Ce McDonald (Aust) Pty Limited v McGrath
[2001] FCA 543
•11 MAY 2001
FEDERAL COURT OF AUSTRALIA
CE McDonald (Aust) Pty Limited v McGrath [2001] FCA 543
Trade Practices Act 1974 (Cth) ss 52, 75B(1), 82, 79
Fair Trading Act 1992 (ACT) ss 11, 12, 46
Fair Trading Act 1987 (NSW) ss 41, 42, 68
Federal Court Rules O 11 r 10, O 32 r 2(1)(d)CE McDONALD (AUST) PTY LIMITED (ACN 001 584 603), AUSTRALIAN CANOPIES (MOTOR TRADE) PTY LIMITED (ACN 001 789 644), TOM KOKSAL and GARRY MORTON v COLIN McGRATH
ACT G29 of 1997BRANSON J
SYDNEY
11 MAY 2001
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
ACT G29 of 1997
BETWEEN:
CE McDONALD (AUST) PTY LIMITED (ACN 001 584 603)
FIRST CROSS-CLAIMANTAUSTRALIAN CANOPIES (MOTOR TRADE) PTY LIMITED
(ACN 001 789 644)
SECOND CROSS-CLAIMANTTOM KOKSAL
THIRD CROSS-CLAIMANTGARRY MORTON
FOURTH CROSS-CLAIMANTAND:
COLIN McGRATH
CROSS-RESPONDENTJUDGE:
BRANSON J
DATE OF ORDER:
11 MAY 2001
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1. The making of orders on the cross-claim be stood over for fourteen (14) days.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
ACT G29 OF 1997
BETWEEN:
CE McDONALD (AUST) PTY LIMITED (ACN 001 584 603)
FIRST CROSS-CLAIMANTAUSTRALIAN CANOPIES (MOTOR TRADE) PTY LIMITED
(ACN 001 789 644)
SECOND CROSS-CLAIMANTTOM KOKSAL
THIRD CROSS-CLAIMANTGARRY MORTON
FOURTH CROSS-CLAIMANTAND:
COLIN McGRATH
CROSS-RESPONDENT
JUDGE:
BRANSON J
DATE:
11 MAY 2001
PLACE:
SYDNEY
REASONS FOR JUDGMENT
Background
This proceeding has had a complex history.
On 22 April 1997 Spyglass Pty Limited (“Spyglass”), a dealer in motor cars, instituted a proceeding against CE McDonald Pty Limited (“McDonald”), Soothcast Pty Limited (“Soothcast”), Australian Canopies (Motor Trade) Pty Limited (“Australian Canopies”), Tom Koksal (“Mr Koksal”), Colin McGrath (“Mr McGrath”) and Garry Morton (“Mr Morton”) claiming relief under the Trade Practices Act 1974 (Cth) (“the TPA”) and the Fair Trading Act 1992 (ACT) (“the FTA (ACT)”). Spyglass alleged that, in reliance on various representations made to it by the corporate respondents, it had entered into a contract with Soothcast, or alternatively Soothcast and Australian Canopies, for the supply and installation of hail canopies. Spyglass asserted that the individual respondents were knowingly concerned in the making by the corporate respondents of the various representations and that the representations were misleading and deceptive within the meaning of s 52 of the TPA. Spyglass further alleged that, in breach of the terms and conditions of the contract, the hail canopies that were supplied and installed were not in conformity with the plans, specifications and drawings submitted to it, were not suitable for their purpose and were not of merchantable quality.
On 4 December 1997, McDonald, Australian Canopies, Mr Koksal and Mr Morton filed a cross-claim against Soothcast and Mr McGrath. The cross-claimants alleged that McDonald, Australian Canopies and Soothcast had entered into a joint venture agreement pursuant to which:
(a)McDonald would provide marketing services and promote the sale of hail canopies by Australian Canopies to the car trade;
(b)Australian Canopies would sell hail canopies made by Soothcast; and
(c)Soothcast would manufacture and install hail canopies, as ordered by Australian Canopies.
