Davids Holdings P/L v Coles Myer Ltd

[1993] FCA 287

rP7 19ci~

JUDGMENT No. ........ ........ .. 1 ........ ..

IN THE FEDERAL COURT OF AUSTRALIA	)
QUEENSLAND DISTRICT REGISTRY	1
GENERAL DIVISION	1
No. OG 171 of 1991

BETWEEN:  DAVIDS HOLDINGS PTY LIMITED

Applicant

AND :	COLES MYER LIMITED First Respondent
AND :	ALLAN BURGE

Second Respondent

AND :  ROSS DAVID CLARKE

Third Respondent

AND:  DEREK THOMAS CORNETT

Fourth Respondent

AND :  GEOFFREY JOHN MURPHY

Fifth Respondent

6'- b c M AND:  JAMES WILLIAM NOLAN

Sixth Respondent

ha/@j AND:  ANTONY EDWARD RANSON
Seventh Respondent

PND :  PETER WILSON

Eighth Respondent

D - : KEITH CHARLES WINNING

Ninth Respondent

AND :  KERRIE CLIFFORD WOOLACOTT

Tenth Respondent

AND :  GRAEME EDWARD BULLOCK

Eleventh Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	Spender J.
DATE OF ORDER:	30 April 1993  12 MAY 1993
WHERE MADE:	Brisbane  FEDERAL COURT OF

28 days in which to replead.

WSTRALIA PRINCIPAL

THE COURT DIRECTS THAT:

The Reaistrar set the matter down for a directions hearing, the date, which is to be approximately six weeks from today, to be communicated to the parties within the next seven days.

THE COURT ORDERS THAT:

1.   The statement of claim be struck out.

2 .    The applicant in the principal proceedings be given

3.    The costs on each motion be the applicantst on those motions costs in the principal proceedings.

NOTE:  Settlement and entry of orders is dealt with in
Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA ) DUEENSLAND DISTRICT REGISTRY 1 GENERAL DIVISION 1

No. OG 171 of 1991

BETWEEN:  DAVIDS HOLDINGS PTY LIMITED

Applicant

AND :  COLES MYER LIMITED

First Respondent

AND :  ALLAN BURGE

Second Respondent -

AND :  ROSS DAVID CLARKE

Third Respondent -

AND :  DEREK THOMAS CORNETT

Fourth Respondent

AND :  GEOFFREY JOHN MURPHY

Fifth Respondent -

AND :  JAMES WILLIAM NOLAN

Sixth Respondent -

AND :  ANTONY EDWARD RANSON

Seventh Respondent

AND :  PETER WILSON

Eighth Respondent -

AND :  KEITH C ~ E S WINNING

Ninth Respondent

AND:  KERRIE CLIFFORD WOOLACOT?

Tenth Respondent

AND :  GRAEME EDWARD BULLOCK

Eleventh Respondent

CORAM :	Spender J
PLACE :	Brisbane

m:  30 April 1993

REASONS FOR JUDGMENT

As I indicated at the time of hearing this matter,

it is necessary for me to give my reasons on this application
orally, and, partly because of that circumstance, my reasons
will be tersely stated.

For the reasons which I will indicate, I propose to strike out the statement of claim but give liberty to replead within 28 days.

My conclusion in essence, is that while there are,

in my opinion, very real questions as to the existence of a cause of action under S. 46 of the Trade Practices Act 1974 (Cth) (the 'Actt), not so much on the basis of what is pleaded

the strike-out motion, this is not a case so clear that it
would be proper for the court, in the exercise of its summary
power under 0. 11 r. 16, to strike out that part of the claim. as on the basis of what has been submitted in the course of O'Donnell, in particular, and of Mr Callinan QC as to that aspect of the claim have troubled me as to whether on a repleading it might be possible to plead a case under S. 46 which ought to go on.

