EME Transport a** North Pty Ltd v EME (NSW) Pty Ltd
[2008] FMCA 477
•24 April 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| EME TRANSPORT NORTH PTY LTD v EME (NSW) PTY LTD & ANOR | [2008] FMCA 477 |
| TRADE PRACTICES – Judgment under r.13.03 of the Federal Magistrates Court Rules – where respondent failed to comply with an order of the court – applicable principles – trade practices claim – damages – loss of opportunity. |
| Civil Procedure Act 2005 s.101 Federal Magistrates Act 1999 (Cth) s.76 Trade Practices Act 1974 (Cth) ss.51AC, 52, 75B, 82, 86, 86AA, 87, 88A |
| All Fasteners v Grant Caple Pty Ltd & Ors (No.3) [2005] FMCA 1873 All Fasteners (W.A.) v Grant Caple Pty Ltd & Ors [2007] FCA 1252 Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467 Australian Securities Commission v MacLeod and Others (1994) 54 FCR 309 Biggin & Co. Ltd. v Permanite Ltd. [1951] 1 K.B. 422 Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 Grey v Mango Pre Paid Calling Cards Pty Ltd (2004) 141 FCR 370 Henjo Investments Pty Limited and Ors v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546 HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 Jones v Schiffmann (1971) 124 CLR 303 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 Matheson Engineers Pty Limited and Another v El Raghy And Others (1992) 37 FCR 6 McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32 Posner v Gibb & Anor [2001] FMCA 93 Quinlivan v Australian Competition & Consumer Commission (2004) 160 FCR 1 Re Kabwand Pty Ltd; EJR Pastoral Company Pty Ltd; Edward Plantagenet Somerset and Elsie Joy Somerset v National Australia Bank Limited [1989] FCA 131 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Vera Gurr and Nicolas Lamont Gurr v Richard Forbes and Dakar Nominees Pty Ltd [1996] FCA 1385 Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 Yorke v Lucas (1958) 158 CLR 661 Zomba Production Music (Aust) Pty Ltd v Roadhouse Productions Pty Ltd (in liq) (2001) 190 ALR 288 |
| Applicant: | EME TRANSPORT – NORTH PTY LTD |
| First Respondent: | EME (NSW) PTY LTD |
| Second Respondent: | EFTHIOS MARKANTONAKIS |
| File Number: | SYG 1609 of 2006 |
| Judgment of: | Barnes FM |
| Hearing date: | 17 December 2007 |
| Date of Last Submission: | 6 February 2008 |
| Delivered at: | Sydney |
| Delivered on: | 24 April 2008 |
REPRESENTATION
| Solicitors for the Applicant: | Hassett Dixon Solicitors |
| Respondents: | No Appearance |
ORDERS
The second respondent pay to the applicant by way of damages pursuant to s.82 of the Trade Practices Act 1974 the sum of $117,000 together with interest from the date of application in the sum of $21,405.74.
The second respondent pay the applicant’s costs of these proceedings.
The costs shall be as taxed in accordance with the Federal Court Rules unless the applicant’s solicitor provides the court with details of the quantification and of the apportionment of the costs sought in these proceedings and proceedings SYG1608 of 2006 within seven days of today’s date, in which case the costs will be in an amount to be ordered by the Court.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1609 of 2006
| EME TRANSPORT - NORTH PTY LTD |
Applicant
And
| EME (NSW) PTY LTD |
First Respondent
| ETHIOS MARKANTONAKIS |
Second Respondent
REASONS FOR JUDGMENT
These proceedings
The applicant seeks judgment against the second respondent under r.13.03 of Federal Magistrates Court Rules in the amount of $137,000 together with interest and costs.
The applicant commenced proceedings against the respondents on 6 June 2006, alleging breach of the Trade Practices Act 1974 (Cth) (the TPA), breach of contract, fraud and money had and received.
The first respondent was described in the application as a company conducting “a business providing road transport services” that “also advertised and sold regional franchises”. The second respondent was the managing director of the first respondent company. He was said, in the alternative, to be an employee of the first respondent or a duly authorised agent of the first respondent.
The matter came before the Court on several occasions for directions. At no time was there any appearance for the first respondent. It was noted that the applicant intended to seek default judgment in relation to the first respondent on the date fixed for hearing.
The matter was initially listed for hearing on 27 August 2007 to be heard together with an associated matter EME Cardiff No. 1 Pty Limited & Anor v EME (NSW) Pty Ltd & Anor [2008] FMCA 476). However before that time the second respondent (who was represented) failed to comply with orders for filing and serving evidence by a specified date. The hearing date was vacated and the matter listed for hearing on 5 September 2007.
