PFD Food Services Pty Ltd v NAFDA Pty Ltd
[2004] FCA 1218
•17 SEPTEMBER 2004
FEDERAL COURT OF AUSTRALIA
PFD Food Services Pty Ltd v NAFDA Pty Ltd [2004] FCA 1218
PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS
v NAFDA PTY LTD (ACN 002 953 942)V 763 of 2002
RYAN J
17 SEPTEMBER 2004
MELBOURNE
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 763 of 2002
BETWEEN:
PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS (in accordance with annexed Schedule)
ApplicantsAND:
NAFDA PTY LTD (ACN 002 953 942)
RespondentJUDGE:
RYAN J
DATE OF ORDER:
17 SEPTEMBER 2004
WHERE MADE:
MELBOURNE
THE COURT ORDERS THAT:
1.Sub-paragraph (a) of the particulars subjoined to paragraph 21 of the further amended statement of claim filed herein on 27 February 2004 be struck out.
2.The applicants have leave, if so advised and in light of the reasons published this day, further to amend, within 28 days of the date of this order, the said further amended statement of claim insofar as the same seeks to allege either or both;
(a)breach of fiduciary duty;
(b)unconscionable conduct in contravention of s 51AA of the Trade Practices Act 1974 (Cth).
3.The applicants pay the respondent’s costs of the amended motion on notice dated 28 March 2003 insofar as it is related to the said further amended statement of claim, including the respondent’s costs of the hearing on 29 March 2004.
4. The directions hearing herein be adjourned to 19 November 2004.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
V 763 of 2002
BETWEEN:
PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS (in accordance with annexed Schedule)
ApplicantsAND:
NAFDA PTY LTD (ACN 002 953 942)
Respondent
JUDGE:
RYAN J
DATE:
17 SEPTEMBER 2004
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
On 9 December 2003 I ordered, amongst other things, that the applicants have leave further to amend their statement of claim in such manner as they might be advised in light of the reasons for judgment published that day (“the earlier reasons”). The present reasons should be read in conjunction with the earlier reasons. The respondent has mounted a fresh attack on the further amended statement of claim filed pursuant to the order of 9 December 2003.
Measure of damages for misleading or deceptive conduct
In order to understand the first part of the respondent’s attack on the further amended statement of claim it is necessary to set out paragraphs 19, 20 and 20B of the further amended statement of claim which are in these terms;
‘19.The extraordinary profit representation, extraordinary profit conduct and the ongoing trading basis representation referred to in paragraphs 15B – 17 constituted conduct engaged in by NAFDA:
(a) in trade or commerce;
(b)which conduct was misleading and deceptive or likely to mislead and deceive contrary to S.52 of the Trade Practices Act 1974 (Cth) (“the Act”).
20.The said conduct:
(a)constituted representations as to future matters;
(b)is deemed pursuant to s51A of the Act to be made in the absence of reasonable grounds therefore; and
(c)in the circumstances, constitutes conduct which is misleading and deceptive contrary to S.52 of the Act.
20BBy reason of the inducing and reliance alleged in paragraph 18C the Applicants were deprived of or lost the opportunity to obtain and the value of supplier discounts, supplier rebates or incentives.’
By paragraph 18C it is pleaded:
‘Acting in the faith and truth of, induced by and in reliance upon:
(a) the matters alleged in paragraphs 12B, 12C and 14;
(b) the extraordinary profit resolution alleged in paragraph 15;
(c)the ongoing trading basis representation alleged in paragraph 16;
(d) the matters alleged in paragraph 17;
(d)the extraordinary profit representation alleged in paragraph 15B;
and not otherwise, the Applicants individually or collectively continued to be members of the respondent until September 2001 and did not individually or collectively negotiate supplier discounts, supplier rebates or incentives or did not negotiate such discounts, rebates or incentives without regard to any such discounts, rebates or incentives obtained by NAFDA for the State members;’
It is then alleged in par 21 that:
‘By reason of the matters alleged in paragraphs 19 to 20B (inclusive) the Applicants have suffered loss and damage.’
