Re Daley; ex parte National Australia Bank Ltd

[1992] FCA 395

3qS 92

JUDGMENT NO. d --

)	A	-
NEW SOUTH WALES DISTRICT REGISTRY) NO G 731 of 1990
GENERAL DIVISION 1

BETWEEN ALTRAM PTY LIMITED

First Applicant
EDDIE ELJED
Second Applicant
BILL HERD

Third Applicant

AND BP AUSTRALIA LIMITED

Respondent
BP AUSTRALIA LIMITED
Cross-Claimant
ALTRAM PTY LIMITED
First Cross-Respondent
EDDIE ELJED
Second Cross-Respondent
BILL HERD
Third Cross-Respondent

12  JUN 1992

FEDERAL COURT OF

Herd (the applicants) in their application and statement of

PRINCIPAL

EX TEMPORE JUDGMENT

EINFELD J SYDNEY 13 APRIL 1992

This is a comparatively unusual notice of motion brought by BP

Australia Limited (the respondent) seeking in effect summary

judgment on or the striking out of three aspects of the

damages claimed by Altram Pty Limited, Eddie Eljed and Bill

1;

claim. It is unusual because it is not common to have an application for summary relief on part of a claim based upon the same or almost the same evidence as the rest and which, if granted, would still result in a substantial amount of the claim proceeding to hearing. It is also not common to have a strike-out application in respect of aspects of a claim for damages without any assault on liability. However, the application is a substantial one and it is entitled to be treated on its merits.

The applicants come before the Court seeking a declaration that certain conduct by the respondent in trade or commerce was misleading or deceptive, or likely to mislead or deceive, in contravention of section 52 of the Trade Practices Act 1974. They seek damages for that conduct and certain ancillary relief.

