Menhaden Pty Ltd v Citibank NA

[1984] FCA 193

Re: MENHADEN PTY. LTD.
And: CITIBANK N.A. No. WA G25 of 1984
(1984) ATPR para 40 - 471 / 1 FCR 542 / 55 ALR 709
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Trade Practices - statement made by bank regarding financial capacity of customer - whether conduct in trade or commerce - no allegation that any member of the public, in the capacity of consumer, had been misled - whether reasonable cause of action disclosed - relevance of fact that information provided gratuitously - security for costs - matters to be taken into account

Trade Practices Act 1974 s.52

Federal Court of Australia Act 1976 s.56

Judiciary Act 1903 s.79

Companies Code (W.A.) s.533

Federal Court Rules 0.20 r.2, 0.29 r.2

Trade Practices - Statement by bank concerning financial capacity of customer - Whether in trade of commerce - Trade Practices Act 1974 (Cth), s. 52.

HEADNOTE

Held: (1) A bank which provides gratuitous advice concerning the availability of finance to one of its clients thereby engages in conduct in trade and commerce.

(2) Section 52 of the Trade Practices Act 1974 (Cth) is not confined in its operation to statements made to the public or an identifiable section of it.

HEARING

Perth, 1984, June 25; July 12. #DATE 12:7:1984

MOTION.

Notice of motion to dismiss an application as failing to disclose a reasonable cause of action and application for security for costs.

D. A. Ipp, for the applicant.

J. G. Fiocco, for the respondent.

Cur. adv. vult.

Solicitors for the applicant: Parker & Parker.

Solicitors for the respondent: Mackinlays Barristers & Solicitors.

G.F.V.

ORDER

1. The respondents' motion that the application

be dismissed for want of jurisdiction or for failing to disclose a cause of action be dismissed.

2. The applicant give security in the amount of

$12,000 for the costs of the respondent of and incidental to these proceedings, in a form to be agreed by the parties, in default of agreement, to be determined by the Court.

3. Further proceedings on the applicant's claim

against the respondent be stayed until security is provided.

4. Liberty be reserved to either party to apply

generally upon 7 days notice to the other party.

5. All question of costs be reserved.

Orders accordingly.

JUDGE1

This is a motion to dismiss the applicant's application as failing to disclose a reasonable cause of action. The motion seeks alternative relief (only if the proceeding is not dismissed) that the applicant provide security for costs. It is convenient to refer to the parties simply as Menhaden and Citibank.

2. When the hearing began, counsel for Citibank invited the Court to treat the motion as one for the determination of questions of law pursuant to O.29 r.2 of the Federal Court Rules. In the absence of a defence and a precise formulation of the questions to be determined, I declined to deal with the motion in this way. There are important differences between the two procedures, see Australian Ocean Line Pty. Ltd. v. West Australian Newspapers Limited (1983) 47 ALR 497 at p 499. The motion then proceeded as formulated, that is pursuant to O.20 r.2.

3. For the purposes of this motion, it must be assumed that the facts pleaded in the statement of claim are admitted. Citibank is a foreign corporation as that term is defined in the Trade Practices Act 1974. Menhaden is a contractor and early in 1981 it was negotiating an agreement to carry out earth moving excavation and mining work for Pima Mining NL, a company incorporated in Western Australia. Menhaden was concerned with Pima's capability to finance the project. Pima told Menhaden that Citibank would provide the necessary finance. Menhaden enquired of Citibank whether this was so and was told that "finance would be provided to Pima for the project with funds lent to a company associated with Pima, Northlake Investments Pty Ltd by the Respondent" (para. 8 of the statement of claim).

4. In reliance upon the information and advice provided by Citibank, which the latter knew or ought to have known would be relied upon, Menhaden agreed to extend credit to Pima, entered into a contract with it to do the work, entered into lease agreements relating to plant and equipment and carried out the work. In mid 1981 Pima began to default in making payments due to Menhaden and default continued until October 1981 or thereabouts.

5. In or about August 1981 Pima told Menhaden that further funding was being arranged from Citibank. Menhaden enquired of Citibank whether that finance was to be provided to Pima and was told that "the finance ... had been approved for the project, that relevant documentation had been prepared and that execution thereof was proceeding on the part of the Respondent" (para. 13 of the statement of claim). Relying upon that information, which Citibank knew would be relied upon, Menhaden continued to carry out work, incurred further expenditure, arranged for an extension of its overdraft, borrowed money and assumed further leasing liabilities. The information and advice given by Citibank was incorrect as it was not commited to providing finance as advised for the project and did not intend to execute documentation.

