Doran, M.A. v Cottam, M.A
[1995] FCA 274
•10 MARCH 1995
CATCHWORDS
PRACTICE AND PROCEDURE - misleading or deceptive conduct - amendment to statement of claim - objections by respondents - whether proposed amendments futile - no point of principle.
MARK ANTHONY DORAN & ANOR v. MICHAEL TRISTRAM COTTAM & ORS
WAG 83 of 1994
CARR J.
PERTH
10 MARCH 1995
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA ) No. WAG 83 of 1994
DISTRICT REGISTRY )
GENERAL DIVISION )
B E T W E E N : MARK ANTHONY DORAN
First Applicant
and
WAIMEX PTY LTD
A.C.N. 009 453 525
Second Applicant
and
MICHAEL TRISTRAM COTTAM
First Respondent
and
COTTAM PTY LTD
A.C.N. 003 903 455
Second Respondent
and
PETER VAN HALEWYN
Third Respondent
and
TRINITY ENTERPRISES PTY LTD
A.C.N. 009 466 362
Fourth Respondent
JUDGE MAKING ORDER: CARR J.
WHERE MADE: PERTH
DATE OF ORDER: 10 MARCH 1995
MINUTE OF ORDER
THE COURT ORDERS THAT:
The applicants have leave to amend the statement of claim in terms of the minute of proposed re-amended statement of claim filed 25 November 1994 and amended on 28 February 1995.
The applicants pay any costs thrown away by the respondents as a consequence of the above amendments. The costs of the motion including costs reserved on 6 February 1995 be the respondents' costs in the cause.
NOTE:Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA ) No. WAG 83 of 1994
DISTRICT REGISTRY )
GENERAL DIVISION )
B E T W E E N : MARK ANTHONY DORAN
First Applicant
and
WAIMEX PTY LTD
A.C.N. 009 453 525
Second Applicant
and
MICHAEL TRISTRAM COTTAM
First Respondent
and
COTTAM PTY LTD
A.C.N. 003 903 455
Second Respondent
and
PETER VAN HALEWYN
Third Respondent
and
TRINITY ENTERPRISES PTY LTD
A.C.N. 009 466 362
Fourth Respondent
CORAM: CARR J.
DATE: 10 MARCH 1995
PLACE: PERTH
REASONS FOR JUDGMENT
By this motion the applicants seek leave to re-amend the statement of claim. The respondents object to such leave being granted.
In the principal application the applicants seek damages said to have been caused by conduct in breach of s.52 when read with s.51A of the Trade Practices Act. The matter concerns the purchase by the applicants from the first and second respondents, through the agency of the third and fourth respondents, of the second respondent's former business.
The basis of the respondents' objections to the applicants being granted leave to re-amend their statement of claim is, in summary, that the proposed re-amended statement of claim has so many defects as a pleading that it should not be allowed.
In essence, the respondents' objections seem to be based on the proposition that the amendments are thus futile: Horton v. Jones (No. 2) (1939) 39 S.R. (NSW) 305 at pp.309-310; Simpson v. Union Bank of Australia (1912) 14 W.A.R. 18 at p.19.
To understand those objections it is necessary for me to summarise what is contained in the minute of the proposed re-amended statement of claim, which document I shall refer to as the statement of claim. I shall do so as briefly as possible. Paragraphs 1 to 7 deal with introductory matters. These are either admitted or not denied by the first and second respondents and are admitted by the third and fourth respondents. They recite the facts that:
.The first applicant, Mr Doran, is a director and shareholder of the second applicant Waimex Pty Ltd ("Waimex");
.The first respondent, Mr Cottam, is the managing director of Cottam Pty Ltd ("Cottam") and engaged in conduct on behalf of Cottam within the scope of his actual or
apparent authority;
.Cottam was formerly called Waimex Pty Ltd;
.Before and during 1993 Cottam carried on the business of an international marketing consultant;
.The third respondent, Mr Van Halewyn, was the servant or agent of the fourth respondent, Trinity Enterprises Pty Ltd ("Trinity"), and engaged in conduct on Trinity's behalf within the scope of his actual or apparent authority;
.Trinity carried on business as a business broker and was engaged by Mr Cottam to offer Cottam's international marketing consultancy business for sale.