In relation to the other matters with which I am

concerned, I should state that the pleadings, in my opinion,

are deficient and would justify a strike-out of those matters,
but it is plain to me that an arguable case, both of a breach
of the directors' fiduciary duty and of conspiracy, is able to
be pleaded in the light of (if I may say without being taken
the wrong way) the concessions made - and I use that word in
an attenuated sense - by Mr Sweeney QC in the course of his
submissions in response to the strike-out applications based
on those causes of action.

There are two motions in respect of the statement of claim delivered by the applicant, Davids Holdings Limited

('Davids'), in Proceedings No. Q6171 of 1992. The notice of

M r OrDonnell made submissions on behalf of the second to eleventh respondents in the principal proceedings, the director's of QIW Retailers Limited ('QIW'), seeks to strike out those parts of the applicant's statement of claim which relate to pleading a cause of action under S.

motion by the first respondent in the principal proceedings, whole of the statement of claim. The notice of motion in respect of which

46 of the Act. There is an interesting difference between

the relief claimed by Coles Myer on it's strike-out motion and
that claimed by the directors of QIw.

In summary, the case for Davids, as revealed in the statement of claim and supplemented by what was said from the bar table, is that the resolution by Coles Myer's board, to

purchase up to 20% of the share capital of QIW, in some way
constituted an agreement, or concerted action in response to
an agreement, to which the directors of QIW were parties, to

defeat Davids' takeover bid for QIW.

Three bases were pleaded:  first, that Coles Myer

was knowingly involved in, and a party to, certain breaches of unlawful means; and thirdly, that the proposed acquisition by

fiduciary duty by the directors of QIW; secondly, that Coles

Coles Myer of up to 20% of the share capital of QIW constituted a threatened contravention of S. 46.

Order l1 r. 16 of the Federal Court: Rules provides

that :

" Where a pleading -

(a)	action or defence or other case discloses no reasonable cause of
appropriate to the nature of the p1 eading;
(b)	has a tendency to cause prejudice, proceeding; or

is otherwise an abuse of the process

(c) of the Court;

the Court may at any stage of the proceeding
order that the whole or any part of the
pleading be struck out. "

I note, in particular, the words "at any stage of

the proceeding", because a point was taken with some force and
justification by Mr Sweeney QC, who appeared on behalf of

Davids, that, given the chronology of events in relation to

this litigation, one would have thought that an application to

strike out would have been brought on earlier than the two
motions with which I am presently concerned.

It is unnecessary to rehearse the legal position as

put by Mr Callinan QC, who appeared on behalf of Coles Myer,
in respect of the provisions of the rules and the obligations

of pleadings. They were not the subject of challenge.	But
it is, I think, relevant in the circumstances of this

particular statement of claim to reinforce the fact that it is

not. permissible to merely state a conclusion drawn from facts

which are not set out in the statement of claim. A

conclusionary pleading, if I can use that phrase, defeats the

purpose of the pleading. I rely on the observations of Fisher

J in Trade Practices Commission v. David Jones /Australia) Pty

Limited (1985) 7 FCR 109, particularly at 114.

As to the claim based on breach of fiduciary duty by

the directors of QIW which was pleaded, the essential
deficiency in the statement of claim is that nowhere is it in
terns alleged that there was an agreement between those
directors and Coles Myer to do anything. There has to be a
causal connection between the approaches pleaded against the
directors and the conduct of Coles Myer.

It is not in dispute that the directors of a company owe a fiduciary duty to act bona fide in the interests of a

company and its shareholders.	The statement of claim pleads
that there were approaches at various times on behalf of QIW

and its directors to Coles Myer, the objects of which being to
have Coles Myer acquire shares in QIW and also to make
preferential arrangements between QIW and Coles Myer

concerning the Bi-Lo chain of retail stores.

I might say that, in many respects, the pleading

assumes familiarity by means of shorthand pleading, for
instance, nowhere is there a reference to what the Bi-Lo chain
of retail stores is, nor is there any exegeses of what is said
to be the arrangements between QIW and Coles Myer concerning

the Bi-Lo chain of retail stores. Those difficulties, it

seems to me, are real, but can be attended to without

injustice to either party.

