Bodycorp Repairers v Holding Redlich
[2017] VSC 215
•27 April 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
PROFESSIONAL LIABILITY LIST
S CI 2016 02853
| Bodycorp Repairers Pty Ltd (ACN 068 589 408) | Plaintiff |
| v | |
| Holding Redlich | Defendant |
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JUDGE: | Macaulay J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10 April 2017 |
DATE OF JUDGMENT: | 27 April 2017 |
CASE MAY BE CITED AS: | Bodycorp Repairers v Holding Redlich |
MEDIUM NEUTRAL CITATION: | [2017] VSC 215 |
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PRACTICE AND PROCEDURE — Summary judgment application — s 63 Civil Procedure Act 2010 — No real prospect of success — Defendant’s summary judgment application successful on the basis that the proceeding is statute barred under s 5 of the Limitation of Actions Act 1958 — Plaintiff’s application to restrain the defendant’s solicitors from acting refused — Whether affidavits made on information and belief should be admitted — Whether the court should order a party to attend for cross examination — Supreme Court (General Civil Procedure) Rules 2015, rr 22.18, 22.21.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Levine | Templeton Fox Rothschild |
| For the Defendant | Mr E Batrouney | Obst Legal |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 2
Preliminary applications................................................................................................................... 4
Should Holding Redlich’s lawyers be restrained from acting?............................................. 4
Should the affidavits of Mr Obst be admitted into evidence?............................................... 7
Should the court order Mr Rapke to attend for cross examination?..................................... 9
Application for summary judgment............................................................................................. 10
Limitation of action..................................................................................................................... 11
Factual context................................................................................................................... 13
Analysis............................................................................................................................... 19
Conclusion.......................................................................................................................... 24
Other grounds............................................................................................................................. 25
Conclusion......................................................................................................................................... 25
HIS HONOUR:
Introduction
By summons filed 5 December 2016 the defendant, Holding Redlich, applied for summary judgment in its favour, alternatively an order that the statement of claim filed by the plaintiff, Bodycorp Repairers Pty Ltd (‘Bodycorp’), be summarily dismissed.
Bodycorp ran a business franchising motorcar smash-repair shops. In this proceeding it alleges that Holding Redlich, its former solicitors, negligently or in breach of retainer failed to draft and include legally enforceable restraint of trade clauses in franchise agreements made with its franchisees in 1996/1997 (‘franchise agreements’) and a further agreement with Australian Associated Motor Insurers (‘AAMI’) made on 29 June 1998 (‘AAMI Agreement’). Between 1998 and 2000, Bodycorp’s franchisees terminated their franchise agreements yet continued to enjoy ‘recommended repairer’ status with AAMI in the territories in which the franchises had previously operated. Bodycorp claims that had legally enforceable restraint of trade clauses been incorporated in either or both the franchise agreements and the AAMI agreement it would not have suffered the loss it sustained when, in practical terms, it was unable to engage replacement franchisees to compete with its former franchisees in the relevant territories.
In 2002, Bodycorp commenced a proceeding against AAMI and one of its franchisees for breach of their respective contracts (‘AAMI proceeding’). By a judgment given by Elliott J on 4 September 2013 his Honour dismissed Bodycorp’s claims.[1] Among other things, his Honour concluded that the restraint of trade clause that was incorporated in the AAMI agreement was unreasonable and therefore unenforceable[2].
[1]Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472.
[2]Ibid [155].
The allegations against Holding Redlich in this proceeding are found in an amended statement of claim filed on 12 September 2016. Holding Redlich filed a defence to the amended statement of claim on 17 October 2016. The defence was drawn by counsel, P. D. Crutchfield and E. J. Batrouney, a matter that assumes some significance because of a separate application that Bodycorp made to restrain Holding Redlich’s present legal team from acting for it in the proceeding. I will return to that matter shortly.
Holding Redlich, in its defence, puts many of Bodycorp’s allegations into issue. Relevantly for the present application, it alleges that –
(a) insofar as the individual franchise agreements were concerned, Bodycorp’s franchisees had refused to enter franchise agreements containing any restraint of trade clause;
(b) insofar as the AAMI agreement was concerned, although it contained a restraint of trade clause (drafted by Holding Redlich) that clause was held by Elliott J to be an unreasonable restraint of trade in the AAMI proceeding. Elliott J’s decision was subsequently upheld on appeal[3] and special leave to the High Court was refused; and
(c) Bodycorp first incurred damage by at least 29 June 2000. Bodycorp’s claim, commenced in 2016, is statute barred by reason of s 5 of the Limitation of Actions Act 1958 (the ‘LAA’).
[3]Bodycorp Repairers Pty Ltd v Australian Associated Motor Insurers Ltd [2015] VSCA 73.
Holding Redlich’s application for summary judgment against Bodycorp is advanced upon three grounds, namely that:
(a) Bodycorp’s claims are statute barred by reason of s 5 of the LAA;
(b) the proceeding is an abuse of process of the Court; and
(c) the claims do not otherwise have a real prospect of success and are inconsistent with the overarching purpose of the Civil Procedure Act 2010 (‘Vic’).
Preliminary applications
Before the court heard argument on Holding Redlich’s summons, Bodycorp raised three preliminary issues. In each case I rejected Bodycorp’s application or objection and said I would give reasons later. These are my reasons.
Should Holding Redlich’s lawyers be restrained from acting?