6. Menhaden has claimed from Citibank the damage said to have been suffered by it as a consequence of its reliance upon the information and advice it was given. It pleads two causes of action. The first is that the information and advice constituted conduct in trade or commerce by Citibank which was misleading or deceptive or likely to mislead or deceive, contrary to s.52 of the Trade Practices Act. The second cause of action is on the basis of statements made negligently when Citibank possessed special skill and knowledge about the availability and approval of finance for the project.

7. Counsel for Citibank said that in essence there were two reasons why the statement of claim should be struck out and the application dismissed. The first was that the statement of claim made no allegation that any member of the public, in the capacity of a consumer, had been misled, this being an essential element in any cause of action under s.52 of the Trade Practices Act. The second was that the conduct complained of by Menhaden was not conduct by Citibank in trade or commerce, this also being an essential element in s.52. It may be noted that, while the motion seeks to have the application dismissed, neither of these arguments goes to the cause of action based on negligent misstatements.

8. Mr. Ipp, counsel for Citibank, identified what he said were the characteristics of the transaction from which Menhaden's claim derived. He said that these characteristics served to demonstrate that Menhaden was not a consumer in any relevant sense and that the transaction was not one in trade or commerce. The characteristics were identified in this way:

(1) The alleged conduct was capable of misleading or deceiving Menhaden and no one else.

(2) Any communication between Citibank and Menhaden was confined to the parties.

(3) Any information given by Citibank was given gratuitously; Menhaden was not said to be a customer of Citibank or to have paid for the information.

(4) Any information given by Citibank was an isolated transaction and not part of any regular course of conduct.

(5) The provision of information of the sort asked for by Menhaden was not the provision of goods or services within the meaning of the Trade Practices Act.

1. Notwithstanding that counsel for Citibank postulated two questions, in the end there is only one question and it is whether the facts pleaded in the statement of claim fall within the scope of sub-s.52(1) of the Trade Practices Act which reads:
   
   

"A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive".

1. Section 52 is cast in the widest terms. Conduct which may constitute a breach of the section must be in trade or commerce and the conduct itself must be "misleading" or "deceptive" or be likely to mislead or deceive, tautologous though the words may be (see Gibbs C.J. in Parkdale Custom Built Furniture Pty. Ltd. v. Puxu Pty. Ltd. (1982) 42 ALR 1 at p 6). Later sections in Division 1 of Part V of the Act speak of conduct in connection with the supply of goods or services but no such qualification appears in s.52. Indeed, sub-s.52(2) makes it clear that the generality of sub-s.(1) is not limited by any of the sections that follow it.

2. As Fox J. pointed out in Brown v. Jam Factory Pty. Ltd. (1981) 53 FLR 340 at p 348:
   
   

"Section 52(1) is a comprehensive provision of wide impact, which does not adopt the language of any common law cause of action. It does not purport to create liability at all; rather does it establish a norm of conduct, failure to observe which has consequences provided for elsewhere in the same statute, or under the general law".

1. The significance of this approach to s.52 is, I think, that if the provision of information by a corporation is shown to have been in trade or commerce and to have been misleading or deceptive or likely to mislead or deceive, it is no answer to a claim based on that section merely to say that the information was provided gratuitously or that the person to whom it was provided was not a customer of the corporation. Whether the person to whom the information is given must be a member of the public in some relevant sense is a different question and one to which I shall refer later in these reasons. First however, it is necessary to determine whether the provision of information such as Menhaden alleges against Citibank is capable of constituting conduct in trade or commerce.

2. The expression "in trade or commerce" has been given a wide meaning by the courts. In Re Ku-ring-gai Co-operative Building Society (No. 12) Ltd. (1978) 36 FLR 134 at p 139, Bowen C.J. said:
   
   

"The terms 'trade' and 'commerce' are ordinary terms which describe all the mutual communings, the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements (W. & A. McArthur Ltd. v. State of Queensland (1920) 28 CLR 530 at p 547)".

1. At p.167 Deane J. said:
   
   

"The terms 'trade' and 'commerce' are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phrases of development of trade, commerce and commercial communication, the terms are clearly of the widest import (see, generally, W. & A. McArthur Ltd. v. State of Queensland at pp 546 et seq. and Bank of New South Wales v. The Commonwealth (1948) 76 CLR at pp 284 et seq., 381 et seq.). They are not restricted to dealings or communications which can properly be described as being at arm's length in the sense that they are within open markets or between strangers or have a dominant objective of profit-making".