In the course of submissions I was troubled

initially by what I confess was a misconception on my part as to the nature of the fiduciary duty owed by directors. In a number of respects, the submissions by Mr Callinan QC on

behalf of Coles Myer misstate what is in fact pleaded in
paragraph 14(c) of the statement of claim, both in relation to
the cause of action based on breach of fiduciary duty by the
directors of QIW and in respect of the cause of action based
on conspiracy.

It was said on more than one occasion that there was no improper purpose alleged against the directors of QIW. In

paragraph 14(c), it is alleged that the purpose of the

discussions on behalf of QIW and its directors was, inter

alia, to ensure that the positions of the directors were ,

secured from threat at the next annual general meeting of QIW. regard to the decision of the Privy Council in the Howard

Smith Limited v A ~ D o ~ Petroleum Limited [l9741 AC 821, there

is an absolute prohibition on a fiduciary acting in his or her

own interest.

Just what precisely that means in the context of

takeovers I am not presently sure, but at the very least there can be no doubt that it is arguable that what is alleged to be a purpose of the directors of QIW in paragraph 14(c) was an

improper purpose and one which, if carried through, would

constitute a breach of their fiduciary duty. But when one

analyses this cause of action as pleaded, what one comes down
to is the allegation that there were approaches on behalf of
the directors of QIW, that there were discussions between the
directors and Coles Myer, and then, by paragraph 15, that on
13 October 1992 Coles Myer resolved to purchase shares in QIW.

The alleged purposes of the discussions are set out in paragraph 14 of the statement of claim and the alleged

purposes of the resolution by Coles Myer are set out in paragraph 17. It is also said that two of the purposes alleged to be those of Coles Myer in purchasing shares in QIW

(viz. to defeat Davids' takeover bid and to ensure that the

positions of the existing QIW directors, who were opposed to

the takeover bid, were entrenched) were also two of the

purposes of the directors of QIW in their approaches to Coles

Myer. It is alleged that, in consequence of the "discussions"

referred to in paragraphs 12 and 13 of the statement of claim
and the Coles Myer resolution and recommendation referred to
in paragraphs 15 and 16 thereof, Coles Myer instructed a
broker to acquire shares.

If, as Mr Sweeney QC for Davids asserted, it was the case for Davids that there was in fact an agreement that these purposes should be effected, the pleading in paragraph 19

falls short of saying so. The same criticism can be made in respect of the allegation of conspiracy. Both of these seem to assume that the words " i n t h e premises" can be used as some

sort of band-aid to fill gaping wounds in the facts as pleaded

to constitute a cause of action. " I n t h e premises" means

having regard to the allegations earlier set out or some such

meaning. It cannot be used, it seems to me, to make good -

deficiencies in the pleadings as analysed.

The second matter of difficulty in relation to the cause of action on conspiracy, is that absent a precise

understanding of what " i n t h e premises" is supposed to mean,

and in the absence of an agreement being alleged, the
allegation in paragraph 22 is simply conclusionary. ~t

pleads :

" I n the premises C o l e s Myer and t h e Q I W

Directors c o n s p i r e d w i t h one a n o t h e r t o

i n j u r e Davids Holdings by unlawful means. "

It is truly, in my opinion, embarrassing within the meaning of 0. 11 r. 16, simply to plead a conclusion. This

seems to me to be clearer when what is enigmatically pleaded

in paragraph 24 concerning matters of the Corporations Law,
was, in the course of submissions, relied on by Davids as
being a ground of "unlawful means" referred to in paragraph

2 2 . I confess that it was not until the last 2 0 minutes of

submissions which occupied a day and a half, that I was aware
that what was sought to be pleaded by paragraph 24 was,
amongst other things, one of the unlawful means on which
Davids action for conspiracy was based, and that ignorance, I

must say, seems to be reflected in the particulars of

paragraph 25 supplied.

