Ridout Nominees Pty Ltd v Bixford Pty Ltd

[1989] FCA 158

Re: RIDOUT NOMINEES PTY LTD; WANATA HOLDINGS PTY LTD and RANLEIGH
WARE PTY LTD
And: BIXFORD PTY LTD; AUSTRALIAN HOME-A-TELS CORPORATION LTD; CHARLES
WARREN HUMPHRIES and JAMES DUNCAN COOPER
No. WAG 200 of 1988
FED No. 158
Practice and Procedure

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Practice and Procedure - pleading - statement of claim struck out - applicable principles - objectionable material - closely intertwined with other matter - embarrass fair trial of action - leave to file an amended statement of claim.

Trade Practices Act 1974 s.52, s.82

Federal Court Rules O.11 r.16, O.20 r.2

General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125

Dey v Victorian Railways Commissioners (1949) 78 CLR 62

Yorke v Lucas (1985) 158 CLR 661

Coe v Commonwealth of Australia (1979) 24 ALR 118

Turner v The Bulletin Newspaper Co. Pty Ltd (1974) 131 CLR 69

HEARING

PERTH

#DATE 17:4:1989

Counsel for the Applicants: Mr R.E. Sandover

Solicitors for the Applicants: Jackson McDonald

Counsel for the Respondents: Mr T. Goldfinch

Solicitors for the Respondents: Warren Harrison

ORDER

The statement of the claim be struck out.

The applicants to pay the respondents' costs of the motion.

The applicants have leave to file an amended statement of claim on or before 19 May 1989.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

This application arises from the entry by the applicants into contracts with the first and second respondents for the purchase of twenty four motel type units to be constructed as part of a 57 unit "Riverside Home-A-Tels" project at Great Eastern Highway, Rivervale. The applicants complain that they were induced to enter the contracts by various false representations made by or on behalf of the first respondent and in the making of which the second, third and fourth respondents were knowingly involved. Those representations are said to have amounted to misleading or deceptive conduct in contravention of s.52 of the Trade Practices Act 1974 and to have constituted negligent mis-statements. The applicants claim that they have suffered loss and damage by reason of these wrongs and seek damages for negligence under s.82 of the Trade Practices Act. No defences have been filed but the respondents have moved for an order that the proceedings be stayed or dismissed or the statement of claim struck out. Before turning to the merits of the motion it is necessary to refer to the statement of claim as it presently stands.

The Statement of Claim

1. The applicants, and the first and second respondents, it is pleaded, are all companies, the first and second applicants and the first and second respondents being incorporated in Western Australia and the third applicant in South Australia. The first and second respondents are said to be trading corporations (paras.1 and 2). The third and fourth respondents are directors of the first and second respondents. The latter company is alleged to have been incorporated in Western Australia on 18 April 1986 (paras. 1 and 3).

2. In or about January 1986 the third and fourth respondents, who carried on business in partnership under the name Synvestec, are said to have devised a plan for the marketing, sale and management of certain property at Great Eastern Highway, Rivervale owned by the first respondent (paras. 4, 5 and 6). Under the alleged plan the first respondent was to investigate the feasibility of a development on the land involving the construction of 57 motel style "self-servicing and self-contained units" and to advertise and promote it to potential investors. It was to construct the units, to sell them and to have the purchasers of the units covenant to enter into 5 year management agreements with the second respondent (then not incorporated). The second respondent was to manage the units pursuant to the agreements (para.7).