The first preliminary issue arose from Bodycorp’s own summons filed on 10 April 2017 (the day the summary judgment application was due to be heard)[4] by which it sought an order that the Court restrain Holding Redlich’s legal practitioners (including their solicitors and both counsel) from continuing to act on its behalf. It was supported by an affidavit of Antonio Murdaca (the sole director of Bodycorp) sworn 7 April 2017 and a further affidavit of Robert Richter QC sworn 10 April 2017.
[4]Apparently Bodycorp tried, unsuccessfully, to file the summons on the previous business day.
In substance, it was alleged that on 30 September 2016 Bodycorp approached Mr Richter QC to act on its behalf in another proceeding, Bodycorp Repairers Pty Ltd v Maisano & Ors (S CI 2016 02044). In that case, Bodycorp was seeking to set aside the orders of Elliott J made in the AAMI proceeding on the grounds that they had been obtained by fraud. Bodycorp was in the throes of defending a summary judgment application in that proceeding when its senior counsel at the time was unable to proceed. The matter had been stood down. It was in that context that Mr Richter had been approached to act.
Mr Murdaca deposed that Mr Richter declined to act, the case not being within his area of expertise but Mr Richter recommended Mr Crutchfield instead. Mr Murdaca, whose account was subsequently confirmed by Mr Richter (‘to the best of my recollection’), said that Mr Richter had telephoned Mr Crutchfield and spoke to him on speakerphone in Mr Murdaca’s presence. Mr Murdaca’s account is that Mr Richter–
… explained the circumstances of the withdrawal of [the senior counsel], the advice that [the senior counsel] provided to the plaintiff (that included his views on the merits of the case, and the detriments that would need to be confronted by the plaintiff to defeat the application for summary judgment and the revised advice that [senior counsel] provided in relation to the amended statement of claim that he settled and signed) and the dispute that arose between the plaintiff and [senior counsel] in the running of the matter.
Mr Murdaca said that he was later informed that Mr Crutchfield was not available to represent Bodycorp. In the meantime, Mr Richter had contacted Mr Levine, Bodycorp’s present counsel in this proceeding, to inquire if he would be willing to act as junior to Mr Crutchfield and Mr Levine had said ‘that would be fine’.
As I have already noted, Mr Crutchfield’s name appeared on Holding Redlich’s defence to Bodycorp’s amended statement of claim, the defence dated 17 days after the alleged conversation between Mr Richter and Mr Crutchfield. It was that fact, in combination with the other facts I have just mentioned, that gave rise to questions as to when Bodycorp first knew that Mr Crutchfield was acting for Holding Redlich and why Bodycorp took no step to apply to have him, and the other lawyers, restrained from acting until the morning of the hearing of the summary judgment application. In my view those questions were never satisfactorily explained by evidence.
Two affidavits were filed in opposition to Bodycorp’s application. One was sworn by Mr Crutchfield. He swore his affidavit before the affidavit of Mr Richter was made. Mr Crutchfield did not recall the conversation that Mr Murdaca deposed to and said he believed he knew nothing of any Bodycorp matters until he was briefed by Obst Legal to act on behalf of Holding Redlich in this proceeding. He gave particular reasons why he doubted that the conversation Mr Murdaca described had taken place. He said he did not believe he possessed any confidential information pertaining to Bodycorp whether relevant to the case in which he was now briefed or otherwise.
Mr Obst deposed to having a conference with Mr Crutchfield and Mr Batrouney on 17 October 2016 to discuss the merits of Holding Redlich’s defence and making the present application for summary judgment. Mr Obst said that at no time during that conference, nor by any other communication before or since, did Mr Crutchfield communicate anything to him that he suspected was information confidential to the plaintiff or that appeared to derive from any source other than instructions from his own office or documents in the public domain. No separate affidavit was sworn by Mr Batrouney.
Bodycorp advanced two essential grounds for arguing that the two counsel and the solicitors should be precluded from acting on behalf of Holding Redlich in those circumstances. The first placed reliance upon the Legal Profession Law Uniform Legal Practice Rules 2015 applicable to barristers and solicitors. Those Rules enshrine well known ethical rules of conduct in relation to what a barrister or solicitor must do when possessed of confidential information pertaining to another party. The second basis was the common law, in particular principles set out in cases such as Sent and Primelife Corporation Ltd v John Fairfax Publication Pty Ltd and Hills [2002] VSC 429 at [33]. Those authorities establish that whether or not a barrister remembers the details of a conversation which occurred, or is alleged to have occurred, the court will take into account any real and sensible possibility of a revival of recollection.
Upon Mr Richter’s affidavit being filed, I was informed that Mr Crutchfield would voluntarily decline to appear for Holding Redlich on the summary judgment application. In those circumstances, I announced that I would only deal with the plaintiff’s application for the purposes of hearing the summary judgment application itself and would otherwise adjourn the summons insofar as it may be pressed in relation to the balance of the proceeding.
I ruled that I would not restrain either Mr Batrouney, junior counsel, or Obst Legal, the solicitors, from acting for Holding Redlich for the purposes of the summary judgment application.
