread was
often the barometer of social stability”: Blainey, page
411.
[48] A
“patisserie” is traditionally a French bakery specializing in the
production of pastries and sweets. In France the
title is legally controlled and
may only be used by bakeries that employ a licensed master pastry chef. See
en.wikipedia.org/wiki/P%C3%A2tisserie.
[49]
Paragraph 12 in the Calmer
Pleading.
[50]
Liberty USA Pty Ltd v Telstra Corp Ltd (Unreported, Federal Court of
Australia, VG 166 of 1994, 24 August 1994), at page 7 per Branson
J).
[51] See
para.54 above.
[52]
Miba Pty Ltd & Ors v Nescor Industries Group Pty Ltd & Anor
(1996) 141 ALR 525 at 536 per Merkel
J.
[53] Ting v
Blanche [1993] FCA 524; (1993) 118 ALR 543 (a statement by agent about rental income likely
to be achieved if property leased a statement both as to agent’s present
state
of mind (not within s.51A) and a representation as to a future matter
(within s.51A)); Cummings v Lewis (1993) ATPR 46-103 (financial
projections made by an accounting firm representations as to a future matter);
Jacques v Cut Price Deli Pty Ltd (1993) ATPR 46-102 (“Cut Price
Deli”) (representation as to gross profit could be a representation as
to future matter whereas a statement of gross profit is a
representation as to a
present state of mind and not a future
matter).
[54]
Paragraph 13 in the Calmer
Pleading.
[55]
Statement of Claim,
para.16(2)(a).
[56]
Paragraph 14 in the Calmer
Pleading.
[57]
Paragraphs 16.2-16.3 have their equivalents in paragraphs 16.4-16.5 of the
Calmer Pleading, and paragraphs 16.4-16.9 have their equivalents
in paragraphs
16.6-16.11 of the Calmer
Pleading.
[58]
Scott v Beneficial Finance Corp Ltd [1993] FCA 633
(“Scott”).
[59]
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950 at
50,378 per Lockhart J; March v Stramare (1991) 171 CLR
506.
[60] Scott
at para.33 per Hill
J.
[61] Applicants
Submissions in O’Brien Matter, para.35 (“Applicants
Submissions”).
[62]
Pioneer Concrete ATPR at 42,829 per Drummond J; FCA at para.20 per
Drummond J.
[63]
See paras.106-113
below.
[64] FCR O11
r.2(a).
[65]
Youlden Enterprises WAR at 2 per Martin CJ; WASC at para.2 per Martin CJ.
See also Barclay Mowlem WAR at 84 per Martin CJ; WASC at para.12 per
Martin CJ.
[66] See
paras.16 and 17
above.
[67]
Repondents’ Submissions in O’Brien Matter, para.31(c)
(“Respondents’
Submissions”).
[68]
See para.87
above.
[69]
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39
FCR 546.
[70]
Agar v Hyde [2000] HCA 41; (2000) 201 CLR 552 at 577-578 per Gaudron, McHugh, Gummow and
Hayne JJ quoting Barwick CJ in Philip Morris Inc v Adam P Brown Male Fashions
Pty Ltd (1981) 148 CLR 457 at
473.
[71] A
slightly different form of words, but to the same effect, is used in the Calmer
Matter Statement of Claim. The difference is reflected
in the orders to be made
by the Court.
[72]
Respondents’ Submissions,
para.37.
[73]
Applicants’ Submissions,
para.37.
[74] See N
Moshinsky QC “Pleadings” in KE Lindgren & CM Branson, Federal
Civil Litigation Precedents (Butterworths: Sydney,
1998) at 24,508, para.12.
[75] See para.105
above.
[76] See
para.92 above.
[77]
A slightly different form of words, but to the same effect, is used in the
Calmer Matter Statement of Claim. The difference is reflected
in the orders to
be made by the
Court.
[78] See N
Moshinsky QC “Pleadings” in KE Lindgren & CM Branson, Federal
Civil Litigation Precedents (Butterworths: Sydney,
1998) at 24,509, paras.15 and
16.
[79] Howden
v Truth & Sportsman Ltd [1937] HCA 74; (1937) 58 CLR 416 (“Howden”);
McKechnie v Campbell (1996) 17 WAR 62 at 75 per Owen
J.
[80] Hedley
Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4; [1964] AC 465; Hawkins v
Clayton (1988) 164 CLR 539 at 576 per Deane
J.
[81] Modbury
Triangle Shopping Centre Pty Ltd v Anzil (2000) 205 CLR 254; [2000] HCA
61.
[82] Bryan v
Maloney (1995) 182 CLR 609; Pyrenees Shire Council v Day (1998) 192
CLR 330; [1998] HCA
3.
[83] [1998] UKHL 17; [1998] 2
All ER 577 (“Natural Life Foods
(HL)”).
[84]
Natural Life Foods (HL) at 584 per Lord
Steyn.
[85]
Williams & Anor v Natural Life Foods & Anor [1997] 1 BCLC 131
(“Natural Life Foods
(CA)”).
[86]
Natural Life Foods (HL) at 584-585 per Lord
Steyn.
[87]
Williams & Anor v Natural Life Foods & Anor [1996] 1 BCLC 288 at
296 per Langley J (“Natural Life
Foods”).
[88]
Natural Life Foods (HL) at 581 per Lord Steyn, citing Henderson &
Ors v Merrett Syndicates Ltd & Ors [1994] UKHL 5; [1995] 2 AC 145 at 180 per Lord Goff
of Chieveley.