It seems to be common ground that on 2 June 1993 Mr Van Halewyn caused an advertisement to be published in "The West Australian" newspaper. The text of the advertisement is set out in paragraph 8 of the statement of claim and apparently it contained various assertions in summary form, including:
"*Diverse range of blue chip clients
*Opportunity for outstanding growth
*Netting $94,900 pa."
The advertisement contained a telephone number at which Mr Van Halewyn could be contacted.
Paragraph 8 also contains the allegation that Mr Cottam saw that advertisement and by "standing by and not correcting the representations" in it engaged in conduct. This is particularised as Mr Cottam not telling Mr Doran that there was not a diverse range of blue chip clients, that there was no opportunity for
outstanding growth and that the business was not netting and never had netted $94,000 per annum. The particulars state that this conduct occurred at various times. The first was on the occasion of Mr Cottam's meeting with Mr Doran on 5 June 1993. The second was on 9 June 1993 when Mr Cottam signed the agreement for the sale of the business. The third was on 11 June 1993 when it is said that Mr Cottam gave Mr Doran financial accounts for Cottam's business for the nine month period ended 31 March 1993. The fourth occasion was on 17 June 1993 when it is said that Mr Cottam gave Mr Doran a cash flow forecast for the twelve months ending 30 June 1994 showing a net profit of $90,250 and a document described as the "Current Client List". Finally, it is said that Mr Cottam should have told Mr Doran about the above three matters prior to settlement of the purchase of the business on 9 July 1993.
The statement of claim continues with a reference (in paragraph 9) to a meeting on 3 June 1993 between Mr Doran and Mr Van Halewyn at which it is alleged that Mr Van Halewyn repeated the representations made in the newspaper advertisement referred to above by giving Mr Doran a one page document containing those representations. It is also alleged that Mr Van Halewyn represented that the business carried on by Cottam had a "prestigious client list" - a reference to something contained in page 2 of a brochure given by Mr Van Halewyn to Mr Doran on that occasion.
Paragraph 10 of the statement of claim refers to a meeting said to have taken place on 5 June 1993 between Mr Doran and Mr Cottam. It is alleged that at that meeting Mr Cottam told Mr Doran that the second respondent had "some 485 clients on its computer database and that those clients were current or prospective clients and that it was a client base from which the first applicant could work." It is also alleged (in paragraph 11 of the statement of claim) that at that meeting Mr Cottam gave to Mr Doran a document styled "Waimex Client List" and said words to the effect "We have business with these people and they are our clients".
In paragraph 12 of the statement of claim it is pleaded that in reliance on the two sets of representations referred to above Mr Doran made a written offer on 8 June 1993 whereby he or his nominee would purchase the business, an offer which was accepted by Mr Cottam on behalf of Cottam.
The first and second respondents complain about paragraph 12 on the basis that it is not alleged that either applicant suffered any loss by the first applicant offering to purchase the business. First, it should be noted that the proposed amendment refers to the offer to purchase being by the first applicant or his nominee. Secondly there is in paragraph 25 a plea that by reason of the various alleged instances of misleading and deceptive conduct the first applicant's nominee under the sale agreement, the second applicant, proceeded to settle the purchase of the business on 9 July 1993 and that the first and second applicants have suffered loss and damage. In my view paragraph 12 is at the very least a legitimate pleading of factual background by way of narrative. It is also a material fact in the chain of events leading to the matters giving rise to the applicants' claims. Accordingly, in my opinion, the challenge to paragraph 12 is not sustained.
The statement of claim (paragraph 13) then refers to the sale agreement as being conditional on the first applicant carrying out "due diligence" on the business to verify its accounts and also being subject to a mutually satisfactory 10 week settling-in period.
There are then (in paragraph 14) pleaded the facts that Mr Cottam, on 11 June 1993, at Mr Doran's request, gave him financial accounts for Cottam for the nine month period ended 31 March 1993 and later (on 17 June 1993) a cash flow forecast for the 12 months ending 30 June 1994 showing a net profit of $90,250.
In paragraph 15 of the statement of claim it is alleged that the accounts to 31 March 1993 recorded income of $274,292 and bad debts as $11,930 and that Mr Cottam said nothing more about the income or bad debts situation of Cottam.