On 5 September 2007 there was no appearance for the first respondent. Through recently instructed counsel, the second respondent sought an adjournment. The hearing was adjourned until 17 December 2007. The second respondent was ordered to file and serve written submissions on or before 1 December 2007 and to pay the applicant’s costs thrown away by reason of the adjournment on or before 5pm on 17 October 2007, in default of which the defence contained in the response would be struck out and the applicant at liberty to apply for default judgment in relation to the second respondent.
In breach of the costs order of 5 September 2007 the second respondent did not pay the applicant’s costs on or before 17 October 2007.
On 17 December 2007 there was no appearance for either respondent. The applicant sought default judgment. The applicant relies on the application (and points of claim) filed on 6 June 2006 and an affidavit of Francis Ryan filed on 19 January 2007. The solicitor for the applicant was given the opportunity to clarify a number of matters in written submissions, including whether it still sought to proceed against the first respondent, as the Court had previously been informed in written submissions for the applicant that the first respondent had “gone into liquidation”.
There is no evidence before the Court as to service of the application on the first respondent. Nor is there any evidence as to the precise status of the respondent company or addressing the question of whether the applicant required, and if so had obtained, leave of an appropriate court under s.471B or s.500(2) of the Corporations Act 2001(Cth) (and see s.58AA).
The further written submissions filed for the applicant on 6 February 2008 did not address this issue, but seek damages or other orders under the Trade Practices 1974 (Cth) in relation to the second respondent by virtue of the operation of s.75B of that Act. It appears that the applicant no longer seeks judgment in relation to the first respondent.
In these circumstances no orders for damages or payment of any of the amounts claimed under ss.82 and 87 of the TPA or otherwise should be made against the first respondent in these proceedings.
Default judgment
The applicant seeks “default” judgment in relation to the second respondent under r.13.03 of the Federal Magistrates Court Rules which states:
(1) This rule applies if a party fails to take a step required by these Rules or to comply with an order of the Court.
(2) Subject to any other order or transfer the Court may, on the application of another party in the proceeding or of its own motion, make an order:
(a) that the step be taken within a stated time; or
(b) to end the proceeding or dismiss a response.
(3) The Court may make the order sought or another order that it considers appropriate
Rule 13.03 is analogous to the former Federal Court Rule Order 10 rule 7 which applied to proceedings in the Federal Court of Australia before Order 35A was introduced in 2004 (see Posner v Gibb & Anor [2001] FMCA 93). As was the case under O.10 r.7, r.13.03 is available “to authorise the giving of judgment terminating the proceedings wherever a party has failed to comply with a direction requiring the party to take a step in the proceeding” (See Australian Securities Commission v MacLeod and Others (1994) 54 FCR 309 per Drummond J at 313).
It is important to note the distinction between r.13.03 and a rule such as Order 35A of the Federal Court Rules. Under Order 35A an applicant may be entitled to relief on the basis of a statement of claim without the need for proof by way of affidavit evidence of the applicant’s claim, provided on the face of the statement of claim there is a claim for the relief sought and the court has jurisdiction to grant that relief (see Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3] per Heerey J and Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467). However there is no such provision in the Federal Magistrates Court Rules.
In MacLeod Drummond J stated at 314 in relation to the former Order 10 Rule 7 of the Federal Court Rules:
the applicant must prove his entitlement to the judgment claimed by evidence sufficient to prove, among other things, the facts upon which his cause of action is based.
I am of the view that, as McInnis FM accepted in Posner v Gibb at [14], the same principles apply to an application under r.13.03.
This means that, to paraphrase what Drummond J stated in MacLeod at 314:… where final judgment is sought against a respondent pursuant to [r.13.03] on the ground that he is in default in complying with directions given under the order, the applicant must support its motion for judgment with material in legally admissible form sufficient to prove not only that the Court has jurisdiction in the matter and that the circumstances are such as to justify the grant of this discretionary remedy, but also all the facts necessary to prove its entitlement to the relief claimed under the judgment applied for.
(Also see to the same effect Zomba Production Music (Aust) Pty Ltd v Roadhouse Productions Pty Ltd (in liq) (2001) 190 ALR 288 and Grey v Mango Pre Paid Calling Cards Pty Ltd (2004) 141 FCR 370).
Thus I must be satisfied that the applicant has put before the court material in legally admissible form sufficient to entitle it to final judgment in the action.
