Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd (No 3)
[2017] FCA 707
•23 June 2017
FEDERAL COURT OF AUSTRALIA
Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd (No 3) [2017] FCA 707
File number: QUD 719 of 2015 Judge: DOWSETT J Date of judgment: 23 June 2017 Catchwords: CONSUMER LAW – further amended statement of claim alleging contravention of ss 18 and 21 of The Australian Consumer Law, Sch 2 to the Competition and Consumer Act 2010 (Cth) – application to strike out or summarily dismiss the statement of claim for alleged deficiencies – order made striking out the statement of claim Legislation: Australian Securities and Investments Commission Act 2001 (Cth)
Competition and Consumer Act 2010 (Cth) Sch 2 – The Australian Consumer Law ss 18, 21, 22, 236, 237, 243
Federal Court of Australia Act 1976 (Cth) s 31A
Federal Court Rules 2011 r 16.21, 16.43, 26.01
Cases cited: Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486
Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1
Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372
Jenyns v Public Curator (1953) 90 CLR 113
Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494
Muschinski v Dodds (1985) 160 CLR 583
Paciocco v ANZ Banking Group Ltd (2015) 236 FCR 199
Paciocco v Australia and New Zealand Banking Group Limited (2016) 90 ALJR 835
Spencer v The Commonwealth (2010) 241 CLR 118
Date of hearing: 30 May 2016 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 108 Counsel for the Applicant: Mr N Cooke Solicitor for the Applicant: Thynne & Macartney Counsel for the Respondent: Mr J Richardson Solicitor for the Respondent: K&LGates ORDERS
QUD 719 of 2015 BETWEEN: AUSTRALIAN BATTERY DISTRIBUTORS PTY LTD ABN 67 071 122 462
Applicant
AND: ROBERT BOSCH (AUSTRALIA) PTY LTD ABN 48 004 315 628
Respondent
JUDGE:
DOWSETT J
DATE OF ORDER:
23 JUNE 2017
THE COURT ORDERS THAT:
1.the further amended statement of claim be struck out;
2.the applicant have leave to file and serve a second further amended statement of claim, limited to:
·claims pursuant to s 18 of the Australian Consumer Law arising out of the facts pleaded in the further amended statement of claim; and
·claims pursuant to s 21 of the said Law arising out of the facts pleaded in para 31a of the further amended statement of claim;
3.the applicant provide written particulars of the loss and damage said to have been caused by the conduct pleaded in the said second further amended statement of claim, including particulars of the amounts claimed; and
4.the said second further amended statement of claim and particulars of loss and damage be filed and served on or before 4.00 pm on 14 July 2017.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DOWSETT J:
INTRODUCTION
The applicant (“ABD”) was, from October 2009 until about May 2015, the exclusive distributor in Queensland of batteries manufactured by the respondent (“Bosch”). This arrangement was evidenced by a written agreement (the “Distribution Agreement”). ABD was also, from June 2012 until May 2015, a non-exclusive distributor of such batteries in New South Wales. This arrangement was also evidenced by a written agreement (the “Amended Distribution Agreement”). In its dealings with ABD, Bosch was represented by a Mr Clarke (“Clarke”). ABD seems to have been represented in such dealings by one or other of three people, Mr Adam Thomas (“Adam Thomas”), Mrs Narelle Thomas (“Mrs Thomas”) and Mr Geoff Thomas (“Geoff Thomas”).
ABD now alleges that Bosch has engaged in misleading or deceptive conduct, and/or unconscionable conduct, in breach of ss 18 and/or 21 of The Australian Consumer Law (the “Law”) and seeks relief accordingly. ABD filed a statement of claim on 18 August 2015 and an amended statement of claim on 20 October 2015. On 18 April 2016, Greenwood J made the following orders:
1.The amended statement claim filed on 20 October 2015 is struck out as to those parts of the amended statement of claim going to the formulation of the cause of action based upon a contended contravention of s 21 of The Australian Consumer Law set out at Schedule 2 to the Competition and Consumer Act 2010 (Cth).
2.The applicant is given leave to re-plead the statement of claim by filing a further amended statement of claim by 4.00pm on Thursday, 21 April 2016 and generally given leave to make the necessary changes to the pleading consistent with the reasons for judgment published today.
3.The applicant is directed to provide such further particulars as it may be capable of providing of the contended representation at para 11c of the amended statement of claim filed on 20 October 2015.
4.The applicant is directed to provide a short synopsis of the calculation of its reliance loss and damage identifying the link between conduct said to contravene s 18 of The Australian Consumer Law and its contended reliance loss.
Bosch now seeks orders that:
·pursuant to r 16.21 of the Federal Court Rules 2011 (the “Federal Court Rules”), the Applicant’s Further Amended Statement of Claim dated 21 April 2016 be struck out; and
·pursuant to rr 16.21 and 26.01 of the Federal Court Rules, the proceeding be dismissed immediately.
On 22 April 2016, ABD filed a further amended statement of claim (the “current statement of claim”). On 26 April 2016, ABD filed a synopsis of loss and damage. I need not deal with that document as, on 25 May 2016, ABD filed an amended synopsis (the “synopsis”).
THE CURRENT STATEMENT OF CLAIM
The facts pleaded in the current statement of claim cover a period from October 2009 until May 2015. ABD alleges that between 2009 and February 2012, its business expanded rapidly, leading to an increase in staff and the acquisition of additional equipment. Throughout this period, ABD dealt regularly with Clarke. On 7 February 2012, ABD indicated to Clarke that it was concerned about its rapid growth, the fact that Bosch wanted it to sell a wider range of products and its credit arrangements with Bosch. ABD also pleads that it was experiencing “erratic lead times” for the supply of stock by Bosch, and inconsistent billing practices. It is said that these matters, together with its expansion and continuing growth, were placing significant financial stress upon ABD, so that it was having difficulty in paying Bosch. It is said that on numerous occasions, Clarke represented to ABD that he would obtain longer trading terms and higher credit limits for ABD, if it continued to place orders and increase the quantities ordered. This allegation is particularized by reference to three emails, all dated February 2012. At para 7 of the current statement of claim ABD pleads:
7.In reliance upon the previous conduct and representations by [Clarke] matters referred to in paragraphs 5(b) and (g) above and ongoing assurances from [Clarke] that [Bosch] would continue to support [ABD] in its expansion, from in or about February 2012, [ABD] continued to order the Bosch Products from [Bosch] and continually increased its indebtedness to [Bosch].
Particulars
a.[ABD's] business began to expand considerably as a result of the arrangements with [Bosch] under the Distribution Agreement and [ABD] incurred additional expenses as a consequence of having to expand its operations in Queensland and into New South Wales after entering into the Amended Distribution Agreement … .
b.From, if not before, February 2012 to early 2015, [Adam Thomas] would have at least one conversation in person, or by way of telephone, every month with [Clarke] about the growth of the sales of [Bosch's] batteries within the business of [ABD]. Sometimes, the exchange would be via email. [Clarke] was always requesting in these conversations, or emails, that [Adam Thomas] increase the orders of stock, or projections for stock, of [Bosch's] batteries … .
c.In or around July 2012, [ABD] entered into a commercial arrangement to store batteries at Beerwah and Virginia in Queensland. [Clarke] was notified shortly thereafter by way of a telephone conversation between [Adam Thomas] and [Clarke] where [Adam Thomas] said words to the effect that "mate, we now have sheds in Beerwah and Virginia".
d.From February 2012 and onwards, on almost a month to month and, sometimes, on a weekly basis, [Adam Thomas] had conversations or exchanged emails with [Clarke] about orders and forward projections. Frequently, [Adam Thomas] and [Clarke] would discuss the terms of trade being 60 days and [Clarke] would say words to the effect that 'I will get you extended credit terms if you order more and more stock', and [Clarke] would tell [Adam Thomas] words to the effect 'not to worry about ABD's account exposure' (with [Bosch]) and reiterate 'Bosch loves ABD' and 'Bosch will support you' (and your expansion). [Clarke], every month, encouraged [ABD] to actively place more and more orders for stock despite [ABD's] credit account being high;
In these reasons I shall refer to Clarke’s various statements as “representations as to support”.
At para 8 of the statement of claim ABD pleads that by about May 2014, its debt to Bosch exceeded $2,000,000. In early 2014, Bosch required that ABD reduce its debt. On 9 January 2014, the parties discussed a proposal by Bosch that ABD enter into a “Warehousing Agreement” with it. ABD alleges that Bosch represented that under such an agreement:
·ABD would store Bosch’s stock “at levels which exceeded” ABD’s requirements;
·Bosch would pay ABD a fee for stock sold;
·the arrangement would assist ABD and help with its cash flow;
·stock would be accounted for “separately”;
·with increase in sales, there would be an increase in stock holding, an increase in ABD’s “accounts payable” and an increase of “stock on consignment”, but the Warehousing Agreement would alleviate all that pressure so that ABD could concentrate on its fixed costs;
·ABD would benefit from increased sales, or increased cash flow, in that Bosch would require to be paid within 30 days of stock leaving the warehouse instead of 60 days from the date of shipment; and
·improved cash flow and turnover would reduce ABD’s debt during the coming year.