Of the particulars appended to par 21, only sub-par (a) is impugned by the respondent. The particulars subjoined to par 21 recite;
‘The applicants’ loss and damage is to be measured by reference to:
(a)their respective shares of the monies derived by NAFDA as alleged in paragraph 18(b); or
(b)alternatively to sub-paragraph (a) above, their respective shares of the supplier discounts, supplier rebates or incentives which they could have negotiated collectively in the year ended June 2001 having regard to the products they sold during that period whilst a member of NAFDA, had they been notified by NAFDA of its intention not to distribute all profits to members.
The products for which rebates, discounts or other incentives would have been negotiated comprised the products in which each of the various Applicants traded in the year ended 30 June 2001, which included frozen food stuffs, dry goods, dairy product, fresh meat, fresh sea food, value added or treated meat and sea food, biscuits, cereals, cakes, poultry, chocolate, breads and other baked product, eggs and egg product, flour, dry and canned fruit, juices, jams, oil, chemicals, toiletries, packaging and paper products, detergents, laundry and like products.
The rebates, which would have been negotiated in respect of the products, range between 4% and 6% of the wholesale price of product having regard to the volume of product that the applicants purchased in the year ended 30 June 2001 full particulars of which will be provided prior to trial.’
In the earlier par 18(b) it is pleaded that NAFDA, in the year ended 30 June 2001, resolved to record surplus income in the order of $1 million which, it is alleged, contrary to the representations and conduct referred to in pars 15-17 has not been distributed to the members of VIC and NSW. In essence, therefore, it is alleged that, by reason of the respondent’s misleading and deceptive conduct, the applicants suffered loss and damage which is to be measured by, or equated with, the dividend or share of profits which each of them would have received had the representations and conduct referred to in pars 15 and 17 been true. In the earlier reasons, I observed at [9]-[10];
‘The amended statement of claim alleges that by reason of the respondent’s misrepresentations, the applicants refrained from certain conduct, such as negotiating their own supplier discounts or rebates, which resulted in their being deprived of an opportunity to obtain the value of supplier rebates and discounts available otherwise than through NAFDA. However, the loss and damage alleged in par 21 of the amended statement of claim to have been suffered by the applicants is measured by the applicants’ “true share of profits of NAFDA for 2000-2001.” The applicants, for the purpose of establishing a causal link between the representation and the alleged loss, have equated the detriment said to have been suffered by reason of the alleged misrepresentations with the share of the profit which they claim they should have received from NAFDA for 2000-2001. That does not eliminate the logical error which I identified in the original statement of claim in PFD at [20]. By particularising the loss and damage by reference to NAFDA’s profits for 2000-2001, the applicants have again erroneously sought to rely on a claim under s 52 in an attempt to recover damages for the loss of the bargain that they thought had been made with the respondent. As I said in PFD at [21], “the present statement of claim does not disclose a set of facts, which, if proved, would found an entitlement to damages on the measure applicable to a breach of contract.”
In my view, the amended statement of claim still does not adequately plead the loss and damage sustained by the applicants as a result of the alleged misrepresentations of the respondent. Consequently, the respondent is still not on clear notice of the alleged contraventions of s 52 of the Act which it has to meet: BWK Elders (Australia) Pty Ltd v Westgate Wool Company Pty Ltd [2002] FCA 87 at [3] per Mansfield J. However, the defects in the pleadings with respect to the allegations of a breach of s 52 of the Act do not go to the existence of a cause of action and can be overcome by the giving of appropriate further and better particulars of damage. I shall therefore order that the applicants have leave to further amend their statement of claim.’
