Northern Beaches Industrial Supplies Pty Ltd v Vek Tools Corporation Pty Ltd

[2020] NSWDC 143

District Court

New South Wales

Medium Neutral Citation:	Northern Beaches Industrial Supplies Pty Ltd v VEK Tools Corporation Pty Ltd [2020] NSWDC 143
Hearing dates:	On the papers
Date of orders:	29 April 2020
Decision date:	29 April 2020
Jurisdiction:	Civil
Before:	Russell SC DCJ
Decision:	(1)   Dismiss the plaintiff’s Notice of Motion filed on 6 February 2020. (2)   Order the plaintiff to pay the defendants’ costs of the Motion. (3)   Direct the plaintiff, if so advised, to serve a proposed Amended Statement of Claim upon the solicitors for the defendants within 28 days of the date of this judgment. (4)   If a proposed Amended Statement of Claim is so served, direct the solicitors for the defendants to write, within 28 days of receipt of the proposed pleading, to the solicitors for the plaintiff indicating whether or not the defendants consent to the proposed amendments; if there is no consent, the letter must set out the reasons why. (5)   If the defendants consent to the proposed Amended Statement of Claim, grant leave to the plaintiff to file and serve an Amended Statement of Claim, in the form proposed and consented to. (6)   If there is no consent to the proposed Amended Statement of Claim, grant leave to the plaintiff to file a Motion, if so advised, seeking leave to amend the Statement of Claim.
Catchwords:	CIVIL PROCEDURE – whether power to amend a pleading should be exercised –– internal inconsistencies in the proposed pleading – particulars not provided in proposed pleading – proposed amendment not appropriate in substance or form – leave to amend refused
Legislation Cited:	Australian Consumer Law (Cth) ss 18, 236 Civil Procedure Act 2005 (NSW) s 64
Category:	Procedural and other rulings
Parties:	Northern Beaches Industrial Supplies Pty Ltd (Plaintiff) VEK Tools Corporation Pty Ltd (First Defendant) Kiriakos Athanasiadis (Second Defendant)
Representation:	Counsel: D Parish (Plaintiff) T B Senior (Defendants)   Solicitors: Baybridge Lawyers (Plaintiff) Hall & Wilcox (Defendants)
File Number(s):	2019/155179

Judgment

Introduction

1. This motion was referred to me by the List Judge on 22 April 2020 to be determined “on the papers”. The evidence for the plaintiff was the affidavit of Blake Palmer dated 6 February 2020. The evidence for the defendants was the affidavits of Kiriakos Athanasiadis dated 18 February 2020 and Thomas Baker dated 20 February 2020. I also received written submissions dated 27 March 2020 and 8 April 2020 by counsel for the plaintiff and written submissions dated 3 April 2020 by counsel for the defendants.

2. The Notice of Motion was filed on 6 February 2020 and seeks leave to make three amendments to the Statement of Claim:

1. To join Athan Corp Pty Limited (Athan Corp) as a third defendant to the proceedings;

2. To Join Northern Beaches Tools Pty Limited (Northern Beaches Tools) as a second plaintiff;

3. To add allegations that representations made by all defendants caused loss to Northern Beaches Tools.

3. The joinder of Athan Corp as a third defendant is not opposed. The rest of the proposed amendments are opposed by the defendants.

Background

4. By a Statement of Claim filed on 17 May 2019 the plaintiff Northern Beaches Industrial Supplies Pty Ltd (Northern Beaches Industrial) sued the first defendant VEK Tools Corporation Pty Ltd (VEK Tools) and the second defendant Kiriakos Athanasiadis.

5. The pleading alleged that in January 2016 Mr Athanasiadis made representations orally and by email to a Mr Iannazzo. It was alleged that Mr Athanasiadis suggested that Northern Beaches Industrial should purchase a VEK franchise, which would be granted by VEK Tools. The franchise was to be for a period of not less than three years. Part of the proposed franchise agreement would be for Northern Beaches Industrial to take a 20% stake in the VEK head franchisor.

6. The pleading alleges that in September 2016 Mr Iannazzo caused the incorporation of Northern Beaches Industrial and lent that company more than $350,000. He arranged for Northern Beaches Industrial to enter into a lease of premises in Brookvale for three years with an option to renew for a further three years.