Bosch further represented that it wanted to rapidly increase its market share, and that ABD was integral to that strategy.
In June or July 2014, Bosch represented to ABD that the Warehousing Agreement would:
·provide a buffer of stock to help reduce delays in supply;
·facilitate rapid growth and reduce ABD’s debt;
·result in increased sales;
·reduce the cost of debt or financing, by reducing interest payments, thus saving at least $200,000 in interest;
·result in ABD having a lot more cash, especially because it would be doing more Bosch business on the basis of payment within 30 days;
·involve no operational changes;
·require lower stock levels;
·require less administration time; and
·as a result of these factors, produce more revenue.
By an email dated 18 December 2014 Bosch “encouraged” ABD to:
·match its monthly payments due to Bosch with further orders for stock in similar quantities; and
·order $250,000 worth of stock in that month, on the basis that if such order were placed, Bosch would increase its trading terms from 60 to 90 days.
It seems that the offer was not accepted.
On 29 December 2014 Bosch advised ABD that its credit limit for 2015 would be $1,175,000. At paras 21 and 22, ABD alleges that on 23 February 2015, Bosch, “unilaterally” reduced the credit limit from $1,200,000 to $750,000.00, and in late February or March, to zero.
On 26 February 2015, more than a year after discussions had commenced, Bosch and ABD entered into the Warehousing Agreement, Geoff Thomas signing on behalf of ABD. At para 18, ABD asserts that it signed the agreement in the following circumstances:
·Bosch wanted ABD to execute the agreement on “an urgent basis”;
·Bosch would not accept deletion of any of the proposed terms, Clarke saying that “If there was anything bad in it I would tell you”;
·Bosch knew, or ought to have known that Geoff Thomas understood that the Warehousing Agreement was in addition to, and not in substitution for the previously existing distribution rights;
·Bosch knew, or ought to have known that there was a “stop credit” on the account;
·Bosch had told Geoff Thomas that the Warehousing Agreement was to be implemented across the Australian distribution network as part of Bosch’s push for greater market share, an available inference being that if ABD did not enter into the Warehousing Agreement, it would lose its distribution rights;
·Geoff Thomas was not given an opportunity to seek legal or accounting advice; and
·Bosch did not explain that some of the terms of the Warehousing Agreement were more onerous than similar provisions under the Distribution Agreement and the Amended distribution Agreement.
I note that in a number of respects, the pleader distinguishes between Geoff Thomas and ABD. It is difficult to know whether the distinction is deliberate or merely loose language. For example, it is not clear that Geoff Thomas’s understanding, identified in para 18c of the current statement of claim, was also that of ABD.
At paras 18A 18B and 19 ABD alleges that it:
·would not have entered into the Warehousing Agreement, but for various matters pleaded;
·would not have continued to expand its business but for various matters pleaded; and
·in reliance upon various pleaded matters, “and as a result of the requirements of the Warehousing Agreement”, took certain steps.
Those paragraphs are at the heart of ABD’s s 18 case. However there are certain problems with the allegations as to reliance. In particular:
·it is difficult to see how or why ABD could have relied on the matters set out in paras 5b‑f;
·although representations by Clarke are alleged in para 7, there is no plea that they were misleading or deceptive;
·it is difficult to see how or why ABD would have relied on para 9;
·as to para 14, it alleges a “one off” offer which was not accepted and can have had no relevance thereafter; and
·as to para 18, it is difficult to see how or why ABD would have relied on the matters pleaded, save possibly for that pleaded in para 18e.
As regards para 7 it may be that para 29 (which seems to rely on s 4(1) of the Law) was intended to allege misleading or deceptive effect, although it does not expressly do so.
In the first part of para 20, ABD pleads that many of Bosch’s representations proved false as the Warehousing Agreement did not:
·benefit ABD greatly and help its cash flow;
·improve ABD’s cash flow;
·increase ABD’s turnover;
· result in reduction in ABD's account total, being the debt to Bosch;
·result in the payment of a fee for the sale of product to Bosch customers;
·lead to an increase in trading terms from 60 to 90 days;
·increase ABD’s sales of Bosch products;
·provide a buffer of stock, rather requiring that stock could only be ordered upon condition that ABD became indebted to Bosch for an entire pallet of stock, whether it required such stock or not at the time of the order; or
·at the same time facilitate rapid growth and significantly reduce the amount of ABD’s credit trading account.
In the second part of para 20, ABD also pleads, apparently by way of particulars, that after the execution of the Warehousing Agreement a number of “issues” were encountered, namely:
a.when the Applicant required batteries they were required to inform the Respondent that they required a full pallet of batteries notwithstanding the Applicant was only requiring a small portion of batteries from that pallet (as admitted in paragraph 7 of the affidavit of Eugene Port affirmed 1 October 2015 in these proceedings);
b.instability of the flow of stock from month to month (with significant shortages followed by oversupply). This resulted in lost sales due to inability to supply customers or where product was able to be sourced from another supplier it decreased profit margins. The ordering of stock referred to in the above paragraph a. resulted in Stock having to be invoiced and paid for when there were no orders for which the stock was required. This dramatically increased debt to the Respondent, had a significant impact on cash flow (negative) and significantly increased stock on hand for the Applicant. In addition it also increased the need for more storage and handling;
c.increased debt;
d.Did not result in the additional sales of Bosch product, and
eDid not result in additional growth or a reduction in the indebtedness of the Applicant to the Respondent under the Credit Trading Account.
The requirement that batteries be ordered by the pallet load appears to be a matter of some importance in this case. In particular, it is pleaded as a major factor in causing loss and damage incurred after the execution of the Warehousing Agreement. See paras 7-11 of the synopsis. Paragraph 8 suggests that the requirement that orders be for full pallet loads was a term of the Warehousing Agreement, however no such term has been pleaded.
Events moved swiftly after the execution of the Warehousing Agreement. Paragraphs 22‑26 of the statement of claim are as follows:
22.In or around late February or March 2015, [Bosch] unilaterally reduced [ABD's] credit limit from $750,000 to zero.
23.In or around 6 April 2015, [Bosch] unilaterally reduced the time period within which [ABD] was required to pay invoices rendered by [Bosch], such that [ABD] was required to pay invoices immediately upon receipt of any of the Bosch Products.
24.By an email sent on 13 May 2015 (a date more than 1 month prior to the expiry of the Term of the Warehousing Agreement), [Bosch] (by Mr Ross Mayne) advised [ABD] (by [Geoff Thomas]) that it had decided to house its stock at another warehouse.
25.By on or about 22 May 2015, [Bosch] had removed all of its stock from [ABD's] warehouses.
26.[Bosch] knew or ought to have known that the conduct referred to in paragraphs 20 to 24 above:
a.meant that [ABD] was effectively unable to continue to conduct its business;
b.enabled [Bosch] to facilitate a third party, Alco Batteries, to take over and conduct the business formally conducted by [ABD] by no later than June 2015. This resulted in a significant loss of customers and trade for [ABD].
Bosch submits that it is not disputed that at the time at which Bosch removed its stock from ABD’s warehouses (May 2015) ABD was indebted to Bosch in the amount of $892,160.45, showing a substantial reduction in debt since May 2014. It may be that ABD has a different view of this matter as it seems to assert that after the commencement of the Warehousing Agreement, its debt continued to increase.
BOSCH’S CRITICISMS OF THE CURRENT STATEMENT OF CLAIM
Bosch submits that:
The [current statement of claim] and [the] synopsis do not comply with Greenwood J’s orders for the following reasons:
(a)the [current statement of claim does] not remedy the defects found by his Honour in respect of the s 21 claim, and in fact [serves] to further confuse the s 21 claim ... ;
(b)the [current statement of claim] [goes] beyond the scope of that permitted by his Honour, and then only [serves] to confuse matters further with wholly unparticularised new pleadings ... ;
(c)most importantly, neither the original [synopsis] [n]or [the] synopsis [identifies] the link between conduct said to contravene s 18 and the applicant’s contended reliance loss ... .
As Bosch deals separately with the s 21 claim and the damages question, the second criticism must go primarily to the pleading of the s 18 claim, to which matter I now turn.