The second respondent failed to comply with the order made on
5 September 2007 that “The Second Respondent pay the Applicants costs in the sum of $3,000 in relation to matters SYG1608/2006 and SYG1609/2006 on or before 5pm on 17 October 2007 in default of which the defence contained in the response be struck out and the applicant be at liberty to apply for default judgment”. This failure provides a basis for the operation of r.13.03.
In oral submissions the solicitor for the applicant addressed the facts said to be necessary to prove the applicant’s entitlement to recover damages from the second respondent under the TPA as sought in the application. He indicated that the applicant maintained the action in deceit on the same basis as the TPA action against the second respondent, but abandoned the breach of contract claim. The applicant did not seek to rely on s.51A of the TPA as the reversal of onus in that section does not apply to a person who is claimed to be an accessory under s.75B (Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1). Nor is it necessary to address the pleaded contravention of s.51AC which relates to unconscionable conduct by a corporation in a business transaction.
The solicitor for the applicant was asked to clarify if the other bases for the action were pursued. For the reasons given below, the applicant is entitled to damages in respect of a contravention of s.52 under s.82 of the TPA, albeit not for the full amount sought. The alternative claims were not addressed in the further written submissions and have not been considered except that there is evidence to support the claim in deceit as pleaded (see the discussion of.s75B below) on the basis that the second respondent knowingly or recklessly made false statements of fact (as to customer base and long term work contracts) and did not have reasonable grounds for representations as to income projections and guaranteed work intending that they should be (and were) acted upon by the applicant. However the same damages are sought as under the TPA as discussed below. There is no evidence before the Court to establish that the damages recoverable in relation to the action in deceit would exceed those recoverable under the TPA.
Jurisdiction
The applicant claims that the first respondent breached s.52 of the TPA and that the second respondent is liable by virtue of s.75B of the TPA. As noted above, to obtain judgment under r.13.03 the applicant must first provide “sufficient material” to prove the Court has jurisdiction in the matter. This is a claim under the TPA. It is alleged that there has been a contravention of s.52. The amount of loss or damage sought does not exceed $750,000 (see ss.86 and 86AA). I am satisfied on the basis of the materials before me that the Court has jurisdiction in this matter.
Section 52 claim
Section 52(1) of the TPA is as follows:
(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
…
I am satisfied as to the evidence on which the cause of action under the TPA is based. There is evidence in legally admissible form of the facts necessary to prove a contravention of s.52 of the TPA by the first respondent.
The applicant relies on the affidavit of Francis Ryan filed on
19 January 2007. On the evidence before me it is clear that the first respondent was a corporation conducting a business “in trade or commerce”. (See Mason CJ, Deane, Dawson and Gaudron JJ in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 602 – 603).
There is evidence before the Court to prove a number of representations made orally by the second respondent on behalf of the first respondent and in various documents provided by the first respondent in connection with the possible purchase by the applicant of a regional franchise for the carriage of freight which, it was represented, would give rise to a guarantee of minimum hours of work and an income stream through management and administrations fees for sub-franchises, which could be owned and operated by the applicant. There is also evidence that representations were made that two trucks would be sold to the applicant at cost.
It was alleged in paragraphs 7 and 8 of the application that by making specified representations the respondents and each of them engaged in conduct that was misleading and/or deceptive and/or likely to mislead and/or deceive and contravened s.52 of the TPA.
It was also contended that specified representations were fraudulently made in that they were untrue to the knowledge of the respondents or were made with a reckless indifference as to whether they were true or false and they were made with the intention that they be acted upon by the applicant. Insofar as liability is sought to be imposed on the second respondent in relation to future matters there is evidence before the court to establish that the representations were made and were misleading or that the maker of the representation had no reasonable grounds for making them (Quinlan).
The representations are described in the application and the affidavit of Francis Ryan as:
(1)the “customer base representation” that the first respondent had long term contracts for the carriage of freight with Bunnings Building Supplies Ltd, the Hudson Group Ltd, Mitre 10 Ltd, Sydney Water, Bovis Lend Lease Ltd and Coates Hire Ltd. There is affidavit evidence that such representations were made orally by the second respondent as well as in a document entitled “Frequently Asked Questions” (see paras [4] – [8] and Exhibit FR8 to the affidavit of Francis Ryan).