Mr Booth of Counsel for the applicants acknowledged that “the substance of the plea for loss and damage” is contained in sub-par (b) of the particulars quoted at [3] above. However, he went on to contend that, because the claim for damages was “hypothetical”, it was legitimate to measure them by reference to what would have been derived had the applicants not bound themselves to operate under the “NAFDA umbrella”. A permissible guide to the amount recoverable on that hypothesis was said to be the amount which each applicant would have derived “under the NAFDA umbrella” had the scheme operated in the manner which it had been represented it would. However, these matters, as Mr Booth conceded, “ultimately would turn on questions of evidence.”
The function of particulars is to put the other party on notice of the nature of the case which it has to meet. In respect of particulars of loss and damage, that involves outlining, usually in monetary terms, the formula by which an applicant’s damages are said to be ascertainable. It is no part of the function of particulars to recite or summarise the evidence by which a particular part of an applicant’s case is to be proved; see Aga Khan v Times Publishing Co [1924] 1 KB 675 at 679. I consider that sub-par (a) of the particulars annexed to par 21 of the further amended statement of claim adds nothing to the formulation of the measure of damages in sub-par (b). It merely indicates a form of calculation which may be adduced in evidence as permitting the inference that each applicant has suffered damage in an amount to be quantified by application of the measure described in sub-par (b). Accordingly, sub-par a) of the particulars annexed to par 21 of the further amended statement of claim should be struck out.
Have the representations been sufficiently pleaded?
The representations relied on as a contravention of s 52 of the Trade Practices Act1974 (Cth) have been pleaded as follows in the further amended statement of claim;
‘15. On 18 February 2000 NAFDA by its directors resolved:
(a)that the payment of surplus income and/or profit relating to the 2000 financial year would be as pleaded in paragraph 13(f) to (h) hereof;
(b)that the resolution would be implemented until further notice (“the extraordinary profit resolution”).
PARTICULARS
A copy of the Minutes of meeting of directors may be inspected at the office of the Applicants’ solicitors.
15AAIn respect of the financial year ended 30 June 2000 the extraordinary profit resolution was given effect to.
15AThe State members were notified, informed or made aware of the fact and contents of the extraordinary profit resolution.
PARTICULARS
Mr Goulas, Mr Smith and Mr Weeitch for and on behalf of the Applicants were present at the meeting on 18 February 2000 of NAFDA at which the extraordinary profit resolution was made. Further, on 19 February 2000, NAFDA held its National members meeting at which the Applicants’ representatives were present.
15B.By passing the extraordinary profit resolution and by conducting its affairs as it had done in each of the financial years ended 30 June 1998, 1999 and 2000 as referred to in paragraph 14, NAFDA represented to the State members that it would act in accordance with the extraordinary profit resolution and as it had done in each of the financial years ended 30 June 1998, 1999 and 2000 (“the extraordinary profit representation”).
16.Further, at no time prior to 30 September 2001 did NAFDA give notice to the State members, including the Applicants or any of them that it proposed to conduct its affairs:
(aa)other than consistently with the extraordinary profit resolution;
(a)other than as a co-operative company for income tax purposes;
(b)other than as it had done in each of the financial years ended 30 June 1998, 1999 and 2000 as referred to in paragraph 14 (“the ongoing trading basis representation”).’
That part of the pleading has also been criticised by Counsel for the respondent as insufficiently indicating a representation continuing in effect until the financial year ending on 30 June 2001. It was said that the extraordinary profit resolution was carried at a meeting of directors of NAFDA on 18 February 2000 and embodied no representation to anybody outside the Board of NAFDA. I disagree. The natural inference is that a resolution by the directors of a company about the distribution of profits to its members will be communicated to the members. In any event, it is specifically pleaded in par 15A that the extraordinary profit resolution was communicated to the State members and, as the particulars to that paragraph imply, one such communication occurred at a National members meeting on 19 February 2000.
