Harmonious Blend Building Corporation v Keene (No 2)
[2015] VSC 276
•24 JUNE 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S CI 2014 0511
| HARMONIOUS BLEND BUILDING CORPORATION PTY LTD (ACN 006 261 089) | Plaintiff |
| v | |
| PATINA KEENE & ANOR | Defendant |
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JUDGE: | DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 24 APRIL 2015 |
DATE OF RULING: | 24 JUNE 2015 |
CASE MAY BE CITED AS: | HARMONIOUS BLEND BUILDING CORPORATION v KEENE & ANOR (NO. 2) |
MEDIUM NEUTRAL CITATION: | [2015] VSC 276 |
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PRACTICE AND PROCEDURE — Amendment of pleading — Plaintiff claimed reputational damage and loss of business from conduct of defendants that was misleading or deceptive — Statements posted on product review website by defendants— Adequacy of particulars — Whether causation adequately pleaded — Whether adequate causal nexus alleged between reliance and the type of loss pleaded — s 236(1)(a) of the Australian Consumer Law considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J Castelan with Ms L Papaelia | Bruce Caldwell & Associates |
| For the Defendant | Mr S Wilson QC | Robert Wood & Associates |
HIS HONOUR:
In this proceeding, the plaintiff again seeks leave to amend its further amended statement of claim, specifically in relation to its claims that it suffered loss caused by the defendants contravening s 18 of the Australian Consumer Law (ACL) by engaging in misleading or deceptive conduct in trade or commerce.
The relevant conduct alleged concerns two publications posted on the internet. It is convenient to address the contentions on the application by reference to the conduct of the first defendant. The relevant publications by the first defendant were in the nature of a critical review of the plaintiff’s services on a product review website. The first publication on 2 June 2011 read:
We have had to deal with these builders for two years to get our house built to lock up. We are still waiting for works to be completed so the house is totally sealed up. They have had so many staff resign and we are on the 4th supervisor, we don’t even know who to communicate with anymore. The sales person sells the dream and the office administrators kill it. Responses are always in their favour and their office staff are rude and abrupt. We tried to cancel our contract prior to works beginning and was flatly refused. We have spent thousands of dollars outside of the money we have paid Clarks to fix problems they have left behind and now we need to spend thousands more because they have tricked us into signing an amended plan that leaves yet more work for us to do for them! We would not recommend these builders to anyone we like. They not only rip off and stress out their clients, they must treat their sub-contractors the same way because they don’t seem to hang around either.
The second publication on 11 December 2011 was similar in nature. It read:
We have had to deal with these builders for nearly three years to get our house to lock up! The works are completed so the house is totally sealed up and we can do the fit out – mostly, anyway. We have a leaky roof and gutters and we have probably spent around $25000.00 on fixing the framework and floor levels amongst many other things. They have had so many staff resign over this period, it’s ridiculous. The only time you hear from them, and consistently hear from them, is when they want money. We are never advised when the tradespeople are coming or going, for that fact. Our lives have been put under so much stress dealing with these careless people.
The plaintiff has previously sought leave to replead this cause of action without success.
Ruling dated 18 December 2014
In an earlier ruling on 18 December 2014,[1] I found that the plaintiff had not pleaded a causal connection between the defendants’ conduct in trade or commerce and its loss and damage. At that time, the plaintiff’s counsel informed me that the loss suffered was a damaged trading reputation. Although the plaintiff had alleged elsewhere in its statement of claim that it has been severely injured in its reputation and standing and has thereby suffered loss and damage, that allegation was not been made in connection with the proposed causes of action under s 18 of the Australian Consumer Law. In respect of those causes of action, the plaintiff did no more than allege that it had suffered loss and damage with no particulars provided of any nexus between conduct and damage.
[1]Harmonious Blend Building Corporation Pty Ltd v Keene & Anor [2014] VSC 649, [19-22].
I refused the plaintiff leave to amend the statement of claim in the form proposed and granted it a further opportunity to properly plead the claim it sought to make.
Pursuant to that leave, the plaintiff served a proposed further amended statement of claim dated 6 February 2015. By this pleading, the plaintiff alleged that, because of the first defendant’s contravention of s 18 of the ACL, the plaintiff had been greatly injured in its trade and had lost profits. The plaintiff set out, in an annexure to the pleading, the names of 103 of its potential customers in two separate groupings:
(a)List of the potential customers (17 in number) of the plaintiff who did not go ahead with or complete a building contract. These were potential customers who had ‘discussed the comments on the internet with the plaintiff at one time or another’.
(b)List of potential customers (86 in number) who otherwise ‘dropped out unexpectedly’.
The plaintiff alleged that it lost the chance to enter into and complete building contracts with the potential customers identified in Annexure A and that it lost the opportunity to trade as profitably as it might have done. However, the pleading did not allege any or which publications were discussed by the potential customers in category (a). Nor did the pleading allege that any person in category (b) specifically read any publication or combination of publications on the product review website. Although there were difficulties identified with that proposed pleading, there may have been advantages in seeking to establish reliance and inducement as the causal link through specific potential customers who had read the publication.