(2)the “10 trucks representation” that there was a great deal of work to be done pursuant to these contracts, enough for approximately 10 2 tonne – 8 tonne trucks, made orally by the second respondent (see para [8] of the affidavit of Francis Ryan)
(3)the “work guarantee representations” that the first respondent would guarantee enough work for 10 trucks (through sub-franchises) with its customers in Newcastle and Hunter area at a minimum of 40 hours per week, made in an information memorandum and other documents sent to the applicant by the first respondent (Exhibits FR 4, FR 8 and FR12 to the affidavit of Francis Ryan) and orally by the second respondent (para [8] of the affidavit of Francis Ryan).
(4)The “income stream representation” as pleaded in several paragraphs was based on representations that the first respondent could offer the applicant a regional franchise which would contain management rights for 10 sub-franchises on specified financial terms which would give rights to specified percentage management and administration fees (illustrated by examples for 2 and 8 tonne trucks) such that within less than 12 months the $41,600 franchise fee would be repaid leaving the regional franchisee with an income stream into the future. The evidence is that these representations were made orally or in writing by the second respondent and in documents provided by the first respondent (affidavit of Francis Ryan, in particular para [8] and Exhibits FR4, FR10, FR19, FR21, and FR24).
(5)the “sub-franchisee representation” that the applicant would be in a position to own and operate sub-franchises within the regional franchise area to generate an income stream as described based on the work guarantee provided by the respondents and an express representation by the respondents to the applicant that a 2-tonne truck sub-franchise would within the first year of trading achieve a 70% return on funds initially outlayed, including the franchise fee and purchase of a truck (affidavit of Francis Ryan in particular at para [8] and see Exhibits FR9, FR21 and FR27).
(6)the “truck representation” that the respondents would purchase one 2-tonne truck and one 8-tonne truck from Bunnings and would on-sell these same trucks to the applicant at cost (affidavit of Francis Ryan at paras [65] and [83] – [84]).
The affidavit evidence relied on by the applicant provides a basis on which the Court can be satisfied that there is evidence that these representations were made and that the making of such representations constituted misleading or deceptive conduct within s.52, particularly insofar as the representations as to existing guaranteed term contracts provided the basis for the proposed franchise and sub-franchise structure and its profitability, given the affidavit evidence that there were no such “term contracts” in existence.
As the applicant submitted, there is evidence to support the claim that the respondents had neither the clients nor work claimed and absent these two fundamentals everything which flowed from these matters (including the projected fees and cashflows) was necessarily false and misleading. (See Henjo Investments Pty Limited and Ors v Collins Marrickville Pty Limited (No 1) (1988) 39 FCR 546).
I am satisfied that there is evidence on which this cause of action is based and that the first respondent contravened s.52 of the TPA
Liability of the second respondent
There is also sufficient evidence before the Court to establish liability on the part of the second respondent under s.75B(1) of the TPA.
An action may be maintained against an individual alleged to have been involved in a contravention of s.52 within s.75B although proceedings are not pursued against the corporation which is the primary contravenor (see Matheson Engineers Pty Limited and Another v El Raghy and Others (1992) 37 FCR 6 at [9] per French J and Australian Competition and Consumer Commission v Albert [2005] FCA 1311 at [34] per Jacobson J. That is so even if the corporation is in liquidation or insolvent (Matheson at [11]).
As French J stated in Matheson at [9]:
Section 82 of the Trade Practices Act creates a cause of action for loss or damage suffered by a person by conduct of another in contravention of a provision of Pt IV or Pt V which the person who has suffered the loss or damage may recover "by action against that other person or against any person involved in the contravention". The words of the section in this respect are clear and do not impose as a condition of accessorial liability a requirement that the primary contravenor be a party to the action. It may be that in many cases a primary corporate contravenor should be joined as a respondent so that the entire dispute may be determined. In other cases the primary contravenor may be a company in liquidation or just insolvent. There may be no point to the joinder of that company in those circumstances which may require leave of the court under the Corporations Law in any event.
The evidence before the Court is that the second respondent was the managing director of the first respondent at all relevant times and that the representations in question were made by him or in company documents or emails from employees of the first respondent, provided by the second respondent on or behalf of the first respondent.
The second respondent conducted the major negotiations with the applicant’s representatives.
While s.51A (in relation to representations as to future matters) cannot be relied on in proceedings for accessorial liability (see Quinlivan), the affidavit evidence before the Court is that the second respondent knew that the first respondent did not have the customers or contracts represented and that hence the statements he made were false and misleading to his knowledge. There is an evidentiary basis for the claim that the second respondent knew that the first respondent had no “term contracts” with anyone and that all it had was some ad hoc work from Bunnings which was on an oral basis and could be terminated without notice. It can be inferred the second respondent knew this and that everything flowing from the representations as to customers and contracts including projected fees and cashflows, was also false.