Paragraph 25 again commences with the words " i n the

p r e m i s e s " . It reads:

" In the p r e m i s e s C o l e s M y e r h a s c o n t r a v e n e d

and c o n t i n u e s t o c o n t r a v e n e S e c t i o n 46 o f

the T r a d e s P r a c t i c e s A c t . "

The request for particulars made in respect of

paragraph 25, which sought the usual particulars and details
in respect of the contravention of S. 46 and how Coles Myer
continued to contravene it, resulted in the following

response:

"

T h i s f o l l o w s	from	the f a c t s p l eaded	i n
paragraphs	1-19	and	2 3 ( b ) o f the s t a t e m e n t
o f c l a i m and	the p a r t i c u l a r s	p r o v i d e d	a t 1-

2 0 and 25 above . "

Those particulars are inconsistent with what was

said by MI Sweeney QC, in the course of resisting the strike

out motions, to be the position.

The further criticism in relation to both the

conspiracy and breach of fiduciary duty pleadings, is in

paragraph 26, which tersely says:

" B y r e a s o n o f the m a t t e r s a f o r e s a i d D a v i d s

H o l d i n g s h a s s u f f e r e d loss and damage. "

It seems to me that before any sensible response can be made to what is said to be Davids' case, the particulars of the loss and damage alleged ought to be provided, and I

propose, as part of the liberty to replead, to direct that
particulars of the loss and damage alleged by Davids be
pleaded. The power to make that direction exists in the rules
and it seems to me that this is a case calling for such

directions.

I have already touched on the question in respect of

paragraph 14(c). The only agreement alleged in the entire

statement of claim as pleaded, it seems to me, is that which of a wider arrangement.
appears in paragraph 19(c), which pleads the agreement of the
directors of QIW with a proposal by Coles Myer that QIW supply

It seems to me, first of all, that an agreement is a crucial ingredient of any claim based on conspiracy. In my

view, the pleading is deficient in that regard, but, more

importantly, loss is the gist of the action when conspiracy is
relied on as a ground for relief in civil proceedings and all
that appears in the present pleading is the bald conclusionary

statement quoted above.

As to S. 46, the primary objection concerns the

characterisation of the conduct said to be the exercise of
market power in contravention of that section and that, I have
to say, is the matter about which I have the greatest
reservations concerning whether a reasonable cause of action
has been pleaded.

There are two observations in relation to the cause of action under S. 46 that I want to make. The first is to

adopt the observations of French J in Natwest Australia Bank Limited v Boral Gerrard Strappinu Svstems Ptv Limited (1992) ATPR 41-196 as to the need to plead a link with the market

power such that the impugned conduct may be said to be a use

of that power. It is an essential element of the cause of

action based on S. 46, that the alleged contravener is said to

have used its market power. The conduct must either, by

necessary implication from its very nature, or by reference to
other pleaded facts and circumstances, constitute a use of
that power.

It is not sufficient to show that a corporation with

market power has engaged in conduct for the purpose of
preventing entry of another person into a market, or deterring

or preventing a person from engaging in competitive conduct in	that or any other market. Also, the pleading of the
conclusion that there was a prohibited purpose does not make out the cause of action. To a similar effect are the observations in General NewsDauers Ptv Ltd v Australian and Overseas Telecommunications Coruoration Limited (1993) ATPR 41-215, which appear at page 40,956:

" Not every commercial decision made by a

person possessing substantial market power is a decision that takes advantage of that power. "

After referring to the observations by French J to which I have just referred, the quotation continues:

"	The cour t must a l s o cons ider whether, even
wi thout s u b s t a n t i a l market power, t h e person
might have been a b l e to make t h e same
d e c i s i o n . "

The question is whether the conduct on which I am told Coles Myer wishes to rely in choosing to exercise it's rights the way it did, could be said to be conduct that it would be unlikely to engage in or could not afford, for

commercials reasons, to engage in if it was operating in a

competitive market. It is only if that question is answered

clearly in the negative that the strike-out application should
succeed.

I am less than certain of the prospects of Davids'

making out a cause of action based on S. 46, but having regard
to the reluctance with which possible causes of action should
be struck out, I decline to make any such order based on those

considerations.

