Bbsa Pty Ltd v Stratos - [2018] SADC 42

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
BBSA PTY LTD v STRATOS
[2018] SADC 42
Judgment of His Honour Judge Dart
3 May 2018
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - AMENDMENT
Appeal from a Master - defendant denied permission to pursue a cross-claim - finding by Master that cross-claim had inconsistent pleadings of fact - Master also held that pleading did not otherwise comply with the rules as to pleadings in a number of paragraphs.
Held: Appeal allowed in part.
Supreme Court Civil Rules 2006 r 99; Supreme Court Civil Rules 1987 r 46.20, referred to.
Pope v Harris Orchard [2010] SASC 354, applied.
Arthur Young (A Firm) v Tieco International (Australia) Pty Ltd Unreported, Lander J, Supreme Court of South Australia, 19 July 1995; Brailsford v Tobie (1889) 10 ALT 194; Hicks v Hicks [2016] SASC 50; Riverland Fruit Cooperative Ltd (in liq) v 007 953 380 Pty Ltd & Ors [2008] SASC 258, considered.

BBSA PTY LTD v STRATOS
[2018] SADC 42
JUDGE DART:

This is an appeal from the decision of a Master. The appellant (defendant), by application FDN26, sought the Court’s permission to file a Third Defence and Cross-Claim. The Master dismissed the application.[1]
[1] Master Keith's Reasons for decision (No. 2), Decision No 33 of 2017, published 21 September 2017, FDN32.
Background matters
The respondent (plaintiff) is the franchisor of the Barnacle Bills Seafood restaurant business. The appellant conducted a franchise on Henley Beach Road at Brooklyn Park. The parties fell in to dispute in respect of the conduct of the franchise and that has led to this litigation.
The respondent seeks to recover from the appellant unpaid franchise service fees and unpaid contributions in respect of advertising and marketing. The claim of the respondent is in contract. The primary contention of the respondent is that the franchise was conducted pursuant to the terms of a written agreement entered into on or about 18 January 2010. It is apparent the appellant did not sign that agreement.
In the alternative the respondent says that the appellant’s obligations arose pursuant to an earlier written agreement which, on its terms, expired on 26 March 2008. That agreement relevantly had holding over provisions. The appellant’s obligations in respect of each of the written agreements appear to be similar. The respondent also makes an estoppel pleading.
The decision of the Master
The decision of the Master was determined on a point of principle. The principle dealt with the form of the proposed cross-claim. The Master determined that the pleading in the defence and the cross-claim were inconsistent and for that reason it was impermissible to advance the cross-claim in the form before the Court. Having considered the relevant authorities, the Master said:[2]
[2] Master Keith’s Reasons for decision (No. 2), Decision No 33 of 2017, published 21 September 2017, FDN32.
The application of that test to the case before me indicates that the defendant here cannot say that it did not enter into a franchise agreement and then seek to raise a cross action on the basis that he did enter into a franchise agreement.
Deciding that the cross-claim was in an inappropriate form was sufficient to determine the application. However, the Master proceeded to consider a number of paragraphs of the proposed cross-claim and determined that, separately from what might be called the issue of principle, the pleading was lacking in particularity and should not be permitted on that basis as well.
The appeal grounds
The appeal then consists of two issues. One, whether the Master was right on the matter of principle and two, whether the Master’s views about the adequacy of the form of the pleading were correct.
The Master first considered the operation of Rule 98 and, in particular, sub‑rules:
(6)Allegations of fact in a pleading must be mutually consistent.
(7)However, a party may make inconsistent allegations of fact in the alternative.
(8)If a party makes a claim or defence that assumes the fulfilment of a condition precedent, the party is taken to allege fulfilment of the condition precedent without specifically pleading it.
The pleadings the subject of the first issue are found in paragraphs 13 and 13A of the proposed pleading. They are as follows:[3]
[3] Case Book for Appeal at p 132, FDN36.
