Geary Nominees Pty Ltd v Pargas Nominees Pty Ltd

[1986] FCA 281

Re: GEARY NOMINEES PTY. LTD.
And: PARGAS NOMINEES PTY. LTD.; LEONARD KEITH JAMES BRUSH; KENNETH GEORGE
COPPIN; SWAN BUSINESS BROKERS (A Firm) and TERRANCE METTAM
No. WA G43 of 1986
Trade Practices - Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Toohey J.

CATCHWORDS

Trade Practices - misleading and deceptive conduct - alleged representations as to profitability of a business - claim for damages under s.82 - appropriate measure of damages - whether loss or damage suffered within statutory time limit - claim under s.87 - whether claim subject to limitation period in s.82 - pendent common law claims - whether Court has jurisdiction to hear common law claims where Trade Practices claim statute barred

Practice and Procedure - application to strike out paragraphs of statement of claim and for dismissal of action as statute barred - whether possible limitation defence sufficient basis for striking out or dismissal of claim

Trade Practices Act 1974 ss.82, 87

Federal Court Rules O.11 r.16, O.20 r.2, O.42 r.13

HEARING

PERTH

#DATE 10:7:1986

ORDER

The motion by the first, second and third respondents filed 30 May 1986 be dismissed.

The costs of the motion be the applicant's costs in the cause.

The applicant's claim against the fourth respondent be dismissed but otherwise the motion filed by the fourth and fifth respondents on 18 June 1986 be dismissed.

The applicant have leave, by reason of the dismissal of its claim against the fourth respondent, to amend its application and statement of claim by 17 July 1986.

The applicant pay the fourth respondent's costs of the motion but otherwise the costs of the fourth and fifth respondents' motion be the applicant's costs in the cause.

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

JUDGE1

On 8 May 1986 the applicant filed an application in this

Court claiming against all respondents damages pursuant to sub-s.82(2) of the Trade Practices Act 1974, orders pursuant to s.87 of that Act and damages at common law.

1. The first, second and third respondents, who have common representation, and the fourth and fifth respondents, who have common representation, have moved the Court for the dismissal of the applicant's claim on the ground that any claim against them is statute barred. The motions were heard together, the submissions of counsel for each group of respondents were in large measure the same as was the applicant's reply to those submissions.

2. The applicant's claim arises from the purchase by it of a business known as Shareen Office Supplies. The first respondent was the owner of the business. The second and third respondents were directors of the first respondent, said to have acted on its behalf in the negotiations that led to the sale. The fourth respondent, a firm of business brokers, acted on behalf of the first respondent in the sale of the business. The fifth respondent was the proprietor of the firm.

3. The statement of claim alleges that in or about early October 1981 the fifth respondent made representations to the applicant concerning the gross profit and net profit of the business for the financial years ended 30 June 1979, 1980 and 1981. A contract for the purchase of the business was executed on 27 October 1981, the applicant paid the purchase price of $290,000 and it entered into possession on 1 November 1981.

4. The statement of claim further pleads that these representations were false, that they constituted misleading or deceptive conduct on the part of the first respondent and the fourth respondent in contravention of s.52 of the Trade Practices Act 1974; that the second and third respondents aided, abetted, counselled or procured the contraventions of the Act or were knowingly concerned in the contraventions; that the representations were made fraudulently, alternatively negligently; and in the further alternative that the representations were incorporated into the contract as contractual terms or constituted collateral warranties. The applicant has indeed drawn its claim with a broad brush.

5. Sub-section 82(1) of the Trade Practices Act provides that a person who suffers loss or damage by conduct of another done in contravention of Part V (in which s.52 appears) may recover that loss or damage by action against the other person or against any person involved in the contravention. Sub-section 82(2) provides that an action under the preceding sub-section "may be commenced at any time within 3 years after the date on which the cause of action accrued". If the applicant's cause of action against the respondents accrued, as the respondents say it did, in October 1981, the claim is, at least so far as s.82 is concerned, statute barred.

6. A cause of action under s.82 accrues, not when there is a contravention of s.52, but when loss or damage is suffered in consequence. Loss or damage may not be suffered until some time after the contravention takes place. Arcadi v. Colonial Mutual Life Assurance Society Ltd. (1984) ATPR 40-473; James v. Australia and New Zealand Banking Group Ltd. (1985) ATPR 40-567; James v. Australian and New Zealand Banking Group Ltd. (1986) 64 ALR 347 at 392. Thus the question must be - when did the applicant suffer loss or damage as a consequence of the respondents' misleading or deceptive conduct? Was it earlier than three years before 8 May 1986?