On 13 March 2015, I refused the application for leave to amend the pleading on the basis that:
a)in relation to the misleading and deceptive conduct claims, the plaintiff did not properly allege that the conduct by the publications alleged caused the loss that was alleged;
b)the plaintiff did not properly plead its claim for the loss of the chance to enter into and complete building contracts with the potential customers identified in Annexure A;
c)as there were multiple comments on the product review website including publication by the second defendant and others, the plaintiff had not properly pleaded that the conduct of the first defendant caused the loss alleged.
I granted the plaintiff leave for a ‘final attempt’ to amend the pleading.
Present application
The plaintiff seeks leave to amend on the basis of a second proposed further amended statement of claim dated 13 April 2015. The plaintiff maintains a claim in misleading and deceptive conduct based on the first and second publications by the first defendant. The plaintiff claims it has suffered damage, but critical to the plaintiff’s submissions is that it had abandoned a claim for special damages, evident from the striking out of paragraph B of its prayer for relief. At the hearing, the plaintiff’s counsel also stated that the plaintiff was not pursuing a claim for substantial special damages for loss of profits. The plaintiff asserts that it is entitled to substantial general damages for injury to its commercial reputation and for loss of business. Its particulars assess the estimated loss of profit at $1,534,081.45. Counsel stated that the plaintiff was not alleging that the whole of that estimated loss was attributable to either of the Keene publications.
Again, it is convenient to look at the submissions in respect of the first Keene publication to resolve most of the issues raised in respect of the latest proposed pleading. The plaintiff proposes to assert that the causal link between the conduct and loss comes from reliance on the publication. It pleads that reliance by potential customers on the publication caused it loss and damages as potential customers did not enter into contracts with the plaintiff and thought less of the plaintiff.
The plaintiff’s loss and damage is then particularised as follows:
The plaintiff suffered;
a. damage to its commercial reputation; and
b. general damages for loss of business.
In relation to paragraph b. the plaintiff claims general damages for loss of business resulting from the downturn in the total value of contracts entered into in the years in which the first Keene Publication was accessible on the internet compared to the previous and later years. The plaintiff seeks an amount to be assessed by the court and refers to the following.
…
The estimated loss of profit is $1,534091.45.
This form of pleading and particulars is repeated in relation to the second Keene publication. The pleading of the particulars of causation and loss in respect of the first, second and third Killen publications are similar:
The plaintiff claims damage to its commercial reputation
In relation to this claim the plaintiff refers to the total value of contracts entered into in the years in which the First Killen Publication was accessible on the internet compared to the previous and later years. the plaintiff refers to the following.
…
The estimated loss of profit is $714,414.41.
The defendants maintain their objection that the pleading is flawed, particularly in respect of its allegations of causation and loss. It should be noted that the cause of action against the second defendant, Mr Killen, is defamation, not misleading and deceptive conduct. The different causes of action follow on the failure of the plaintiff to issue proceedings within the statutory limit or to obtain leave to do so out of time. Although damage may be presumed where a corporation claims damage to commercial reputation in defamation, the plaintiff has chosen to particularise its loss of commercial reputation in the proposed pleading in its claim against Mr Killen. One difficulty that this approach produces is that the same damage is alleged to have been caused in 5 separate claims in 2 different causes of action against 2 defendants, because the time periods in which the various Killen and Keene publications were online overlap.
Reliance
The plaintiff seeks to make its case by inference that in reliance on the first Keene publication, potential (unidentified) customers of the plaintiff thought less of the plaintiff and failed to transact with the plaintiff. Annexure A to the previous pleading proposal has been removed so that there are no identified potential customers. Rather, the plaintiff alleges that during the time the publications were online it experienced a decrease in the number of contracts that it entered into and a drop in their average value. It alleges that from that circumstance an inference of reliance by potential customers may be drawn at trial. Assuming, as I must, that the plaintiff proves its particulars at trial and establishes the average number of contracts entered into annually from the year ending 30 June 2011 to 31 March 2015, and their average value, the defendants contend that the plaintiff cannot invite the court to infer that the conduct of the first defendant was a cause of a reduction in the average number and value of contracts signed during the years the publications were online.
The plaintiff seeks general damages for damage to its commercial reputation, and brings a related claim for loss of business as an item of general damages, rather than special damages. The causal nexus in the proposed pleading between reliance and damage to the plaintiff’s commercial reputation will be considered first, and the claim for general damages for loss of business second, although the findings in respect of general damage to commercial reputation are applicable and relevant to the related claim, given the overlap between them.
Damage to Commercial Reputation
It is well settled that when considering the sufficiency of the causal nexus between the impugned conduct and the deception of prospective purchasers in a misleading and deceptive conduct claim concerning damage to commercial reputation, the plaintiff is not required to show reliance on the misrepresentation by a specific member of the public. Such reliance can be inferred. The analogy is with misleading advertising cases rather than with misleading conduct in the negotiation of private contracts.
In Campomar Sociedad, Limitada v Nike International Limited,[2] the High Court when discussing Taco Company of Australia Inc v Taco Bell Pty Ltd[3] relevantly stated:
The other classes of case which their Honours had in mind include those of actual or threatened conduct involving representations to the public at large or to a section thereof, such as prospective retail purchasers of a product the respondent markets or proposes to market. Here, the issue with respect to the sufficiency of the nexus between the conduct or the apprehended conduct and the misleading or deception or likely misleading or deception of prospective purchasers is to be approached at a level of abstraction not present where the case is one involving an express untrue representation allegedly made only to identified individuals.[4]
[2][2000] HCA 12, 202 CLR 45.