As pleaded, the extraordinary profit representation and the ongoing trading basis representation appear to be representations as to future matters which are governed by s 51A of the Trade Practices Act. It may be that the respondent can discharge the reverse onus of proof imposed by that section by showing that the facts known to the directors of NAFDA on 18 February 2000 and from time to time until 30 September 2001 constituted reasonable grounds for making the extraordinary profit representation and the ongoing trading basis representation if the applicants succeed in showing that each of those representations was made. However, as Mr Collinson frankly conceded, the attack on pars 15 to 16 of the further amended statement of claim “is the weakest submission in terms of a straying into evidence.” I consider that the attack on these paragraphs cannot be sustained and I decline to strike them out or require their further amendment.
Breach of fiduciary duty
In the statement of claim in the form in which it was before the further amendment this cause of action was pleaded in the following paragraphs;
‘24. Further or in the alternative, by reason of the matters alleged in paragraphs 11 to 18A (inclusive) NAFDA owed fiduciary duties to the applicants and each of them:
(a) to act in good faith and for proper purposes;
(b)not to put itself in a position of conflict between its own interests and the interests of those to whom it owed such duties.
(c)to act in the interests of the applicants and each of them:
(i)in the negotiation of rebates with suppliers;
(ii)in the administration and payment of EDAs;
(iii)in the conduct of trading with members via NAFDA trading;
(iv) in the conduct of the "Best of the Best";
(v)in the distribution of profits from NAFDA trading and from the "Best of the Best";
(d)not to depart from the assumed basis of dealing between NAFDA and the State members as described in paragraph 13 without informing and advising the State members of its intention to do so;
(e)not to act in a manner inconsistent with its status as a co-operative and to take all steps necessary to ensure that income was distributed in each financial year so as to ensure distribution of all income and profit to members and maintain the status of NAFDA as a co-operative.
25.In breach of the duties referred to in paragraph 24 NAFDA has retained to itself as accumulated profit the income from NAFDA trading, from the "Best of the Best" campaign and from other activities which it ought to have distributed to the applicants on whose behalf it acted for the year ending 30 June 2001.
PARTICULARS
The particulars in par 18(b) are referred to and relied upon.
26.Further, by reason of the breaches referred to in the preceding paragraph and/or by reason of the wrongful departure by NAFDA from the assumed basis of dealing as alleged in paragraph 23, the applicants and each of them have suffered loss and damage.
PARTICULARS
The Applicants have not been paid the share of profit from NAFDA trading and from "Best of the Best" and from other activities of NAFDA by way of extraordinary dividend and NAFDA has retained to itself such accumulated profit.’
As to those paragraphs I observed in the earlier reasons;
‘12 In PFD [[2003] FCA 682 / No 1] at [12], I stated that:
“The applicants’ case on fiduciary duties does not appear to me, in theory, unarguable. However, as already indicated, the present pleadings do not adequately disclose how the respondent undertook or agreed to act on behalf of, or for the benefit of, the applicants. I consider that the formula used in the applicants’ pleadings, “by reason of the matters aforesaid”, lacks the precision necessary to make clear how the relationship is said to have arisen. The closest the pleadings come to identifying the assumption of an obligation towards the applicants is the contention in paragraph 12(d)(iii) that: “In 1989 the shareholding of NAFDA was altered with the intention: … that NAFDA would otherwise seek to derive income for the benefit of ‘State’ members”. The factual basis for this apparent intention that NAFDA would represent the applicants’ interests is not pleaded. In my opinion, the material facts giving rise to the alleged fiduciary relationship should be fully and specifically alleged.”
13 In response to this criticism, the applicants made substantial amendments to the statement of claim. I shall not set out those amendments in full as they lend themselves to the following summary. The applicants now allege that, in or about 1988, the members of two associations, the Independent Food Service Distributors (“IFSD”) and IFFDA Pty Ltd (“IFFDA”), entered into a joint venture. The joint venture was to be operated through a corporation, NAFDA, the respondent to these proceedings. NAFDA had two shareholders, NAFDA (Vic) Pty Ltd (“VIC”) and NAFDA (NSW) Pty Ltd (“NSW”). The shareholders in each of VIC and NSW were the members of IFSD and IFFDA. Under the joint venture, NAFDA was to undertake various activities in order to derive income, as, for example, by obtaining rebates in respect of goods purchased by the shareholders of VIC and NSW. NAFDA was then to distribute this income. The manner in which the income was to be distributed at that stage has not expressly been pleaded in the amended statement of claim. However, the joint venture agreement was amended in 1989 and 1996. The amendments in 1996 are of most relevance and, amongst other things, provided that NAFDA would pay to VIC and NSW certain amounts to be calculated by reference to various formulae.
