Pearson & Knight Investments Pty Ltd v Jimmy's Pizza (Australia) Pty Ltd
[1996] FCA 314
•3 MAY 1996
CATCHWORDS
PRACTICE AND PROCEDURE - Statement of claim - cross-claim - applications to strike out - no question of principle.
Federal Court Rules O 11 r 16
Davis v The Commonwealth (1986) 61 ALJR 32 - Appl
Turquand v Fearon (1879) 40 LT 543 - Appl
Pearson & Knight Investments Pty Ltd and Patricia Knight v Jimmy's Pizza (Australia) Pty Limited, Jason Windsor Blair and Roy Muffett
No. QG20 of 1995
Cooper J
Brisbane
3 May 1996
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
No QG20 of 1995
BETWEEN: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Applicant
AND: PATRICIA KNIGHT
Second Applicant
AND: JIMMY'S PIZZA (AUSTRALIA) PTY LIMITED
First Respondent
AND: JASON WINDSOR BLAIR
Second Respondent
AND: ROY MUFFETT
Third Respondent
BY ORIGINAL ACTION
AND: JIMMY'S PIZZA AUSTRALIA PTY LIMITED
Cross Claimant
AND: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Cross Respondent
AND: PATRICIA KNIGHT
Second Cross Respondent
AND: JASON WINDSOR BLAIR
Third Cross Respondent
AND: ROY MUFFETT
Fourth Cross Respondent
BY COUNTERCLAIM
AND: JASON WINDSOR BLAIR
Cross Claimant
AND: ROY MUFFETT
Cross Claimant
AND: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Cross Respondent
AND: PATRICIA KNIGHT
Second Cross Respondent
BY FURTHER COUNTERCLAIM
JUDGE MAKING ORDER: Cooper J
WHERE MADE: Brisbane
DATE OF ORDER: 3 May 1996
MINUTES OF ORDER
THE COURT ORDERS THAT:
Paragraphs 11(a), (d) and (e) of the statement of claim be struck out.
The applicants have leave to amend the statement of claim to include paragraph 25A in terms of the applicant's written submissions filed in defence of the notice of motion.
The second and third respondents' notice of motion to strike out paragraphs 11, 12, 13 and 14 of the statement of claim be otherwise dismissed.
The costs of and incidental to the notice of motion to strike out paragraphs 11, 12, 13 and 14 of the statement of claim be each party's costs in the proceedings.
The cross-claim, insofar as it relates to allegations of interference with contractual relations, be struck out, with liberty to amend the cross-claim to delete the allegations as to interference with contractual relations.
The cross-claimants pay the cross-respondents costs of and incidental to the notice of motion filed 11 March 1996 together with the costs thrown away by the necessary amendment of the cross-claim.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
No QG20 of 1995
BETWEEN: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Applicant
AND: PATRICIA KNIGHT
Second Applicant
AND: JIMMY'S PIZZA (AUSTRALIA) PTY LIMITED
First Respondent
AND: JASON WINDSOR BLAIR
Second Respondent
AND: ROY MUFFETT
Third Respondent
BY ORIGINAL ACTION
AND: JIMMY'S PIZZA AUSTRALIA PTY LIMITED
Cross Claimant
AND: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Cross Respondent
AND: PATRICIA KNIGHT
Second Cross Respondent
AND: JASON WINDSOR BLAIR
Third Cross Respondent
AND: ROY MUFFETT
Fourth Cross Respondent
BY COUNTERCLAIM
AND: JASON WINDSOR BLAIR
Cross Claimant
AND: ROY MUFFETT
Cross Claimant
AND: PEARSON & KNIGHT INVESTMENTS PTY LTD
First Cross Respondent
AND: PATRICIA KNIGHT
Second Cross Respondent
BY FURTHER COUNTERCLAIM
CORAM: Cooper J
PLACE: Brisbane
DATE: 3 May 1996
REASONS FOR JUDGMENT
The court had before it two applications to strike out pleadings in four related matters: QG 20, QG 21, QG 22 and QG 23 of 1995. By agreement of the parties the applications were determined on the papers after consideration of written submissions and without oral argument. Also by agreement, the result of the applications in this matter (QG 20 of 1995) will have effect in the other three matters (QG 21, QG 22 and QG 23 of 1995). The first application is by the second and third respondents to strike out paragraphs 11 - 14 of the statement of claim on the grounds that they are embarrassing or have a tendency to cause prejudice or delay in the proceedings.