[3](1982) 42 ALR 177.
[4][2000] HCA 12, 202 CLR 45, 84-85, [101].
In Typing Centre v North Business College,[5] Wilcox J inferred that the applicant suffered some loss as a result of the publication of misleading advertisements. There was no claim for special damages. The applicant asserted that its goodwill was damaged as a consequence of the publication and that in determining that loss the court ought to have regard to the nature of the statements made and the manner and extent of their publication. There was no evidence that the newspaper classified advertisement had been read by any person, but the judge was prepared to infer that it had and in doing so referred to evidence that the applicant had not suffered any drop in turnover or profits but had not experienced an expected growth in demand for its services. The judge was satisfied that there was an effect on demand caused by the publication.
[5](1989) 13 IPR 627.
In Ductline v Arcric Investments Pty Ltd,[6] the applicant manufactured evaporative cooler pumps. The applicant alleged the respondent had breached s 52 of the Trade Practices Act 1974 (Cth) by, amongst other allegations, misusing the name and design of the applicant’s like cooler pump. Finn J held that the absence of direct evidence of a person actually being misled or deceived, in a way that has resulted in actual loss to the applicant, did not preclude the court from drawing an inference of reliance. Of the persons likely to be deceived by the contravening conduct, considering that there was evidence of a loss of sales on the part of the applicant, Finn J stated:
The evidence to which I will later refer, both of some decrease in the applicant’s sales in the period of the contravention and of the number of pumps sold by the respondent to wholesalers in that period lends support to that inference [that persons were deceived by the contravening conduct].[7]
[6]Ductline v Arcric (1995) 32 IPR 419.
[7]Ibid, 423.
In Re Fai General Insurance Co Limited v Raia Insurance Brokers Limited,[8] the respondent’s appraisal document was sent to architects who had asked for it. It was found to be misleading. There was no direct evidence that any of the architects who received the appraisal were induced by it to remain with the respondent's policy rather than taking out insurance cover with the applicant. The judge was satisfied that there was a likelihood that some at least of the recipients were influenced against taking out insurance with the applicant by the representations, having regard to the serious nature of the misleading representations in the appraisal. Representing that much of the cover offered in the applicant's policy wording was illusory would cause some injury to the applicant through the unjustified belittling of its product. It could cause a potential insured to adopt an unnecessarily cynical view of the effectiveness of the policy cover. It was reasonable to assume that the effect of the representation would have spread to some extent beyond the recipients of the appraisal with consequent injury to the applicant.
[8][1992] FCA 293; (1992) 108 ALR 479.
In Lew Footwear Holdings Pty Ltd v Madden International Limited (No 2),[9] Elliott J said this, and with respect I agree:
[9][2014] VSC 541, [57-58].
The other case is a decision of the Court of Appeal of New South Wales in Smith v Noss. The following passage, which was referred to by the Victorian Court of Appeal with approval in Derring Lane Pty Ltd v Fitzgibbon, is directly relevant to the issues at hand:
First, the essential question is causation. There may be causation from misleading or deceptive conduct if the conduct lies in failing to disclose that which in the circumstances should have been disclosed. It is not a natural use of the notion of reliance to say that there was reliance on the failure in disclosure, but causation can be found if disclosure would have caused inaction or action other than that which was taken. ...
Even where the misleading or deceptive conduct lies in disclosing something – making a representation which is false – the notion of reliance must be used with care. Causation will be established if there would have been inaction or some other action had it been known that the representation was false. Since the representee did not know the falsity of the representation, again there is a hypothetical question, and in such a case the scope for the representee to give evidence of thought processes at the time may be quite limited and “reliance” may mean no more than that the representee would have acted differently had it been known that the representation was false. To speak of a need for explanation or for specific evidence of reliance, or for evidence of a decision-making process, can lead to error; the question is one of causation.
Secondly and more fundamentally, specific evidence of reliance is not essential for proof of causation. Such evidence may be one strand, perhaps an important one, in the factual skein, but causation may be found without it.
In short, causation may be satisfied for the purposes of s 82(1) of the Trade Practices Act or s 236(1)(a) of the Australian Consumer Law in certain types of cases without the existence of direct evidence of actual reliance on the impugned conduct by a person entering into an agreement or engaging in such other conduct said to give rise to the loss claimed. Such cases may or may not involve giving evidence. In cases where admissible evidence is given, it may possibly include evidence given with the benefit of hindsight.[10] (citations omitted)
[10]In Madden International Limited v Lew Footwear Holdings Pty Ltd [2015] VSCA 90, the Court of Appeal dismissed an appeal from Elliott J’s decision as it was well open to the judge to conclude that Lew Footwear’s misleading and deceptive conduct claim was strongly arguable and that Madden did not have a real prospect of establishing that the judge erred in that conclusion.