14 These amendments to the statement of claim significantly alter the framework of the commercial relationship between NAFDA and the applicants from that presented by the original statement of claim. In the original statement of claim, it was pleaded that NAFDA had distributed its income directly to the members of VIC and NSW (such members including the applicants in these proceedings). The cause of action based on a breach of fiduciary duty was premised on the failure of NAFDA to continue to do so in 2001. However, the amended statement of claim now pleads that NAFDA was under an obligation to distribute moneys to VIC and NSW.’
15 In respect of this pleading of breach of fiduciary duty, Mr Collinson submitted that, while the amended statement of claim alleges an obligation on NAFDA to distribute profits to VIC and NSW, the applicants do not plead whether NAFDA has failed to make any payments to VIC and NSW, or whether either of VIC and NSW made any payments to the applicants.
16 I agree with this submission. The applicants claim, by way of loss and damage arising out of a breach of fiduciary duties owed to them by NAFDA, moneys which, on the present state of the amended statement of claim, NAFDA was only obliged to pay to VIC and NSW. Although the applicants may have been shareholders of VIC and NSW, the amended statement of claim does not specify how NAFDA has actually breached whatever fiduciary obligation it owed to the applicants. The facts relied on as constituting that breach by NAFDA should be fully and specifically alleged. I note that the applicants simply may not know, through a lack of documentary or other information, what payments, if any, were made by NAFDA to VIC and NSW for the financial year 2000-2001. If this surmise be correct, I would be prepared to entertain an application from the applicants pursuant to O 15 r 5 for discovery of documents relating to that issue.
17 Like those going to the damages allegedly flowing from the breach of s 52, I regard the defects in the amended statement of claim with respect to the breach of fiduciary duty as curable by a further amendment of the amended statement of claim to allege the additional facts which I have identified. I shall therefore order that the applicants have leave further to amend their amended statement of claim.
The further amended statement of claim incorporates no amendment to paragraphs 24 to 26 quoted above alleging breach of fiduciary duty. However, there have been additions and amendments to paragraphs 11 to 18A inclusive, particularly the insertion of new paragraphs 15AA, 15A and 15B quoted at [8] of these reasons. Nevertheless, paragraphs 11 to 18A in their present form do no more than recite the corporate structure and method of operation of NAFDA and its role as the vehicle for a joint venture designed to derive income for the benefit of the shareholders in VIC and NSW (“the State members”). It is alleged in par 11A(a) that it was a term of the joint venture agreement that “NAFDA would collect Earned Distributor Allowances [“EDAs”] on behalf of the State Members” and “distribute the EDAs to VIC and NSW who in turn would distribute such EDAs to the State members which distribution would otherwise constitute assessable income in the hands of NAFDA.”
Significantly, it is not alleged in pars 11 to 18A of the further amended statement of claim that the applicants and NAFDA were parties to the joint venture agreement. Indeed, there have been exhibited to an affidavit of Mark Nicholas Johnson sworn 21 August 2003 sample agreements between NSW or VIC on the one hand and individual shareholders in one or other of those companies on the other. Clause 4 of one of those sample agreements in which NSW was defined as “the Company” and NAFDA was referred to as “NAFDA Pty Limited” was in these terms;
‘Unless the directors of the Company otherwise determine, the Company from time to time but at intervals not longer that (sic) one year, shall pay to each of the shareholders of the company an amount calculated as follows:
the amount payable to any individual shareholder equals the total amount payable by the Company multiplied by the volume of profits and rebates generated by that Shareholder divided by the volume of all profits and rebates generated by all shareholders of the Company.
where “the total amount payable by the Company” means for any period the rebates received by the Company from NAFDA Pty Ltd, plus levies received from shareholders pursuant to Clause 2 hereof, plus any other income received, less operating expenses, administrative costs, any taxes and other charges against profits.’