The amended s 18 claim
Orders 2 and 3 made by Greenwood J dealt with the s 18 claim. Order 3 is limited and clear. Order 2 contains, in effect, two grants of leave, one in quite general terms and the other, apparently limited to making, “necessary changes ... consistent with”, his Honour’s reasons for judgment. It would be difficult to say, with certainty, that any particular amendment went beyond the ambit of O 2. In any event, provided that an amended claim is properly pleaded and particularized, there is little point in denying ABD the opportunity to raise it. In those circumstances, I do not propose to examine his Honour’s reasons and the amendments in order to determine whether or not the amendments exceeded the limits imposed by his Honour’s orders. In substance, Bosch’s complaints go to lack of particularity rather than the extent of the amendments.
Paragraph 7
Bosch makes two criticisms of the amended para 7. First, it submits that ABD has pleaded, but not particularized “ongoing assurances” from Clarke to the effect that Bosch would continue to support ABD in its expansion. Second, Bosch submits that the additional particulars in no way deal with the matters pleaded in para 7.
Paragraph 7 of the current statement of claim is a little difficult to follow. It alleges that from about February 2012, ABD relied upon the representations alleged in paras 5b and 5g, “and ongoing assurances from [Clarke] that [Bosch] would continue to support [ABD] in its expansion”. Particular 7b offers no real particulars of dates, places or the specific content of such assurances. ABD refers to emails exhibited to the affidavit of Adam Thomas dated 23 October 2015. As far as I can see, there are no “further assurances” in those emails. Further, they were sent in late 2014, by which time both Bosch and ABD were concerned about ABD’s indebtedness to Bosch. Particular 7d alleges regular assurances of extended credit terms and of “support”, but the term “support” is not explained. Particulars 7a and 7c seem to relate to reliance. Particulars 7b and 7d seem to concern the alleged representations. The difficulty with para 7 is that the alleged representations are unusually broad. There is no way of knowing the extent to which credit terms were to be extended, or the amount of stock to be ordered so as to engage the representations as to credit. Similarly, the assertion that Bosch would “support” ABD and its expansion says nothing about the extent, nature or duration of such support. As I shall later demonstrate, ABD must plead the misleading effect upon which it relied, and the way in which any claimed loss or damage was caused by such reliance.
Paragraph 11c
Greenwood J ordered that ABD provide particulars concerning the “contended representation” in para 11c. His Honour’s reasons at [77] and [78] suggest that such representation was to the effect that the proposed Warehousing Agreement, “would benefit (ABD) greatly”. The particulars indicate that Clarke put to ABD various ways in which the Warehousing Agreement would increase sales and improve its cash flow. Bosch submits that the particulars do not support the relevant allegation and are otherwise confusing. In my view, they sufficiently identify the case which ABD proposes to advance.
Paragraph 13
Concerning para 13, Bosch submits that paras d‑g are new and wholly unparticularized. Paragraph 13 in the amended statement of claim contained only subparas a, b and c. Those allegations are particularized as to approximate time, as to the person making them, the person or persons representing ABD to whom they were made and the content. Paragraph 13d is sufficiently particularized. Paragraphs 13e‑g are particularized in the same way as are paras 13a‑c. It is not clear where such representations were made, or whether they were made to all three representatives of ABD, to each of them separately or in some other way. As to dates and places, ABD can only do its best. However, if it seeks to do better at trial, it may encounter difficulties.
Paragraph 16
Paragraph 16 and the following paragraphs of the current statement of claim cause considerable difficulty in that there is no clear pleading of the terms of the Warehousing Agreement, or the effect which it had on the prior arrangements between the parties. ABD does not plead that such agreement replaced the earlier agreements between it and Bosch, or whether it was to operate in parallel with those arrangements. It seems that at the very least, ABD was to be relieved of the cost of holding stock. One can see advantages to both sides in such a change in their arrangements. ABD would avoid having to pay interest charges on stock purchased, but not sold. From Bosch’s point of view, if ABD failed, Bosch would still own the stock. In other words it would not be a substantial creditor in any winding up. If this matter is to proceed, ABD must clarify the terms and effects of the Warehousing Agreement, even if it means pleading in the alternative. All of the particulars in para 13 must be considered in light of that ambiguity, simply because each, tacitly or expressly, invites a comparison between two situations, without identifying those situations. This problem is part of a wider problem with the current statement of claim, to which problem I have previously referred. ABD does not describe how it claims to have been misled or deceived. In Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 at [26] French CJ, Gummow, Hayne and Kiefel JJ said:
And for the purposes of the misleading or deceptive claim the pleader must identify what it is alleged that the impugned statements conveyed to their intended audience.
Such a pleading is necessary in order that any alleged misleading or deceptive effect may be identified, reliance upon it proven, and loss or damage established. If this matter is to continue, these matters must be addressed. In particular, ABD must identify the meaning of the term “support” upon which term it relies heavily.
Paragraph 18
In para 18 ABD pleads the alleged circumstances in which Clarke secured the execution of the Warehousing Agreement by Geoff Thomas on behalf of ABD. As I have previously observed, ABD seems to distinguish between Geoff Thomas’s conduct, knowledge and understanding and the conduct, knowledge and understanding of ABD. There is no challenge to Geoff Thomas’s authority to enter into the Warehousing Agreement on ABD’s behalf. If ABD proposes to persist in distinguishing between Geoff Thomas and ABD in this way, it should explain the relevance of this distinction.
Paragraph 18 has no apparent relevance to the s 18 claim, unless ABD intends to assert that the implication that there was nothing “bad” in the proposed agreement was misleading or deceptive. No such case has been pleaded. However para 18 may be relevant to the s 21 claim.
Bosch makes four criticisms of the amended para 18. First ABD provides no particulars of Clarke’s knowledge as alleged in para 18c. The same criticism might be made of para 18d. Rule 16.43 of the Federal Court Rules requires such particulars. Absence of compliance with r 16.43 is a recurring characteristic of the current statement of claim. Secondly, Bosch complains that there are no particulars of the “stop credit”. There is no explanation of the meaning of that term. Presumably, it means that all credit was stopped. However, in paras 22 and 23, ABD pleads that its credit limit was reduced to nil in either “February or March 2015” or “in or around 6 April 2015”. ABD must give particulars of paras 18c and 18d as required by r 16.43.
The purpose of para 18e is unclear. It pleads a statement of intention by Bosch and alleges an inference to be drawn from that statement as to the consequences for ABD, should it not enter into the Warehousing Agreement. However ABD does not plead that it drew such inference. There seems to be no pleading that either the statement or the inference was misleading or deceptive. Paragraph 18e is also problematic in that in the absence of a reasonably precise version of Clarke’s alleged words, it will be difficult to assess the availability of the inference said to have been available from them. Finally, Bosch correctly complains that in para 18g, the allegedly “far more onerous” requirements are not particularized.
Paragraph 18A
As to para 18A, Bosch complains that the amendment does not address the observation by Greenwood J that ABD had not pleaded a “no transaction” case. Bosch’s proposition is not strictly correct. Paragraph 18A pleads “no transaction”, no doubt in response to his Honour’s observation. The problem now seems to be that ABD has not integrated that allegation into its case by identifying the way in which it resulted in ABD’s suffering loss or damage. There is no clear pleading as to how ABD would have proceeded, had it not entered into the Warehousing Agreement. It seems to be suggested that it would have continued to trade, presumably as Bosch’s distributor, but not have expanded its business. However no attempt is made to identify ABD’s financial position in those circumstances. Rather it seems to claim damages based upon Bosch’s failure to make good the relevant misrepresentations. Further, ABD pleads, in para 18e, that Bosch would not have continued with it as a distributor in the event that it did not enter into the Warehousing Agreement. In those circumstances, it is difficult to see how ABD can hope to prove that had it not entered into the Warehousing Agreement, it would have continued its business as Bosch’s distributor. The current statement of claim does not lay a factual basis for a claim for loss or damage arising out of ABD’s having entered into the Warehousing Agreement.
Paragraph 18B
Bosch submits that para 18B is new and unparticularized, and that it covers the same ground as para 18A. I understand para 18A to address loss suffered as a result of entering into the Warehousing Agreement, and para 18B to address loss suffered as a result of representations made by Bosch, perhaps going back to 2012, but without regard to the fact that ABD entered into that agreement. I do not mean to suggest that either paragraph is based upon a correct understanding of the measure of damages applicable under the Law. The difficulties inherent in paras 18A and 18B would be considerably diminished if ABD were to address the fundamental problems to which I have referred.
Paragraph 19
Notwithstanding Bosch’s assertion to the contrary, para 19 is not entirely new. The amended statement of claim asserted the conduct identified in paras 19 a‑e, in substantially the same form as in the current statement of claim. However, in the amended statement of claim, such conduct was said to be in reliance upon the representations and conduct which occurred in 2014, leading to the making of the Warehousing Agreement. ABD now asserts reliance on earlier conduct by Bosch, together with the representation that ABD’s credit limit for the 2015 financial year would be $1,175,000 and the matters pleaded in para 18. It is difficult to see how ABD could have relied upon the conduct pleaded in para 18. The matters pleaded are simply not of such a nature as to invite reliance. ABD pleads that it took the steps identified in para 19 as, “a result of the requirements of the Warehousing Agreement”. However it neither pleads the terms of that agreement nor that its conduct was pursuant to such terms. The words “as a result of the requirements” would include conduct engaged in by ABD because it saw advantage or disadvantage to itself if it acted in a particular way. Finally, it is difficult to see how ABD could have continued to act in reliance on the matters pleaded in para 15, once Bosch had reduced the credit limit on 23 February 2015, and again in late February or March 2015.