The cross-claimants further alleged that these were terms of the joint venture agreement that the hail canopies to be supplied and installed by Soothcast would be reasonably fit for their purpose, of merchantable quality and manufactured and installed in a good and tradesmanlike manner using good and proper materials and in accordance with any plans, specifications and drawings. The cross-claim also claimed relief against the cross respondents under the TPA, and the FTA (ACT) or the Fair Trading Act 1987 (NSW) (“the FTA (NSW)”). The cross-claimants claimed, in effect, that they be indemnified by the cross-respondents in respect of any amounts found to be payable by them to Spyglass. The cross-claim was amended on 16 February 1998.
On 6 December 1999 the following orders were made in the proceeding:
“By consent and without admissions, the court orders that:
1.There be verdict and Judgment against the First Respondent in the sum of $85,500.00.
2.The First Respondent pay 90% of the Applicant’s costs (which costs are agreed in the sum of $180,000.00); ie $162,000.00.
3.The Applicant is not to enforce Orders 1 and 2 above, provided that:
(a)the First Respondent pays $90,000.00 on or before 6 December 1999;
(b)the First Respondent pays $90.000.00 on or before 31 July 2000; and
(c)the First Respondent pays $67,500.00 on or before 31 July 2001.
4.[There be] verdict and Judgment against the Sixth Respondent in the sum of $9,500.00.
5.The Sixth Respondent pay 10% of the Applicant’s costs (which costs are agreed in the sum of $180,000.00); ie $18,000.00.
6.The Applicant is not to enforce Orders 4 and 5 provided that:
(a)the Sixth Respondent pays $10,000.00 on or before 6 December 1999;
(b)the Sixth Respondent pays $10,000.00 on or before 31 July 2000;
(c)the Sixth Respondent pays $7,500.00 on or before 31 July 2001.
7.The Applicant have leave to discontinue the proceedings pursuant to Order 22 Rule 2 as against the Third and Fourth Respondents with no order as to costs.
8.The proceedings against the Second and Fifth Respondents [be] stood over to 10 March 2000 in Canberra at 9:30am.”
By order dated 3 April 2000, which took effect on 17 April 2000, the principal proceeding was discontinued as against the second and the fifth respondents. At the same time a cross-claim that had been filed by Soothcast against Spyglass seeking, in effect, payment for the hail canopies, was dismissed with no order as to costs. As a result of the orders of 6 December 1999 and 3 April 2000, only the cross-claim of McDonald, Australian Canopies, Mr Koksal and Mr Morton against Soothcast and Mr McGrath remained on foot.
In or about June 2000 a liquidator was appointed to Soothcast. No applicant has been made by the cross-claimant for leave to proceed against Soothcast (In Liquidation). The cross-claim has been maintained only against Mr McGrath.
On 4 July 2000 the matter came before me for the first time when it was listed for direction on the outstanding cross-claim. I made certain orders for the preparation of the cross-claim for hearing and authorised the cross-claim to be listed for hearing.
On 26 July 2000 the solicitor who had been representing both Soothcast and Mr McGrath filed a notice that he had ceased to act for them. He advised that the last address of his former clients known to him was “210 Thomsons Road, Kingsholme QLD 4208”. No solicitor has subsequently notified the Court that he or she is acting on behalf of Mr McGrath and Mr McGrath has not himself attended any Court hearings since his previous solicitor ceased to act for him.
When the cross-claim was called for hearing on 5 October 2000 there was no appearance by or on behalf of Mr McGrath. The legal representative for the cross-claimants advised the Court that his clients wished to file further affidavit evidence and also amend their cross-claim. I granted the cross-claimants leave to file further affidavits and to amend the cross-claim but on the basis that the hearing would be adjourned to allow service of the affidavits and the amended cross-claim on Mr McGrath “by personal service or by posting the documents to him at his last known residential address by a form of post which will result in evidence of delivery becoming available to the cross-claimants”.
The cross-claim was again listed for hearing on 8 December 2000. There was no appearance by or on behalf of Mr McGrath. Again, for reasons, which it is unnecessary to set out, it was necessary to adjourn the hearing. Certain orders and directions were made on that day including an order that the cross-claim be listed for hearing on 18 April 2001.
On 18 April 2001 the cross-claim was heard in the following circumstances. Again there was no appearance by or on behalf of Mr McGrath. Evidence was placed before the Court that a letter dated 11 December 2000, sent by registered post by the cross-claimants’ solicitor to Mr McGrath at his last known residential address, advising Mr McGrath of the orders and directions made on the cross-claim on 8 December, had been returned as unclaimed. Evidence was also placed before the Court that a further letter was sent by ordinary mail by the cross-claimants’ solicitor to Mr McGrath which included, among other things, a copy of the letter of 11 December 2000. That letter was not returned to the cross-claimants’ solicitor.