An agreement dated 24 October 1996 between NAFDA of the one part and NSW and VIC of the other part has been exhibited to the same affidavit and contained cll 3.1 and 3.2 in these terms;
‘3.1Subject to Clause 3.2 and unless the Directors of the National Company otherwise determine, the National Company from time to time, but at intervals no longer than one year, shall pay to each of the State Companies an amount calculated as follows:
-the amount payable to NAFDA (NSW) Pty. Limited equals the “total amount payable by the National Company” multiplied by the volume of profits and rebates generated by members of NAFDA (NSW) Pty. Limited divided by the volume of all profits and rebates generated by the members of both State Companies.
-the amount payable to NAFDA (VIC.) Pty Limited equals the “total amount payable by the National Company” multiplied by the volume of profits and rebates generated by members of NAFDA (VIC.) Pty. Limited divided by the volume of all profits and rebates generated by the members of both State Companies
where “the total amount payable by the National Company” means for any period the rebates received by the National Company from suppliers, plus levies received from the State Companies pursuant to Clause 2 hereof, plus any other income received less operating expenses, administrative costs, any taxes and other charges against profits.
3.2The amount payable to each State Company for any period pursuant to Clause 3.1 will not exceed the rebates generated by that State Company during that period.’
For some reason action has not been brought against either or both of NSW and VIC for failure to compel payment to themselves of the moneys due from NAFDA from which they could, presumably, have made distributions to their respective shareholders including the applicants. Instead, it is sought to charge NAFDA with a breach of fiduciary duty allegedly owed to the State members of each of NSW and VIC. Presumably, that duty is said to have arisen from NAFDA’s having entered into the agreement with NSW and VIC and its having knowledge of the terms like that quoted at [14] above of the standard form agreements between each of those companies and its various State members.
Mr Booth pointed out, in relation to the claim for breach of fiduciary duty, that there is evidence in the form of an exhibit to an affidavit of Andrew Collis Blogg sworn 31 March 2003 that NAFDA, in the financial year ended 30 June 1999, accounted to individual State members for specific sums of money as “total assessable income:”. In the case of the first applicant, PFD Food Services Pty Ltd, the net amount was $48,142.24. Mr Booth also referred to profit and loss statements and balance sheets of VIC and NSW for the year ended 30 June 2001 which tend to suggest that, neither in that year nor the preceding year, did either of those companies receive income. The combined effect of all that evidence was said to support a finding that, notwithstanding the provisions of the joint venture agreement quoted at [13] above, NAFDA in the relevant years had by-passed VIC and NSW and made distributions directly to the State members. However, it remains a valid criticism that the further amended statement of claim has not taken up the invitation implicitly extended in [16] of the earlier reasons to identify how the fiduciary duty which NAFDA was under arose and “how NAFDA actually breached whatever fiduciary duty it owed to the applicants.”
As well, the damages described in the particulars annexed to par 26 of the further amended statement of claim do not necessarily represent the appropriate measure of damages for a breach of fiduciary duty properly articulated in the way discussed above. Those particulars merely recite:
‘The Applicants have not been paid the share of profit from NAFDA trading and from “Best of the Best” and from other activities of NAFDA by way of extraordinary dividend and NAFDA has retained to itself such accumulated profit.’
In my view, the correct measure of damages for the breach of fiduciary duty which I have presumed the applicants wish to allege is the amount of money which the directors of NSW or VIC would, in the proper exercise of their discretion, have distributed to a particular applicant State member had NAFDA, in the discharge of its alleged fiduciary duty, made an appropriate, or any, distribution to NSW and VIC respectively.