Finally, as Bosch points out, no loss can have been incurred by virtue of ABD’s issuing an invoice for the storage of Bosch’s stock, as alleged in para 19g. ABD seems to complain that the amount of such invoice was not paid by Bosch. However there is no pleaded obligation to do so. ABD may claim the amount as damages for misleading or deceptive conduct. In the synopsis, ABD asserts a claim for this item by way of a quantum meruit.
Paragraph 20f
Paragraph 20f alleges that ABD’s trading terms were not increased from 60 to 90 days. Bosch submits that there is no suggestion in the pleading that there was any offer to extend ABD’s trading terms to 90 days. However, in para 14 of the current statement of claim, ABD pleads that Bosch offered to increase the credit limit to 90 days if ABD accepted the proposal to which I have previously referred. There is no suggestion that ABD did so. That offer cannot be characterized as a representation by Bosch that it would extend the terms of credit, other than in the specific circumstances contemplated. Hence para 20f has no relevance to this case.
Paragraph 20c
In para 20c, ABD pleads “increased debt”. There is no indication of the amount of the debt at any particular time, or of the amount of any alleged increase.
Paragraph 26
In para 26, ABD alleges that Bosch knew, or ought to have known that conduct referred to in paras 20‑24:
(a)meant that [ABD] was effectively unable to continue to conduct its business;
(b)enabled [Bosch] to facilitate a third party, Alco Batteries, to take over and conduct the business formerly conducted by [ABD] by no later than June 2015. ...
ABD then pleads that, “[t]his resulted in a significant loss of customers and trade ...”. The claim that Bosch knew, or ought to have known certain matters is not particularized, as required by r 16.43. Nor are there particulars of the resulting losses. Further, as a matter of syntax, para 20 pleads that such loss was the product of Bosch’s knowledge, not of its conduct. There is no plea that Bosch acted on the pleaded “enablement”.
Paragraph 30A
Finally, para 30A seems to add nothing to the combined effect of paras 18A and 18B, save that it refers to para 30, which paragraph is not mentioned in paras 18A and 18B. However para 30 merely asserts misleading or deceptive conduct. Paragraph 30A is otiose and ought to be struck out.
Adequacy of the pleading of the s 18 claim
I have addressed a number of serious problems with the pleading of the s 18 claim. Clearly, the matter cannot go to trial with the pleading in its present state.
The s 21 claim
Greenwood J considered that ABD’s pleading of its s 21 case failed to distinguish between the conduct said to be unconscionable, and the circumstances said to lead to its being so characterized. In para 31 of the current statement of claim, ABD identifies three discrete courses of conduct said to be unconscionable, namely:
·the conduct pleaded in paras 10‑15 of the current statement of claim, because Bosch induced ABD to enter into and perform the Warehousing Agreement, when it had no reasonable basis for making the representations and/or ought to have known that the representations were unlikely to be true, considering the circumstances pleaded at paras 5a‑5g, 6, 7, 9, 18d and 21‑26;
·the conduct pleaded in paras 21‑26 of the current statement of claim, where Bosch:
Ÿ had entered into the Warehousing Agreement with ABD in the circumstances pleaded in paras 17 and 18;
Ÿ had made a representation concerning ABD’s credit limit as pleaded in para 15;
Ÿ had made representations as to the matters pleaded in paras 10, 11, 12 and 13; and/or
Ÿ knew or ought to have known that ABD had, in reliance upon the Warehousing Agreement and representations pleaded at paras 11, 12, 13 and/or 15 undertaken those matters pleaded at para 19; and
·the circumstances and conduct pleaded in para 18 of the amended statement of claim because the “bargaining position was unequal” and Bosch used “unfair tactics”.
The concept of unconscionability is not as amorphous as it might seem. Some idea of its meaning can be derived from s 21(4) of the Law as follows:
It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
Section 22(2) is of particular relevance. It provides:
Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the acquirer) has contravened section 21 in connection with the acquisition or possible acquisition of goods or services from a person (the supplier), the court may have regard to:
(a)the relative strengths of the bargaining positions of the acquirer and the supplier; and
(b)whether, as a result of conduct engaged in by the acquirer, the supplier was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the acquirer; and
(c)whether the supplier was able to understand any documents relating to the acquisition or possible acquisition of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the supplier or a person acting on behalf of the supplier by the acquirer or a person acting on behalf of the acquirer in relation to the acquisition or possible acquisition of the goods or services; and
(e)the amount for which, and the circumstances in which, the supplier could have supplied identical or equivalent goods or services to a person other than the acquirer; and
(f)the extent to which the acquirer's conduct towards the supplier was consistent with the acquirer's conduct in similar transactions between the acquirer and other like suppliers; and
(g) the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the supplier acted on the reasonable belief that the acquirer would comply with that code; and
(i)the extent to which the acquirer unreasonably failed to disclose to the supplier:
(i)any intended conduct of the acquirer that might affect the interests of the supplier; and
(ii)any risks to the supplier arising from the acquirer's intended conduct (being risks that the acquirer should have foreseen would not be apparent to the supplier); and
(j)if there is a contract between the acquirer and the supplier for the acquisition of the goods or services:
(i)the extent to which the acquirer was willing to negotiate the terms and conditions of the contract with the supplier; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the acquirer and the supplier in complying with the terms and conditions of the contract; and
(iv)any conduct that the acquirer or the supplier engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the acquirer has a contractual right to vary unilaterally a term or condition of a contract between the acquirer and the supplier for the acquisition of the goods or services; and
(l) the extent to which the acquirer and the supplier acted in good faith.
In Paciocco v ANZ Banking Group Ltd (2015) 236 FCR 199, the Full Court considered the concept of unconscionability in the context of the Australian Securities and Investments Commission Act 2001 (Cth) and similar State legislation. Those provisions, and equivalent provisions in the Law, were amended in 2011. However, at [285], Allsop CJ made it clear that the 2011 amendments did not change the principles underlying the concept of unconscionability for the purposes of those statutes. His Honour's consideration of the concept of unconscionability, pursuant to both the general law and the statutes, deserves careful consideration. The following points emerge from his Honour’s reasons at [262]‑[306]:
·to some extent the legislation borrows norms and values found in the unwritten law;
·historically, unconscionable conduct, as a coherent basis for relief, had at its root, the protection of the vulnerable from exploitation by the strong;
·the matters identified in s 22 of the Law assist in setting the framework for the values which lie behind the notion of the relevant conscience of the parties in trade or commerce;
·the exploitation of any inequality in bargaining power may offend the commercial conscience;
·the concept of good faith underlies the considerations identified in s 22;
·good faith involves an obligation to act honestly and with fidelity to the bargain; an obligation not to act dishonestly, or so as to undermine the bargain; and an obligation to act reasonably and with fair dealing, having regard to the interests of the parties, (which will inevitably, at times conflict), and to the provisions, aims and purposes of the contract, objectively assessed;
·none of these obligations requires the interests of one contracting party to be subordinated to the interests of the other;
·good conscience requires good faith or fair dealing between the parties, by reference to the bargain and its terms;
·the standard of fair dealing and reasonableness to be expected in each case must recognize the nature of the contract or relationship, the different interests of the parties, and the lack of necessity for a party to subordinate its interests to those of the other party;
·the normative standard of good faith should not be confused with the factual question of its satisfaction;
·good faith does not import the equitable notion of the fiduciary, which notion is rooted in loyalty to another, in the service of his or her interests; rather it is rooted in honesty and reasonable fair dealing.
In Jenyns v Public Curator (1953) 90 CLR 113 at 118‑119, the High Court said:
The jurisdiction of a court of equity to set aside a gift or other disposition of property as, actually or presumptively, resulting from undue influence, abuse of confidence or other circumstances affecting the conscience of the donee is governed by principles the application of which calls for a precise examination of the particular facts, a scrutiny of the exact relations established between the parties and a consideration of the mental capacities, processes and idiosyncrasies of the donor. Such cases do not depend upon legal categories susceptible of clear definition and giving rise to definite issues of fact readily formulated which, when found, automatically determine the validity of the disposition. Indeed no better illustration could be found of Lord Stowell’s generalisation concerning the administration of equity: “A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case” … .