The plaintiff alleges that reliance by its potential customers on the impugned conduct, causing it loss, is to be inferred as follows.
i.It is to be inferred that the First Keene publication was generally accessible via the internet;
ii.Prior to deciding whether to enter into relations in trade or commerce with the plaintiff, it is common practice that many potential customers of the plaintiff would conduct an internet search of the words “Clark New Homes” or similar;
iii.Ordinarily one of the top five search results for such a search on the Google website was a hyperlink to the Product Review Website which included the first Keene Publication;
iv.It can be inferred that those potential customers of the plaintiff who conducted such a search, while deciding whether to enter into relations with the plaintiff in trade or commerce, would have accessed the hyperlink to the Product Review Website and read the first Keene publication.
Assuming that the factual basis alleged is proved at trial, this inference is open on the pleaded allegations. In my reasons for judgment in the related application of Clark v Ibrahim,[11] with which these reasons should be read, I commented on the use of terms such as ‘common practice’ and ‘ordinarily’. Despite these criticisms of the form of the particulars, I accept that it is possible that some potential customers read, and were misled by, the relevant publications. However, a difficulty, on which the defendants’ submissions focus, arises with the link between that inference and the loss claimed.
[11][2015] VSC 301.
The pleading relevantly alleges:
In reliance on the First Keen Publication potential customers of the plaintiff did not enter into contracts with the plaintiff and thought less of the plaintiff.
Particulars
This is to be inferred from the decrease in the number and value of contracts signed by the plaintiff in the year in which the first Keene publication was accessible on the internet compared to the previous and later years.
The number of contracts entered into each year is as follows:
a. for the financial year ending 30 June 2011 (FY11), 17
b. for the financial year ending 30 June 2012 (FY12), 11
c. for the financial year ending 30 June 2013 (FY13), 5
d. for the financial year ending 30 June 2014 (FY14), 8e. for the period from 1 June 2014 to 31 March 2015 (FY15), 9
The first Keene publication was not accessible on the internet in FY11 (except for 29 days), FY14 and FY15. The first Keene publication was accessible on the internet in FY12 and FY13.
The average number of contracts entered into in the years when the first Keene publication was not accessible on the internet (including FY11) is 12.36. The average number of contracts entered into in the years when the first Keene publication was accessible on the internet is 8. The reduction in the number of contracts entered into when the First Keene Publication was accessible on the internet is 4.36.
[The plaintiff then sets out the average value of contracts for each year]
The average value of contracts entered into the in (sic) years when the first Keene Publication was not accessible on the internet (including FY11) is $452,558.51. The average of the average value of the contracts entered into in the years when the first Keen publication was accessible on the internet is $310, 537.02. The reduction in the average of the average value of contracts entered into in the years when the first Keene publication was accessible on the internet is $142,021.49.
Assuming a potential customer was misled, the remaining step in the sequence of the causation allegation is to determine the effect on the commercial reputation of the plaintiff that may be inferred from the reduction in the average number and value of contracts signed during the years the publications were online. Perhaps a potential customer decided not to transact with the plaintiff. That assumption raises further questions since a builder does not transact with every potential customer. Unsuccessful tenders and quotations are commonplace for many reasons.
The only connection between the drop in the number and value of contracts signed and the publications evident from these particulars is a temporal coincidence. That raises issues of what other causal links between the internet posts and the loss claimed may exist. Significantly, the impugned publications existed alongside other publications of a similarly unflattering nature, which were not the subject of litigation by the plaintiff. These other publications appeared on the ‘Product Review’ website. Moreover, the inference is contended for from a general review of the plaintiff’s accounting records rather than from the evidence of its lost or present customers. Having eschewed that approach, the particulars now fail to contend with the causal potence of the non-actioned publications and the publications that are the responsibility of others. A general inference drawn from transaction and profit trends fails to isolate the causal potency of the particular publication on which each separate cause of action is founded.
When meeting this criticism of its causation and loss theory, the plaintiff submitted that the inference for which it contends is that a builder who is able to transact for greater numbers of larger transactions must have a better reputation than one that attracts lesser numbers of smaller transactions. As the claim for special damages is no longer pressed, its particulars must be understood as supporting that inference.
Because building contracts are complex, and can be differentiated from widgets,[12] insurance policies,[13] or typing courses,[14] the facts of this case can be differentiated from the cases cited by the plaintiff. That said, reliance on conduct of the first defendant as a cause of a drop in the number of building contracts is open on the probabilities from these allegations, in the sense that it is not fanciful. In turn, the court could infer that the plaintiff’s commercial reputation had been adversely affected to some extent. The inference to be drawn is a matter for trial and the merits of the claim will be quite a different matter. There may be other equally plausible inferences as to the reasons behind these figures such as the general building industry downturn after the Global Financial Crisis.
[12]Ductline Pty Ltd v Arcric Investments Pty Ltd (1995) 32 IPR 419.
[13]Re FAI General Insurance Co Limited v RAIA Insurance Brokers Limited [1992] FCA 293; (1992) 108 ALR 479.
[14]Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) 13 IPR 627.