While I could not be positively satisfied that Mr McGrath was aware that the cross-claim was listed for hearing on 18 April 2001, I was satisfied that the cross-claimants had taken reasonable steps in the circumstances to advise him of the date and time of the hearing. The solicitor for the cross-claimants had sent letters to him, by both registered and ordinary mail, at the address of which his former solicitor had given notice. I was satisfied that neither the cross-claimants nor the Court was aware of any other address at which Mr McGrath could be contacted. I also regarded it as significant that an order had been made authorising the cross-claim to be listed for hearing at a time when Mr McGrath still had the benefit of legal representation. I considered it likely that Mr McGrath had been advised of the making of that order. Nonetheless, when his solicitor had ceased to act for him, Mr McGrath had not caused the Court or the cross-claimants to be advised of any address, other than that of which his former solicitor had given notice, at which he could be contacted. Nor did the Court’s file suggest that he had contacted the Court seeking information as to the listing of the cross-claim or at all. For the above reasons I gave the cross-claimants leave, pursuant to O 32 r 2(1)(d) of the Federal Court Rules, to proceed on the cross-claim in Mr McGrath’s absence.
Pleadings
The further amended cross-claim claims relief against Mr McGrath on the basis, first, that he made representations to the cross-claimants, upon which they relied in engaging in “contractual negotiations with [Spyglass]”, and that by doing so he engaged in conduct which was misleading or deceptive within the meaning of s 12 of the FTA (ACT) or alternatively within the meaning of s 42 of the FTA (NSW). The second basis upon which relief is claimed against Mr McGrath is that he:
“in breach of s 79 of the Trade Practices Act 1974:-
(a)aided, abetted, counselled or procured Soothcast to breach s 52 of the Trade Practices Act 1974 (Cth) as pleaded above [ie re Soothcast]; and/or
(b)was directly or indirectly, knowingly concerned in, or party to the breach of the Trade Practices Act 1974 (Cth) as pleaded above.
Particulars
(i)at all material times McGrath was a director and shareholder of Soothcast;
(ii)at all material times McGrath was the controlling mind of Soothcast;
(iia)the Representations were made by McGrath on behalf of Soothcast;
(iii)McGrath was involved in the making of the Representations and the Continuing Representation;
(iv)Soothcast’s performance of the Spyglass Agreement was under the direct control of McGrath.”
The reference in the further amended cross-claim to s 79 of the TPA is curious. Section 79 of the TPA creates a criminal offence punishable on conviction by fine. The proceeding before me is not a criminal proceeding. Moreover, s 79 is concerned with contraventions of certain provisions of Part V of the TPA – but not with contraventions of s 52.
The further amended cross-claim claims the sum of $20,185.00 as a commission allegedly payable pursuant to a contract to a joint venture agreement between McDonald, Australian Canopies and Soothcast. However, it is not alleged by the further amended cross-claim that Mr McGrath was a party to the joint venture agreement or otherwise obliged to pay the commission allegedly due thereunder. The further amended cross-claim also alleges that it was an implied term of the joint venture agreement that Soothcast would indemnify McDonald and Australian Canopies against any liability arising from, in effect, breach of the joint venture agreement by Soothcast. Again however, no basis is identified in the further amended cross-claim pursuant to which any contractual claim arising out of the joint venture agreement can be made against Mr McGrath.
By his defence to the amended cross-claim (no defence to the further amended cross-claim has been filed), Mr McGrath substantially admitted making the representations pleaded by the cross-claimants. However, Mr McGrath did not admit that the cross-claimants relevantly relied on the representations. He denied that he had engaged in conduct which was misleading or deceptive within the meaning of s 42 of the FTA (NSW) or s 12 of the FTA (ACT). He further denied that he had engaged in conduct in contravention of s 79 of the TPA. To the extent that the defence to the amended cross-claim responds to allegations repeated in the further amended cross-claim, I consider it appropriate to have regard to it in the hearing of the further amended cross-claim.
The cross-claimants’ legal representative, in his written opening on the cross-claim, asserted that:
“The Cross-Claim against McGrath is that he made representations to the Cross-Claimants as to the standard of workmanship and materials of the hail canopies to be built by Soothcast, of which he was a director. In essence, the Cross-Claimants were conduits – they made representations to the Applicant which essentially repeated the representations made by McGrath to them.”