I am satisfied on the evidence before the Court that the second respondent, as managing director of the first respondent who conducted the negotiations and made some of the representations, had knowledge of the essential facts constituting the contravention and was an intentional participant based on that knowledge within s.75B(1)(c) in the sense considered in Yorke v Lucas (1958) 158 CLR 661 at 670. Also see Genocanna Nominees Pty Ltd v Thirsty Point Pty Ltd [2006] FCA 1268 at [269] per Lander J. Hence I find for the purposes of these proceedings that the second respondent was involved in the contravention of s.52 of the TPA by the first respondent.
Damages
The applicant seeks to recover loss or damage occasioned by the conduct in contravention under s.82 (or s.87) of the TPA from the second respondent.
Section 82(1) of the TPA provides:
…a person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV, IVA, IVB or V or section 51AC may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.
In this case there is evidence of actual reliance by the applicant on the misleading or deceptive conduct (see Re Kabwand Pty Ltd; EJR Pastoral Company Pty Ltd; Edward Plantagenet Somerset and Elsie Joy Somerset v National Australia Bank Limited [1989] FCA 131 at [74] and Henjo at 558 – 559). Francis Ryan’s evidence is that he was primarily influenced by two factors: that there was a guaranteed minimum of 40 hours work per week and that the first respondent had the represented clients. These two factors were said to underpin the whole transaction for the applicants. In this respect I note that in Henjo Lockhart J stated (at 558 – 559) that “recovery under s 52 is founded by the applicant's actual reliance upon the misleading or deceptive conduct of the respondent”. His Honour considered that this would established although the conduct “was not the only factor in the applicant's decision to enter a particular agreement, and although the applicant did not seek to verify the representations or did so inadequately and so failed to discover their falsity”. (Also see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 525 per Mason J).
The evidence is that in reliance on the representations the applicant entered into agreements with the first respondent for the purchase of a regional franchise, two sub-franchises and, as discussed further below, certain trucks.
Assessment of damages
The applicant seeks to recover a number of heads of damage.
The affidavit evidence is that the applicant paid the first respondent $41,600 in July 2005 as a regional franchise fee. On 28 July 2005 there was a payment of $21,5000 for the purchase of two trucks to operate in sub-franchises. However this payment for trucks was for sub-franchises the subject of the separate proceedings (EME Cardiff No. 1 Pty Limited & Anor v EME (NSW) Pty Ltd & Anor (2008) FMCA 476).
Between August and October 2005 Francis Ryan caused a number of payments to be made to the first respondent totalling $153,8000. However $61,400 of this amount was in relation to the Cardiff sub-franchises, the subject of the separate proceedings.
Somewhat confusingly Mr Ryan’s evidence is that he believed that he “owed the First Respondent the sum of $31,200 for Cardiff 1, $30,200 for Cardiff 2 , $30,200 for Maitland and $30,200 for Nelson Bay. That is, a total of $152,000 (sic) in franchise fees and $30,000 for the two trucks”.
On this basis he calculated that he had made total payments of $153,800 (as documented) out of the “$180,000” (sic), but stated that he did not pay the “balance” as he reached the view the first respondent “was not going to perform its part of the bargain”.
The solicitor for the applicant explained the discrepancy in these figures on the basis that the applicant also agreed to pay for the fifth sub-franchise (at Cessnock or Maitland) but did not actually pay for it.
What is apparent from the application and the affidavit evidence is that, (putting aside the payments in relation to the Cardiff sub-franchises and that are the subject of the other proceedings and the payments for the first two trucks), in these proceedings the applicant seeks to recover an amount of $134,000 consisting of the regional franchise fee of $41,600, two sub-franchise fees (the application and affidavit refer to Maitland and Nelson Bay) totalling $60,400, $30,000 which is said in submissions to be for the third and fourth trucks and $2,000 which is said in submissions to have been paid towards a fifth sub-franchise.
As Kenny J stated in Walker v Citigroup Global Markets Pty Ltd [2005] FCA 1678 at [111]:
… if a litigant has established an entitlement to damages, he or she is not be to deprived of the benefit of this entitlement merely because an assessment of damages is difficult.
The assessment of damages is an inexact science which may involve guesswork rather than estimation (see Jones v Schiffmann (1971) 124 CLR 303 and All Fasteners v Grant Caple Pty Ltd & Ors (No.3) [2005] FMCA 1873 at [10] and on appeal at [2007] FCA 1252). Nonetheless, the applicant is required to prove the fact and amount of damage.