However, in one respect, the reasoning advanced by the plaintiff in argument is problematic. The figures do not explain why customers would enter into lower value contracts in reliance on the defendants’ conduct. Neither publication could affect an assessment of the plaintiff’s ability to complete a lower value contract as opposed to a higher value contract. The representations that the plaintiff alleges were made by the first Keene publication that injured its reputation were that: it failed to complete work in a timely manner or at all; it killed off dreams of a new home; it tricks and rips off its customers; and it rips off and stresses out its sub-contractors. It is illogical to suggest that a potential customer induced to change a decision to deal with the plaintiff in respect of a building project would continue to deal with that builder but by transacting for a smaller project at a lesser cost. This difficulty seems particularly acute in the claim for general damages for loss of business profits, which will be dealt with presently.
That the plaintiff need only show that the conduct was a cause of the loss is not the issue. What is evident is that the plaintiff has elected not to allege a case based in the evidence of reliance by a specific potential customer in not dealing, or dealing on a less profitable basis, with the plaintiff. The defendants are entitled to infer that not one of the persons named in the now abandoned Annexure A to the previous proposed pleading was a potential customer in respect of whom the plaintiff suffered loss by that customer’s reliance on the publications. It is probable that, on that basis, the defendants may trawl through the plaintiff’s records, with expert assistance, to establish at trial that the court should not infer causation as the plaintiff contends from analysis of trading results.
The defendants would be required to base their defence in equally general considerations, which would be likely to involve a broad inquiry by forensic accounting experts for both sides into the overall profitability and financial performance of the plaintiff’s building contracts over the relevant period. The task of determining whether a publication that founded a claim was a cause of a loss of business profits would likely be mired in uncertain and vague evidence, dependent on the assumptions that an expert was invited to make. The particulars invite wide-ranging and broad interlocutory processes, particularly in respect of discovery and expert evidence. The plaintiff contended against this suggestion, submitting that the issue was simply whether the conduct was a cause of the alleged loss and that other possible causes were relevant to the assessment of loss and not to whether its pleading of causation was sufficient.
However, the inferences properly open to the court is a matter for trial to be assessed on the whole of the evidence. As the plaintiff need only show that the conduct was a cause of a loss alleged to be no more than general damages for loss of reputation or general damages for loss of business that will significantly overlap, I am not persuaded that the inference contended for cannot be drawn by a trial court and is unreal or fanciful. I accept that on the facts pleaded, the figures may permit an inference of a loss of contracts and may establish a connection between reliance on the publications and a loss. An inference that some potential customers who otherwise may have contracted with the plaintiff did not do so because they were induced to think less of the plaintiffs commercial abilities may realistically be open to a court.
I will allow the allegation in paragraph 7A to stand in the proposed amended pleading together with the particulars to that paragraph but, bearing in mind the modest quantum of awards of damages made for loss of business or damage to commercial reputation in the absence of specific evidence of substantial loss caused, the parties will need, in this proceeding, to be particularly astute in maintaining proportionality between the costs of the litigation and the likely award of damages at trial. The plaintiff has stated, and I expect the defendants have clearly noted, that it does not allege that the conduct caused it special damage calculated by reference to the lesser average value of its contracts during the period of the publications. Further, bearing in mind the history of the proceeding to date, the plaintiff has clearly elected to present its case in this way. The court expects that the overarching obligation of proportionality under s 24 of the Civil Procedure Act 2010 will at all times be born carefully in mind. Specific management by the court of discovery, expert evidence, and probably, some disclosure of the substance of evidence prior to trial is likely to be required at later interlocutory stages.
General Damages for Loss of Business
At paragraph 8, the plaintiff pleads it has suffered damage to its commercial reputation, and makes a related overlapping claim for general damage for loss of business. By its particulars to paragraph 8, the plaintiff pleads a downturn in its average contract prices for the period that the relevant publications were accessible on the internet, in support of its pleading for general damage of loss of business.
The plaintiff particularises its loss as follows:
The plaintiff suffered;
a. damage to its commercial reputation; and
b. general damages for loss of business.
In relation to paragraph (b) the plaintiff claims general damages for loss of business resulting from the downturn in the total value of contracts entered into in the years in which the first Keene Publication was accessible on the internet compared to the previous and later years.
The plaintiff seeks an amount to be assessed by the court and refers to the following.
The sum of the contract prices of contracts entered into in each year is as follows:
(a) FY11, $4,749,667;
(b) FY12, $3,680,840;
(c) FY13, $2,559,852;
(d) FY14, $4,393,000; and
(e) FY15, $5,139,300.
The First Keene Publication was not accessible on the internet in FY11 (except for 29 days), FY14 and FY15. It was accessible in FY12 and FY13.
The average total contract price for FY11, FY14 and FY15 is $5,193,442.55.
The difference between that amount and the sum of the contract prices for:
(a) FY12 is $1,512,602.55;
(b) FY13 is $2,633,590.55.
The total difference is $4,146,193.10.
The average profit margin on the plaintiff’s contracts is 37%. Applying that percentage, the estimated loss of profit is $1,534,091.45
Further particulars may be provided before trial.