Further, it is asserted in the written opening that McDonald, Australian Canopies and Mr Morton were induced to enter into the joint venture agreement by representations made by Mr McGrath. However, the further amended cross-claim is not drawn so as to make claims against Mr McGrath on either of these bases. The leave given to the cross-claimants to proceed in the absence of Mr McGrath was leave to proceed in respect of the allegations made by the further amended cross-claim.
Relevant Statutory Provisions
Section 52(1) of the TPA, which appears in Part V of the Act, provides:
“A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
Section 82(1) of the TPA, which appears in Part VI of the Act, provides:
“(1)A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV … or V … may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.” (emphasis added)
The meaning of the expression “any person involved in the contravention” in s 82(1) of the TPA is made clear by s 75B(1) of the TPA, which also appears in Part VI of the Act.Section 75B(1) provides:
“A reference in this Part to a person involved in a contravention of Part IV … or V … shall be read as a reference to a person who:
(a)has aided, abetted, counselled or procured the contravention;
(b)has induced, whether by threats or promises or otherwise, the contravention;
(c)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or
(d)has conspired with others to effect the contravention.”
Section 42(1) of the FTA (NSW), which appears in Part 5 of the Act, provides:
“A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
Section 12(1) of the FTA (ACT), which is in Part 2 of the Act, is in identical terms to s 42(1) of the FTA (NSW).
Section 68(1) of the FTA (NSW) provides:
“A person who suffers loss or damage by conduct of another person that is in contravention of a provision of Part … 5 … may recover the amount of the loss or damage by action against the other person or against any person involved in the contravention.”
Section 46(1) of the FTA (ACT) provides:
“A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part 2 may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.”
Section 41 of the FTA (NSW), which appears in Part 5 of the Act, relevantly provides:
“(1)For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person.
(3) ….”
Subsection 11(1) of the FTA (ACT) is in identical terms to s 41(1) of the FTA (NSW). Subsection 11(2) of the FTA (ACT) provides:
“For the purposes of the application of subsection (1) in relation to proceedings concerning a representation made by a person with respect to any future matter, the person shall, unless he or she adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.”
Consideration
It is convenient to deal first with the cross-claim against Mr McGrath which is based on s 79 of the TPA. As is mentioned above, s 79 of the TPA creates a criminal offence punishable on conviction by fine. It has no application in respect of s 52 of the TPA. It does not provide a basis for the recovery of damages against Mr McGrath. Even if it be assumed, contrary to established authority, that it would be appropriate in a case of this kind to make a declaration that a party had committed a criminal offence, the evidence before me does not establish a contravention of s 79 of the TPA by Mr McGrath. As the further amended cross-claim does not explicitly plead that Mr McGrath was involved in a contravention by Soothcast of s 52 of the TPA, I do not consider it appropriate to make an order in favour of the cross-claimants under s 82 of the TPA on the basis that Mr McGrath was so involved. It was made plain to the legal representative of the cross-claimants on more than one occasion when this matter was before the Court for directions, that the cross-claimants would only be granted leave to proceed in the absence of Mr McGrath in respect of matters explicitly pleaded against him in pleadings which the cross-claimants had taken reasonable steps to draw to this attention.
To the extent that the cross-claimants seek relief against Mr McGrath pursuant to s 68(1) of the FTA (NSW), or alternatively, s 46(1) of the FTA (ACT), it is necessary for the Court to be satisfied:
(a)that Mr McGrath engaged in conduct in contravention of s 42(1) of the FTA (NSW), or alternatively, s 12(1) of the FTA (ACT);
(b)that the cross-claimants, or one or more of them, suffered loss or damage by reason of that conduct of Mr McGrath; and
(c)of the quantum of that loss or damage.