Allowing for the possibility that Mr Crutchfield did receive some confidential information in a phone call on or about 30 September 2016, I am nowhere near persuaded that there is any real or sensible possibility of that information having been communicated to either Mr Batrouney or Obst Legal. I have no reason to doubt Mr Crutchfield’s evidence (acknowledging he has not been cross-examined) that he has no recollection of the alleged discussion. If he had in fact passed on information, obtained confidentially, during his conference with Mr Obst and Mr Batrouney on 17 October (or at any other time) he would first have had to recall receiving it. I am not prepared to act on the presumption that Mr Crutchfield recalled having received confidential information and, having done so, passed it on to others knowing, as that hypothesis requires, that he was unethically conveying information acquired confidentially from the opposite party. There is little room to presume it may have happened inadvertently.
Making the improbable even less probable, I would also have expected Mr Obst or Mr Batrouney to have recognised that they were hearing information that could only have come from some confidential source. I am sufficiently satisfied that did not occur.
Furthermore, the substance of this application, turns on matters that are entirely ‘objective’. It is not dependent upon or likely to be affected by the input of any fact which could only come from the Bodycorp camp. Whether the action is statute barred, or Bodycorp’s conduct in bringing the proceeding involves an abuse of process because it has already litigated the issues in question, or the claim as pleaded lacks serious prospects of success, are all matters which are argued out of documents that are common to both parties.
In all the circumstances I am of the firm view that there is no sensible prospect of any prejudice to Bodycorp in Mr Batrouney and Obst Legal acting on the summary judgment application. At this stage, I say no more about the propriety of either Mr Crutchfield, Mr Batrouney or Obst Legal continuing to act for Holding Redlich beyond the application. That comment signals no inclination one way or another.
Should the affidavits of Mr Obst be admitted into evidence?
The second preliminary issue was the admissibility of two affidavits sworn by Mr Obst in support of the summary judgment application. The objection raised was that the affidavits contained hearsay. Rule 22.18(3) of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’) provides, in relation to an affidavit in support of a summary judgment application, that the affidavit ‘… may contain a statement of fact based on information and belief if the grounds are set out and, having regard to all the circumstances, the Court considers that the statement ought to be permitted’.
In answer to the allegation that it was retained by Bodycorp from in or about July 1997 to advise in respect of certain matters, Holding Redlich admitted that it had been retained, otherwise it did not admit the allegations and said further that its file was destroyed on or about 30 June 2010.[5] Holding Redlich repeated that last allegation in relation to other assertions made in the amended statement of claim about the conduct of the retainer, advice given and documents it had drawn.
[5]Paragraph 4 of Holding Redlich’s defence.
When asked what specific parts of the affidavits of Mr Obst were objected to, Bodycorp only pointed to paragraph 6 the affidavit sworn 29 March 2017. In that paragraph Mr Obst deposed that he was informed by Howard Rapke (Melbourne managing partner of Holding Redlich), and believed, that Holding Redlich’s file relating to the Bodycorp matter was opened 24 April 1998 and closed 11 July 2002, was given an archive box reference 0.1.4800 and was destroyed on 30 June 2010 in accordance with Holding Redlich’s general document destruction practices. A copy of the certificate of destruction was exhibited.
Bodycorp argued that the Court should not permit that hearsay evidence to be admitted on this application because it was of such critical importance it ought to have been sworn by Mr Rapke and he should have been made available for cross-examination. In essence, Bodycorp wanted to suggest that Holding Redlich may not have in fact destroyed its file, may have retained an electronic version of it or may have destroyed it (deliberately) in circumstances where it was aware that Bodycorp was suing AAMI and may at some future stage wish to sue Holding Redlich about the performance of its retainer in 1998-2002.
I rejected the objection made by Bodycorp and allowed the affidavits to be admitted. In my view, the arguments advanced by Bodycorp bordered on the fanciful and did not justify refusing hearsay evidence on the topic of the destruction of the file. It seemed a most improbable scenario that solicitors, apprehending that a client might sue them, would destroy their own file when they could reasonably expect the client to have retained its own records of advices from or documents drawn by those solicitors. That hypothesis appears to imply that solicitors would see greater advantage in not having their file with which to defend themselves than having it. There are no suggestions of sinister or nefarious dealings implying the possibility of a ‘cover up’: this case involves a straight allegation of negligent drafting and negotiation of agreements.
Should the court order Mr Rapke to attend for cross examination?
The third application was related to the second; it was that the court should, pursuant to r 22.21(1)(a) of the Rules, order the principal of Holding Redlich to attend court and be cross-examined. This application was again directed to having Mr Rapke attend court to be cross-examined on the subject of the destruction of the file or its possible existence in electronic form. In my view it was infected with the same implausibility as the last issue.
In this context, it is important to observe that the application for summary judgment had been filed as long ago as 5 December 2016. For various reasons, accommodating the interests of the court and the parties, it was not until Monday 10 April 2017 that time could be set aside (one day) for the hearing of the application. Bodycorp’s three applications that I have just referred to, including standing the matter down to enable it to obtain a further affidavit from Mr Richter, occupied the whole of the morning and into the early part of the afternoon.
Mr Obst’s affidavit containing the information provided by Mr Rapke had been sworn and filed on 29 March 2017. His earlier affidavit had been sworn and filed on 5 December 2016. Bodycorp objected to the admission of both Mr Obst’s affidavits. No notification was given by Bodycorp that it would object to Mr Obst’s affidavits or require Mr Rapke to be called to give evidence until the morning of the hearing. In the same vein, as I alluded to earlier there was no satisfactory evidence explaining why Bodycorp failed to bring its application to restrain Holding Redlich’s lawyers from acting in the proceeding until the hearing of the summary judgment application.