There is one further matter which touches more than

one of the causes of action, and that is the pleading of the
market which appears in paragraph 4 of the statement of claim.
That paragraph states:

"

There i s a market f o r t h e a c q u i s i t i o n and

s u p p l y o f grocery products i n A u s t r a l i a , or

a l t e r n a t i v e l y t h e Eastern Mainland S t a t e s ,

i n which Davids Holdings, QIW and Coles

Myer, amongst o t h e r s , acqu i re grocery

products from manufacturers and supply them
to the general public. The market has the
characteristics referred to in schedule A
hereto. "

In the course of submissions, I was told that that paragraph was deficient, and what was sought to be relied on was both schedules A and B annexed to the statement of claim.

HoWeVer, even if one were prescient enough to understand that that omission had occurred, there are difficulties as to what assistance those schedules can give to an understanding of

what the market pleaded is.

Schedule A is a schedule of acquirers of grocery products from manufacturers throughout Australia, and sets out, state by state, the market share. For instance, in New

South Wales there are a total of seven parties named, the last being the ubiquitous other, but the market share attributed to each of those parties approximates to 100 per cent.

Similarly, in relation to the other states, the state market

is distributed between the various identified persons named

there.

There seems to me, quite frankly, to be an inherent

contradiction between what is pleaded in the body of paragraph "Woolworths Grocery Outlets", a state by state breakdown, giving a national total of 552, with a 1991 revenue of $8.388 billion. There are similar details for Coles' grocery outlets, Franklins' grocery outlets, dual grocery outlets, and other grocery outlet categories. Although in relation to the other grocery outlets there is no material as to the revenue of those outlets.

4 and the implicit allegation in schedule A of state by state
markets for the acquisition of grocery products from
manufacturers. Schedule B is headed "Australian Retail

Again, how the information contained in schedule B is relevant to the assertion of the market in paragraph 4 is perplexing. I would hope that on the repleaded statement of claim, what is pleaded are the essential facts necessary to

ground the cause of action on which David wishes to rely
without matters which, of their nature, seem to fall into the

category referred to in 0. 11 r. 16(b).

I would also hope that if the phrase "in the

premises" is to be used, it is used with precision, and, in

particular, the difficulty that now appears to exist in

relation to the tension between the particular supplier at

paragraph 25, and the matters which are set out in paragraph

24, will not occur in the new pleading. It seems implicit from what I have said that the agreement which counsel for Davids says is at the core of their claim must be pleaded, as

must the loss and damage which is an essential part of the

conspiracy claim.

I will strike out the statement of claim. I will

give the applicant 28 days in which to replead.

As to costs, my present intention is to make the

costs of the motions the applicants' on the motions costs in
the principal proceedings.

There are some parts of the pleading which plainly

that. There were criticisms made of the pleading which were
unjustified. Notwithstanding that ordinarily costs should
follow the event, there are circumstances here, some of which

assert an improper purpose, and which were said not to say which do not persuade me that what I propose is at all an unjust or unfair order, and I will order that the costs on each motion be the applicants' on those motions costs in the principal proceedings.

I grant liberty to replead a statement of claim

within 28 days from today's date, and I will ask the Registrar
to set the matter down for a directions hearing to be

communicated to the parties within the next seven days, the

date to be approximately 6 weeks from today. I will not be

able to hear the matter, and so it will be necessary for the convenience of a judge to hear that directions hearing.

I certify that this and the
preceding fourteen (14) pages
area a true copy of the reasons
for judgment herein of the

Honourable Mr

Date: 30 April 1993

Counsel for the the f i r s t respondent i n the principal proceedings (applicant i n the

first motion) : Mr I.D.F. Callinan Q.C. with Mr Caine

instructed by : Minter Ellison Morris

F1 etcher

Counsel for the second t o
eleventh respondents i n the

principal proceedings (applicant

i n the second motion)	: Mr B. OtDonnell
instructed by	: McCullough Robertson
Counsel for the applicant i n
the principal proceedings
(respondent t o the motions)	: Mr C. Sweeney Q.C. with Mr

O'Shea

instructed by : Allen Allen & Hemsley