If the applicants wish to persist in the allegation of breach of fiduciary duty they should further amend the statement of claim to specify how the alleged fiduciary duty arose, the acts or omissions said to constitute a breach of the duty and the damages, according to the proper measure, alleged to have been suffered by each applicant as a result of the breach.
Unconscionable Conduct
The further amended statement of claim seeks to introduce this completely new cause of action by alleging;
‘27.Further or alternatively by reason of the matters alleged in paragraphs 1-25 NAFDA has engaged in conduct which is in breach of section 51AA of the Act in that:
(a)it has abused a position of trust or confidence as alleged in paragraphs 24 to 25;
(b)it has insisted upon rights in circumstances which make that harsh or oppressive;
(c)it has inequitably denied legal obligations as alleged in paragraphs 22-23;
(d)it has exploited a vulnerability or weakness of the applicants in that it had control over the books and records of NAFDA.
PARTICULARS
The Applicants refer to and repeat the particulars subjoined to paragraphs 1-25.
28.By reason of the breaches of section 51AA alleged in paragraph 27 the applicants and each of them have suffered loss and damage.
PARTICULARS
The Applicants refer to and repeat the particulars subjoined to paragraph 21.’
Section 51AA of the Trade Practices Act provides;
‘(1)A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.
(2)This section does not apply to conduct that is prohibited by section 51AB or 51AC.’
The attempt to introduce this new cause of action has been criticised by Counsel for NAFDA on the ground that no facts have been pleaded which are capable of attracting the application of the specific equitable doctrines which have been held by the High Court to constitute the “unwritten law” on which s 51AA(1) is expressly predicated. In Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (2003) 197 ALR 153 Gleeson CJ observed, at 156, after referring to the second reading speech when s 51AA was inserted into the Trade Practices Act;
‘[6] The Explanatory Memorandum referred to the decisions of this Court in Blomley v Ryan [(1956) 99 CLR 362] and Commercial Bank of Australia Ltd v Amadio [(1983) 151 CLR 447]. Those decisions were considered more recently in Bridgewater v Leahy [(1998) 194 CLR 457].
[7] These decisions mark out the area of discourse involved, and explain the approach of the appellant, which was accepted by the respondent. It was also the approach taken by French J, and by the Full Court. In the context of s 51AA, with its reference to the unwritten law, which is the law expounded in such cases as those mentioned above, unconscionability is a legal term, not a colloquial expression. In everyday speech, "unconscionable" may be merely an emphatic method of expressing disapproval of someone's behaviour, but its legal meaning is considerably more precise.
[8] In Blomley v Ryan [(1956) 99 CLR 362 at 405], Fullagar J, after pointing out that the circumstances of disability or disadvantage that can be involved in unconscionable conduct are of great variety and are difficult to classify, gave, as examples, "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary." The common characteristic of such circumstances is that they place one party at a serious disadvantage in dealing with the other.’
Counsel for the applicants referred to the judgment of French J in this Court at first instance in Australian Competition & Consumer Commission v C G Berbatis Holdings Pty Ltd (1999) 96 FCR 491 where his Honour observed at 495 [14];
‘The fundamental principle according to which equity acts is that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct – Legione v Hateley (1983) 152 CLR 406 at 444 (Mason and Deane JJ). So it can be said that the overriding aim of all equitable principle is the prevention of unconscionable behaviour - a term which can be seen to encompass duress, undue influence and “unconscionable dealing as such” – Hardingham, Unconscionable Dealing in Finn (ed) Essays on Equity (LBC, 1985, p 1). This is not to say that unconscionable conduct within the meaning of the unwritten law, as it presently stands, is any conduct which attracts the intervention of equity. Too broadly defined it may become, in the words of Professor Julius Stone, a “category of meaningless reference” – see Stone, Legal System and Lawyers’ Reasonings (Sydney: Maitland Publications Pty Ltd, 1968) pp 241-246 and pp 339-341. In Parkinson, The Notion of Unconscionability Laws of Australia 35.5 at p 8, four categories of doctrine are identified which the application of the concept of unconscionability:
(i) Exploitation of vulnerability or weakness.