The statement of claim then (in paragraph 16) refers to a document styled "Notes to the Accounts" as having been given by Mr Van Halewyn to Mr Doran on 3 June 1993 which document together with the financial accounts for the nine month period ended 31 March 1993 it is alleged amounted to a representation by Mr Van Halewyn that the annualised 12 month effective cash flow of Cottam to 30 June 1993 was $94,917. This representation is described as being "the annualised 12 month cash flow representation".
It is then pleaded, in paragraph 16A of the statement of claim, that the accounts for the nine months to 31 March 1993 were misleading in that the income
figure was overstated and that accordingly all respondents engaged in misleading conduct in providing those accounts. The particulars of overstatement of income are set out in paragraph 16A of the statement of claim and comprise references to five identified invoices to four named clients of the business. The amount by which it is said that the income figure was overstated is $42,500 and, in a separate column beside the particulars of the clients, invoices and amount of overstatement there are set out reasons why such amounts constitute an overstatement of income. For example, the reasons include that the client had either not agreed to pay the amount invoiced or had not agreed to pay any more than a specified sum or had never ordered or benefited from any services provided.
The third and fourth respondents object to paragraph 16A of the statement of claim on two bases. The first basis is that the particulars relate only to bad debts of $42,500 whereas the applicants' complaint is that the income figure was overstated by $42,500. In my view it is obvious that, on the applicants' case, they are saying that the income was overstated by that amount. The second basis of complaint by the third and fourth respondents in respect of paragraph 16A is, so it is said, that it is impossible for those respondents to know the case alleged against them. In each invoice referred to in that paragraph it is said that the reason for the alleged overstatement relates to matters "not agreed", "never ordered or benefited" rather than stating what was agreed or ordered by whom, with whom, when and where. I disagree. I think that the allegations are clear enough, namely that none of the clients had any obligation to pay the overstated amounts.
It is then pleaded, in paragraph 17 of the statement of claim, that in the circumstances in which the negotiations took place leading up to the execution of the sale agreement and the conditions to which that agreement was subject, together with the further representations referred to above, there arose an obligation on the part of Mr Cottam to tell Mr Doran prior to the settlement date stipulated in the contract (2 July 1993) or alternatively 9 July 1993 (when settlement actually took place) that:
.actual bad debts at the end of June 1993 would be "much higher"; and
.the income "much lower" than that annualised from the accounts for the nine months ended 31 March 1993.
It is alleged that by failing to inform Mr Doran of these matters Mr Cottam engaged in misleading or deceptive conduct. Particulars of the lower income are given by incorporating by reference the particulars concerning the five invoices referred to above as having the result that the income would have been at least $42,500 lower.
The first and second respondents (in paragraph 16 of their outline of submissions) make certain complaints in relation to paragraph 16A, 17 and 18. The essence of those complaints is that insufficient particulars are given of such expressions as "at least" $42,500 lower and "much lower". In my view this can be cured by the delivery of further and better particulars.
The third and fourth respondents object to paragraph 17 of the statement of claim on the basis that if the income of the business was much lower for some reason additional to the actual bad debts particularised then such lower income should be particularised. On the face of the statement of claim there does not appear to be any suggestion of any reason other than the bad debts for the income being lower and in my opinion this challenge to paragraph 17 fails. The same applies, for the same reasons, to the challenge by the third and fourth respondents to paragraph 18.
The third and fourth respondents next complain that in a letter dated 10 January 1995 the solicitors for the applicants stated that their clients allege that there were further bad debts which had not been disclosed and that the income was lower than represented. If the applicants propose to make those allegations then, in my opinion, this should be set out in the statement of claim. It is not set out in the statement of claim and accordingly it is premature to deal with the matter.
The first and second respondents complain that it is "indirectly alleged" in paragraph 17 that the bad debts of the business as at June 1993 were greater than "that annualised from" the nine month accounts ended 31 March 1993. It is said that this does not make sense and that bad debts cannot be annualised. In my opinion the meaning of paragraph 17 is sufficiently clear. If there is an indirect allegation of that type latent in paragraph 17 then it will be a matter for argument at trial as to whether bad debts can be annualised. The other complaints in relation to paragraph 17 can be cured by the delivery of further and better particulars.