Concerning that passage, Allsop CJ said at [296]‑[297]:
The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transaction; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
The variety of considerations that may affect the assessment of unconscionability only reflects the variety and richness of commercial life. It should be emphasised, however, that faithfulness or fidelity to a bargain freely and fairly made should be seen as a central aspect of legal policy and commercial law. It binds commerce; it engenders trust; it is a core element of decency in commerce; and it gives life and content to the other considerations that attend the qualifications to it that focus on whether the bargain was free or fair in its making or enforcement.
His Honour observed at [300] that it should be kept in mind that conduct contrary to s 21 is of sufficient seriousness as to warrant the imposition of a pecuniary penalty. Finally, at [306] Allsop CJ said:
As Deane J said in Muschinski v Dodds [(1985) 160 CLR 583] at 616, property rights (and the same can be said of jural relations in trade or commerce) should be governed by law, and not some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion. Nothing in [the relevant statutory provisions] should be seen as requiring this. The notions of conscience, justice and fairness are based on enunciated and organised norms and values, including the organised principles of law and Equity, taken from the legal context of the statutes in question and the words of the statutes themselves. Employing judicial technique involving a close examination of the complete attendant facts and rational justification, the Court must assess and characterise the conduct of an impugned party in trade or commerce against the standard of business conscience, reflecting the values and norms recognised by Parliament to which I have referred.
On appeal (reported at (2016) 90 ALJR 835) it was unnecessary for the High Court to consider in detail the unconscionable conduct case. However, at [185]‑[202], Gageler J gave the matter some consideration. In particular his Honour noted that the relevant analogue to s 22(1)(b):
... was not, in its primary operation, [concerned] with the substantive content of a condition with which a consumer was required to comply, but rather with conduct on the part of the supplier as a result of which the consumer was required to comply with that condition.
His Honour went on to stress the importance, when considering the question of unconscionability, of taking into account all relevant circumstances.
It is against these analyses of the operation of provisions such as ss 21 and 22 that I must assess the adequacy of ABD's pleading concerning unconscionability. I shall consider separately each of the three discrete courses of conduct.
Paragraphs 10-15
ABD pleads that this conduct was unconscionable, “because [Bosch] induced [ABD] to enter into and perform the Warehousing Agreement”, in the circumstances alleged in paras 31a.i, ii and iii. Paragraphs 10, 11, 12 and 13 deal with a discussion in January 2014, a subsequent email sent on 13 January 2014, and “oral representations” made in June and July 2014. At the January meeting, the discussion concerned the terms and effects of the proposed Warehousing Agreement and the benefits to be derived by ABD from entering into such an agreement. The email and the “representations” in June and July 2014 concerned similar matters. I have previously explained why para 14 is irrelevant to these proceedings. Paragraph 15 alleges that on or about 29 December 2014, Clarke advised ABD that its credit limit for 2015 would be $1,175,000.
ABD asserts that this conduct was unconscionable because:
·Bosch had no reasonable basis for making the representations and/or knew or ought to have known that they were unlikely to be true; and
·ABD also knew or ought to have known that “such misrepresentations” would cause loss and damage to ABD.
Curiously, ABD does not plead, as part of the unconscionable conduct case, that the representations were untrue. ABD has pleaded its unconscionable conduct case in a way which may suggest that it seeks to rely on s 4(1) of the Law. However as I understand s 4, it is concerned only with the proof of misleading effect, not unconscionability.
Paragraphs 31a.i and 31a.ii both identify circumstances which, it is said, lead to the conclusion that the conduct pleaded in paras 10‑15 was unconscionable. The circumstances identified in para 31a.i all occurred between 2012 and early 2014 (when Bosch first sought to have ABD reduce its indebtedness). The circumstances pleaded in para 31a.ii occurred between 26 February 2015 and May 2015.
In para 31a.i ABD seems to allege that making the representations which led ABD to enter into the Warehousing Agreement (including the representations as to the credit level for the 2015 financial year) was unconscionable because of Bosch’s knowledge or imputed knowledge as evidenced by its conduct between 2012 and early 2014, including its request in early 2012 that ABD reduce its debt. A further allegedly relevant circumstance was that Clarke was paid a commission calculated by reference to the volume of Bosch products sold to ABD. Whilst one can imagine the submissions which might be made concerning this matter, no basis has been pleaded for such submissions. In effect, ABD pleads that its dealings with Bosch prior to any discussion of the proposed Warehousing Agreement had the effect that the representations made concerning that proposed agreement were untrue, or unlikely to be untrue, and that Bosch knew, or ought to have known as much. I can only infer that something in that prior conduct is said to have had that effect. However the relevant matter is not identified.
Paragraph 31a.ii seems to assert that Clarke’s knowledge (as at 26 February 2015) of the “stop credit” and Bosch’s subsequent conduct in reducing ABD’s credit limit and ceasing to store stock in ABD’s warehouses meant that Bosch’s conduct as identified in paras 10‑15 was unconscionable in that it led ABD to enter into the Warehousing Agreement. The only plea concerning the stop credit is that Clarke knew of it. As I have pointed out, if the term has any meaning, it must be that all credit was stopped. This event did not occur until after the Warehousing Agreement had been executed. As to the matters pleaded in paras 21‑26, all but one also occurred after such execution. The exception is the reduction of ABD’s credit limit to $750,000. This occurred on 23 February 2015, so that ABD must have been aware of it when it executed that agreement. The only theory that I can advance concerning ABD’s case is that it proposes to establish that Bosch’s subsequent conduct demonstrated that it had never intended to perform the terms of the Warehousing Agreement and deliberately misrepresented its intentions. Again, no such case is pleaded. Further, the whole of the case pleaded in para 18A is based upon allegations as to state of mind, allegations which are either unparticularized (contrary to the requirements of r 16.43), or particularized in a way which is completely unsatisfactory. One can only guess at the case which ABD proposes to advance.
Paragraphs 21‑26
In this aspect of the unconscionable conduct case, ABD pleads that paras 21-26, themselves, constituted unconscionable conduct. Paragraphs 21‑25 effectively plead Bosch’s conduct in reducing ABD’s credit limit and ceasing to store stock in its warehouses. Paragraph 26 is as follows:
[Bosch] knew or ought to have known that the conduct referred to in paragraphs 20 to 24 above:
a.meant that [ABD] was effectively unable to continue to conduct its business;
b.enabled [Bosch] to facilitate a third party, Alco Batteries, to take over and conduct the business formally conducted by [ABD] by no later than June 2015. This resulted in a significant loss of customers and trade for [ABD].
Such conduct is said to be unconscionable because Bosch:
31b....
i.had entered into the [Warehousing Agreement] with [ABD] on 26 February 2015 in circumstances pleaded in paragraphs 17 and 18,
ii.had made a representation as to the credit limit it would provide to [ABD] and which is pleaded at paragraph 15,
iii.had made representations as to those matters pleaded in paragraphs 10, 11, 12 and 13. and/or
iv.knew or ought to have known that [ABD] had in reliance upon the [Warehousing Agreement] and representations pleaded at paragraphs 11, 12. 13 and/or 15 undertook those matters pleaded at paragraph 19.
ABD does not plead that Bosch’s conduct was in breach of any provision of the Warehousing Agreement, was inconsistent with its being faithful to the bargain contained in that agreement or in the earlier agreements, or was contrary to any other norms or values so as to justify a finding of unconscionable conduct. ABD also provides no particulars of the knowledge pleaded in para 26 or that referred to in para 31b.iv, as required by r 16.43. Indeed, para 31b says virtually nothing about the circumstances which might lead to the conclusion that the conduct identified in paras 21‑26 was unconscionable. It simply refers to a litany of events pleaded elsewhere in the current statement of claim.
First, ABD asserts that Bosch entered into the Warehousing Agreement with it in the circumstances pleaded in paras 17 and 18. Paragraph 17 covers virtually the whole of the dealings between the parties up to, and including the representation as to the credit limit of $1,175,000 on 29 December 2014. There is no indication of how that history is relevant to the question of unconscionable conduct. ABD also relies upon para 18. I have previously identified the lack of merit in ABD’s complaints concerning the matters pleaded in para 18. I shall say more about those matters in my consideration of para 31c. ABD then seeks again to rely on the representation as to the credit limit for the 2015 financial year. As I have said, that representation was overtaken by the representation made on 23 February 2015, prior to the execution of the Warehousing Agreement. ABD also seeks to rely on the representations made as to the terms and effects of the proposed Warehousing Agreement. Once again, one can only guess at the case to be mounted. Finally, it pleads that Bosch knew or ought to have known that ABD had, in reliance upon the Warehousing Agreement and the circumstances leading to the making of that agreement, undertaken the matters pleaded in para 19.