(ii) Abuse of position of trust or confidence.
(iii)Insistence upon rights in circumstances which make that harsh or oppressive.
(iv) Inequitable denial of legal obligations.
There are, it is suggested by Parkinson, three broad standards underlying the doctrines:
(i)That those in positions of strength or influence should not take advantage of another’s relative weakness.
(ii)That people should not by appeal to strict legal rights cause hardship to others by violating their reasonable expectations.
(iii)That those in fiduciary positions should act only in the interests of those to whom those fiduciary duties are owed.’
Mr Booth went on to argue that the four categories identified by French J are mirrored by sub-pars (a), (b), (c) and (d) of par 27 of the further amended statement of claim which have been set out at [21] above. He suggested that any deficiency in the pleading of a case of action under s 51AA of the Trade Practices Act could be cured by the provision of further and better particulars. However, in my view, the deficiency in the present pleading goes beyond a mere absence of particulars. It is necessary, I consider, for there to be a substantive pleading of facts which bring the case into one or other of the four categories reflected in the present sub-pars (a), (b), (c) and (d) of par 27. As the pleading presently stands, it is not possible to understand, for example, how NAFDA is said to have exploited a vulnerability or weakness of the applicants or in what the vulnerability or weakness consisted. It will be recalled that in his reasons in Berbatis quoted at [23] above Gleeson CJ drew on the examples postulated by Fullagar J in Blomley v Ryan (1956) 99 CLR 362 of “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary.” Although those examples were not put forward as exhaustive, I am not able, without more, to regard control by NAFDA of its own books and records as giving rise to a vulnerability or weakness of the requisite kind on the part of each of the applicants.
For these reasons, if the applicants wish to persist in their allegation of unconscionable conduct they will have to expand, by reference to specific relevant facts, each of the assertions in the present sub-paragraphs of par 27. There will be leave further to amend the pleadings to enable that to be done.
Conclusion
It follows from the examination which I have undertaken of each of the respondent’s grounds of attack on the further amended statement of claim that par(a) of the particulars subjoined to par 21 should be struck out. There will be no order in respect of pars 15 to 16 inclusive. There will be leave to the applicants, if so advised, further to amend, in the light of these reasons, their allegations of breach of fiduciary duty and unconscionable conduct in contravention of s 51AA of the Trade Practices Act. The applicants must pay the respondent’s costs of the amended motion on notice dated 28 March 2003 insofar as it is related to the further amended statement of claim.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate:
Dated: 17 September 2004
Counsel for the Applicants: Mr P J Booth Solicitor for the Applicants: Aitken Walker & Strachan Counsel for the Respondent: Mr P W Collinson Solicitor for the Respondent: Hall & Wilcox Date of Hearing: 29 March 2004 Date of Judgment: 17 September 2004 SCHEDULE OF APPLICANTS
Chippys Food Distributors Pty Ltd
2 Lilian Fowler Place
Marrickville NSW 2204Sealanes (1985) Pty Ltd
178 Marine Terrace
South Fremantle WA 6162Epic Wright Heaton Pty Ltd
119 Vanessa Street
Kingsgrove NSW 1480PB Foods Pty Ltd
22 Geddes Street
Balcatta WA 6025Trans Territory Foods Pty Ltd
38 Bishop Street
Winnellie NT 0821Red Funnel Fisheries (Newcastle) Pty Ltd
8 Seale Street
Kotara Fair NSW 2289Kailis Bros Pty Ltd
23 Catalano Road
Canning Vale WA 6155Foodcorp (Vic) Pty Ltd
31-41 Sandown Road
Springvale Vic 3171Goulas Nominees Pty Ltd
11 - 17 Wingfield Street
Footscray Vic 3011
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9
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