There were reasons to suspect that Bodycorp’s three applications were motivated to derail or delay the hearing of the summary judgment application and to force it being put off to another day. Acceding to the late application to have Mr Rapke attend and be cross-examined was likely to produce that very result.
Quite apart from the improbability of Bodycorp’s theory about Holding Redlich’s conduct in destroying the file in 2010, I have taken into account the imperative in the Civil Procedure Act to seek to give effect to the overarching purpose of the Act in the exercise of any powers. In my view, the imperative to facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute on this summary application militated against acceding to Bodycorp’s application to have Mr Rapke attend court for cross-examination.
Application for summary judgment
The test for summary dismissal is whether the respondent to the application has no real prospect of success: Civil Procedure Act, s 63. The Court of Appeal summarised the applicable principles in Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) VSCA 158 at [35] as follows:
(a) the test for summary judgment is whether the respondent to the application has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b) the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ put forward in General Steel;
(c) it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test put forward in General Steel; and
(d) the power of summary dismissal is to be exercised with caution unless it is clear that there is no real question to be tried (where the conception of a ‘real’ question to be tried is understood as one of a question which realistically might result in the respondent to an application for summary judgment succeeding in the proceeding).
A court may also stay or summarily dismiss a proceeding that is an abuse of process of the court (r 23.01(1)), including on the ground that it involves the re-litigation of issues it has already decided. In State Bank of New South Wales Ltd v Stenhouse Ltd (1997) Aust Torts Reports 81-423, Giles CJ said –
... an abuse of process because a party seeks to relitigate an issue already decided depends very much on the particular circumstances. The guiding considerations are oppression and unfairness to the other party to the litigation and concern for the integrity of the system of administration of justice, and amongst the matters to which regard may be had are
(a)the importance of the issue in and to the earlier proceedings, including whether it is an evidentiary issue or an ultimate issue;
(b) the opportunity available and taken to fully litigate the issue;
(c)the terms and finality of the finding as to the issue;
(d)the identity between the relevant issues in the two proceedings;
(e) any plea of fresh evidence, including the nature and significance of the evidence and the reason why it was not part of the earlier proceedings; all part of –
(f) the extent of the oppression and unfairness to the other party if the issue is relitigated and the impact of the relitigation upon the principle of finality of judicial determination and public confidence in the administration of justice; and
(g) an overall balancing of justice to the alleged abuser against the matters supportive of abuse of process.[6]
[6](1997) Aust Torts Reports 81-423; see also Putt v Perfect Builders Pty Ltd [2013] VSC 600 [22] (Kyrou J).
Limitation of action
Bodycorp commenced this proceeding by writ filed 20 July 2016. There is no dispute that the applicable limitation period is that prescribed in s 5 of the LAA for causes of action in contract and tort, namely six years from the date on which the cause of action accrued. It is also not in dispute that a cause of action in tort accrues when damage is first suffered.[7] The critical question here is the identification of the date or event upon which damage occasioned by Holding Redlich’s alleged negligence was first suffered.
[7]Hawkins v Clayton (1988) 164 CLR 539, 587-8 (‘Hawkins’).
Bodycorp argued that, properly analysed, the loss it has sustained as a consequence of Holding Redlich’s negligence was contingent upon whether a court would enforce the restraint of trade clause in the AAMI agreement. Until a court refused to enforce that clause Bodycorp did not suffer loss and damage from the negligence of Holding Redlich (assuming it to be established) drafting an agreement with an ineffective restraint of trade clause or not advising Bodycorp that it was or may be ineffective.
Bodycorp relied heavily upon the principle in Wardley Australia Limited and Another v The State of Western Australia[8] where the court distinguished actual loss or damage incurred from potential or likely damage.[9] Bodycorp highlighted the statement in that case in which the Court said:
… the plaintiff suffers no actual damage until the contingency is fulfilled and the loss becomes actual, until that happens the loss is prospective and may never be incurred.[10]
[8](1992) 175 CLR 514 (‘Wardley’).
[9]Ibid 526-27 (Mason CJ, Dawson, Gaudron and McHugh JJ).
[10]Ibid 532; see also 544 (Dean J).
Bodycorp also drew a comparison between its case and the facts and circumstances in Van Win Pty Ltd v Eleventh Mirontron Pty Ltd[11] in which Kaye J (with whom the others agreed) said of a third party claim brought by the City of Kew, in an action brought against it by Van Win Pty Ltd, :
The damage pleaded and particularized by the City of Kew is financial loss, which it will incur by its liability to satisfy any judgment for damages recovered against it by Van Win and the costs of defending the counterclaim. Thus the damage alleged being in futuro...the claim made by the City of Kew is for inchoate damage which might subsequently be suffered by it. Consequently, damage being the gist of an action in tort to recover damages, the City of Kew's cause of action against Ramchen has not yet arisen. Indeed, in the event of Van Win failing in its counterclaim for damages against the City of Kew or discontinuing those proceedings, the City of Kew would not suffer damage. Consequently, its cause of action against Ramchen may never crystallize.[12]
[11]Van Win Pty Ltd v Eleventh Mirontron Pty Ltd (1986) VR 484. (‘Van Win’)
[12]Van Win 489.