This pleading does no more than assert that certain conduct and the surrounding circumstances justify a finding of unconscionable conduct without explaining the basis for such assertion. In effect, it invites the Court to take the approach rejected by Deane J in Muschinski, and by Allsop CJ in Paciocco (at [306]). It invites the imposition upon Bosch of, “some mix of judicial discretion or the subjective views as to who should win based on the formless void of individual moral opinion”. There is no apparent reference to, “enunciated norms and values including the organized principles of law and Equity, taken from the legal context of the [Law] and the words of [the Law]”. Of course, the identification of norms and values may not always be an easy task. However in both paras 31a and 31c, the pleader identified relevant norms, namely honesty and fairness. There is no such identified norm in para 31b. It may be that the pleader had in mind fidelity to the bargain, between the parties, but ABD seems to have deliberately avoided reliance on any contractual relationship.
Paragraph 18
The third aspect of ABD’s unconscionable conduct case concerns para 18, to which I have already given much attention. ABD pleads that the conduct identified in para 18 amounted to unconscionable conduct because:
·the “bargaining position was unequal”; and
·Bosch used unfair tactics.
ABD does not plead that such matters affected its conduct in any way. Since para 18 relates to the circumstance in which ABD entered into the Warehousing Agreement, it may well be that ABD tacitly asserts that it would not have done so, but for the alleged inequality and unfair tactics. In this respect, at least, the pleading is unsatisfactory. However that is by no means its only unsatisfactory aspect. Quite apart from anything else, the mere assertion of inequality of bargaining “position” means nothing. Inequality implies a comparison between the bargaining “positions” of at least two parties. It is easy enough for a party to assert “weakness”. It is another thing for it to demonstrate that the other side had relative strength. In the present case, notwithstanding the parties’ shared concern about ABD’s indebtedness, Bosch had continued to negotiate with ABD over a period of more than a year, during which time the proposed Warehousing Agreement was under consideration. One might think that Bosch must have perceived some advantage in resolving ABD’s problems, in which case the alleged “inequality” may be more apparent than real.
It is said that the financial implications of the stop credit and ABD’s indebtedness placed pressure upon it to sign the Warehousing Agreement. It is also said that Bosch’s conduct had led ABD to trust Clarke, and that this trust, in some way, caused inequality in bargaining positions.
I have previously referred to the absence of any explanation of the term “stop credit”. If, as seems likely, it means that all credit facilities were stopped, then the “stop” occurred after the parties entered into the Warehousing Agreement, although the credit limit was reduced to $750,000, on 23 February 2015, just before the Warehousing Agreement was signed. ABD does not plead that it was unaware of that reduction. Presumably, it entered into the agreement with knowledge of it. It is difficult to see how the stop credit (occurring after the execution of the agreement) caused ABD to enter into such agreement.
As to ABD’s debt, from early 2014, Bosch and ABD were concerned about it. The discussions concerning the proposed Warehousing Agreement were directed towards solving that problem. A debtor will generally, although not always, be in a position of some disadvantage in negotiating with its creditor concerning its debt. However it does not follow that any agreement reached will be the product of such disadvantage, or that the creditor’s conduct will have been unconscionable. The very subject matter of such negotiations is the debt, and the extent to which the creditor is willing to delay or forego payment, or allow trading to continue. In the absence of any suggestion of exploitation, inequality of bargaining position is irrelevant. As to the question of ABD’s trust in Mr Clarke, there is, as far as I can see, no allegation of reliance upon such personal trust. Indeed, in view of the allegedly unfulfilled promises between 2012 and early 2014, one might have expected a degree of scepticism. There is nothing in the pleading which supports the proposition that Bosch had engaged in a pattern of behaviour designed to lead ABD to trust Clarke, or to identify the extent and nature of such trust. To the extent that para 31c.i is independent of paras 31c.ii and iii, it cannot succeed.
Paragraph 31c.ii alleges unfair tactics, namely less than full disclosure by Bosch of the risks associated with signing the Warehousing Agreement and of the fact that it, “took away significant rights and advantages”. Paragraph 31c.iii alleges less than full disclosure of such risks, that the Warehousing Agreement required ABD to undertake additional expenses, and that it would have problems in ordering stock as alleged at para 20.
ABD does not allege that it was unaware of any of the identified matters. One would have thought that most of them would have been plain from the terms of the Warehousing Agreement. The “risks” are otherwise unparticularized. There is no plea of any circumstances which should have led Bosch to explain to ABD any aspect of the Warehousing Agreement. Finally, the “problem in relation to ordering stock” appears to be the requirement that purchases be by the pallet load. The “problems with the availability of stock” were presumably delays in delivery. As to the first matter, ABD does not plead that such requirement was a term of the Warehousing Agreement. If it was, then presumably, ABD was aware of it when it executed the agreement. If not, then no explanation has been offered as to why ABD was obliged so to order. As to the delivery of stock, ABD had, according to the pleading, previously experienced similar problems. However there is no plea that, at the time at which the Warehousing Agreement was executed, Bosch knew that there would, in the future, be such problems.
In my view, the unconscionable conduct case, as presently pleaded, has no reasonable prospect of success because:
·in para 31a, the particulars required by r 16.43 have not been provided;
·in para 31b, the particulars required by r 16.43 have not been provided, and no basis is laid upon which the pleaded conduct can be characterized as unconscionable;
·in para 31c.i, there is no basis for the assertion of inequality of bargaining positions, nor any assertion of exploitation of such inequality; and
·in paras 31c.ii and iii, no basis is laid for the allegation of unfair tactics.
THE SYNOPSIS
Section 236(1) of the Law provides:
If:
(a)a person (the claimant) suffers loss or damage because of the conduct of another person; and
(b) the conduct contravened a provision of Chapter 2 or 3;
the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.
However ABD seeks relief under ss 237(2) and 243(c) of the Law. Sections 237(1) and 237(2) provide:
(1) A court may:
(a)on application of a person (the injured person) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:
(i)was engaged in a contravention of a provision of Chapter 2, 3 or 4; or
(ii)constitutes applying or relying on, or purporting to apply or rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term; or
(b)on the application of the regulator made on behalf of one or more such injured persons;
make such order or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.
...
(2) The order must be an order that the court considers will:
(a)compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or
(b)prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.
Section 243 relevantly provides:
Without limiting sections 237(1), 238(1) or 239(1), the orders that a court may make under any of those sections against a person (the respondent) include all or any of the following:
…
(c)an order refusing to enforce any or all of the provisions of such a contract or arrangement;
…
Both ss 236 and 237 (upon which s 243 depends) provide for relief where one person suffers loss or damage because of the conduct of another person, such conduct being contrary to a provision in Ch 2 of the Law. Paragraphs 32 and 33 of the current statement of claim provide:
32.By reason of [Bosch’s] misleading and deceptive conduct and/or unconscionable conduct, [ABD] has suffered loss and damage comprising inter alia the inability to pay the amount of its indebtedness under the Credit Trading Account and the loss of its business.
33.To compensate [ABD] for the loss and damage it has suffered (or to reduce that loss or damage) the following orders under ss 237(2) (a) and/or (b) and 243(c) of the [Law] are sought:
e.An order refusing to enforce any provision or provisions of the agreements referred to in paragraph 4, the Warehousing Agreement or any term associated with the operation of the Credit Trading Account;
f. Such further or other order as to the Court may seem appropriate.
There may be some doubt about ABD’s capacity to obtain relief in the form identified in para 33e, given that, as far as I can see, there is no present attempt by Bosch to recover any such amount. In any event, to justify such an order, it would be necessary that ABD establish that its losses equal or exceed the amount recoverable by Bosch for any breach of the Warehousing Agreement and/or the amount owing pursuant to the credit trading account. That exercise would involve the same process as would be applied in assessing damages pursuant to s 236.
The words in ss 236 and 237, "because of the conduct", replaced earlier legislative provisions which provided that the loss or damage must have been inflicted “by” the conduct of another person. The meaning of the earlier legislation was effectively fixed by the decisions of the High Court in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 and Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494. These cases are regularly cited as applying to the existing causal formula "because of the conduct". The gist of both cases appears in the joint judgment (McHugh, Hayne and Callinan JJ) in Marks at [38]‑[39] as follows:
38It can be seen, therefore, that both ss 82 and 87 require examination of whether a person has suffered (or, in the case of s 87, is likely to suffer) loss or damage "by conduct of another person" that was engaged in the contravention of one of the identified provisions of the Act. That inquiry is one that seeks to identify a causal connection between the loss or damage that it is alleged has been or is likely to be suffered and the contravening conduct. But once that causal connection is established, there is nothing in s 82 or s 87 (or elsewhere in the Act) which suggests either that the amount that may be recovered under s 82(1), or that the orders that may be made under s 87, should be limited by drawing some analogy with the law of contract, tort or equitable remedies. Indeed, the very fact that ss 82 and 87 may be applied to widely differing contraventions of the Act, some of which can be seen as inviting analogies with torts such as deceit (eg, s 52) or with equity (eg, s 5IAA) but others of which find no ready analogies in the common law or equity, shows that it is wrong to limit the apparently clear words of the Act by reference to one or other of these analogies.