[89]
Citing Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL
[2005] VSCA 228 (“Esso
Australia”).
[90]
Citing Burger King Corporation v Hungry Jack’s Pty Ltd (2001) 69
NSWLR 558; [2001] NSWCA 187 (“Burger
King”).
[91]
Citing Burger
King.
[92]
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26
NSWLR 234, especially at 268 per Priestley JA (“Renard
Constructions”); Hughes Aircraft Systems International v
Airservices Australia (1997) 146 ALR 1 (“Hughes
Aircraft”); Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty
Ltd [1999] FCA 903 (“Garry Rogers Motors”); Alcatel
Australia Ltd v Scarcella (1998) 44 NSWLR 349 at 369 per Sheller JA
(“Alcatel
Australia”).
[93]
Examples are cited in Burger King NSWLR at 569 per Sheller, Beazley and
Stein JJA; NSWCA at paras.164-166 per Sheller, Beazley and Stein JJA, and see
Esso Australia at para.25 per Buchanan JA: “It may ... be
appropriate in a particular case to import ... an obligation [of good faith] to
protect a vulnerable party from exploitative
conduct which subverts the original
purpose for which the contract was made. Implication in this fashion is perhaps
ad hoc implication
... rather than implication as a matter of law, creating a
legal incident of contracts of a certain
type.”
[94]
NC Seddon & MP Ellinghaus, Cheshire and Fifoot’s Law of Contract
(Ninth Australian Edition) (Chatswood: LexisNexis Butterworths,
2008) at
para.10.43, page 448 (“Cheshire and Fifoot”). The authors cite a
case involving a franchise agreement as one
where the good faith term was
implied on a generic basis: Far Horizons Ltd v McDonald’s Australia
Ltd [2000] VSC 310 at para.120 per Byrne J (“Far
Horizons”).
[95]
Cheshire and Fifoot at para.10.43, page
448.
[96] Burger
King NSWLR at 569 per Sheller, Beazley and Stein JJA; NSWCA at para.164 per
Sheller, Beazley and Stein
JJA.
[97] Burger
King NSWLR at 569-570 per Sheller, Beazley and Stein JJA; NSWCA at para.167
per Sheller, Beazley and Stein JJA, quoting Byrne CLR at 450 per McHugh
and Gummow JJ.
[98]
Renard Constructions at 261 per Priestley
JA.
[99] Burger
King NSWLR at 559 per Sheller, Beazley and Stein JJA; NSWCA at para.1 per
Sheller, Beazley and Stein
JJA.
[100] The
above very brief overview of the contractual arrangements and events leading to
the termination of those arrangements is summarised
from Burger King
NSWLR at 561-564 per Sheller, Beazley and Stein JJA; NSWCA at paras.26-42 per
Sheller, Beazley and Stein
JJA.
[101]
Burger King NSWLR at 569 per Sheller, Beazley and Stein JJA; NSWCA at
paras.163-164 per Sheller, Beazley and Stein
JJA.
[102]
Garry Rogers Motors ATPR at 43,014 per Finkelstein J; FCA at para.34 per
Finkelstein
J.
[103] Far
Horizons at para.13 per Byrne
J.
[104] Far
Horizons at para.120 per Byrne
J.
[105]
Renard Constructions; cf
Byrne.
[106]
Burger King NSWLR at 569-570 per Sheller, Beazley and Stein JJA; NSWCA at
para.167 per Sheller, Beazley and Stein JJA quoting Byrne CLR at 450 per
McHugh and Gummow JJ; and see, for example, Far Horizons and Garry
Rogers Motors referred to at paras.138-140
above.
[107]
Barclay Mowlem WAR at 85 per Martin CJ; WASC at paras.15-16 per Martin
CJ. As to this Court’s attitude towards applications for particulars
see,
for example, Olsen v Wellard Feeds Pty Ltd [2007] FMCA 1885 (particulars
rarely ordered; not a complex case, no particulars ordered); Verge & Anor
v Devere Holdings Pty Ltd & Ors [2008] FMCA 591 at para.24 per Lucev FM
(particulars ordered in complex matter where it was of the essence of the
relevant section of the Bankruptcy Act 1996 (Cth) that the Court
be put in a position to assess the value of the transaction); Doukidis v
Williamson (2008) 6 ABC (NS) 717 at 723-725 per Lucev FM; [2008] FMCA 1352
at paras.30-34 per Lucev FM (particulars ordered of a common intention
constructive trust having regard to the complexity of the
case, the quasi
pleading nature of the application and that the particulars sought were confined
and would assist in narrowing and
clarifying the
issues).
[108]
Pioneer Concrete ATPR at 42,827 per Drummond J; FCA at para.12 per
Drummond J; KSN Engineering IR at 433 per Lucev FM; FMCA at para.21 per
Lucev FM
[109]
See para.14
above.
[110]
Respondents’ Submissions in the Calmer Matter,
para.50(b).
[111]
Akron Securities Ltd v Iliffe & Ors (1997) 143 ALR 457 at 469 per
Mason P.
[112] In
this regard the parties should note that costs are those under Schedule 1 to the
FMC Rules, unless the Court can be persuaded otherwise. In those
circumstances, and bearing in mind that the applications were not wholly
successful,
an argument as to costs may or may not be cost effective for any of
the parties.
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