The statement of claim makes clear the basic allegations being made. The first applicant, of which the second and third	applicants were the directors or operative managers, entered	into a franchise agreement with the respondent to operate a BP
service station in the Sydney suburb of Burwood. The applicants allege that the respondent induced them to enter into the arrangement by representations that it would redevelop the Burwood site, that the site would be a priority in the respondent's rebuilding or refurbishing program, that plans for the redevelopment of the site had already been lodged with the Burwood Council, and that a substantial budget had been set aside for this and similar purposes.
When the first applicant entered into the franchise agreement and into possession of the Burwood site, it is said to have paid the respondent for what was described as "goodwill",
together with payments for some stock and what is alleged to have been a "premium". The applicants say that in order to make these payments and run the business, the first applicant had to take an overdraft from the Westpac Bank. The second and third applicants guaranteed the obligations of the first applicant to Westpac under that overdraft arrangement, and they also guaranteed the obligations of the first applicant to the respondent. The applicants say that the redevelopment did not take place, the first applicant was removed from the premises, certain of its goods were taken in the process, and that ultimately the respondent let the premises to someone else.
The respondent in its defence denies or does not admit the principal allegations, although it does admit that plans for the redevelopment of the site were lodged with the Burwood
been redeveloped. There is a cross-claim against the Council. It also admits that the site was not and has not
applicants in which the respondent claims certain moneys for unpaid rent and for goods which were allegedly purchased by the applicants from the respondent and not paid for.
In response to an order of the Court for particularisation of the damages claimed by the applicants, two statements of damages have been filed. The later, which amended the earlier, was filed on 3 April 1992. This divides the claims for damages into four headings: (a) loss of trading profits; (b) loss of estimated profits; (c) loss of goodwill; and (d) loss of stock and value of the franchise. There are some appearances of double counting or otherwise unjustified claims but that is not what is presently for decision.
The respondent argues that the claims described as loss of estimated profits and loss of goodwill are not covered or authorised by section 82 of the Trade Practices Act. The respondent also suggests that the claims for loss of stock and value of franchise are unsustainable for the different reasons that they are not alleged anywhere in the statement of claim nor are they within the framework of the nature of the action pleaded. For the respondent to succeed on its motion it is necessary for it to prove that the claims challenged are untenable and cannot succeed.
There is some difficulty about the claims for loss of stock
value of the franchise appears also to be embodied in the loss and value of franchise. Amongst other things the loss of the
of goodwill claim. If this or the loss of goodwill claim were to be struck out, or indicated to be inappropriate, the possibility of double counting would be removed but the loss of franchise claim would still stand to be determined. As I understand it, that is a claim for the return of the amount paid by the applicants to the respondent as a condition precedent to the entry into the franchise agreement. This payment is described in the statement of claim as a payment in respect of goodwill.
The loss of stock claim really amounts to an assertion by the applicants of loss of the value of goods, plant and equipment seized and not returned by the respondent, which the applicants had in fact paid for. In other words, the goods belonged to the applicants and the respondent had no entitlement to them.
It is true that the facts which might found a claim for loss of stock are not included in specific terms in the statement of claim. However, there can be little doubt that the applicants are in principle entitled to make such a claim in a case of this nature even though it may require an amendment to the statement of claim. The respondent is clearly on notice of the matter. The applicants will either prove the case by evidence or they will fail to do so. It would not be appropriate to strike out this claim on the basis asserted.
There is no dispute that if the applicants can prove a loss of trading profits as alleged in the amended particulars of
damages, section 82 is broad enough to admit the claim made. Contained within that claim for loss of trading profits are losses in respect of the overdraft facility with Westpac. The respondent asserted in argument on the motion that it was entitled to have paragraphs 7, 8 and 12 of the statement of claim, which concern the overdraft, struck out on the basis that the applicants no longer seek damages in relation to it. I say no longer because in the earlier particularised statement of damages there was a specific item alleged in respect of the overdraft facility, which has been omitted from the amended version.
On a motion for summary dismissal of this kind, it is not appropriate to strike out these paragraphs of the statement of claim. Amongst other things, the amended notice of motion filed as late as 9 April does not seek the striking out of these paragraphs or of this claim. Nor is it appropriate to strike out some paragraphs of a pleading when, despite the change in the particulars of damages, there will still be a claim for losses in respect of the matter covered in those paragraphs. On my reading of the papers, it is true that the losses claimed in respect of the overdraft are nowhere in the vicinity of the amount claimed for the loss of overdraft on the original particularised statement of damages. Nevertheless the applicants seek and apparently expect to be
take out an overdraft, they did in fact incur expenditure. able to make out a case that as a result of the requirement to
This expenditure is entitled to be set into the damages claim as a loss the applicants may have incurred.
This brings me to what is at the centre of the amended notice of motion, namely, the loss of estimated profits and loss of goodwill. I shall deal with the loss of goodwill first. As particularised, this is not really a loss of goodwill claim in the strict sense at all. The applicants say that if the Burwood site had been redeveloped, it would have been able to achieve a monthly sales volume of petrol. They say that such a volume would have generated profits at a particular level which would have entitled them to the payment claimed if they wished to sell or refinance the business.
The actual claim for loss of goodwill is $212,438. It is arrived at by deducting the goodwill said to have been paid on acquisition, which is the amount referred to as the loss of value of the franchise of $51,562, from the applicants' own valuation of goodwill. This valuation, presumably to be supported by evidence of the expected turnover which the applicants say they can prove, amounts to $264,000.
It is not necessary for me to question the figures except to observe that there may be a problem in terms of the law on the treatment of the goodwill paid on acquisition. The issue is whether section 82 permits an allegation for loss of the value of the business by reason of the deceptive conduct alleged in
a section 52 claim of this type or at all.
Obviously, on an application such as this, it is necessary to assume that the representations alleged by the applicants can and will be proved, that the applicants can and will establish that they were induced by the representations to enter into the contract, and that the events which the applicants say would have occurred can be established. In that factual environment the issue that has to be decided now is whether the applicants are permitted by the law to make a claim for the loss of value of their investment and entry into the franchise agreement.
The other aspect under attack is the loss of estimated profits. In the particulars given, this is arrived at by a similar process. The applicants claim that if the promises by the respondent had in fact been carried out, that is, if the redevelopment had gone ahead, the applicants would have earned significant profits for the period in which they were in possession of the site.
The amount claimed under this heading is just under $350,000. It is calculated on the basis that the petrol sales (and by petrol I mean all fuels for motor vehicles) would have reached 600,000 litres, that the applicants would have made a number of sales of goods from a shop that was to have been included in the redevelopment, and that after expenses they would have
made a monthly net profit of the kind which would have led to the amount suggested.
Issues concerning these types of claims have been before the courts on a number of occasions and the various expressions have been the subject of some considerable controversy.
I should first observe that the applicants' claims in large measure turn on representations allegedly made by the respondent in respect of future proposed actions. There is no reference in the statement of claim or the application to section 51A of the Trade Practices Act, which was in existence in time to apply to the facts of this particular case, but that is explained by the nature of that section. As I understand it, section 51A means that a representation as to a future matter is within the provisions of section 52, unless the corporation demonstrates reasonable grounds for making the representation, the onus being on the corporation. In other words, the representation is deemed not to have been supported by reasonable grounds unless the corporation establishes to the contrary.
Since the cases which led to that section being added to the legislation, there have been recent decisions which throw doubt upon the need for the section because it seems that section 52 was always wide enough to cover such future representations. This is relevant in this case because not only is there no reference to section 51A in the applicants'
positively that it had reasonable grounds for making the pleadings but the respondent's defence does not assert
representations. In fact, as the respondent denies the representations, it probably could not rely on that part of section 51A in any event, unless by way of an alternative rather inconsistent proposition. Therefore, it seems that the case will be debated as if section 52 is broad enough to cover the particular case that is being alleged here.
In that framework, the question of what can be allowed by way of damages on a claim such as this must be addressed. It will suffice for present purposes if I refer to the decision of the High Court in Gates and Citv Mutual Life Assurance Society Limited [l9861 160 CLR 1.
In the judgments given by Chief Justice Gibbs alone and by Justices Mason, Wilson and Dawson together, there is a discussion about the appropriateness to section 52 cases of the respective measures of damages applicable in actions of
tort and contract. Gibbs CJ said at 6:

The a c t s r e f e r r e d to i n ss. 5 2 and 53 do n o t i n c l u d e

t h e breach o f a c o n t r a c t , and i n awarding damages

under s . 8 2 for a breach o f either o f t h o s e s e c t i o n s ,

no q u e s t i o n can a r i s e o f damages for l o s s o f a

b a r g a i n .

His Honour said that the contractual measure of damages is inappropriate in a section 52 case, thus underscoring decisions in this Court which had previously held that the

measure.	appropriate measure of damages in such cases is the tortious
Such a definitive view did not fall from Justices Mason, Wilson and Dawson. Their Honours said that whilst contractual damages are appropriate in most section 52 cases, they were not persuaded that they would necessarily apply to all contraventions to the exclusion of the other. Their Honours stated at 14:

The Courts are no t bound t o make a d e f i n i t i v e choice

between t h e two measures o f damages.

Thus a r u l e should no t be l a i d down i n respec t o f a l l cases or

even , it seems, t o a l l aspec ts o f t h e same case. A t 13 t h e i r

Honours sa id:

Because the o b j e c t o f damages i n t o r t i s t o place t h e

p l a i n t i f f i n t h e pos i t ion i n which he would have been b u t

f o r the commission o f t h e tort , i t i s necessary t o

determine what t h e p l a i n t i f f would have done had he no t

relied on the representa t ion . I f t h a t r e l i a n c e has

deprived h i m o f t h e oppor tun i t y o f e n t e r i n g i n t o a

d i f f e r e n t contrac t f o r	the purchase	o f goods	on which he
would	have made	a p r o f i t	then he may recover t h a t p r o f i t

on the f o o t i n g t h a t i t i s part o f the l o s s which he has

s u f f e r e d i n consequence o f a l t e r i n g his p o s i t i o n under

the inducement o f t h e representa t ion . T h i s may well be

s o i f the p l a i n t i f f can e s t a b l i s h t h a t he could and would

have entered i n t o the d i f f e r e n t contrac t and t h a t i t

would have y ie lded t h e b e n e f i t claimed: c f . Esso Petroleum

CO Ltd v Mardon [l9761 QB 801 a t pp.820-821,	828-829;
Dovle v O l b v fIronmonaers1 Ltd [l9691 2 QB a t p.167.	The

l o s t	b e n e f i t	i s	r e f e r a b l e	t o	oppor tun i t i e s	foregone	by
reason	o f	r e l i a n c e	on	the	misrepresenta t i o n .	I n	t h i s

re spec t t h e measure o f damages i n t o r t begins t o resemble

t h e expec ta t ion element i n t h e measure o f damages i n

contrac t save t h a t i t i s f o r t h e p l a i n t i f f t o e s t a b l i s h

t h a t he	could	and	would	have entered i n t o the d i f f e r e n t
con t rac t .