7. The measure of damages for misleading or deceptive conduct was discussed by the High Court in Gates v. City Mutual Life Assurance Society Ltd. (1986) 60 ALJR 239. Because, as I understand it, this is the first occasion on which the High Court has spoken on the measure of damages under the Trade Practices Act, I propose to quote at some length from the joint judgment of Mason, Wilson and Dawson JJ. at 243:
   
   

" The Act does not prescribe the measure of damages recoverable by a plaintiff for contravention of the provisions of Pts IV and V. Accordingly, it is for the courts to determine what is the appropriate measure of damages recoverable by a plaintiff who suffers loss or damage by conduct done in contravention of the relevant provisions. Two established measures of damages, those applicable in contract and tort respectively, compete for acceptance. In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the contract been performed - he is entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort, on the other hand, damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss).

The differences and the similarities between the two approaches are best illustrated by contrasting the damages recoverable for breach of contractual warranty on a purchase of goods with those recoverable for a fraudulent misrepresentation inducing entry into a contract for the purchase of goods on the assumption that the contracts are identical except that in one case the representation amounts to a warranty and in the other it is merely a non-contractual representation. For breach of warranty the plaintiff is prima facie entitled to recover the difference between the real value of the goods and the value of the goods as warranted. In deceit the measure of damages is the difference at the time of purchase between the real value of the goods, and the price paid: Potts v. Miller (1940) 64 CLR 282 at 289, 297; Toteff v. Antonas (1952) 87 CLR 647 at 650-651, 654; Gould v. Vaggelas (1984) 58 ALJR 560 at 561; 56 ALR 31 at 34. But this has been treated as a prima facie measure only, the true measure being reflected in the proposition stated by Dixon J. in Toteff v. Antonas (at 650) in these terms:

'In an action of deceit a plaintiff is entitled to recover as damages a sum representing the prejudice or disadvantage he has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant.'

As his Honour then pointed out, it is a question of determining how much worse off the plaintiff is as a result of entering into the transaction which the representation induced him to enter than he would have been had the transaction not taken place. This entitles the plaintiff to all the consequential loss directly flowing from his reliance on the representation (Potts v. Miller at 297-298; Doyle v. Olby (Ironmongers) Ltd. (1969) 2 QB 158), at least if the loss is foreseeable: see Gould v. Vaggelas at 563; 37 of ALR".

1. In the matter now before the Court, if the applicant establishes misleading or deceptive conduct on the part of the respondents, the measure of its damages is the difference between the value of the business at the time of purchase and the price paid for it, together with consequential loss directly flowing from the applicant's reliance on the misleading or deceptive conduct.

2. The damages pleaded by the applicant are by reference to the net trading profit which, it is said, the applicant would have made to 30 June 1984, in terms of the net trading profit represented by the respondents. In fact, it is said, the applicant sustained a loss of $43,951 to 30 June 1984 in addition to the $476,816 profit it would have made had the representations been correct. The significance of 30 June 1984 is that the applicant says thereafter it conducted the business at a profit. There may well be difficulties in establishing a relationship between what was said concerning the profitability of the business at the time of sale and its profitability thereafter. But these may be largely difficulties of proof and evidence. However, for the purposes of the motions now before the Court, if the applicant can make good a case of contravention of s.52, the measure of its damages is not the profit it would have made or the loss it would not have made had the statements been accurate. The measure of its damages is the difference between the value of the business at the time of purchase and the $290,000 paid for it. That loss or damage was sustained when the contract for purchase of the business was executed or at any rate when the applicant paid the purchase price and went into possession. There is no plea of consequential loss directly flowing from the applicant's reliance on the representations unless it be the loss sustained in carrying on the business.

3. With that qualification, any cause of action accruing to the applicant under s.82 of the Trade Practices Act appears to have accrued more than three years before the commencement of proceedings. Nevertheless, there are compelling reasons why the application should not be dismissed or the statement of claim struck out, at least at this stage and pursuant to these motions.

4. Neither motion states with particularity the basis upon which relief is sought. But, in the light of the argument addressed by counsel, it would seem that the respondents rely primarily upon O.20 r.2 and also upon O.11 r.16 of the Federal Court Rules. Order 20 r.2 reads:
   
   

" (1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding -

(a) no reasonable cause of action is disclosed;

(b) the proceeding is frivolous or vexatious; or

(c) the proceeding is an abuse of the process of the Court,

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1)."

Order 11 r.16 reads:

" Where a pleading -

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or

(c) is otherwise an abuse of the process 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."