CONTRAVENTIONS OF THE CODE AND SECTION 51AD OF THE TPA
13.In circumstances where the plaintiff relies on the alleged 2010 Franchise Agreement for the purposes of its Claim, and if that alleged agreement is otherwise binding upon the defendant, which is denied, the plaintiff contravened clauses 11(1) and 11(2) of the Code and thereby section 51AD of the TPA by reason of the matters set out in paragraph 4.3.2. above.
UNCONSCIONABLE CONDUCT
13AThe defendant denies that it is bound by any of the alleged 2010 Franchise Agreement, a holding over or some other “implied agreement” as asserted by the plaintiff but says, if it is, then it relies upon the matters alleged at paragraph 14 and following below.
The Master’s concern was that, having in each of the paragraphs denied the respondent’s allegations in respect of the agreement between the parties, the appellant then pleads on the basis that the respondent will make out its claim at trial. The cross-claim goes on to allege contraventions of the Trade Practices Act and/or the Australian Consumer Law. There are further allegations, including a claim that the respondent engaged in unconscionable conduct.
The Master was referred to the authority of Riverland Fruit Cooperative Ltd (in liq) v 007 953 380 Pty Ltd & Ors,[4] a decision of Justice Bleby. His Honour stated:[5]
[4] [2008] SASC 258.
[5] Riverland Fruit Cooperative Ltd (in liq) v 007 953 380 Pty Ltd & Ors [2008] SASC 258 at [21].
In Brailsford v Tobie[6] the defendant pleaded two inconsistent pleas in the alternative. In deciding that one of them should be struck out, Holroyd J said:
[6] (1889) 10 ALT 194.
I can quite conceive of cases where it would be not only allowable but proper for a party to claim alternative relief, especially where on a given state of facts it may be doubtful as to what relief he may be entitled. In a case of this nature, however, I think it would be most improper to allow the defendant to plead as she has done. The actual facts must be within her own knowledge, and that being so she has set up two sets of facts inconsistent with one another. If this were allowed it would be permitting a party knowing the facts to deliberately place on the record statements, one or other of which must be known to be a lie.
It is apparent that Brailsford v Tobie[7] is the source for the proposition that it is impermissible to plead in the alternative when a party knows one of the allegations of fact to be false.
[7] (1889) 10 ALT 194
With respect to the Master, I do not think that is what we are dealing with here. The appellant is not seeking to set up alternative facts. The question of which of the agreements alleged by the respondent is binding on the parties is a question of law. The answer is not known by either of the parties at the moment. It is important to note that the respondent has brought its claim in the alternative, which suggests it is not certain which of the two possible agreements is binding on the parties.
I read the plea as simply saying I deny that either of the agreements alleged by the respondent are binding on the parties but, if I am wrong about that, then there are matters which need to be considered by the Court in respect of the way in which the respondent complied with its obligations pursuant to the agreement as found.
In Riverland Fruit Cooperative Ltd Bleby J also said:[8]
[8] Riverland Fruit Cooperative Ltd (in liq) v 007 953 380 Pty Ltd & Ors [2008] SASC 258 at [20].
Rule 46.09(1) of the 1987 Rules, which has application by virtue of r 46A.16, provides that a party “shall not plead an allegation of fact or a new ground or claim inconsistent with his previous pleading”. Sub-rule (2) of that rule does not prevent the making of allegations in the alternative. The 2006 Rules have provisions to similar effect. However, merely because a fact is pleaded in the alternative does not mean that an inconsistency can be avoided. Particularly is this so where the inconsistent pleas relate to the state of knowledge or state of mind of the party concerned.
The issue was further considered in Hicks v Hicks[9] by Justice Blue who was considering a pleading in respect to a series of alternatives arising from a particular agreement and its proper construction. The issue included whether or not the agreement had been repudiated or terminated. The alternate pleas were premised on the basis that the particular agreement had not been terminated, repudiated or breached.[10]
[9] [2016] SASC 50.