In Walker Kenny J went on to point out at [112]:
It by no means follows from this, however, that an applicant can recover substantial as opposed to nominal damages if he does not prove both the fact and the amount of damage: see Commonwealth v Amann Aviation Pty Ltd(1991) 174 CLR 64 … at 80 per Mason CJ and Dawson J, 99 per Brennan J, 118 per Deane J and 137-8 per Toohey J. In JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 … at 241, Brooking J said:
"If he proves the fact of the loss but does not call the necessary evidence as to its amount he cannot be awarded substantial damages (McGregor on Damages, 14th ed., pp. 190 and 222): he must put the tribunal in the position of being able to quantify in money the damage he has suffered: Watts v. Rake (1960) 108 C.L.R. 158, at p. 159, per Dixon C.J. So juries in personal injuries cases are often directed that the plaintiff must prove to their satisfaction what he has suffered and will suffer and what is fair and reasonable compensation in respect of that. It is often said that the amount of the damage must be proved with certainty, but this only means as much "certainty" as is reasonable in the circumstances: Ratcliffe v. Evans [1892] 2 Q.B. 524, at pp. 532-3. Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can: Biggin & Co. Ltd. v Permanite Ltd. [1951] 1 K.B. 422, at p. 438; The Commonwealth v Amann Aviation Pty. Ltd., at C.L.R. p 83, per Mason C.J. and Dawson J."
Regional franchise payment
The applicant seeks first to recover the amount of the regional franchise fee of $41,600 paid on behalf of EME Transport – North Pty Ltd to the first respondent (see the Franchise Agreement, Exhibit FR24 to the affidavit of Francis Ryan). On 8 July 2005 Mr F. Ryan made the first of a number of payments to the first respondent on behalf of the applicant. He gives evidence of payment of $7,600 on 8 July 2005 towards the cost of the regional franchise, $14,000 on 11 July 2005 and a further $20,000 on 14 July 2005. Thus, there is evidence that the applicant paid $41,600 for the regional franchise. The applicant seeks recovery of this amount as paid in reliance on the misleading conduct. The evidence is such as to prove the applicant’s entitlement to such an amount on the basis that the regional franchise was of no value (Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281). Hence the applicant should recover the capital loss of $41,600 to put it in the position it would have been in but for the contravening conduct.
Sub-franchise fees
In the application the applicant claimed recovery of the consideration provided for the purchase of two sub-franchises at the cost of $30,200 each (i.e., total of $60,400). These were described in the application as Maitland and Nelson Bay sub-franchises purchased on or about
27 October 2006.
There are some inconsistencies between the application, affidavit and written submissions and hence some confusion in relation to precisely which sub-franchises were in issue and as to the money the applicant paid towards the purchase of particular sub-franchises. This confusion is compounded by the fact that the payments for or towards the Maitland sub-franchise and the Nelson Bay sub-franchise were made in conjunction with payments for two other sub-franchises (claimed in the separate proceedings SYG1608 of 2006 and referred to in those proceedings as Cardiff No 1 and Cardiff No 2) and possibly partial payment towards a fifth sub-franchise, a Cessnock sub-franchise.
This reflects the fact that rather than paying separate and specified amounts for each sub-franchise Mr. Francis Ryan on behalf of the applicant paid to the first respondent varying amounts over a 10 week period (19 August 2005 to 27 October 2005) which reflected a stated intention to pay for the purchase of four sub-franchises according to paragraphs [83] to [88] of his affidavit. Two of these are the subject of the separate proceedings.
The further written submissions for the applicant dated 6 February 2008 refer to a Cessnock sub-franchise. This may reflect Mr Ryan’s evidence that a truck intended to be used by a sub-franchisee at Cardiff was used by another person to do work directly for the respondents at Cessnock. In any event, as the originating application makes no claim for such a sub-franchise fee and as the applicant at no point sought to amend his original application to include a claim for recovery of payment for any other sub-franchise, damages can only be awarded in these proceedings in relation to loss or damage suffered in relation to the two sub-franchises claimed in the originating application. However these sub-franchises are identified, there is evidence before the Court that payment of $60,400 for two sub-franchises was made on behalf of the applicant through the Ryan’s family company and that the sub-franchises were purchased on 27 October 2007.