7. Paragraph 12 of the Statement of Claim pleaded that on 15 November 2016 Northern Beaches Industrial commenced trading at Brookvale with the name “VEK Tools” licensed to it by VEK Tools. It paid franchise fees to VEK Tools.

8. Paragraph 14 of the Statement of Claim pleaded that in April 2017 VEK Tools asserted that Northern Beaches Industrial was not a franchisee but only had a right to license the VEK Tools brand and its IT system. VEK Tools declined to provide a written agreement or to comply with the Franchising Code of Conduct because it said that it had no obligations as a franchisor to Northern Beaches Industrial as a franchisee.

9. Paragraphs 16-18 of the Statement of Claim pleaded that a franchise did exist between Northern Beaches Industrial and VEK Tools. Paragraphs 19-29 of the Statement of Claim pleaded various breaches of the Franchising Code of Conduct.

10. Under the heading “Repudiation”, the Statement of Claim pleaded in pars 30-33 a claim for damages for breach of contract.

11. Paragraphs 34-37 of the Statement of Claim pleaded an action based on misleading and deceptive conduct by VEK Tools. Paragraphs 38-41 of the Statement of Claim pleaded an action based on misleading and deceptive conduct by Mr Athanasiadis. Paragraphs 42-49 of the Statement of Claim pleaded an estoppel, and sought equitable compensation based upon such estoppel.

Affidavit of Blake Palmer dated 6 February 2020

12. Mr Palmer annexed to his affidavit a copy of the proposed Amended Statement of Claim. It adds Northern Beaches Tools as a second plaintiff. It adds Athan Corp Pty Ltd as a third defendant.

13. The original pleading disclosed that Northern Beaches Industrial was incorporated in September 2016, many months after the alleged representations were made. The proposed Amended Statement of Claim pleads that Northern Beaches Industrial procured a loan from Northern Beaches Tools for $350,000. Put broadly, the proposed Amended Statement of Claim pleads that Northern Beaches Tools also suffered damage because of the conduct of VEK Tools or Athan Corp Pty Ltd.

Affidavit of Thomas Baker dated 20 February 2020

14. Mr Baker is a solicitor for the defendants. His affidavit goes to the delay on the part of the plaintiff in sending the proposed Amended Statement of Claim to the defendants for their consideration.

Affidavit of Kiriakos Athanasiadis dated 18 February 2020

15. This is a very short affidavit in which Mr Athanasiadis denies having any dealings with Northern Beaches Tools.

Written Submissions for the plaintiff

16. The amendment is sought pursuant to s 64 of the Civil Procedure Act 2005 (NSW) which gives the court power to order that any document be amended so that all necessary amendments are made for the purpose of determining the real questions in the proceedings. Counsel for the plaintiff submitted that there are four specific matters relevant to the court’s discretion to grant leave. These are:

1. The amendment must be made for a proper purpose;

2. It must be proper as to both substance and form (and not liable to be struck out);

3. The amendment must not cause undue prejudice to the other party;

4. The amendment must be consistent with the dictates of justice.

17. Paragraph 10A of the proposed pleading now refers to an offer made by the defendants to “Northern Beaches Tools or any corporate entity nominated by Northern Beaches Tools”. The amended pleading now makes it plain that it was Northern Beaches Tools which lent the money to set up the business when Mr Iannazzo incorporated the company Northern Beaches Industrial. It is now said that Northern Beaches Tools was a party which suffered loss because representations were made in contravention of s 18 of the Australian Consumer Law.

18. One of the motivating factors behind the amendment was the observations made on a previous occasion by another judge of this court. The court remarked upon the confusing wording in the original pleading, particularly in par 10. Counsel for the plaintiff submits that this has now been corrected by the proposed amended pleading.

19. In correspondence the solicitors for the defendants have asserted that neither Northern Beaches Industrial nor Northern Beaches Tools was party to any written franchise agreement or was a recipient of any alleged misleading representations by any of the defendants. It was further asserted that those two companies had not suffered any loss caused by any conduct of the defendants.