In similar fashion to the plea in paragraph 17 it is then pleaded in paragraph 18 that in the circumstances in which the various representations referred to above
were made, there arose an obligation on the part of Mr Van Halewyn and his employer, prior to the scheduled or actual settlement dates, to tell Mr Doran that the twelve month effective cash flow for Cottam to 30 June 1993 was less than $94,917 or alternatively $94,900 as advertised as the actual bad debt situation as at June 1993 was "much higher" and the income "much lower" than that suggested by the nine month accounts ended 31 March 1993. By failing to do so the third and fourth respondents are said to have engaged in misleading or deceptive conduct.
Next (in paragraph 19) it is pleaded that, further or in the alternative, the annualised twelve month cash flow representation was made by Mr Van Halewyn without reasonable grounds and was thereby misleading or deceptive conduct by virtue of s.51A of the Trade Practices Act, engaged in by all four respondents.
The first and second respondent say that the representation "netting $94,900", set out in paragraph 8 and referred to in paragraph 19 as a representation with respect to a future matter, is clearly not such a representation. The applicants argue that such a representation made nine months into the financial year carries an implication in respect of the full twelve month financial year and is thus a representation with respect to a future matter. In my view, the plea cannot be said to be clearly untenable and should be allowed to stand so that the issue thus raised may be decided at the hearing of this matter.
The first and second respondents have a further complaint in relation to paragraph 19. The starting point for the complaint is that the latest amendments to
the applicants' minute of the proposed re-amended statement of claim seem to indicate that the representation which has been identified in paragraph 16 of the statement of claim as "the annualised 12 month cash flow representation" arose from the "Notes to the Accounts" given to Mr Doran by Mr Van Halewyn on 3 June 1993 and the accounts for the nine month period ended 31 March 1993 given to Mr Doran by Mr Cottam on 11 June 1993. However, while paragraph 19 as finally amended deals separately with the representation "netting $94,900 per annum" referred to in paragraph 8, it also refers to the annualised 12 month cash flow representation as being pleaded in paragraph 8 as well as paragraph 16 and there is said to be no reference in paragraph 8 to any annualised 12 month cash flow. The applicants' response to this is that there is only $17 difference between the figure referred to in paragraph 8 and the figure of $94,917 which is the subject of the annualised 12 month cash flow representation. The applicants further say that evidence will be given at the trial of this matter that both figures arise from the same source documents. I must say that there does seem to be substance in the first and second respondents' complaints. However, in my opinion, the applicants should be allowed to plead paragraph 19 in the manner which they have chosen. The only reference to cash in paragraph 8 is to the figure of $94,900 and that must be taken to be part of what the applicants refer to as being the annualised 12 month cash flow representation, as well as being a reference to the nett profitability of the second respondent's business.
There then follows (in paragraph 19A of the statement of claim) a further alternative plea that the representation concerning the business netting $94,900 was misleading conduct engaged in by all respondents in that the business had never
netted $94,900 per annum and further or alternatively had not netted 9/12ths of $94,900 in the nine months to 31 March 1993.
All respondents complain about the lack of particulars in paragraph 19 but in my view the material facts are sufficiently pleaded and the matters of complaint can be cured by the delivery of further and better particulars. In respect of each of the matters where I have observed that the situation can be cured by the delivery of further and better particulars, I should state that these are the subject of relevant requests for further and better particulars.
The third and fourth applicants state (in paragraph 8 of their outline) that two of the invoices referred to above were payable after 31 March 1993. I do not consider that argument is relevant to the present question of whether the applicants should have leave to amend their statement of claim. In any event the force of that submission would depend upon whether the accounts for the business were prepared on a cash or accruals basis of accounting.
The statement of claim then turns to the matter of the list of current clients, a list which is set out in paragraph 20. That list dissects those clients into what are described as "retainer clients (12 month contracts)" and "clients included in cash flow budget to 30 June 1994".
It is pleaded that the representations as to the "prestigious" client list, diverse range of blue chip clients and opportunity for outstanding growth, earlier referred to
in the statement of claim were misleading in respects which are particularised in paragraph 22 of the statement of claim. Reliance in that context is also placed, in the alternative, on s.51A as it is said there were no reasonable grounds for the representation of opportunity for outstanding growth. A similar complaint is made, in paragraph 23, against the first respondent in respect of the representation that there was some reasonable basis for factoring certain clients into the first three months cash flow income for the twelve months ending 30 June 1994.
