Matheson Engineers Pty Ltd v EL Raghy

[1992] FCA 619

Re: MATHESON ENGINEERS PTY LTD and EXEARNE PTY LTD
And: SAMI EL RAGHY; MICHAEL JOHN BRENZ KRIEWALDT and KEVIN BOND
Nos. WA G83 and 84 of 1992
FED No. 619
Practice and Procedure - Trade Practices
(1992) 37 FCR 6

COURT

IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J.(1)

CATCHWORDS

Practice and Procedure - pleading - statement of claim - misleading or deceptive conduct - negligence - knowing concern in contravention - failure to plead conduct said to constitute knowing concern - failure to plead basis for implied representations - failure to identify representations in respect of which s.51A invoked - failure to identify content of duty of care.

Trade Practices - misleading or deceptive conduct - contraventions of s.52 - whether must relate to persons in their capacity as consumers of services - accessorial liability - whether necessary to join primary contravenor in proceedings.

Trade Practices Act 1974 s.51A, s.52

Bevanere Pty Ltd v. Lubidineuse (1985) 7 FCR 325

Concrete Constructions (NSW) Pty Limited v. Nelson (1990) 169 CLR 594

Hornsby Building Information Centre Pty Ltd v. Sydney Building Information Centre Ltd (1978) 140 CLR 216

HEARING

PERTH

#DATE 28:8:1992

Counsel for the Applicants: Mr G. Taylor

Solicitors for the Applicants: Taylor Smart

Mr Sami El Raghy appeared in person.

Mr M.J.B. Kriewaldt appeared in person.

Counsel for Mr K. Bond: Mr S. Archer

Solicitors for Mr K. Bond: Clayton Utz

ORDER

THE COURT ORDERS THAT:

In WAG 83 of 1992

1. The statement of claim be struck out with leave to file a substituted statement of claim.

In WAG 84 of 1992

1. The statement of claim be struck out with leave to file a substituted statement of claim.

2. The applicants pay the second respondent's costs of the second respondent's motion filed 31 July 1992.

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

JUDGE1

In actions number WAG 83 and 84 of 1992 Matheson Engineers Pty Ltd and Exearne Pty Ltd claim damages against three former directors of a gold mining and mineral exploration company called Eon Metals NL. The causes of action relied upon are the negligence and alleged involvement of the directors in misleading or deceptive conduct on the part of Eon. The conduct complained of involves representations made by Eon in July 1989 which are said to have induced Matheson Engineers and Exearne to continue works that were undertaken for Eon in relation to the construction of a gold treatment plant at Wiluna in Western Australia. The directors now move to strike out the statements of claim. Mr Bond, who is the second named respondent in WAG 84 of 1992, was the only one of the directors to have legal representation and the principal submission in relation to the strike out motions were made on his behalf by his counsel, Mr Archer. The submissions were applicable in large measure to both statements of claim. They were adopted by the first named respondent in WAG 84 of 1992, Mr Michael Kriewaldt and by the respondent in WAG 83 of 1992 Mr Sami El Raghy. Before turning to the submissions it is convenient to outline the pleadings.

The Statements of Claim

1. By the amended statement of claim in WAG 84 of 1992, it is alleged that in 1989 Eon was engaged in establishing gold mining operations at Wiluna including the construction of a gold treatment plant at the minesite. In March 1989 and April 1989, Matheson Engineers contracted with Eon for the provision of engineering, procurement, construction and managerial services in respect of the plant (para.5(a)). The contract was a reimbursible rates contract. Exearne was a subcontractor to Matheson Engineers for the performance of various engineering works related to the contract being predominately electrical works (para.5(b)). By the end of June 1989, Matheson Engineers had carried out works to the value of $271,542 but had received only $70,000 from Eon (para.6).

2. In July 1989 it is said that Eon made a number of representations in order to induce Matheson Engineers and Exearne to continue their work. The first occasion of the respresentations relied upon is a meeting at Eon's offices on 11 July 1989 attended by Mr Matheson of Matheson Engineers and the three directors. Here, it is said, Mr El Raghy represented that Eon would pay Matheson Engineers' invoices then rendered on 17 July 1989 and by implication thereafter. It was further alleged that Eon had represented it had the intention and belief that it would pay the invoices and that there were reasonable grounds for that belief. At a further meeting held at the offices of Eon on 13 July 1989, Mr El Raghy is said to have stated to Mr Matheson that Eon agreed to contract fees of $467,000. There is then pleaded a series of implied representations allegedly made by Mr El Raghy. No basis for the implications is disclosed. A further representation is said to have been made at a meeting on 15 July 1989 at which Mr El Raghy said Eon had sent a letter agreeing to fees of $467,000. The same implied representations are asserted (para. 7(c)). They are said to have been made by implication from a letter of 13 July handed over to Matheson by El Raghy on 15 July (para.7(d)). At another meeting held on 25 July, El Raghy is said to have represented that Eon would make payments to Matheson Engineers of its invoices then rendered as soon as its bank released funds. This could be done within a few days. A variety of implied representations is alleged in connection with this meeting (paras. 7(e)(1) to (9)).

3. Matheson Engineers and Exearne say that, induced by the representations, they continued work on the plant during July until 25 August 1989 when Matheson Engineers terminated their work.