[10] Hicks v Hicks [2016] SASC 50 at [18].
The pleas at paragraphs 163 to 167 are premised on the assumption that the Exit Agreement has not been terminated either because the defendant did not breach or repudiate it or because the plaintiff was not entitled to terminate it. They involve questions of law as to the construction of the Exit Agreement and questions of objective fact and law as to whether the defendant’s conduct amounts to unconscionable conduct and, if so, caused loss to the plaintiff of $400,000. There is nothing in the pleading on the basis of which it could be said that one or other of the alternative pleas in paragraphs 169 and 170.2 and paragraphs 163 to 167 must to the knowledge of the plaintiff be false or that they are mutually factually inconsistent in the sense described above. Paragraphs 163 to 167 simply proceed on the assumption, common to all cases of permissible alternative pleas, that the plaintiff fails on a more primary case.
In the circumstances I think the Master, with respect, erred in determining that it was not appropriate as a matter of principle to permit the cross-claim to proceed. The appellant’s case is that neither of the two agreements alleged by the respondent cover the arrangement between the parties. The appellant sets up the alternatives in case it fails on its primary position. That, in my opinion, is permissible.
The pleadings complaints
It is therefore necessary to consider the pleadings in the proposed cross‑action. The cross-action is the appellant’s Statement of Claim and, accordingly, Rule 99 applies. Relevantly, that Rule provides as follows:
99—Requirements for statement of claim
(1)A statement of claim—
(a)must state the name of each cause of action; and
(b)must state the basis of each cause of action (including reference to any statutory provision on which the plaintiff relies); and
(c)must contain a short statement of the material facts and matters on which each cause of action is based; and
(d) must state any remedy for which the plaintiff asks; and
(e)if the plaintiff seeks an ancillary remedy (such as an extension of a period of limitation or a temporary injunction)—must state the nature of the remedy and the basis on which it is sought.
The approach the Court adopts in respect of an application to put forward an amended pleading was set out in Pope v Harris Orchard where White J said: [11]
[11] [2010] SASC 354.
The application giving rise to the present appeal was not for further and better particulars or for the striking out of a pleading. It was instead an application for permission to amend and accordingly required an exercise of the Court’s discretion. An amendment to pleadings should not be permitted unless it complies with the pleading rules and, in particular, if it would be vulnerable to being struck out on the grounds of non-compliance or would inevitably give rise to an application for further and better particularisation.
It is also appropriate to have regard to the statement of Lander J in Arthur Young (A Firm) v Tieco International (Australia) Pty Ltd where his Honour said:[12]
[12] (Unreported, Lander J, Supreme Court of South Australia, 19 July 1995) at [21].
When the Court considers a pleading it will not consider the pleading with the same degree of scrutiny which the courts are required to give to an Act of Parliament. With the complexities of modern litigation, a pleader can usually point to some deficiency in the opponent's pleadings. One can usually, if one approaches the matter with a critical eye, identify some failing in a pleading. But that is not the approach that in this age ought to be adopted. A court would not sit down in the manner of a nineteenth century pleader seeking to find an error capable of sending a party away to re-plead his claim or defence. Such a technical approach is inconsistent with modern litigation and inconsistent with the court's function which is to try to arrive at a just result. A successful result, if arrived at, after too great an expense may not be considered by even the successful party to be a just result. A court ought to approach a consideration of the adequacy of a pleading seeking to answer the ultimate question; does the pleading give fair notice of the case to be made against the other party at trial, thereby minimising the risk of injustice resulting from surprise.
The modern approach to pleadings is to ensure that they are adequate, not perfect. It is sufficient if an opposing party is able to comprehend what their opponent is putting forward in a pleading. It is not necessary for an opponent to agree with what is put forward. That is a trial issue.