39Gates did not hold to the contrary. In that case the appellant claimed that he had been misled by a misrepresentation about the circumstances in which benefits would be payable under a total disability clause which he had added to his existing superannuation policy issued by the respondent. In fact, the clause provided for payment of benefits only where the appellant was incapable of attending to any gainful occupation; he had been told it would apply if he could not attend to his occupation. It was found that "but for the statements, Mr Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover" (62). The majority in Gates (63) went on to say:
"The question then is whether it is appropriate to apply the contract measure of damages to the contraventions found to have taken place. The courts are not bound to make a definitive choice between the two measures of damages so that one applies to all contraventions to the exclusion of the other. However, there is much to be said for the view that the measure of damages in tort is appropriate in most, if not all, Pt V cases, especially those involving misleading or deceptive conduct and the making of false statements. Such conduct is similar both in character and effect to tortious conduct, particularly fraudulent misrepresentation and negligent misstatement.
The disappointed expectations of a person induced by a misrepresentation to believe erroneously that his insurance policy entitles him to the payment of benefits on maturity or on the happening of a certain event are sometimes so great as to encourage the thought that compensation on the basis of lost expectations would be appropriate. However, neither authority nor principle offer support for adopting this approach. In all the cases in which a plaintiff has sought to recover damages on the footing that a representation amounts to a collateral contract, a fraudulent misrepresentation or a negligent misstatement, damages for expectation loss have only been awarded when the representation amounted to a collateral contract. Neither the fact that the representation induces entry into a contract nor the fact that it is a statement of the benefits to which the plaintiff will be entitled under that contract is enough to justify compensation for expectation loss. Just as it is impossible to suppose that there is any difference in the measure of damages in deceit depending upon the nature of the contract into which the plaintiff is induced to enter (64), so there can be no variation in the measure of damages awarded under the Act for contraventions of ss 52 and 53(g) depending on the nature of the contract.
This conclusion involves no element of injustice to a plaintiff who is entitled to damages reflecting the loss of benefits he would have obtained under a contract which he could and would have entered into but for his reliance on the contravening conduct of the defendant. Of course he must prove such loss but there is nothing unfair in requiring him to do so.
...
(Footnotes omitted.)
ABD’s loss will be that flowing from the impugned conduct. Usually, the quantification of damages would involve identification of the position in which ABD would have been, had it not relied on Bosch’s representations.
ABD may not recover, in proceedings pursuant to ss 18 or 21 of the Law, damages for breach of the terms of the Warehousing Agreement. However, if it can show that had it not been for its reliance upon Bosch's allegedly misleading conduct, it would not have entered into the contract, but would have entered into another contract, it may recover for the lost benefit of the latter, notional, contract.
I have already said much about ABD’s causes of action pursuant to ss 18 and 21 of the Law. In considering the adequacy of the synopsis, I may have to revisit some of the matters already discussed.
In my view, the synopsis is flawed by virtue of a fault in the current statement of claim, to which fault I have already referred. It is the failure of ABD to plead the misleading effect or effects upon which it claims to have relied. A party may, after the event, plead numerous representations and their misleading or deceptive nature, but it can only have acted in reliance upon its understanding of such conduct at the relevant time. In some cases, the relevant understanding will be the overall effect of a number of statements. Some may have been more important than others. Sometimes, representations in quite general terms will, taken in context, have quite specific meanings. As I understand it, considerations such as these underlie the observations made in Forrest as to the obligation to plead the allegedly misleading effect of the impugned conduct. That effect will be relevant to the question of reliance and the identification of loss and damage. Such pleading is of particular importance in a case such as this where the representations made prior to early 2014 were in very general terms. The later representations (concerning the proposed Warehousing Agreement) are more specific, but if para 20 is to be treated as identifying the extent to which the representations were misleading or deceptive, it may be difficult to do so, given the subjective nature of the matters there pleaded.
Another problem is that ABD seems to treat representations as to support, given between 2012 and the execution of the Warehousing Agreement, as being relevant to losses incurred after the commencement of that agreement. As far as I can see, no representation as to ongoing support was made in any of the conversations or emails concerning the proposed Warehousing Agreement, save for the specific offer pleaded in para 14. That offer was not accepted and cannot be interpreted as a representation as to the provision of further support, other than in connection with that offer.
In the synopsis at para 7, ABD identifies the conduct which seems to be the basis of its claim to have suffered loss. However the pleading identifies loss flowing from Bosch’s failure to make good its alleged representations as to future support, not from the representations themselves, which conduct is said to be misleading or deceptive. There may be a significant difference between loss suffered as the result of Bosch’s not making good its representations and that demonstrated by a comparison of ABD’s actual position with that in which it would have been, had it not acted in reliance upon the impugned conduct. Paragraph 8 also suggests that any loss was largely attributable to the terms of the Warehousing Agreement, although such terms are not expressly pleaded. In fact, paras 8‑11 strongly suggest that the primary, if not sole problem, was a contractual obligation under the Warehousing Agreement that ABD purchase stock by the pallet load. In the end, it seems that ABD’s loss is largely the result of its having to comply with such obligation.
As I have said, although ABD has pleaded that it would not have entered into the Warehousing Agreement, had it not relied on the alleged representations, it has not tailored the relief which it seeks so that it reflects that “counter‑factual”. If ABD were to seek to establish the way in which it would have proceeded had it not acted on the impugned representations, the losses incurred as a result of entering into the Warehousing Agreement would be taken into account in order to see whether, and to what extent, ABD was in a worse position than it would have been in, had it not entered into the Warehousing Agreement. However ABD rather seeks to claim identified outgoings incurred in conducting its business in accordance with the terms of that agreement. Whilst it may be theoretically possible to establish that some particular outgoings were incurred in reliance upon particular representations, it is far more likely that such outgoings were incurred as a result of ABD’s having entered into the agreement. Furthermore, ABD’s present approach may mean that it must attribute individual items of loss to individual representations, a task which may not have to be undertaken in a “no transaction” case.
To the extent that ABD alleges reliance on the representations as to support as being relevant to its entering into the Warehousing Agreement, I see great difficulties in its path. In the absence of any express representation to that effect, it seems unlikely that, in face of the increased debt and the negotiations leading up to the making of the Warehousing Agreement, the parties contemplated that earlier representations as to support would apply to the new arrangements.
In the orders made by Greenwood J on 18 April 2016, O 4 required ABD to provide a short synopsis of the calculation of its relevant loss and damage, identifying the link between impugned conduct and such loss. The requirement for brevity indicated that ABD was not required to provide detailed particulars, but it was to “calculate” loss and damage and “identify” links between conduct and such loss and damage. The above observations demonstrate my view that ABD’s case is misconceived, particularly as regards damages, but also as concerns other issues. However I should make some further observations concerning the synopsis.
Paragraphs 1‑6, if they are relevant, should be in the current statement of claim. Paragraph 7 might be appropriate to a claim for breach of contract, but there is no such claim. In para 8 the assertion of “catastrophe” has no place in a document of this kind. It adds nothing to the case. However the paragraph poses more serious problems to which I have already referred. All in all, paras 1-11 of the synopsis pose more questions than they answer. As I have said, ABD’s difficulty lies in the fact that it has not identified how it was misled, and the effect which such misleading effect had upon it and its business. Rather, it has relied on assertions of representations, which are deemed by s 4(1) to be misleading, and broad assertions of reliance. The representation as to support cannot have been open‑ended. ABD must have had some understanding as to the probable limits, but it has not pleaded any such understanding. I have previously referred to the requirement in Forrest that the misleading effect be pleaded. In the absence of such pleading, it is virtually impossible to address either reliance or damages.
Paragraphs 12‑15 do not help. Paragraph 12 attaches an accountant’s report, said to contain an “interim calculation of the loss and damage”. However the causes of loss seem to be largely limited to Bosch’s, “failure to meet stock delivery times”, and, “inability to give sufficient notification of upward price changes, caused by exchange rate movements”. There are no pleaded allegations as to the timely supply of stock or as to price movements. Presumably, ABD relies upon the representation as to support. In those circumstances, the report offers little assistance. Further, there is a claim for lost sales for the period 1 October 2014 until 23 March 2015. Hence it seems that the losses incurred prior to the execution of the Warehousing Agreement are said to be recoverable on the same basis as are losses incurred after such execution, whatever that basis may be.
Paragraph 13 seems to assert that “had [ABD] not commenced with a combination of the Warehousing Agreement, the Distribution Agreement and Credit Agreement”, it would have owed nothing. I do not understand this assertion. The so‑called Credit Agreement is not otherwise identified.