I am satisfied, having regard to the admissions contained in the defence of the cross-respondents to the amended cross-claim, that Mr McGrath represented to the cross-claimants that:
“(c)if Soothcast entered into agreements for the manufacture, supply and installation of hail canopies for persons introduced by [McDonald] and/or [Australian Canopies], Soothcast would ensure that it would perform work pursuant to such agreements using necessary skill, knowledge and experience;
(d)Soothcast would supply goods which were:-
(i)suitable for their purpose;
(ii)of merchantable quality; and
(e)Soothcast would manufacture and install hail canopies in a good and tradesmanlike manner using good and proper materials and in accordance with any plans, specifications and drawings (‘the Representations’).” (see para 12 of the further amended cross claim)
The evidence is not clear as to where the Representations were made by Mr McGrath to the cross-claimants. I note that all of the cross-claimants have New South Wales addresses. The applicant trades in the Australian Capital Territory. Order 11 r 10 of the Federal Court Rules requires a pleading subsequent to a statement of claim to plead specifically any point of law that makes a claim of an opposing party not maintainable. The defence to the amended counterclaim did not plead that the FTA (NSW) and the FTA (ACT), or either of them, had no application in the circumstances alleged in the amended counterclaim. In all of the circumstances I propose to act on the basis that the Representations were made in New South Wales and the Australian Capital Territory, or in one or other of those jurisdictions.
The Representations are representations as to future matters within the meaning of s 41(1) of the FTA (NSW) and s 11(1) of the FTA (ACT). Mr McGrath has not adduced evidence that he had reasonable grounds for making the Representations (see s 41(2) of the FTA (NSW) and s 11(2) of the FTA (ACT)). The Representations are therefore to be taken to be misleading. That is, Mr McGrath is to be taken to have contravened s 42(1) of the FTA (NSW) and s 12(1) of the FTA (ACT) or one of them.
The further amended cross-claim pleads that the cross-claimants acted in reliance on the Representations in engaging in contractual negotiations with Spyglass.
Having regard to the affidavit evidence of Mr Trevor McWhirter (“Mr McWhirter”), a director of McDonald, I am satisfied that McDonald relied on the Representations made by Mr McGrath in entering into the joint venture agreement with Soothcast and Australian Canopies. However, Mr McWhirter’s affidavit makes no reference to contractual negotiations with Spyglass. Having regard to the affidavit evidence of Mr Morton, I am satisfied that Australian Canopies, through Mr Morton, relied on the Representations in entering into the agreement with Spyglass. However, Mr Morton’s affidavit does not suggest that, at the relevant time, he was acting on behalf of McDonald. It appears that by the time of the negotiations with Spyglass, Mr Morton had ceased his earlier employment with McDonald. Mr Koksal’s affidavit does not suggest that he engaged in contractual negotiations with Spyglass.
It might be thought that it was open to the cross-claimants to plead alternative bases upon which they, or some of them, suffered loss or damage by reason of the conduct of Mr McGrath in making the Representations. However, having tied themselves to the causative link of their having engaged in contractual negotiations with Spyglass in reliance on the representations, the inevitable conclusion, it seems to me, is that only Australian Canopies has established a claim for loss or damage against Mr McGrath in respect of his conduct in contravention of s 42(1) of the FTA (NSW), or alternatively, s 12(1) of the FTA (ACT).
Having regard to the expert report of David Graeme Francis, a solicitor and an accredited specialist in commercial litigation law, and the affidavit evidence of the cross-claimants’ solicitor, Tim Orlizki (“Mr Orlizki”) also an accredited specialist in commercial litigation, I am satisfied that the cross-claimants acted reasonably in settling Spyglass’s claim against them on the terms outlined in an undated Deed of Release annexed to an affidavit of Mr Orlizki, which Deed provided the basis of the consent orders of 6 December 1999.
However, neither the Deed of Release nor the consent orders of 6 December 1999 imposed any obligation on Australian Canopies. In the circumstances I am not satisfied that Australian Canopies suffered any loss or damage by reason of the conduct of Mr McGrath.
The result of my above reasons is that, unless a successful application is made on behalf of the cross-claimants to reopen their case against Mr McGrath, the cross-claim must be dismissed. I propose, (with considerable hesitation in view of the number of times that the cross-claim has already been listed for hearing) to stand over for fourteen days the making of orders on the cross-claim to allow the cross-claimants to give consideration to the making, within that time, of an application to reopen their case on the cross-claim.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. Associate:
Dated: 11 May 2001
Solicitor for the Cross-Claimants: Mr T Orlizki Solicitors for the Cross-Claimants: Selby Anderson No appearance for the Cross-Respondent Date of Hearing: 5 October, 8 December 2000 and 18 April 2001 Date of Judgment: 11 May 2001
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