The defendants submitted that the differences in principle between defamation and misleading and deceptive conduct claims in relation to alleging and proving damages are relevant, but I was not persuaded by this submission that there is any relevant issue that affects the pleading of loss in this case. In defamation proceedings, a corporate plaintiff is entitled to compensatory damages but only for injury to its reputation. It cannot be compensated for injury to feelings.[15] A corporate plaintiff need not prove any special damage but it was entitled to attempt to establish that it had suffered actual loss of income or earnings, or a loss of its goodwill, by reason of the defamation. If it could not make out actual loss it was still entitled to damages if the defamation was calculated to damage the appellant in its reputation in the way of its trade or business.[16] Damages recovered for non-economic loss are capped by s 25 of the Defamation Act, 2005.
[15]Lewis v Daily Telegraph [1964] AC 234, 262.
[16]Lewis, Gatley On Libel and Slander, Sweet & Maxwell, 8th Edn, [960]; South Hetton Coal Co Ltd v North Eastern News Association Ltd [1894] 1 QB 133; Australian Broadcasting Corporation v Comalco Ltd (1986) 12 FCR 510, 599-601; Selecta Homes and Building Company Pty Ltd v Advertiser-News Weekend Publishing Company Pty Ltd, [2001] SASC 140, [49].
Damage to the commercial reputation of a corporation may be compensated under s 236(1)(a) of the Australian Consumer Law.[17] Proof of an actual loss is required. There is no scope for the award of nominal damages in such claims as damage is the gist of the action and the compensation awarded must reflect the actual loss suffered by the victim.[18] However, while a damaged commercial reputation may be proved the value of the loss occasioned may not be precisely established by the evidence. That no actual financial loss is established by evidence does not relieve the court of the obligation to assess damages when satisfied that loss has been suffered, but requires the court to assess general damages by regard to the nature of the representations or conduct complained of and to the manner and extent of their publication.[19] Damages for non-economic loss are not capped.
[17]Flamingo Park Pty Ltd v Dolly Dolly Creations Pty Ltd (1986) 65 ALR 500; Nixon v Slater & Gordon (2000) 175 ALR 15; Loyola v Cryeng Pty Ltd [2012] FCAFC 71; Madden v Seafolly Pty Ltd [2014] FCAFC 30, [101].
[18]Wardley v State of Western Australia (1992) 175 CLR 514.
[19]FAI General Insurance Co v RAIA Insurance Brokers Ltd (1993) 41 FCR 164, 179 Madden v Seafolly Pty Ltd [2014] FCAFC 30, [114].
The plaintiff contends it is entitled to have its general damage for loss of business assessed by reference to the general figures given in its particulars, relying on Selecta Homes and Building Company Pty Ltd v Advertiser-News Weekend Publishing Company Pty Ltd,[20] a decision of the Supreme Court of South Australia. Selecta was a defamation case but in relevant respects it is similar to the present case. Selecta claimed that it was damaged, including by lost profits, by a letter published by the respondent that carried imputations defamatory of it in respect of how it conducted its business, treated its customers and in respect of the quality of its workmanship. It alleged a direct financial loss arose in two ways, loss of sales contracts and the profit thereon, and a commercial inability to increase its prices.
[20][2001] SASC 140, [163].
In Selecta the evidence did not establish the claimed lost sales, but did establish that sales had been affected by the publication and there was an entitlement to some amount to represent the loss of chance to have improved its pricing, to have obtained other sales and to have increased its profitability. The appellant was also entitled to damages for loss of its business reputation, which Lander J thought should be mainly reflected in the losses upon which the plaintiff adduced evidence, mindful of the prospect of duplication with the damages claimed for the economic consequences of the defamation.
Gray J, with Doyle CJ agreeing, approved a principle stated in Ingram v Lawson,[21] in these terms:
Even where general damages are claimed, the plaintiff can give evidence of some particularity about the state and nature of his business and changes which he alleges have been wrought in it by the defamation of which he complains ... but only for the purpose of enabling the jury properly to evaluate the general damages which he has claimed.
[21]Ingram v Lawson 1840 6 Bing (NC) 2212; 133 ER 84.
By reference to Winneke P’s explanation in Feo & Anor v Pioneer Concrete (Vic) Pty Ltd,[22] of the nature of damage to commercial reputation in defamation actions and the observations made in the Federal Court judgments cited in these reasons, it is clear that there is no real distinction, apart from the elements of the cause of action and pleading rules, between the assessment of damages for injury to commercial reputation in defamation or in a misleading and deceptive conduct claim. The President stated:
The true view is, in my opinion, that where a corporation has been slandered in the way of its business, the slander is actionable per se, and it is unnecessary to either allege or prove special damage. That does not mean that the presumed damage to its reputation can only be compensated if calculable in precise money terms. As Ormiston, J.A. said in Kay's case, supra, at [12], damages are not to be assessed for injury to the company's "reputation as such", but are to be assessed "having regard to financial and commercial considerations by which a corporation's reputation is ordinarily assessed". In some cases the damages assessed may only be nominal; particularly where the court cannot be satisfied that the nature of the defamatory imputation, or the breadth of its publication, has caused significant harm to the trading reputation of the corporation defamed. However, that is not to say that the defamatory publication is not actionable at the suit of the corporation. If no proof is tendered of specific loss, the assessment of damages is to be made on the material available to the court and the view which it forms of the loss likely to have been suffered by the company as a consequence of the defamatory material which it finds to have been published of and concerning the entity in the way of its business (cf. Australian Broadcasting Commission v. Comalco Ltd. per Neaves, J. at 588 and Pincus, J. at 604). In this case, as I have said, no appeal has been brought against his Honour's assessment of damages, no doubt because of its modesty. (citations omitted)
[22][1999] VSCA 180; (1999) 3 VR 417, [57].