Mr Ryan’s evidence is that the applicant saw no return at all for the money paid towards these sub-franchises, given the absence of freight contracts and an issue in relation to one of the trucks. I am satisfied that the sub-franchises would not have been purchased had the representations not been made. On the material before the Court, there is no evidence that the sub-franchises had any real value (see Kizbeau at 290 – 291). As discussed by Siopsis J in All Fasteners v Grant Caple Pty Ltd & Ors (No.3) at [21] – [24] in all the circumstances the applicant should recover the capital loss of $60,400 paid for the two sub-franchises in these proceedings to give effect to the principle that the applicant should be put into the position it would have been in but for the contravening conduct (HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at 663).
The truck or trucks
The application also included (at para 13) a claim of damages under the TPA for the purchase of one 8-tonne truck at the cost of $15,000 on the basis that the truck was “never received by the applicant nor did the title pass”.
The applicant’s written submissions dated 6 February 2008 claim that what is sought is repayment of $30,000 “for the combination of the third and fourth trucks”. However, because the originating application makes a claim in damages for only $15,000 for one 8-tonne truck, that is all that can be awarded in these proceedings under r.13.03.
The amount claimed is $15,000 for one 8-tonne truck that was not received. It appears from the application that this is a reference to an 8-tonne truck said to have been purchased and paid for by the applicant to operate out of the Nelson Bay sub-franchise. There was, in the alternative, a claim for money had and received against the first respondent in relation to this truck. That claim does not relate to the second respondent. The first respondent is said to be in liquidation and, as discussed above, the claim against it is not pursued. Hence the claim is addressed as part of the TPA claim against the second respondent.
Francis Ryan’s affidavit refers to four trucks. Of these an 8-tonne truck and a 2-tonne truck were to be for the Cardiff 1 and Cardiff
2 franchises which are the subject of the separate proceedings. Those trucks were described by the second respondent on 25 July 2005 as truck to be sold with the Cardiff sub-franchises at the “cost” of $15,000 and $6,500 respectively and there is evidence that on 28 July 2005 Mr Ryan caused funds to be transferred to the first respondent for the purchase of those trucks, that the 2-tonne truck was received and the 8-tonne truck was used by another person on behalf of the first respondent but eventually taken back by the applicant and sold.
The claim does not relate to those trucks.
Mr Ryan also attested that in relation to the Nelson Bay and Maitland sub-franchises the second respondent agreed to sell the applicant two 8 tonne trucks at a cost of $15,000 each and that part of the money paid to the first respondent on behalf of the applicant in August to October was for those two 8-tonne trucks.
Mr Ryan’s affidavit evidence in relation to one of these 8-tonne trucks is that it was bought for $15,000 but was in need of repairs which cost $17,000 and that it was sold by the applicant for $17,000 in February 2006. This truck does not fit the description of the truck the subject of the application, as it was received and sold. The evidence as to who met the costs of repairs is not entirely clear. It was submitted that while the second respondent paid the repair costs he refused to pay any money to either applicant under the franchise arrangements (save for $3,000) because he alleged that they had to pay for these repairs. Whatever the position in relation to this truck (and whether earnings of an unknown sum were lost to the applicants as submitted) the particulars of the amount claimed in para 13 of the application do not include an amount for this truck and on that basis no order should be made in relation to this item under r.13.03.
However the amounts paid by the applicant between 19 August to 27 October 2005 include an amount of $15,000 which, as submitted by the solicitor for the applicants, is attributable to payment for an 8-tonne truck (the third 8-tonne truck of the four trucks purchased) which was never received. On the basis discussed above, there is evidence that this payment was made in reliance on the misleading conduct and it is recoverable under s.82 of the Act.
Loss of opportunity
The applicant also claimed $20,000 for deprivation of commercial opportunity. In light of the generality of this claim the applicant was given the opportunity to identify relevant evidence in post-hearing submissions.
In his written submissions the solicitor for the applicant submitted that the respondent’s use of the two 8 tonne trucks and the general wastage of the applicant’s time in this enterprise gave rise to a claim for deprivation of commercial opportunity and that there was precedent for such an award in Vera Gurr and Nicolas Lamont Gurr v Richard Forbes and Dakar Nominees Pty Ltd [1996] FCA 1385 per Carr J at [155].
However it is relevant to have regard to the specificity of the evidence before the Court in Gurr. Carr J had regard to evidence as to actual profit and loss in the business purchased, the profit which could have been achieved by an alternative trucking business which the applicants in that case had considered buying prior to purchasing the business in issue, evidence of calculation of adjusted profits and profits achievable in the alternative trucking business applied to periods in issue. There was evidence that after deducting the adjusted profits notionally achieved by Mr and Mrs Gurr in conducting the business purchased from the total of the amounts which there was evidence that they would have earned had they purchased the alternative business, they lost a specified profit. There was also evidence of the interest paid in respect of funds borrowed to purchase the business and provide working capital
Thus in Gurr the applicants provided evidence that they would have purchased a specific alternative business and detailed evidence as to the total capital and revenue loss sustained. Carr J accepted on the balance of probabilities that the applicants would have purchased a particular alternative trucking business if they had not purchased the business in issue and was able to attribute an amount for loss of profits based on the evidence before him.