The principal position of the respondent is contained in a lengthy letter sent by the respondent’s solicitor to the appellant’s solicitor on 13 June 2007. It is quite detailed. It reads like a Rule 46.20[13] notice which were a common feature of litigation in the 1990s. The Court decided that a technical and pedantic approach was not appropriate, is too costly, and does not advance the interests of justice. The Rule 46.20 notice was done away with.
[13] Rule 46.20 Supreme Court Civil Rules 1987.
The respondent complains that a number of paragraphs in the proposed cross-claim are deficient.
The first issue that arises relates to paragraph 15 of the cross-claim. The allegation is that the respondent required the appellant to purchase specified products from specified suppliers. Then in paragraph 15.7 it is pleaded that the seafood purchased from the third party supplier was 20 to 35 per cent higher than for the same products purchased from other suppliers.
The respondent’s complaints are that the appellant should have specified the products and the price which the products were sold by the respondent’s specified supplier and the actual price at which the equivalent products could have been purchased from the named alternative suppliers. It is my view that that is going too far. That is pleading evidence. The simple allegation is that the respondent required the appellant to purchase seafood product from a specified supplier and the complaint of the appellant is that the price charged exceeded by 25 to 30 per cent the price at which they could have purchased the equivalent products from other suppliers. The allegation is clear. The respondent is able to understand the allegation and be in a position to meet it at trial. In my view, the pleading is adequate.
The next issue relates to paragraph 16. The paragraph pleads that the respondent dictated the maximum and minimum prices for meals which the defendant was obliged to comply with. There had been a previous challenge to that pleading. As a result, there are now nine new sub-paragraphs containing particulars. The complaint is that the pleading says that “the plaintiff asserts a right” and then refers back to various provisions of the 2010 agreement. The Master held that it is not permissible to say that the “plaintiff asserts a right” without admitting that the franchise agreement in 2010 was binding. He found that the defendant’s case was therefore inconsistent and could not stand. I have already discussed above that I think the Master was wrong to find that there was an inconsistent case.
Paragraphs 16.1, 16.2 and 16.3 refer back to obligations arising from clauses 7 and 8 of the 2010 franchise agreement. Whilst the term “asserts a right” is perhaps a bit oblique, the assertion in those sub-paragraphs is quite straightforward. It is simply that the respondent directed the products to be sold and the pricing at which the appellant was to sell product at its franchise. The respondent either accepts that or denies it.
The next issue arises in respect of paragraph 16A in which it is asserted that the respondent was obliged to deal with the appellant in good faith. Then there are four sub-paragraphs pleading how it is said that the obligation of good faith arose. The appellant pleads that the obligation of good faith arises by implication of law in the contract relied upon by the plaintiff.
The Master found that the allegation was vague and embarrassing. I agree with the approach of the Master in respect of this part of the pleading. In my view, the pleading of unfairness in 16A.4 is particularly problematic. The Master was correct in declining to permit paragraph 16A to go forward.
The next paragraph in dispute is paragraph 17. A number of paragraphs were objected to. I agree with the Master’s comments in respect of the pleadings in paragraphs 17.2, 17.5 and 17.6. I would not allow those paragraphs to go forward.
There is also a dispute in respect of paragraph 18, which alleges particular conduct set out in paragraphs 15 and 17 amounted to unconscionable conduct. The complaint is in respect of paragraphs 18.5, 18.6, 18.7 and 18.8. I agree with the Master that those paragraphs are deficient. The pleadings are ambiguous and do not connect back in any way to the contractual arrangement of the parties.
The difficulty with the appellant’s pleading, to some extent, is that he does not set out his assertion as to what the arrangement between the parties was. It was a commercial transaction. It related to the conduct of a franchise. The relationship must be in some form or other contractual. In the absence of a strong narrative of what he says was the agreement, the appellant is going to find it hard to set out in a cogent way the alleged breaches of the respondent.
I will hear the parties as to the form of the orders that should be made, consistent with the findings set out above.