20. In written submissions counsel for the plaintiff points out that issues of reliance and connection to damage suffered must be considered in context. Counsel submitted that it is proper in both substance and form to allege that Northern Beaches Tools acted in reliance on the representations made by the defendants. Counsel submitted that it was also proper in form and substance to allege that Northern Beaches Industrial, when it came into existence, acted as a result of the representations conveyed to Mr Iannazzo. It was submitted that Northern Beaches Tools acted to its detriment in reliance on the representations.

21. In written submissions counsel for the plaintiff points out that evidence has not yet been served in these proceedings and a hearing date has not been set. Counsel acknowledges that there will be costs thrown away by reason of the amendment of the Statement of Claim, as it would necessitate amendments to the Defence and the filing of a Defence by the proposed new third defendant. Counsel submitted that while there had been delay in bringing the application, the delay was explained in par 3 of the affidavit of Mr Palmer. In any event, any such delay caused no prejudice to the defendants.

22. Counsel also pointed out that the defendants already have a security for costs order in their favour.

23. Counsel for the plaintiff submitted that the court should grant the amendment because it was necessary to determine two issues in dispute:

1. Whether Northern Beaches Tools, as the corporate trustee that lent money to set up the Northern Beaches Industrial business, has suffered loss and damage because of the defendants’ contravention of s 18 of the Australian Consumer Law;

2. Whether the representations about the granting of a franchise were made by Athan Corp.

Submissions for the defendants

24. In written submissions counsel for the defendants accepted the statements of principle regarding amendments set out in the written submissions of counsel for the plaintiff. It was also pointed out that the court must be satisfied that the proposed amendment is not so obviously futile that it would be liable to be struck out had it appeared in the original pleading, and that there is an arguable basis for the amendments.

25. Counsel for the defendants opposed the proposed amendments because the defendants have requested particulars of the representations and copies of the relevant emails, but the plaintiff has declined to provide those particulars. In a letter dated 16 July 2019 from the solicitors for the plaintiff to the solicitors for the defendants, some of the answers to the request for particulars were in the following form:

“Adequate particulars are pleaded. Further particulars will form a part of the plaintiff’s evidence.”

26. I accept the submission made by counsel for the defendants that such a response is completely inadequate. The Rules require that appropriate particulars be provided in a pleading. If appropriate particulars are requested, they should be provided in a direct fashion. It is not enough for the party asked to supply particulars to suggest that through some process akin to osmosis, the opposing party will be able to discern the case it has to meet by reading the evidence filed. A defendant is entitled to know the case it has to meet at an early stage, and certainly well before it is required to plead a Defence and put on its own evidence.

27. Particular objection is taken by counsel for the defendants to proposed par 10A of the Amended Statement of Claim. This alleges that the representations amounted to an offer made by the defendants to enter into a franchise agreement between the first defendant or the proposed third defendant and Northern Beaches Tools or any corporate entity nominated by Northern Beaches Tools. Counsel points out that neither Northern Beaches Industrial nor Northern Beaches Tools are alleged to have been recipients of any of the representations said to have been made by the second defendant. The only alleged recipient of those representations is Mr Iannazzo. Of course, he is not a party to the proceedings and does not claim any loss of his own.

28. Counsel for the defendants pointed out that the plaintiff has not pleaded or particularised how the representations alleged to have been conveyed to Mr Iannazzo personally were passed on to Northern Beaches Tools, or could be said to amount to an offer to enter into a franchise agreement with Northern Beaches Tools. Counsel also points out that Northern Beaches Tools is not alleged to have suffered losses arising from, and does not claim damages for, breach of the alleged franchising agreement, or breach of the Franchising Code of Conduct.

29. Counsel for the defendants submits that these are important material facts and legal elements relied upon by the plaintiff to establish the claim. As such they should be properly pleaded and particularised.