The first and second respondents complain about the pleading in paragraph 22(a) and (b). The objection to paragraph 22(a) is that the applicants do not say why the representation that the business had a "diverse range of blue chip clients" was wrong. In my opinion, sub-paragraph 22(a) sufficiently states the alleged inaccuracy of the original representation. Again, further and better particulars can be obtained to flesh out the allegation and those particulars have in fact been sought. Those respondents also complain that terms used by the applicants such as "netting" in paragraph 19A "blue chip" and "prestigious" in paragraph 22(a) and "retainer clients" in paragraph 22(b) are not defined in the statement of claim. The consequence of that, in my opinion, is that for the purposes of these proceedings the likelihood is that those expressions will be treated as having their ordinary dictionary meaning. That is not a basis upon which the pleading should be disallowed.
There is then a separate plea (in paragraph 24 of the statement of claim) that the representation concerning the twelve months' cash flow for the twelve months ending 30 June 1994 was made without reasonable grounds and was thereby
misleading or deceptive by virtue of s.51A. Particulars of that allegation are given in the following terms: "With the mature market for the services of the business of the second respondent and lack of contracts and clients the budgeted profit figure could not be achieved."
The first and second respondents say that there is no causal connection pleaded between the representations allegedly made and the damages allegedly suffered. They contend that once the offer had been accepted, then, in the absence of a breach of contract or non-fulfilment of a condition precedent, (neither of which is alleged), either the first applicant or his nominee had no alternative other than to settle. In my view it is arguable that if, as alleged, the disclosure of the correct position had been made, then the applicants would have been entitled to obtain relief releasing them from their contractual obligation to proceed to settlement and complete the purchase. This is something which will have to be the subject of evidence and argument at trial. Furthermore, I consider that there is sufficient causal connection pleaded between the representations allegedly made and the damages allegedly suffered. Paragraph 25 of the proposed statement of claim pleads that by reason of the misleading and deceptive conduct of the various types referred to above, Mr Doran and his nominee, the second applicant, proceeded to settle the purchase of the business on 9 July 1993 and have suffered loss and damage. The second applicant claims a liquidated amount of damages being a trading loss of $104,168 said to have been incurred between 1 July 1993 and 31 May 1994.
Mr Doran's damages claim is calculated by reference to amounts which he
claims to have borrowed and on-loaned to the second applicant together with other funds loaned by him to that company and in addition some stamp duty in respect of the moneys borrowed and on-loaned and the selling costs on the sale of his house to repay those loans.
Finally, the first and second respondents complain that the claim by the first applicant is too remote. If that turns out to be the case then the first applicant's claim will be dismissed with costs. However, at this stage I am not prepared to hold that the first applicant's claim is so far removed from the alleged misleading or deceptive conduct as not properly to fall within the categorisation of having been caused by that conduct. The complaint as to the plea that there was no nomination of the second applicant in my view overlooks the reference to that matter in paragraph 25.
Conclusion
For the above reasons I have reached the conclusion that with the series of amendments to the applicants' minute of proposed re-amended statement of claim which has been made progressively since they filed this notice of motion, that document should be allowed to stand as their statement of claim. In my view the respondents will be able fully to understand from that document the essentials of the case which the applicants seek to make against them. This will, in my opinion, enable the real questions at issue between the parties to be decided. Further and better particulars will assist further in that regard.
Accordingly, the applicants will have leave to amend their statement of claim in terms of the minute of re-amended statement of claim as that minute was finally amended on 28 February 1995.
I have set out in the foregoing minute the order which I propose to make in relation to costs, but I shall hear the parties on that matter.
I certify that this and the preceding seventeen (17) pages are a true copy of the Reasons for Judgment of Justice Carr.
Associate:
Date: 10 March, 1995
Counsel for the Applicants: Mr M.F. Holler
Solicitors for the Applicants: Summers Partners
Counsel for the First and Second
Respondents: Mr J.R.B. Ley
Solicitors for the First and Second
Respondents: Freehill Hollingdale & Page
Counsel for the Third and Fourth
Respondents: Mr B.J.H. Goetze
Solicitors for the Third and Fourth
Respondents:Minter Ellison Northmore Hale
Date of Judgment: 10 March, 1995
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