The plaintiff alleges that its claim for general damages depends on inferences being found by a tribunal of fact from the material facts particularised that:
a) customers intended to engage in a transaction with the plaintiff; and
b) those customers read the first Keene publication (and, presumably no other); and
c) those customers, relying on the conduct of the first defendant, did not transact with the plaintiff or entered into a different, and less valuable transaction with the plaintiff; and
d) this reliance was a material cause of the general downturn in the total value of contracts signed by the plaintiff.
The plaintiff relied on Ductline Pty Ltd v Arcric Investments Pty Ltd,[23] as an example of a similarly broad approach to general damage for business profits. Finn J stated:
It is convenient to look first at the claimed loss of business profits up to the time of the first hearing. The applicant's expert evidence was based on the clearly untenable assumption – cf Draper v Trist [1939] 3 All ER 513, 520-521 - that all pumps sold by the respondent to wholesalers (i.e. 5196) constituted, on their resale, lost sales to the applicant. In submission, however, the applicant retreated to the position that I should select a percentage of those resales which could realistically be said to have been produced by purchasers having been mislead or deceived.
[23](1995) 32 IPR 419, [1995] FCA 1517, [39].
However, the current circumstances can be differentiated from Ductline. The plaintiff is not pleading a loss of identifiable contracts, rather it pleads that customers entered into different and lower value transactions, or walked away from negotiations or simply avoided dealing with the plaintiff when they might otherwise have done so. The differences in the transactions entered but for the offending publications, or the explanation for lower value of contracts that were made, is not alleged. At trial, the court will only award general damages that can realistically be attributed on the balance of probabilities to the inference that customers were misled.
The vice in the plaintiff’s causation of loss theory lies in the second limb of the third step and the fourth step in the logic set out above at [44]. These steps in the logical progression of the plaintiff’s theory are fanciful and entirely speculative, particularly when there is not any allegation that a single potential customer was induced to act or not act in a certain way in reliance on the first defendant’s conduct.
There are a number of other reasons that render untenable the way in which the plaintiff seeks to particularise the evidentiary foundation for its loss. First, the plaintiff’s contention that any part of the dip in value of the average contract signed during the period that the publications were online can be attributed to the publications is not realistic. The logical sequence of the reasoning is incomplete and the allegations are imprecise and vague. The pleading is silent as to why reliance on either or both of the publications would induce a customer into entering into a lower-value contract and no logical inference can be drawn to that effect on the facts pleaded. The pleading is embarrassing in this aspect. That embarrassment is magnified when it is recalled that the same damage is alleged to have been caused by each of 5 separate publications.
Secondly, the particulars pay no regard to financial and commercial considerations by which a corporation's reputation is ordinarily assessed. It is to such considerations that properly instructed experts will have regard. There is no evidence that an accounting expert would adopt the assumptions that the plaintiff adopts in its particulars. Discord between the particulars and principled expert assessment would be productive of delay and unreasonable cost in the trial of the claims. Further, the particulars might require that the defendants analyse the plaintiff’s accounts for a proper understanding of the causes of the financial position that they properly reflect. That exercise is likely to be productive of unreasonable delay and expense. When these matters occur the overarching purpose of civil litigation is not achieved.
Thirdly, there are significant material facts that work against the plaintiff’s loss theory that have simply been ignored. These matters include that there were multiple publications of a similar nature online by others, apart from the second defendant. The complexity of building contracts as transactions is relevant to proper assumptions about what matters affect, or induce, a customer’s decision to enter into a building contract at a particular price. The defendants have filed affidavits suggesting that the dip in the numbers coincided with a general industry downturn following the Global Financial Crisis.
The plaintiff contended that Selecta[24] supported its particulars. For reasons already stated, I have no difficulty with the approach to assessment of general damages adopted in Selecta being applied in the context of a s 236(1)(a) claim for general damages for loss of commercial reputation from misleading and deceptive conduct, but, also for the reasons I have given, these particulars are embarrassing. Cases where the court has been required to do its best with a paucity of evidence provide no basis to contend for the sufficiency of poorly thought out particulars. In Goldsmith v Sandilands,[25] Gleeson CJ remarked:
The facts in issue in a civil action case emerge from the pleadings, which, in turn, are framed in the light of the legal principles governing the case. Facts relevant to facts in issue emerge from the particulars and the evidence. The function of particulars is not to expand the issues defined by the pleadings, but "to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial". The function of evidence is to advance, or cut down, the case of a party in accordance with the rules of statute or common law that determine the nature of the information a court will receive.
[24][2001] SASC 140, [163].
[25][2002] HCA 31; (2002) 190 ALR 370; (2002) 76 ALJR 1024, [2].