Paragraph 14 of the synopsis claims for trading losses between November 2014 and January 2015. The significance of such dates is unclear. The period commences prior to the representation as to the credit limit for the 2015 financial year, and finishes prior to the execution of the Warehousing Agreement. It followed a lengthy period over which the proposed Warehousing Agreement was under consideration. There is no real explanation of the causal link between the totality of the alleged misleading or deceptive conduct and the claimed loss and damage, unless it be that the terms of loss identified in subparas 14a‑e are attributable to the representations as to support. As I have previously observed, such a causal link seems unlikely, given that Bosch and ABD had concerns about the latter’s financial position from early 2014, which concerns apparently gave rise to the discussions concerning the proposed Warehousing Agreement. Further, there appears to have been no further representations as to support after Bosch first indicated that ABD’s debt was to be reduced.
Paragraph 14b claims rent paid by ABD for warehouses for the periods from October 2014 to mid‑January 2015, and from mid‑May 2015 to June 2015. May 2015 was the time at which Bosch indicated its intention to store its stock at premises other than those provided by ABD, whilst it seems that the Warehousing Agreement expired in June. There is simply no explanation of the basis for this claim. These comments apply equally to the claim for rent paid for premises in Sydney.
Paragraph 14c claims the cost of storage and maintenance of stock from 21 June 2014 until about May 2015. These outgoings are said to be in discharge of obligations under the Warehousing Agreement, but no terms are pleaded. There is also a quantum meruit claim for these outgoings, but no explanation for the basis of such claim.
Paragraph 14d alleges loss of distribution rights in Queensland and New South Wales. There is no explanation as to how such rights were lost. However it may be that para 14e is intended to fulfil that function. Perhaps the two paragraphs should be understood as asserting that because of the decline in profit margin and reduction in its credit facility, ABD lost its financial capacity to trade, and so could not continue to operate as a distributor of Bosch products. Again, it is not clear whether ABD attributes its losses to the terms of the Warehousing Agreement, the representations as to support, or both, and how the losses are linked to the terms of the Warehousing Agreement or such representations.
Paragraph 15 alleges loss of the business. I understand Bosch to suggest that ABD’s business is continuing, but in the name of another entity. That is not a matter for consideration in determining the present interlocutory application. Paragraph 15 refers to attachment “B” which is said to be an “advice” as to the effects of Bosch’s conduct on ABD. Such an advice has no place in a document intended to particularize a claim.
In my view, the synopsis is virtually meaningless, largely because of ABD’s failure to plead the way in which it was misled by the representation as to support. That question depends very much upon the extent of the support which ABD reasonably understood it would receive (both in kind and duration) and its reliance upon such understanding. ABD has also failed to identify the effect of the Warehousing Agreement upon the pre‑existing business arrangements between the parties and the terms, if any, upon which it relies. These uncertainties in the current statement of claim and the synopsis cause such confusion that no trial could sensibly be conducted in reliance upon them.
I should add that there is no explanation of the link between the alleged unconscionable conduct and any loss or damage suffered by ABD.
CONCLUSION
Bosch applies for an order that pursuant to r 16.21 I strike out the current statement of claim, on the ground that it does not disclose a reasonable cause of action. Alternatively, it seeks dismissal of the proceedings pursuant to r 26.01, on the basis that ABD has no reasonable prospects of success. Some of ABD’s submissions suggest that it does not fully understand the ambit of the power conferred upon the Court by s 31A of the Federal Court of Australia Act 1976 (Cth) (the “Federal Court Act”). Rule 26.01 is concerned with the exercise of that power.
In Spencer v The Commonwealth (2010) 241 CLR 118 at 141 Hayne, Crennan, Kiefel and Bell JJ) said:
58How then should the expression "no reasonable prospect" be understood? No paraphrase of the expression can be adopted as a sufficient explanation of its operation, let alone definition of its content. Nor can the expression usefully be understood by the creation of some antinomy intended to capture most or all of the cases in which it cannot be said that there is "no reasonable prospect". The judicial creation of a lexicon of words or phrases intended to capture the operation of a particular statutory phrase like "no reasonable prospect" is to be avoided. Consideration of the difficulties that bedevilled the proviso to common form criminal appeal statutes, as a result of judicial glossing of the relevant statutory expression, provides the clearest example of the dangers that attend any such attempt.
59In many cases where a plaintiff has no reasonable prospect of prosecuting a proceeding, the proceeding could be described (with or without the addition of intensifying epithets like "clearly", "manifestly" or "obviously") as "frivolous", "untenable", "groundless" or "faulty". But none of those expressions (alone or in combination) should be understood as providing a sufficient chart of the metes and bounds of the power given by s 31A. Nor can the content of the word "reasonable", in the phrase "no reasonable prospect", be sufficiently, let alone completely, illuminated by drawing some contrast with what would be a "frivolous", "untenable", "groundless" or "faulty" claim.
60Rather, full weight must be given to the expression as a whole. The Federal Court may exercise power under s 31A if, and only if, satisfied that there is "no reasonable prospect" of success. Of course, it may readily be accepted that the power to dismiss an action summarily is not to be exercised lightly. But the elucidation of what amounts to “no reasonable prospect” can best proceed in the same way as content has been given, through a succession of decided cases, to other generally expressed statutory phrases, such as the phrase “just and equitable” when it is used to identify a ground for winding up a company. At this point in the development of the understanding of the expression and its application, it is sufficient, but important, to emphasise that the evident legislative purpose revealed by the text of the provision will be defeated if its application is read as confined to cases of a kind which fell within earlier, different, procedural regimes.
(Footnotes omitted.)
See also Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at 406‑409 where Gordon J discussed the proper approach to the exercise of the power conferred by s 31A.
On such an application, the parties are not limited to the pleadings. Evidence may be led. However, in the present case, ABD was content to address the case on the basis of the current statement of claim. I am conscious of the fact that Greenwood J considered that the s 18 claim required only limited particularization. Unfortunately, ABD chose to make extensive amendments which have raised problems, some of which I have identified. His Honour also considered that the s 21 claim was deficient only in that the amended statement of claim did not distinguish between the impugned conduct and the circumstances said to have made such conduct unconscionable. In the current statement of claim, ABD seems to have tried to distinguish between conduct and circumstances, but in so doing, has revealed the fallacies and weaknesses in its case.
My comments concerning the current statement of claim and the synopsis demonstrate that, together, they fail to disclose a reasonable cause of action, pursuant to either s 18 or s 21. If anything, the documents conceal whatever claim ABD might have. They are likely to cause prejudice, embarrassment and delay. Although I have indicated that certain paragraphs concerning the s 18 claim should be struck out, the remaining pleading would still be unsatisfactory. Insofar as concerns that problem, in my view, the pleader has simply identified a number of statements made by Clarke, alleged that they were misleading or deceptive and asserted that it relied on them to its detriment. Given the broad nature of the alleged statements, such an approach was inadequate. ABD must identify its understanding of the representations, its reliance on that understanding and the relationship between such reliance and any alleged loss or damage. It is also impossible to plead such a claim without dealing with the fact that ABD entered into the Warehousing Agreement and the consequences thereof.
However, as concerns the s 18 claim, I am inclined to agree with Greenwood J that, notwithstanding the serious problems to which I have referred, there may be a cause of action hiding in the interstices of the pleading. The success of any such claim will depend upon ABD’s ability to identify the misleading or deceptive effect upon which it claims to have relied. ABD will also, again, have to address damages in connection with any re‑pleaded s 18 claim. In those circumstances, and notwithstanding the inevitable inconvenience to Bosch, ABD should have one last chance to produce an acceptable pleading.
As to the s 21 claim, for the reasons which I have given, the claims set out in paras 31b and 31c have no reasonable prospects of success. Those parts of the claim should be dismissed. The claim in para 31a is in a different category. I doubt very much whether it adds anything to the misleading or deceptive conduct claim. However that is not a basis for striking it out or dismissing it. If ABD wishes to persist in the claim identified in para 31a, it must give the particulars required by r 16.43.
I order that:
1.the further amended statement of claim be struck out;
2.the applicant have leave to file and serve a second further amended statement of claim, limited to:
·claims pursuant to s 18 of the Australian Consumer Law arising out of the facts pleaded in the further amended statement of claim; and
·claims pursuant to s 21 of the said Law arising out of the facts pleaded in para 31a of the further amended statement of claim;
3.the applicant provide written particulars of the loss and damage said to have been caused by the conduct pleaded in the said second further amended statement of claim, including particulars of the amounts claimed; and
4.the said second further amended statement of claim and particulars of loss and damage be filed and served on or before 4.00 pm on 14 July 2017.
I shall hear submissions as to costs.
I certify that the preceding one hundred and eight (108) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett. Associate:
Dated: 23 June 2017
1
10
4