Factual context
In summary, the essential factual circumstances in which this argument arises is as follows:
(a) Bodycorp was a franchisor of motorcar smash repair shops;
(b) It entered franchise agreements with franchisors for the conduct of a Bodycorp repair shop in a particular territory in Melbourne;
(c) Bodycorp had a separate arrangement with AAMI under which AAMI agreed to afford ‘recommended repairer’ status to Bodycorp franchisees, a valuable status for the franchisee as it would secure a certain volume of business;
(d) Holding Redlich is alleged to have acted for Bodycorp in drafting individual agreements between Bodycorp and its franchisees (an allegation that is not admitted and, on the present evidence, may be doubted);
(e) Holding Redlich acted on behalf of Bodycorp in negotiating and drafting the agreement between Bodycorp and AAMI, made on 29 June 1998, to give effect to the arrangement described above;
(f) A provision in the AAMI agreement (clause 1.3) obliged AAMI, between 29 June 1998 and 29 June 2000, not to recognise any former franchisee of Bodycorp as having recommended repairer status or to request a former franchisee to prepare or quote for the repair of a damaged car for a period of six months after the termination of a Bodycorp franchise;
(g) For various reasons, many of Bodycorp’s franchisees terminated their franchise arrangements with Bodycorp from mid-1998 onwards but AAMI continued to afford them recommended repairer status and to request them to prepare quotes for the repair of damaged cars within the six month period after the termination — in other words, AAMI did not comply with the restraint of trade clause;
(h) Holding Redlich ceased acting for Bodycorp no later than 11 July 2002 when it closed its file;
(i) Bodycorp filed a statement of claim in the AAMI proceeding[13] on 10 December 2002 in which, inter alia, it alleged that AAMI had breached the AAMI agreement by not observing the restraint of trade clause in the manner described above;
[13]Commenced in the Federal Court of Australia (V752 of 2002).
(j) By defence filed on 21 October 2003, AAMI alleged that the restraint of trade clause was void and unenforceable as an unreasonable restraint of trade;
(k) The AAMI proceeding was subsequently transferred to the Supreme Court of Victoria and ultimately came on for trial before Elliott J in May 2013;
(l) On 4 September 2013 Elliott J gave judgment[14] in which, amongst other things, his Honour concluded that the restraint of trade was unreasonable and therefore unenforceable[15] and further dismissed Bodycorp’s claims against all defendants (including a former franchisee of Bodycorp);
(m)Bodycorp issued this proceeding against Holding Redlich on 20 July 2016.
[14]Bodycorp Repairers Pty Ltd v Maisano (No 8) [2013] VSC 472.
[15]Ibid [155].
The relationship between Bodycorp’s franchise business, the AAMI recommended repairer status and the intended trade restraint to be imposed on AAMI, was set out by the Court of Appeal on the appeal from Elliott J’s judgment in the following terms:[16]
[16]Bodycorp Repairers Pty Ltd v AAMI & Martin [2015] VSCA 73.
Australian Associated Motor Insurers Ltd (‘AAMI’) is a motor vehicle insurer. In the mid-1990s, Bodycorp Repairers Pty Ltd (‘Bodycorp’) established a franchise business which involved Bodycorp entering into franchise agreements with smash repairers.[17]
[17]Ibid [1].
…
In the early to mid-1990s, AAMI introduced a two quote system requiring two independent quotes for each repairer of an insured vehicle. At the same time, AAMI developed a system by which it identified and accredited certain motor vehicle repairers as recommended repairers, and entered into recommended repairer agreements with them. It was a usual term of a recommended repairer agreement that AAMI would ensure that its customers obtained at least one quotation from a recommended repairer.
… Some of Bodycorp’s franchisees were AAMI recommended repairers, and some were not. Bodycorp entered into franchise agreements with its franchisees for three year terms. Each franchisee paid a fee of eight per cent of their turnover to Bodycorp.
The AAMI recommended repairer agreements entitled AAMI or the recommended repairer concerned to terminate the AAMI recommended repairer agreement upon giving two weeks’ notice.[18]
[18]Ibid [13], [14], [15].
…
In November 1997, AAMI entered into an agreement with Bodycorp. That agreement was said to provide that, if at any time before 29 June 2000, a Bodycorp franchisee who was an AAMI recommended repairer ceased to be a Bodycorp franchisee, AAMI would take various steps, the effect of which would be that the former Bodycorp franchisee could no longer conduct its business as a recommended repairer of AAMI for six months. This agreement was later embodied in a document dated 29 June 1998 (the ‘AAMI agreement’).
Clause 1.3 of the AAMI Agreement provided:
1.3AAMI agrees that if any of the AAMI Recommended Repairers listed in Schedule 1 cease to be a Bodycorp franchisee the (sic) (‘former Bodycorp franchise’) at any time within the two year period following the execution of this agreement then:
(a)AAMI will promptly give written notice terminating the AAMI Recommended Repairer Agreement with the former Bodycorp franchisee;
(b)AAMI will take reasonable steps to ensure that AAMI Recommended Repairer signs are not displayed by the former Bodycorp franchisee within 21 days of the giving of notice under clause 1.3(a);
(c)AAMI will in the ordinary course not request the former Bodycorp franchisee to prepare a quote for the repair of a damaged car for a period of six months from the giving of notice pursuant to clause 1.3(a);
(d)AAMI will not re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer for a period of six months from the giving of notice pursuant to clause 1.3(a); and
(e)AAMI may in its absolute discretion re-appoint the former Bodycorp franchisee as an AAMI Recommended Repairer six months after the giving of notice pursuant to clause 1.3(a).[19]
[19]Ibid [2], [3].