1. Citibank did not suggest that it was not engaged in trade or commerce, only that the giving of information by it to Menhaden, which was not a customer of the bank and to which the information concerning Pima was provided gratuitously, was not conduct in the trade or commerce of the bank. The resolution of this matter is not assisted by the fact that the statment of claim describes Citibank only as a foreign corporation and does not identify the nature of its business. However, when the statement of claim is read in its entirety, it is apparent that what is alleged against Citibank is that it was carrying on the business of banking, that Pima or Northlake Investments Pty. Ltd. (or both) was a customer of Citibank and a borrower from it of money to finance a mining project. In those circumstances I am satisfied that the provision of information to Menhaden was capable of constituting conduct in the trade or commerce of Citibank. I express it that way because of the nature of the motion before the Court and because, in the absence of evidence, it would be inappropriate to go further.

2. It is no answer to say that Menhaden was not a customer of Citibank. Pima or Northlake Investments was a customer and the information sought was given in relation to the affairs of those companies. It was in the interests of Pima that the contract it made with Menhaden should go ahead; Pima's capacity to finance the project was a prerequisite of the contract; and the information furnished by Citibank was so that the contract might go ahead. In other words, the information related to a customer of the bank and concerned finance to be provided by the bank for its customer in relation to the project the subject of the enquiry. In my view the provision of that information was conduct in the trade or commerce of Citibank in the sense that it was part of the business activities of the corporation.

3. In passing, it may be noted that an enquiry made on behalf of woolgrowers to the bank of the dealer to whom they sold wool, concerning the dealer's financial standing, was held in the circumstances to have produced an opinion which was not honestly held and to have made the bank liable in deceit. Commercial Banking Co. of Sydney Ltd. v. R.H. Brown & Co. (1971) 126 CLR 337. I mention the case only as an example of somewhat comparable activity on the part of a bank. Of course, whether the information was provided by Citibank and if so whether it was misleading or deceptive are not matters to be determined at this stage.

4. The question still remains - assuming the provision of the information to be in the trade or commerce of Citibank, is information provided only to one person (Menhaden) capable of falling within the scope of s.52? There are of course a number of decisions in which s.52 has been described as concerned with conduct which is deceptive of members of the public. See for instance Dairy Vale Metro Co-Operative Ltd. v. Brownes Dairy Ltd. (1981) 35 ALR 494 at p 499; Glorie v. W.A. Chip & Pulp Co. Pty. Ltd. (1981) 39 ALR 67 at p 92; Taco Company of Australia Inc. v. Taco Bell Pty. Ltd. (1982) 42 ALR 177 at pp 181, 202-203. And in Glorie v. W.A. Chip & Pulp Co. Pty. Ltd. at p 93, Morling J. said:
   
   

"Given that a misleading or deceptive statement is made by a corporation in trade or commerce, it is difficult to envisage that it is not caught by s.52(1) of the Act. Any statement made in trade or commerce will almost certainly be addressed, directly or indirectly, to the market place, i.e. to consumers of one class or another".

1. It must be remembered that most of the cases decided in relation to s.52 have involved applications brought by a trade competitor of the respondent, invoking s.52 by contending that members of the public had been deceived or were likely to have been deceived by advertising of the respondent. But it does not follow that s.52 is confined to statements directed to the public or some identifiable section of it. There have been, in the last few years, a number of decisions in which conduct held to have been misleading or deceptive took the form of an oral or written representation made directly to the applicant. See for instance Brown v. Jam Factory Pty. Ltd. supra; Mister Figgins Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1981) 36 ALR 23; Frith v. Gold Coast Mineral Springs Pty. Ltd. (1983) ATPR 40-339; Allpike Honda Pty. Ltd. v. Marbellup Nominees Pty. Ltd. (1983) ATPR 40-385. There have been other such cases in which the applicant failed, but not because the representation was made only to him.

2. I am satisfied that, if the giving of information by Citibank to Menhaden was in the course of the trade or commerce of Citibank, that conduct did not fall outside s.52 because the information was provided only to Menhaden. In this regard it is necessary to distinguish decisions such as O'Brien v. Smolonogov (1983) ATPR 40-418 in which statements made by the appellants concerning land sold by them to the respondents were held to be conduct not done by the appellants in the course of carrying on a business and to lack trading or commercial character as a transaction, hence to fall outside the scope of s.53A of the Trade Practices Act. The point of that decision was that there was a private sale, the appellants not being engaged in the business of selling land. That is a quite different situation to the one now before the Court. In my view the statement of claim is not demurrable for the reasons advanced by Citibank and the motion to dismiss the application must fail. It is therefore unnecessary to consider any implications arising from the existence of a common law cause of action pleaded in addition to reliance upon the Trade Practices Act.