30. Under the heading “Internal inconsistencies in the Proposed ASOC”, counsel for the defendants submits as follows:

(i)   It is alleged that Mr Iannazzo accepted the offer to enter into the franchise agreement, notwithstanding that the offer was alleged to have been made to Northern Beaches Tools;

(ii)   Paragraphs 14 and 15 of the proposed Amended Statement of Claim alleges that the defendants asserted that Northern Beaches Industrial was not a franchisee and that it was Northern Beaches Industrial that treated the alleged franchise agreement as at an end. Those allegations are contrary to the allegation in proposed par 10A that the franchise agreement was between the defendants and Northern Beaches Tools. Further, counsel submits that the defendants have been provided with insufficient particulars in respect of those paragraphs;

(iii)   In par 16 of the proposed Amended Statement of Claim, it is alleged that the franchise agreement existed between the defendants and Northern Beaches Industrial, which is contrary to the allegation in par 10A that the agreement was with Northern Beaches Tools;

(iv)    Paragraphs 22 and 28 of the proposed pleading allege that Northern Beaches Industrial suffered loss from the alleged breach of the Franchising Code of Conduct, in circumstances where the franchise agreement was between the defendants and Northern Beaches Tools, and not Northern Beaches Industrial;

(v)   Paragraph 32 of the proposed pleading alleges that Northern Beaches Industrial elected to accept the alleged repudiatory conduct and that Northern Beaches Industrial has suffered damages for breach of contract. Insufficient particulars of this have been supplied.

(vi)   The estoppel claim pleaded at par 34 of the proposed Amended Statement of Claim alleges that the defendants took no steps to contradict or discourage the assumption made by Northern Beaches Industrial that it was a franchisee. However, that claim is contrary to the allegations in pars 9 and 10 of the proposed Amended Statement of Claim and therefore fails to disclose a reasonable cause of action.

31. Counsel for the defendant accepts that s 236 of the Australian Consumer Law does not require that a plaintiff who alleges damage must have relied upon the relevant misrepresentations, as long as there is a sufficient and direct link between a defendant’s conduct and the loss to the plaintiff. However, counsel submits that a sufficient and direct link is not pleaded in the proposed Amended Statement of Claim. It is submitted that the steps taken by Northern Beaches Tools in reliance upon the representations are not properly set out. There is no pleading that a reasonable business person in the position of the defendants would have reasonably foreseen that the representations would have been passed on or communicated to Northern Beaches Tools.

Submissions in reply for the plaintiff

32. Counsel for the plaintiff provided written submissions in reply dated 8 April 2020. Those submissions seem to acknowledge that there are some internal inconsistencies in the proposed pleading. Further, counsel acknowledges that there is a need for further amendment to proposed par 37A of the Amended Statement of Claim.

Consideration

33. The criticisms of the proposed Amended Statement of Claim made by counsel for the defendants in written submissions are valid. There are many internal inconsistencies in the proposed pleading and there are many matters which, pursuant to the Rules, should have been particularised in the pleading.

34. I find that the proposed amendment is not appropriate in substance or form. To allow the amendment in the form proposed would be inimical to the interests of justice and would lead to confusion, not clarity.

35. The particulars supplied to date have been inadequate. It is no answer to a request for particulars to say that the particulars will be able to be discerned after evidence is served. The function of particulars is to enable a party to know the case it has to meet.

36. I acknowledge that cases such as this, particularly where a party which has suffered damage comes into existence after the representations are made, present unique difficulties for a pleader. It is not impossible to plead such cases but they are more difficult than most.

37. I refuse leave to amend the Statement of Claim in the form put forward by the plaintiff. However, the plaintiff should have an opportunity to re-plead its case. I will dismiss this Notice of Motion and make directions for the further conduct of the proceedings.

38. My orders are:

1. Dismiss the plaintiff’s Notice of Motion filed on 6 February 2020.

2. Order the plaintiff to pay the defendants’ costs of the Motion.

3. Direct the plaintiff, if so advised, to serve a proposed Amended Statement of Claim upon the solicitors for the defendants within 28 days of the date of this judgment.

4. If a proposed Amended Statement of Claim is so served, direct the solicitors for the defendants to write, within 28 days of receipt of the proposed pleading, to the solicitors for the plaintiff indicating whether or not the defendants consent to the proposed amendments; if there is no consent, the letter must set out the reasons why.

5. If the defendants consent to the proposed Amended Statement of Claim, grant leave to the plaintiff to file and serve an Amended Statement of Claim, in the form proposed and consented to.

6. If there is no consent to the proposed Amended Statement of Claim, grant leave to the plaintiff to file a Motion, if so advised, seeking leave to amend the Statement of Claim.

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Decision last updated: 29 April 2020