Wi th every r e s p e c t , t h e s e are d i f f i c u l t terms t o apply i n

prac t i ce .	I t	i s	no t	c l e a r ,	f o r	example,	whether	t h e
" d i f f e r e n t	c o n t r a c t u	r e f e r r e d	t o	i s	a	contrac t	w i t h	a

d i f f e r e n t party or whether what i s necessary t o be es tab l i shed

i s t h a t the p l a i n t i f f would have s t ruck a d i f f e r e n t bargain

w i t h t h e same party i f t h e represen ta t ion had not been made.

Furthermore, their Honours say t h a t t h e law o f t o r t makes it

necessary f o r the p l a i n t i f f t o e s t a b l i s h t h a t " [ h e ] could and

would have entered into the different contract and it would
have yielded the benefit claimed" [at page 131.

This puts a very high evidentiary burden on an applicant. If, for example, what is needed is proof of a contract with some different party altogether, this applicant would have to establish:

(a)	that it would have entered into a contract with another company for a franchise on a service station; and
(b)	that if it had entered into such an agreement, it would have earned the profits which it is now claiming.

If their Honours had intended that consequence to follow, it is hard to imagine that they would even have contemplated that the loss of future profits could be claimed at all.

With profound respect, it seems to me that to put the standard	of damages as high as that in a case where, as here, a
representation as to a future matter is being relied upon, is
to impose a burden that would in the vast majority of cases be unattainable. It is hard to think of a case in which evidence of that kind would be likely to be available.
It seems to me that the trend of decisions suggesting that future conduct is within section 52 opens up for consideration the consequences that must flow where applicants claim lost profits that otherwise would have been made if the future matters represented had in fact been carried out.
In this case, for example, the claim is that if the redevelopment had taken place, the applicants would have earned more money than was in fact the case. That would have therefore increased the value of the property in terms of its saleability to another purchaser or of its re-financing. The natural consequence of the failure to carry out the future representation, so the argument goes, would be the loss of the value.
The law would have to find a way, it seems, to embrace such a claim. It is difficult to imagine that section 52 could embrace misleading or deceptive conduct in respect of future matters, but not permit, under section 82, the recovery of the losses incurred by reason of the failure to carry out the promises made.
value of the business and for loss of profits are at least To my way of thinking, these claims for loss of incremental
arguable in this claim and I need go no further in the determination of the notice of motion. In this regard I take into account the caveat placed by Justices Mason, Wilson and Dawson in Gates on laying down a general principle for all cases, despite the apparently different opinion of the then Chief Justice. I also take into account that at the time when Gates was decided, section 51A was either not in existence or was not applicable to the case in question and the state of the law at that time had seemingly excluded misrepresentations as to future conduct.
The consequence of including such misrepresentations seem to me to require a re-consideration of the nature of the damages which can be claimed in a section 52 claim. Whether the two losses which are principally in dispute are included in this case will depend upon the evidence brought and the extent to which a causal connection can be established between the claims made and the essence of any section 52 claim established by that evidence.
For these reasons I dismiss the motion to strike out these aspects of the claim for damages. Moreover, there must always be a doubt about the appropriateness of this procedure for the type of relief sought. Even on the respondent's case, the applicants will be entitled to present a case to the Court. The evidence for this will, in substantive terms, be the same as would be covered even if the additional damages are included. If, at the end of the day, the applicants fail to
make out a case for these additional elements of damages, it seems that very little hearing time will have been wasted on the issues of principle. After all, it cannot be expected that the Court will go into the line by line details of the amounts alleged. It will presumably be agreed between the parties that if claims are allowed in principle, certain sums of money are appropriate under each head of claim. There may be some additional evidence in terms of causal nexus and there
certainly will be legal argument about the matter. If substantial time has been added to the hearing on an exercise in legal. futility, an appropriate penalty as to costs can no doubt be devised.
It seems to me at best questionable as to whether it is appropriate to seek summary dismissal of claims for damages on which a legal question may well arise but which, because the evidence has not been heard, cannot be assessed for appropriateness to the particular case. It will be remembered that the majority in Gates allowed, even under the law as it stood at that time, for the inclusion in Part V cases of claims other than as are appropriate in the tortious measure of damages . It is impossible to determine whether this is such a case until all the evidence has been heard and considered.
I dismiss the respondent's motion and order that the
respondent pay the applicants' costs.