In the current proceeding against Holding Redlich, Bodycorp alleges that 11 of its franchisees terminated their franchise agreements before the end of the franchise term and Bodycorp itself terminated another in July 1998.[20] Further, Bodycorp alleges:
[20]Amended Statement of Claim dated 13 September 2016, [19], [20] ‘ASOC’.
21In breach of the AAMI agreement, notwithstanding that each of the franchisees referred to [in other paragraphs] ceased to be franchisees of [Bodycorp], AAMI –
a)Failed to give written notice terminating the recommended repairer agreement with any of those former franchisees or, in the case of the Moorabbin, Melton and Berwick franchisees, revoke the notice which it had given;
b)Did not require any of those former franchisees to remove ‘Recommended Repairer’ signs;
c)Instead, continued to recognise each of those former franchisees as recommended repairers, and to request them to prepare quotes for the repair of damaged cars.
22 By reason of those breaches and each of them –
a)AAMI had no need to appoint a recommended repairer to replace any of those former franchisees; and
b)as a result, [Bodycorp] was unable to enter a new franchise agreement with any new franchisee in the area serviced by the former franchisees, because in each such area the former franchisee retained its recommended repairer status and the associated substantial competitive advantage over any new entrant.
23As a result, [Bodycorp] suffered and continues to suffer loss and damage.[21]
[21]ASOC, [21], [22], [23].
The loss which Bodycorp claimed against AAMI in the AAMI proceeding was Bodycorp’s loss resulting from its inability to enter franchise agreements with new franchisees in the area serviced by the former (terminated) franchisee.[22] That loss was particularised by reference to the 11 relevant franchises as follows:
[22]Ibid [Schedule A], Affidavit of Howard Obst sworn 5 December 2016 [exhibit HSO4].
Bodycorp Caulfield $163,520 Bodycorp Clayton $281,061 Bodycorp Geelong $99,488 Bodycorp Nunawading $125,762 Bodycorp Melton $314,032 Bodycorp Moorabbin $395,215 Bodycorp Mornington $320,021 Bodycorp Spotswood $320,820 Bodycorp Sunbury $242,924 Bodycorp Heidelberg $180,000 Bodycorp Berwick $370,020[23] [23]ASOC, [Schedules C & E].
In the present proceeding against Holding Redlich, it is alleged that Holding Redlich failed to exercise reasonable care by not including a ‘replacement clause’ in the AAMI agreement (which I have taken to mean a substituted restraint of trade clause) or renegotiating the individual franchise agreements with each franchisee to include restraint of trade clauses.[24] It is further alleged that had Holding Redlich advised Bodycorp with due care, Bodycorp would have required AAMI to include ‘a replacement clause’ in the AAMI agreement and would have renegotiated its individual franchise agreements with each franchisee to include restraint of trade clauses. Upon breach, Bodycorp alleges it would have sued (presumably, successfully) to enforce the restraints in the AAMI agreement and each of the individual franchise agreements.[25]
[24]Ibid, [34], [35], [36].
[25]Ibid [Particulars to paragraph 36].
Bodycorp claims that, but for the negligence of Holding Redlich, it ‘would have sued to enforce its agreement with AAMI and would have recovered damages equal to the loss and damage suffered by reason of AAMI’s breaches of the AAMI agreement’.[26] It makes a corresponding allegation with respect to what it would have done had Holding Redlich given non-negligent advice in relation to the inclusion of restraint of trade clauses in the individual franchise agreements.
[26]Ibid [37(a)].
Due to Holding Redlich’s alleged negligence, Bodycorp claims to have suffered loss and damage. That loss and damage is identified in schedule B to the amended statement of claim in the following terms:
Had the AAMI agreement been performed, such that the recommended repairer agreement with each former franchise was terminated promptly following the termination of the franchise agreement, [Bodycorp] would have been able to enter into a new franchise agreement with a new franchisee to service the area serviced by the former franchisee. [Bodycorp’s] losses resulting from its inability to do so are commensurate with its losses resulting from the termination of the respective franchise agreements as follows.
There follows precisely the same table of losses, listed by reference to each Bodycorp franchise, as is set out above at paragraph [41].
In short, the description and particularisation of the loss caused by Holding Redlich’s alleged negligence is precisely the same as the description and particularisation of the loss alleged to have been caused by AAMI’s breach in the AAMI proceeding.
On this basis Holding Redlich has argued that the loss which Bodycorp is claiming against it as a consequence of the alleged negligence is loss and damage that was first suffered by no later than 29 June 2000, being the end of the period within which AAMI was required to have complied with the restraint of trade clause. By that date, all relevant franchisees had exited their franchises and AAMI had failed or refused to comply with the restraint clause in the AAMI agreement.[27]
[27]Ibid [19], [20], [21].
As mentioned earlier, Bodycorp’s argument is that its loss and damage as a consequence of Holding Redlich’s alleged negligence was not suffered until the court found in 2013 (then verified on appeal) that the restraint of trade clause in the AAMI agreement was not enforceable. Up until that time, Bodycorp argues, its loss and damage was contingent only. That is, it was contingent upon the court deciding whether or not to enforce the restraint of trade. Had it held the clause was enforceable, AAMI would presumably have been liable for the losses Bodycorp says it suffered and there would have been no loss and damage to claim against Holding Redlich.