The court will not strike out a pleading or part of a pleading in other than a plain and obvious case (see Davis v The Commonwealth (1986) 61 ALJR 32 at 35; 68 ALR 18 at 23). Nor will a statement of claim or part of it be struck out as embarrassing simply because a respondent denies the substance or effect of the allegations made against it (Turquand v Fearon (1879) 40 LT 543 at 544 per Bramwell LJ). In Davis v The Commonwealth Gibbs CJ stated the test in the following way (in relation to the High Court rule equivalent to O 11 r 16 of the Federal Court Rules) :-
"By O 20, r 29 the court or a justice is given power, at any stage of the proceedings, to order to be struck out or amended any matter in an endorsement or pleading which is unnecessary or scandalous or which may tend to prejudice, embarrass or delay the fair trial of the action. Allegations of fact which are truly relevant to an arguable case which the party pleading wishes to put will not answer the description contained in the rule. Further, it is well settled that under a rule of that kind an order striking out a pleading or part of a pleading will only be made in a plain and obvious case: see, for example, Hubbuck & Sons v Wilkinson, Heywood & Clark [1899] 1 QB 86 at 91; Nagle v Feilden [1966] 2 QB 633 at 648, 651. The court will not ordinarily decide a debatable question of law on an application made under the rule."
The background facts giving rise to the matters complained of in the statement of claim concern the sale by the first respondent to the applicants of pizza shops to be conducted under franchise agreements in December 1992. The statement of claim alleges that prior to entering into a business contract and franchise agreement in relation to the Goodna shop the first respondent, by the second and third respondents, made certain representations in a document entitled "Franchise Disclosure Document" ("the disclosure document").
The complaints raised by the second and third respondents to the statement of claim are two-fold. The first is that it is not alleged in the statement of claim that the second and third respondents had knowledge of the conduct of the first respondent which
is said to have been misleading or deceptive. On this basis it is said that no case of being knowingly concerned in that conduct is pleaded against the second and third respondents. The applicants contend that any deficiency in this regard can be cured by an amendment in the following terms :-"25AEach of the second and third respondents was a person knowingly concerned in the misleading or deceptive conduct of the first respondent.
Particulars
(a)at all material times the second and third respondents were the natural persons by whom the first respondent acted;
(b)at all material times the second and third respondents had full knowledge of the business and affairs of the first respondent;
(c)the second and third respondents had caused the disclosure document to be produced and had provided the information contained therein;
(d)by reason of their knowledge as aforesaid each of the second and third respondents was aware of the facts contained in the particulars to paragraph 25 above."
I agree with that contention.
The second basis of the application is the contention that the representations pleaded in paragraphs 11, 12, 13 and 14 of the statement of claim are either irrelevant or not supported by a fair reading of the disclosure document.
In the face of an attack on paragraphs 11(a), (d) and (e) the applicants do not seek to support those paragraphs. Accordingly they will be struck out.
The balance of the pleading in issue is as follows :-
"11 By a franchise disclosure document dated November, 1992 (`the disclosure document') prepared by and at the direction of the second and third respondents and supplied to the first applicant by the first respondent (by the second and third respondent) prior to the execution of the business contract and the first franchise agreement the first respondent represented to the applicants as follows:
.....
(b)that the chain was to be expanded to twenty or more franchise stores;
(c)that from 1993 the chain would be promoted on radio and television;
...
(f)that Jimmy's Pizza outlets were planned for 34 Brisbane suburban outlets;
(g)that the first respondent estimated that a Jimmy's Pizza outlet would average takings of at least $6,000 per week returning a profit to the operator before tax and depreciation of 18.3% of gross sales of $57,020 per annum and could be considerably higher;
(h)that the costs of sales would be of the order of 38% of gross takings.