3. Since the proceedings remain on foot, it is necessary to deal with Citibank's application for security for costs.

4. There is no need to refer to the many decisions in which the basis of ordering security for costs has been considered. Some of the cases are noted in Caruso Australia Pty. Ltd. v. Portec (Australia) Pty. Ltd. (1984) 2 ACLR 286. In Bell Wholesale Co. Pty. Ltd. v. Gates Export Corporation (1984) 52 ALR 176, the Full Court of the Federal Court affirmed the breadth of the power conferred by s.56 of the Federal Court of Australia Act 1976. It also affirmed the view taken in several decisions at first instance that sub-s.533(1) of the Companies Code is a State law falling squarely within the operation of s.79 of the Judiciary Act 1903 and therefore itself a source of power for the making of such an order. Without formally limiting their submissions to sub-s.533(1), counsel for Menhaden and Citibank approached the question of security for costs in terms of that statutory provision.

5. The evidence is that Menhaden was incorporated on 1 July 1976, that its nominal share capital is $50,000 divided into 50,000 shares of $1 each and that as at December 1979 the amount of its capital paid up or credited as paid was $2,461. The last available financial statement available to Citibank was for the year ended 30 June 1979. The profit and loss statement for that year showed an excess of liabilities over assets of $21,099.

6. Mr. Collis, Menhaden's managing director, filed an affidavit producing a balance sheet for Astek Contracting Pty. Ltd. (Menhaden's name since 7 January 1982) which showed the company's total assets as $190,846.66 and its total liabilities as $253,190.21, an excess of liabilities over assets of $62,343.55. Mr. Collis deposed that Menhaden's current liabilities "are represented by shareholders' loans and advances from a partnership known as 'Astek Excavation & Contracting'. All other liabilities of the Applicant have been met". He continued:
   
   

"8. I am authorised by the members of the partnership and also the share- holders to undertake to this Honourable Court that these funds will not be called upon in priority to or in competition with any order for costs which may be made by this Honourable Court, if the Respondent is successful in its defence of the Applicant's claim".

1. On this basis, it was said, Menhaden has sufficient assets to satisfy a judgment for costs if its application is unsuccessful. There are two difficulties about that proposition. The first is that most of the company's assets are represented by a loan of $106,161.40 to Amec Pty. Ltd. which is apparently an associated company. Nothing was said about its capacity to repay the loan. The other difficulty is that the information provided by Mr. Collis does not go beyond 30 June 1982 so that there is a period of 2 years for which the financial position of the company is unexplained.

2. Counsel for Menhaden submitted that the application for security for costs was premature, in the absence of a defence by Citibank and some indication of the likely outcome of the litigation. There is however an affidavit by Mr. Wiggins, a vice-president of Citibank and its representatives in Western Australia. In that affidavit Mr. Wiggins deposed to Citibank's defence which is essentially a denial of the statements having been made. Even on the basis that Menhaden has a reasonable prospect of succeeding in its claim, I am of the opinion that the matter is one in which an order for security for costs is appropriate. On the evidence made available, there is reason to believe that Menhaden will be unable to pay Citibank's costs if the defence is successful. It is estimated that the hearing will occupy four days. There appear to be no costs of an unusual nature such as witnesses outside the jurisdiction. Citibank estimates its costs for the hearing at approximately $20,000, a figure which seems high in the circumstances.

3. In making an order for security, "... the Court does not set out to give a complete and certain indemnity to a respondent" (Fullagar J. in Brundza v. Robbie & Co. (No. 2) (1952) 88 CLR 171 at p 175).

4. In the circumstances I am of the opinion that an amount of $12,000 would be appropriate by way of security.

5. Citibank's motion to dismiss the application as failing to disclose a reasonable cause of action will be dismissed. Menhaden is to give security in the amount of $12,000 for the costs of the respondent of and incidental to these proceedings, in a form to be agreed by the parties and, in default of agreement, to be determined by the Court. Further proceedings on Menhaden's claim against Citibank will be stayed until security is provided. I shall hear from counsel as to the costs of the motion and as to any other orders that may be thought appropriate in the circumstances.