Analysis
In determining when loss is first suffered in a case of pure economic loss — as is alleged in this case — it may be necessary to identify precisely the interest of the plaintiff that has been infringed by the alleged negligent act or omission of the defendant.[28]
[28]Hawkins 601, Gaudron J; Wardley, 527, Mason CJ, Dawson, Gaudron and McHugh JJ; Commonwealth of Australia v Cornwell (2007) 229 CLR 519, 525 [16] (Gleeson CJ, Gummow, Kirby, Hayne, Heydon and Crennan JJ).
In Wardley, the majority said —
The kind of economic loss which is sustained and the time when it is first sustained depend upon the nature of the interest infringed and, perhaps, the nature of the interference to which it is subjected.[29]
[29]Wardley, 527.
In Hawkins, Gaudron J expanded upon the meaning of economic loss in this context in the following terms –
Economic loss … imports loss sustained by a juristic entity in relation to the assets or liabilities of that entity.[30]
[30]Hawkins, 601, Gaudron J.
In this case, Bodycorp had a particular business model and structure which it sought to preserve and enhance by the imposition of certain trading restraints on other participants in the market in which it operated. The successful imposition of those trading restraints would have provided it with a six month window of opportunity, following the termination of a franchise in a particular territory, to attract and establish a replacement franchisee. The value to Bodycorp of the trade restraint was that it would make a franchise opportunity in that territory more appealing to a would-be new franchisee. That is because the new franchisee would not have to compete with another repairer having the competitive advantage of being an AAMI recommended repairer for at least six months. For Bodycorp, that circumstance optimised its chance of establishing a new franchisee who would pay it eight percent of turnover.
Seen in this way, the inclusion of a valid and enforceable restraint of trade clause in either or both the individual franchise agreements and the AAMI agreement was intended and designed to preserve or even add value to the Bodycorp business as a going concern.
To postulate that Holding Redlich was negligent in advising Bodycorp, or in drafting and negotiating the AAMI agreement, involves an assumption that a legally enforceable restraint of trade clause that would achieve what Bodycorp wanted (at least partially) could have been drafted. Making that assumption, and assuming that Holding Redlich negligently failed to –
(a) advise Bodycorp that it should renegotiate existing franchise agreements with franchisees to include an enforceable restraint of trade clause; and/or
(b) draft and include in the AAMI agreement an enforceable restraint of trade clause –
the question to be answered is: what was the ‘interest’ of Bodycorp that was thereby infringed?
In my view, the answer to that question is clear. Bodycorp’s interest was its interest in preserving the income-stream from franchises in its various territories. The imposition of a legally enforceable restraint of trade clause was designed to enable Bodycorp to protect its business operation and value. With an enforceable restraint it could do that by preventing AAMI, by injunction if necessary, from giving recommended repairer status to ex-franchisees for six months after the franchise terminated. The moment AAMI offered repair work to ex-franchisees within that six month period, and Bodycorp was powerless to prevent it, Bodycorp sustained loss to its business.
From 1998 onwards AAMI acted as if the restraint of trade clause was unenforceable. There is no evidence that Bodycorp ever sought to restrain AAMI by injunction. Had it done so in 1998, or soon thereafter, it might have discovered then that the clause was unenforceable. But ‘discovery’ is not the issue here. At law, the clause was unenforceable in 1998 as it was so held in 2013. In focus here is the question of when Bodycorp’s right, intended to be protected by the legal services provided by Holding Redlich, had been infringed. In my view it was infringed when AAMI ignored the restraint, Bodycorp was legally powerless to enforce it and its business suffered accordingly. That occurred between June 1998 and June 2000.
Bodycorp’s argument implies that the relevant right infringed by Holding Redlich’s (assumed) negligence was a right to be able to recover monetary compensation from AAMI for the breach of an enforceable restraint of trade. In my view that is a mischaracterisation of the primary right intended to be protected or, assuming negligence, was infringed. It may well be that a secondary benefit of an enforceable restraint of trade was the ability to obtain compensation for the business loss sustained by any breach. But the primary right that was designed to be secured by the restraint of trade clause was a legal right to restrain trade. Plainly, that is how the ongoing business was to be protected.
Bodycorp’s case cannot be equated with the facts and circumstances in Wardley’s case. In that case, Wardley induced Western Australia (‘WA’) to enter an indemnity by misleading and deceptive conduct. Later, the indemnified party, the National Australia Bank, suffered loss. The High Court held that until the bank suffered a loss that crystallised WA’s liability to pay under the indemnity, WA had suffered no actual loss. Its loss before that time was subject to a contingency – that contingency being that the indemnified party should suffer a loss to which the indemnity responded.
The present case is not analogous. It is contrived to suggest that Holding Redlich was retained to provide Bodycorp with an ‘indemnity’ against loss — in the form of a right to recover damages from AAMI — should AAMI fail to adhere to the restraint it was contractually obliged to comply with. Yet that is what Bodycorp’s analysis implies. It implies that it was only when the ‘contingency’ constituted by an inability to recover from AAMI damages equal to its business loss sustained through AAMI’s non-compliance with the restraint of trade occurred that Bodycorp first sustained any loss from Holding Redlich’s negligence. For the ‘contingency’ analysis to apply, one has to overlook the business loss caused by the failure of the primary protection and look only to the failure to obtain damages, equal to that business loss, for breach. Except for the purpose of artificially deferring the first occasion of loss, there is no reason to do so.