1. No defences have yet been filed by the respondents. In Ronex Properties Ltd. v. John Laing Construction Ltd. (1983) 1 QB 398, Donaldson L.J. said at 404:
   
   

"Authority apart, I would have thought it was absurd to contend that a writ ... could be struck out as disclosing no cause of action merely because the defendant may have a defence under the Limitation Acts. ... it is trite law that the English Limitation Acts bar the remedy and not the right, and furthermore that they do not even have this effect unless and until pleaded. Even when pleaded, they are subject to various exceptions, such as acknowledgement of a debt or concealed fraud, which can be raised by way of reply."

His Lordship continued at 405:

"Where it is thought to be clear that there is a defence under the Limitation Act, the defendant can either plead that defence and seek the trial of a preliminary issue or, in a very clear case, he can seek to strike out the claim on the ground that it is frivolous, vexatious and an abuse of the process of the court and support his application with evidence. But in no circumstances can he seek to strike out on the ground that no cause of action is disclosed".

Although Donaldson L.J. was dealing with O.18 r.19 of the English Rules of the Supreme Court which confer power to strike out a pleading or the endorsement of a writ on certain grounds, the rule is close enough in language and operation for his Lordship's remarks to apply to the Federal Court Rules. I am not suggesting that acknowledgement of debt or concealed fraud is an available defence in answer to a limitation plea under sub-s.82(2) for that question did not arise. But the terms of any defence cannot be known until it is filed. Until a reply (if any) is filed, it also cannot be known whether the applicant merely joins issue with the particular respondents on their defence or whether it raises new matters by way of answer.

1. Each group of respondents has filed an affidavit in support of its motion. But each affidavit is largely a formal document and in no sense have the parties sought the trial of a preliminary issue. Indeed they could not do so in the absence of a defence. If it appeared to be a clear case of a proceeding that was frivolous or vexatious or an abuse of the process of the Court, there would be grounds for ordering that the proceeding be dismissed pursuant to O.20 r.2. But, notwithstanding the problems that face the applicant, I do not think this can be described as such a clear case as to fall within that provision.

2. The matter is further complicated by the presence of a claim for relief under s.87 of the Trade Practices Act. The precise scope and operation of that section remains to be determined by the High Court - see James v. Australia and New Zealand Banking Group Ltd. (1986) 64 ALR 347 at 395. As the law presently stands - Fenech v. Sterling (1984) 57 ALR 98 - the limitation of time in sub-s.82(2) does not apply to a claim under s.87, though questions of discretionary relief arise.

3. An additional complication arises from the existence of common law claims. On the face of it, this Court has jurisdiction to deal with those claims because they lie within the accrued jurisdiction of the Court as arising out of the same matter or controversy as the claim under the Trade Practices Act. To hold that a claim under s.82 of the Trade Practices Act is barred is not to say that the Court did not have and does not continue to have jurisdiction to deal with common law claims. See James v. Australia and New Zealand Banking Group Ltd. (1986) 64 ALR 347 at 396-397.

4. For these reasons, the motion by the first, second and third respondents seeking dismissal of the claim against them under sub-s.82(2) and s.87 of the Trade Practices Act must be dismissed. Those respondents also seek dismissal of the claim against the second and third respondents pursuant to s.75B of the Trade Practices Act. The basis for doing so appears to lie in the argument concerning the operation of sub-s.82(2) and the motion should therefore, in that regard, be dismissed. For the same reasons the claim that para.19 of the statement of claim be struck out must be refused. There is a similar claim in respect of para.24. While I have expressed the view that the loss and damage pleaded in that paragraph does not reflect the loss or damage recoverable under s.82, the paragraph also pleads the particulars of loss and damage in relation to claims for breach of contract and breach of collateral contract. For this reason, the paragraph should not be struck out.

5. In refusing to dismiss the applicant's claim or strike out paragraphs of the statement of claim, I am not to be taken as minimising in any way the difficulties facing the applicant on the statement of claim as it now stands. But, for reasons already given, it is not appropriate that the claim be dismissed or the statement of claim struck out.

6. Much of what I have just said applies with equal force to the motion by the fourth and fifth respondents. A quite different question arises in regard to the fourth respondent which is sued as a firm. There is only one proprietor viz. the fifth respondent. By reason of O.42 r.13 of the Federal Court Rules, the proceeding should not have been commenced against the fourth respondent. The claim against that respondent will be dismissed. So far as the fifth respondent is concerned, there can be no claim against him under the Trade Practices Act except by reason of s.75B of that Act. (There is no suggestion that s.6 has any application.) There is such a claim in the prayer for relief and, I think, sufficient facts are pleaded to support the claim even though the pleading does not make allegations precisely in terms of s.75B.

7. Because the claim against the fourth respondent is dismissed, the applicant should have leave to make consequential amendments to the application and statement of claim.