12. Implicit in the representations alleged in paragraphs 11(b) and 11(f) above was the representation that the expansion of the number of franchised outlets was imminent and that steps had in fact been undertaken to achieve the represented expansion.
13. Implicit in the representations alleged in paragraphs 11(g) and 11(h) was the representation that the first respondent by the second and third respondent had the knowledge and skill to achieve the trading results projected in the disclosure document and could and would pass on such skills to the first applicant and its directors.
14. Implicit from the representation set out in paragraph 11(c) above and the recitals to the franchise agreement and the terms of clause 17.1 thereof and the charging of the advertising levy was the representation that the first respondent would effectively promote the franchised business so as to enable it to operate profitably."
The respondents contend that paragraph 11(b) is not supported by the last paragraph of page 3 of the disclosure document. I do not agree. The representation as either a statement of present intention or of future conduct is reasonably open on the wording of paragraph 3 on page 3 of the disclosure document.
The respondents make a similar complaint in relation to the allegation contained in paragraph 11(c). Similarly, in my view, the representation is fairly open and arguable on the contents of paragraph 2 on page 3 of the disclosure document.
The respondents complain that the allegation contained in paragraph 11(f) is not supported on the basis of the particulars given or as a representation of present intention or future conduct. It is clear that the representation is based on page 21 of the disclosure document and not page 3 and that the representation contended for is reasonably open as a matter of construction of the contents of page 21.
The respondents complain that paragraphs 11(g) and 11(h) are inconsistent with and misstate the contents of the disclosure document at page 28. An examination of the document shows that this is not the case. Page 28 is entitled "FRANCHISEE PROFIT PROJECTIONS" and it begins with the sentence "The figures on the following pages are estimates. The figures are based on the experience of Jimmy's Pizza and its company owned stores." The document ends with the sentence "The profit projections are current as at November 1992." Attempts to qualify those statements are contained in the paragraphs in the middle of the page. The effect of the qualifications is to be determined by reference to the whole of the circumstances in which the representations
were made and the prominence or otherwise given to them at that time. Furthermore, the accounts on the following pages contain specific estimates under the title "ESTIMATED YEARS PROFIT - OWNER OPERATOR". These figures include estimates of average weekly sales of $6,000 per week and estimates of costs of sales at thirty-eight percent. At the bottom of the "Estimated years profit" there is a representation of an estimated weekly income being a return of forty-four percent on an investment of $130,000.
There is nothing in paragraphs 11(f) and 11(g) which would prejudice or delay the respondents in relation to the case alleged against them. Their only complaint is that they contend for a different construction of the contents of pages 28 and 29 of the disclosure document.
The respondents contend that the implied representations pleaded in paragraph 12 are not supported by either paragraphs 11(b) and 11(f) of the statement of claim nor by the disclosure document. In my view, the implied representations are fairly open as a matter of construction having regard to the representations pleaded in 11(b) and 11(f) and a fair reading of the disclosure document.
The respondents argue that the implied representations in paragraph 13 are not supported by the representations alleged in 11(g) and 11(h) nor by the express terms of the disclosure document. The complaint appears to be that the disclosure document makes no reference to the second and third respondents as having the alleged "knowledge and skill to achieve the trading results". The contents of the disclosure document at pages 2 and 3 under the heading "COMPANY HISTORY", pages 4 and 5 under the
heading "COMPANY DIRECTORS BACKGROUND" and pages 7, 8 and 9 inclusive under the heading "BACKGROUND OF COMPANY & CONCEPTS", and the contents of pages 28 to 35 inclusive under the headings "FRANCHISEE PROFIT PROJECTIONS", "ESTIMATED YEARLY PROFIT OWNER OPERATOR" and "REASONS WHY YOU SHOULD SERIOUSLY CONSIDER THIS GREAT BUSINESS OPPORTUNITY" on any view support the representations pleaded in paragraph 13 of the statement of claim.