4. The various representations pleaded are said to have been untrue (para 9). The falsifying facts are not pleaded. In para.10 it is alleged that:
   

"The statements set forth in paragraph 7 hereof, insofar as they are representations as to future matters, were made without reasonable grounds for so making them, and the Applicants rely on Section 51A of the Trade Practices Act, 1974 as amended."

1. The conduct of Eon in relation to the various representations is said to have been in contravention of s.52 of the Trade Practices Act 1974 (para 11). The plea is repeated that the representations were false or deemed by s.51A of the Act to be misleading. Various other matters are pleaded to support this contention. The other matters all relate to silence or non-disclosure on the part of Eon (paras. 11(b)(2) to (5) inclusive).

2. Paragraph 12 alleges:
   

"The Respondents are persons involved in the contravention of Section 52 of the Trade Practices Act within the provisions of Section 82 of the Trade Practices Act in that at all material times the Respondents have been knowingly concerned in (within the meaning of Section 75B of the Trade Practices Act) the conduct hereinbefore complained of."

Conduct of the respondents not otherwise identified is said to have been misleading or deceptive within the meaning of s.10 of the Fair Trading Act 1987 (WA). It is also said that the respondents are "persons involved" in the contravention of s.10 of the Fair Trading Act in that at all material times they have been knowingly concerned in the conduct complained of. A plea of a duty of care and negligent breach of the duty is also raised in para 14. Loss and damage are set up in para 15.

1. The amended statement of claim in WAG 83 of 1992 is substantially the same except that Mr El Raghy is identified as the respondent.
   Whether the Statements of Claim should be Struck Out

2. It was put at the outset by counsel for Mr Bond that the action against the directors is "really no more than an attempt by the applicant to make individual directors of a company liable for the debts of that company". This comment had reference to proceedings in the Supreme Court in which judgment was entered for Matheson Engineers against Eon for $454,801 by way of damages for breach of contract. There is, however, nothing illegitimate about resort to action against the directors in the circumstances in which their company has gone into receivership. In the assessment of the statement of claim, I have no regard to that aspect of the respondent's submissions.

3. A preliminary submission was made as "a point of principle" that the absence of an allegation that a person is a consumer of products or services is fatal to a claim under s.52. While it was accepted that the decision of the Full Court in Bevanere Pty Ltd v. Lubidineuse (1985) 7 FCR 325 was against the proposition, it was submitted that the case had been overtaken by the decision of the High Court in Concrete Constructions (NSW) Pty Limited v. Nelson (1990) 169 CLR 594. Part V of the Trade Practices Act 1974 in which s.52 appears bears the heading "Consumer Protection". In Hornsby Building Information Centre Pty Ltd v. Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 225, Stephen J. (with whom Jacobs J. agreed) said:
   

"...I do not regard it as appropriate that the unambiguous words of s.52 should be given some unnaturally confined meaning because of the heading to Pt V."

Murphy J. expressed a similar view. Barwick C.J., with whom Aickin J. agreed, took a different approach when he said at p 220:

"Section 52 is concerned with conduct which is deceptive of members of the public in their capacity as consumers of goods or services..."

In Bevanere v. Lubidineuse (supra) the Full Court accepted, at p 332, that:

"...the operation of the unambiguous words of sec. 52 should not be given a confined meaning because of the heading to Pt. V..."

The position is not changed by the decision in Concrete Constructions (supra). In the joint judgment of Mason C.J., Deane, Dawson and Gaudron JJ. it was said at 601-602:

"As a matter of language, s.52 prohibits a corporation from engaging in misleading or deceptive conduct "in trade or commerce" regardless of whether the conduct is misleading to, or deceptive of, a person in the capacity of a consumer."

1. The second point of principle raised by counsel for Mr Bond, was that it is not open to an applicant in proceedings for a contravention of s.52 of the Trade Practices Act to sue only the natural persons said to be involved in the relevant contravention without joining the primary corporate contravenor. There was, it was said, no authority on the point. If that is so, it may be because the point is not tenable. 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 Couort under the Corporations Law in any event. In my opinion there is no substance to the second point of principle submitted on behalf of Mr Bond.

2. Turning to the pleading points, the amended statements of claim should only be struck out if manifestly untenable. In this case it is not necessary to go through the pleadings paragraph by paragraph to arrive at the conclusion that they should be struck out. As I indicated at the hearing of the motions, the statement of claim in each case is plainly inadequate. The deficiencies may be summarised as follows:
   

1. The basis of the various implied representations said to have been made by Eon is not disclosed.

2. The basis upon which each of the representations is untrue is not disclosed. The falsifying facts are not pleaded.

3. The pleading of s.51A in para.10 does not specify which of the pleaded representations are said to relate to future matters.

4. The material facts constituting the conduct of the respondents by which they are said to have been involved by being knowingly concerned in the contraventions of s.52 are not disclosed.

5. It is not clear whether the Fair Trading Act 1987 is invoked against the respondents as primary contravenors or as persons concerned in the contravention.

6. The duty of care pleaded is a duty "to take reasonable care in respect of any representation made by Eon Metals NL". Absent any references to the content of the duty with respect to accuracy or the creation of reasonable grounds for the representations, the duty is meaningless.

7. The pleaded breach of the duty of care begins by setting out particulars of the conduct complained of. These should be pleaded as material facts. Again the pleading relies upon the respondents' knowing concern in the making of the relevant representations and does not say how or why they were so concerned.

In my opinion, both statements of claim should be struck out with leave to file amended or substituted pleadings.