While damages for loss of opportunity may be awarded on the basis that the prejudice or disadvantage suffered is the loss of the opportunity or chance to secure commercial benefits which entry into an agreement would have brought (see Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 348), the loss of opportunity must be measurable.
As Mason CJ, Dawson, Toohey and Gaudron JJ stated in Sellars at 355: “…damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued.” Their Honours confirmed: “… the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.”
Brennan J at 364 referred to the fact that the alternative opportunity must offer a “substantial, and not merely speculative, prospect of acquiring a benefit that the plaintiff sought to acquire or of avoiding a detriment that the plaintiff sought to avoid” to be held to be valuable such that the loss of that opportunity was "loss" or "damage" for the purposes of s.82(1) of the Act. His Honour pointed out that “a causal relationship between the loss of such an opportunity and the defendant's contravening or tortious conduct must be proved before any issue of assessment of the amount of the loss arises”.
In this case there is an assertion in submissions that the applicant may have missed another substantial opportunity, or that the applicant would have purchased an alternative business had it not entered into the agreement with the first respondent. However there is no evidence before the Court of such an alternative or that any such missed opportunity would have been a success had it been pursued (see Sellars). The general claim of “deprivation of commercial opportunity” is not sufficient to make out the claim of $20,000 under this head of damages on the evidence before the Court.
Other amounts
There is a disparity between the total amounts said to have been paid to the first respondent in relation to items the subject of these proceedings and the amounts (other than in relation to deprivation of commercial opportunity) sought under s.82 of the TPA. Of the amount paid $15,000 is referable to the truck received and sold by the applicant which is discussed above and is not recoverable on the evidence before the Court. While the written submissions suggest that another $2,000 was a part-payment towards a fifth sub-franchise, this is neither made clear on the affidavit evidence or claimed in the application. It has not been established that this amount is recoverable in these proceedings.
Thus the applicant should recover damages of $117,000 from the second respondent under s.82 of the TPA $117,000 consisting of:
·$41,600 consideration for the regional franchise;
·$30,200 consideration for the Maitland sub-franchise;
·$30,200 consideration for the Nelson Bay sub-franchise;
·$15,000 consideration for one 8-tonne truck paid for but not received by the applicant.
Interest
The applicant makes a general claim for interest from the date of filing on the amounts claimed as loss or damage. Under s.76 of the Federal Magistrates Act 1999 (Cth) an order should be made for interest from the date of the filing of the application to the date of judgment.
It is appropriate to have regard to the rate of interest that would be applied by the Supreme Court of New South Wales since the case was heard in New South Wales (see McCormick v Riverwood International (Australia) Pty Ltd [2000] FCA 32 in relation to s.51A of the Federal Court of Australia Act 1976 (Cth)).
Pursuant to the Uniform Civil Procedure Rules 2005 Reg 36.7(1) the prescribed rates at which interest is payable under s.101 of the Civil Procedure Act2005 (NSW) are as set out in Schedule 5. Schedule 5 states the interest rate (per cent per year) after 31 December 2006 is 10%. On this basis the applicant should recover interest in the sum of $21,405.74.
The judgment should also carry interest from the date of entry in accordance with s.77 of the Federal Magistrates Court Act at the rate of 10.5% fixed by Order 35 Rule 8 of the Federal Court Rules (pursuant to r.26.01 of the Federal Magistrate Court Rules).
Costs
The applicant also claims costs. On 5 September 2007 I ordered that the second respondent pay the applicant and the applicants in SYG1608 of 2006 costs thrown away by reason of the adjournment in the total amount of $3,000.
The second respondent should also otherwise pay the costs of the applicant. The applicant’s solicitor has not quantified the amount of costs sought despite being given the opportunity to do so in post-hearing written submissions. I will nonetheless hear submissions in relation to the amount and apportionment of costs as between the applicants in this and matter SYG1608 of 2006 which was heard at the same time.
I certify that the preceding seventy-six (76) paragraphs are a true copy of the reasons for judgment of Barnes FM
Associate:
Date: 24 April 2008
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