In my opinion, the analogy Bodycorp attempts to draw between its claim against Holding Redlich in this case and a third party action such as the one discussed in Van Win, is even more remote.
Bodycorp’s pleading and particularisation of its loss occasioned by Holding Redlich’s alleged negligence exposes the flaw in its own analysis. The losses it claims are the very business losses it sustained in 1998 onwards from not being able to prevent AAMI from continuing to send repair work to ex-franchisees after the franchise terminated.
Bodycorp tried to support its argument by postulating what would have occurred had it tried to sue Holding Redlich between 1998 and 2004 without having first sued AAMI to judgment. It argued that it would have been met with a good defence, namely that it could not establish any loss unless and until it first tried but failed to recover against AAMI. That argument must be rejected.
Bodycorp could have sued Holding Redlich independently of AAMI. It could have taken the view (upon advice) that:
·it was unlikely to persuade a court that the restraint of trade clause was a reasonable restraint and the clause was likely be struck down;
·therefore, it would not succeed against AAMI;
·the restraint clause could (with reasonable care) have been drawn in such a way that it would have been enforceable; and
·it should sue Holding Redlich claiming as its loss the business loss it suffered because it was unable to restrain AAMI from referring repair work to ex-franchisees in the territories where Bodycorp was attempting to establish a new franchise.
In that proceeding, adopting its present allegations, Bodycorp could have established as against Holding Redlich that the restraint of trade clause was unenforceable, that Holding Redlich had been negligent in drafting it and had caused Bodycorp to suffer loss because AAMI had been free to disregard the restraint. There would have been no need to join AAMI to that proceeding, or to sue it first as a condition of bringing the suit against Holding Redlich.
Bodycorp also complained that it was unjust for it to be put to a choice or election whether to sue one party or the other. That is not a decisive or even relevant consideration when evaluating when Bodycorp first suffered loss from Holding Redlich’s alleged negligence. In any event, there are numerous ways it could have ameliorated that inconvenience. Apart from electing to first sue Holding Redlich as I have described, it might have proceeded with a claim against AAMI in a more expeditious way than the 11 years it took to bring the AAMI proceeding to trial. It might have sued AAMI and Holding Redlich in the alternative in the same proceeding. It might have issued against Holding Redlich within time but withheld service while it completed its claim against AAMI. It might have served a proceeding issued against Holding Redlich and sought a stay until the completion of the AAMI proceeding. But these are all answers to the wrong question. The critical question is when loss and damage was first suffered from the alleged negligence of Holding Redlich. In my view, it was first suffered when AAMI ignored the unenforceable restraint and Bodycorp’s business was thereby harmed. On any view, that had taken place by 29 June 2000.
Before concluding, I should observe that, on any view, a cause of action based upon Holding Redlich’s failure to advise Bodycorp to include restraint of trade clauses in the individual franchise agreements must have accrued in 1998 or shortly thereafter. Those agreements did not contain any restraint of trade clause. Because there was no clause, no argument could arise about the loss being contingent upon a court holding that the clause was unenforceable or that damages could not be recovered against the franchisees for breach. The damage was suffered immediately by Bodycorp not having a mechanism to prevent the ex-franchisees continuing to take AAMI work.
If that is so, it would be an illogical result if a cause of action accrued because, due to lack of care, no restraint was included and damage was thereby caused, but would not accrue if, due to lack of care, a restraint that was included was legally ineffective and the same damage resulted.
Conclusion
In conclusion, the causes of action founded upon Holding Redlich’s alleged negligence in either not advising Bodycorp to include restraint of trade clauses in the individual franchise agreements or for negligently drawing the restraint clause which was included in the AAMI agreement are long since statute barred. They were statute barred six years after Bodycorp sustained business loss by reason of AAMI continuing to feed repair business to ex-franchisees within the six month period after their franchises expired with Bodycorp. On the evidence, that six year period was likely to have expired in the second half of 2004 but must have expired by the second half of 2006. This proceeding was not instituted until 2016.
Other grounds
I will only touch briefly on the alternative grounds which Holding Redlich raised for its application, namely abuse of process and that the claims do not otherwise have a real prospect of success.
Had I concluded that Bodycorp’s claim against Holding Redlich was not statute barred, and that loss did not accrue until the conclusion of the AAMI proceeding, it is difficult to see why it would be an abuse of process for Bodycorp to only litigate its claim against Holding Redlich now. I would have rejected the application upon that ground.
Further, in respect of the third alternative ground, I am not persuaded that any weakness in Bodycorp’s case in view of Elliott J’s findings is such that I should conclude that Bodycorp has no real prospect of success. Although the findings made by his Honour, on the evidence before him, may not engender a high degree of confidence in Bodycorp’s prospects of success, particularly on the question of causation, the parties would not be bound by the findings made in the AAMI proceeding. I would have rejected the application on that ground.
Conclusion
For the reasons I have given, in my view Holding Redlich’s defence under s 5 of the LAA must succeed. That defence having being taken, I therefore uphold Holding Redlich’s application for summary judgment on the ground that Bodycorp has no real prospect of success in its claim.
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