Finally, the respondents contend that the implied representation in paragraph 14 of the statement of claim is not supported by the representations contained in paragraph 11(c), the recitals to the franchise agreement and the terms of clause 17.1 and the charging by the first respondent of an advertising levy. Again, the representation has to be viewed, as does the franchise agreement, the recitals to it and the allegation in paragraph 11(c) of the statement of claim against all of the background facts and circumstances and the whole of the contents of the disclosure document. For example, at page 7 of the disclosure document appears the statement "Extensive advertising efforts keep Jimmy's Pizzas in front of consumers every day" and at page 8 under the heading "Advertising and Promotion" there appears "Our local advertising and promotion schedule has been specifically designed to communicate effectively to the consumer with our purpose-designed logo having appeal to all age groups", and under the heading "Reasons why you should seriously consider this great business opportunity", there appear the words "Cost effective well-planned marketing". There is no substance to the respondent's objection to paragraph 14.
The application by the respondents has substantially failed. The applicant have properly conceded such parts of the statement of claim as they did not wish to defend and quite properly acknowledged that there should be an amendment in terms of the proposed paragraph 25A.
In all of the circumstances, the justice of the situation is served by ordering that paragraphs 11(a), (d) and (e) of the statement of claim be struck out, that the applicants have leave to amend the statement of claim in terms of paragraph 25A and that each party's costs of and incidental to the motion to strike out paragraphs 11 - 14 inclusive of the statement of claim be that party's costs in the proceedings.
The second application was by the first and second cross-respondents. By notice of motion filed on 11 March 1996 they have sought that the second and third respondents' cross-claim for interference with contractual relations be struck out on the ground that such cross-claim discloses no reasonable cause of action, or alternatively, that the cross-claim be stayed on the ground that it is frivolous or vexatious.
The cross-claimants have not sought to support the cross-claim as pleaded insofar as it attempts to set up causes of action against the cross-respondents for the tort of interference with contractual relations. A perusal of the outline of submissions of the cross-respondents and the pleading indicates that the failure to seek to support the pleading is probably well-founded.
The solicitors for the cross-claimants have indicated that they wish to re-plead the cross-claim. Having regard to the fact that the cross-claim is not limited to allegations of interference with contractual relations, such re-pleading would be necessary in any event. Accordingly, I propose to order that the cross-claim, insofar as it relates to allegations of interference with contractual relations, be struck out with liberty to amend the cross-claim to delete the allegations as to interference with contractual relations. If the cross-claimants wish to seek leave to re-agitate some claim based on an alleged interference with contractual relations or other cause or causes of action, then a separate application supported by a draft pleading will have to be filed and will be dealt with in the ordinary course.
The cross-claimants, having abandoned the pleading insofar as it alleges a cause or cause of action against the cross-respondent for interference in contractual relations, ought to pay the costs of the notice of motion and the costs thrown away in consequence of the need to replead to the cross-claim. Therefore I order that the cross-claimants pay the cross-respondents costs of and incidental to the notice of motion together with the costs thrown away by the necessary amendment of the cross-claim.
I should note again that the orders I make in this matter (QG 20 of 1995) will be effective in the other matters (QG 21, QG 22 and QG 23 of 1995) as if judgment in the same terms had been given in them.
THE COURT ORDERS THAT:
Paragraphs 11(a), (d) and (e) of the statement of claim be struck out.
The applicants have leave to amend the statement of claim to include paragraph 25A in terms of the applicant's written submissions filed in defence of the notice of motion.
The second and third respondents' notice of motion to strike out paragraphs 11, 12, 13 and 14 of the statement of claim be otherwise dismissed.
The costs of and incidental to the notice of motion to strike out paragraphs 11, 12, 13 and 14 of the statement of claim be each party's costs in the proceedings.
The cross-claim, insofar as it relates to allegations of interference with contractual relations, be struck out, with liberty to amend the cross-claim to delete the allegations as to interference with contractual relations.
The cross-claimants pay the cross-respondents costs of and incidental to the notice of motion filed 11 March 1996 together with the costs thrown away by the necessary amendment of the cross-claim.
I certify that this and the preceding ten (10) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper.
Date:3 May 1996
Associate
Solicitors for the Applicants: Michell Sillar Nicholsons, Solicitors
Solicitors fore the Respondents: Barwicks Lawyers
Place of Hearing: Brisbane
Date of Judgment: 3 May 1996
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