Section 18 of the ACL is a comprehensive provision of wide application, and accordingly when the section is used as the foundation for a cause of action the factual basis on which the section is said to apply must be pleaded with clarity in the statement of claim. The plaintiff’s proposed pleading purports to do so, but only in the most general terms. The plaintiff may claim general damages for damage to its commercial reputation and claim loss of business as an item of general damages, not special damage. That is not objectionable. However, what the plaintiff cannot do in its pleading is assert that its simplistic assessment of average numbers of contracts and average profits earned is justified by the principle that the court must do its best to assess damages on the evidence led at trial, even if scant. That is not the function of particulars.
I add that in considering the objections to the pleading, the overarching purpose of the rules of court in relation to civil proceedings is to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute. The efficient conduct of the business of the court and dealing with this proceeding in a manner proportionate to the complexity or importance of the issues in dispute and the amount in dispute are not objects that are advanced by these particulars. The particulars of loss that remain, although they confine the loss alleged to be caused, do not fill in the picture of that loss as it will be presented at trial. The risk that the issues in this proceeding will become unmanageable at trial and that costs may be disproportionate are unacceptable on the pleading as presently advanced. Careful monitoring of the processes of discovery, preparation of expert evidence and disclosure of the real issues in dispute in respect of the claim of damage to commercial reputation will remain necessary. To avoid an unreasonably complex and delayed trial, the plaintiff may need to disclose well in advance of the trial the evidence that it intends to lead to establish its damaged commercial reputation.
For these reasons, these particulars are likely to prejudice, embarrass or delay a fair trial of this proceeding. I will allow the plaintiff to amend to plead that its claimed loss is confined to general damages for injury to its commercial reputation, but otherwise the plaintiff is refused leave to include the substance of the particulars to paragraph 8. The passage to be excluded is italicised in paragraph [37] above.
Whether there is a tenable claim
The question remains, given the above findings, whether the plaintiff retains a tenably pleaded claim in misleading and deceptive conduct in respect of the relevant publications. I consider that it does for these reasons.
The court can estimate general damage to commercial reputation, for example where there is no proof of reliance or actual loss, as was the case in Typing Centre of NSW Pty Ltd v Northern Business College Ltd and Others.[26] In Loyola v Cryeng Pty Ltd (No 2)[27] in relation to a claim concerning damage to commercial reputation, Jacobsen J stated:
The trial Judge identified the evidence before her which was relevant to this issue. She said that the evidence might be described as flimsy. Nevertheless, she accepted that the misleading conduct of Mr Loyola and Pioneer caused damage to Cryeng’s reputation. She found that determining the amount of compensation to be awarded in respect of that loss was “more problematic”. She said that she doubted that the damage was very severe or long lasting. The trial Judge referred to the relevant authorities. She said that doing the best she could with the scanty evidence the amount of $50,000 would be an appropriate award of damages. The task facing her Honour was a difficult one, but we can see no error in her approach.
[26](1989) 13 IPR 627.
[27][2012] FCAFC 71, [113].
A similar approach is applied to general damages for loss of business profits. Damages of this kind may be awarded even though a claimant does not produce evidence of particular losses from particular transactions. For example in Prince Manufacturing Inc v Abac Corp Australia Pty Ltd[28] no specific material was adduced demonstrating a nexus between the respondents’ actions and the decline in their Australian turnover. However there was evidence from three retailers in which it could be inferred that some sales were lost.
[28](1984) FCR 288, [25].
This is not the case in this proceeding. No reasonable inference can be drawn from the facts particularised that the plaintiff has suffered any loss of business profits by reason of the relevant publications over and above an unspecified general injury to its commercial reputation, what is commonly called (although not necessarily with technical accuracy), its goodwill.
Accepting the defendants’ contentions that the plaintiff does not have a tenable claim on the facts particularised to all of the loss alleged could deprive the plaintiff of the right to put its claim in misleading and deceptive conduct to a court. In those circumstances, a court ought only accede to that submission if it is particularly clear that a tribunal of fact could not reasonably conclude that the publications, assuming they were misleading and deceptive conduct for the purposes of s 18 of the ACL, caused the loss particularised.[29] I have borne that consideration in mind in reaching my decision.
[29]Lyons v Fowler [2014] VSC 627, [20].
For the reasons stated earlier, although the pleading in its current form has not alleged actual reliance or actual loss, I accept that the inference is open that some members of the public were misled as a result of the first Keene publication and, as a result, the plaintiff’s commercial reputation may have been damaged. I say nothing about the merits of this claim, which will be explored at trial. So much was conceded by the defendants in relation to the claim for damage to reputation in the plaintiff’s defamation claims against the second defendant.
The claim for damages for loss of profit has not been adequately particularised or otherwise shown on the material to have a real prospect of success.[30] There is no reason to infer from the particulars provided or the supporting material filed that the plaintiff has suffered damage by loss of profit.
[30]Compare the evidence led before the court on the application that the plaintiff post security for costs - Harmonious Blend Building Corporation Pty Ltd v Patina Keene & Anor [2014] VSC 649.
Balancing all relevant considerations to which I have referred and to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute for all parties, leave to amend the statement of claim is granted on the basis that the plaintiff’s claim for general damages to its commercial reputation and its business is to remain but its proposed claim for damages for lost profits may not be advanced.
The plaintiff has leave to file and serve an amended pleading in accord with these reasons and in compliance with r 36.05(4). I will hear counsel on the questions of the costs of the application and in respect of further and ancillary case management directions.
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