3. On or about 6 January 1986 Mr Bob Rouse on behalf of the first respondent, is said to have told Mr George Ridout, a director of each of the applicant companies, of the opportunity to invest in the proposed development and that:
   

"(a) the First Respondent had made a thorough study of projected occupancy rates for the units;

(b) projected occupancy rates were very high;

(c) an investor in order to finance his intended investment for the purchase of units in the project:-

(i) need only deposit $5,000.00 per unit (being about 10% of the purchase price of a unit);

(ii) needed to furnish a further 10% of the purchase price at settlement;

(iii) could easily obtain finance for the remaining 80% of the said purchase price through the First Respondent;

(iv) the First Respondent had the means to arrange finance for the said remaining 80%." (paras. 9 and 10)

On 17 January Rouse is alleged to have shown Ridout documents comprising an Introduction and Profit Projections prepared by the First Respondent and containing statements setting out estimated net operating profit for the development as a whole for the year 1986/87 and returns from one and two bedroom units. These figures were given for occupancy rates of 70%, 80%, 90% and 100%. The documents also contained statements that the units would always be in high demand for long and short term accommodation and that effective marketing programmes had been instigated by the second respondent to ensure high levels of occupancy. There is said to have been an implied representation that occupancy rates would not fall below 70% (paras. 13 and 15). The projections are alleged to have contained representations as to projected annual profits and returns for one and two bedroom units over a five year period (para. 14).

1. It is pleaded that the oral and written statements made to Ridout were made with the intention by the first respondent that he would rely upon them in purchasing units (para.16) and it is said he did rely upon them and was induced to tell Rouse that he was interested and proposed to buy 16 in the names of companies he was associated with (para.17).

2. On 17 January Ridout is said to have signed contracts in "offer and acceptance" form for the purchase of 8 single bedroom units and 8 double bedroom units for $46,500 and $56,500 per unit respectively, and to have paid deposits totalling $80,000 (paras. 17 and 18). The offers were accepted by the first respondent (para.19), but subsequently the applicants were substituted by novation as purchasers of four units in the case of the first applicant, eight in the case of the second and four in the case of the third (para.20). And on 24 July, the second applicant signed a contract for the purchase of a further 8 units for a total consideration of $424,000, which contract is said to have been accepted by the second respondent although on what basis is not clear as it is not alleged to be the owner of the relevant land.

3. At para.22 there is a plea that the representations were made or deemed to have been made by the first respondent to each of the applicants and acted upon by them by reason of various matters which are then set out. This paragraph is not a little mysterious and little light is shed upon it by the "matters" that follow. The general thrust seems to be to support a contention that the relevant statements were made by or on behalf of the first respondent and in effect received and acted upon by the applicants.

4. It is then alleged that on 20 January 1987 Rouse told Ridout that the contracts had lapsed for non-fulfilment of various unspecified conditions and that fresh contracts would have to be executed. Relying upon the original representations and, it is said, still induced thereby, the applicants executed new contracts in the same terms and conditions as those originally signed by them (paras. 23 and 24). Paragraph 25 pleads that by various of the representations pleaded in paras. 10, 13 and 14, the first respondent had "in effect" made other representations which were said to be false. The form of pleading is sufficiently indicated by setting out para.25(a):
   

"25(a)By the Representations pleaded in paragraph 10(a) and (b) hereof, the First Respondent represented in effect that:-

(i) by reason that it had performed a thorough study of projected occupancy rates for the said units and that such study revealed that projected occupancy rates would be high, it had a reasonable or honest belief that projected occupancy rates would be very high; further particulars will be furnished after discovery and interrogatories;

(ii) the fact is:- A. no thorough study of projected occupancy rates for the said units was performed by the First Respondent as claimed; B. alternatively, that some study of projected occupancy rates had been performed by the First Respondent but such study provided no reasonable or honest basis for the belief that projected occupancy rates would be very high;"

1. The representations are said to have amounted to conduct by the first respondent in trade or commerce which was misleading or deceptive or likely to mislead or deceive contrary to s.52 of the Trade Practices Act (para.26). In addition it is claimed that the first respondent failed to exercise due care and diligence in making the Representations (para.28). The applicants say they have suffered loss and damage comprising the following elements:
   

(i) Difference between the value of the units and the "Price agreed to be paid".

(ii) Consequential losses through the first respondent's inability to arrange finance for up to 80% of purchase price;

(iii) Lost opportunity for use of capital in an alternative investment. (para.29)

In relation to the second respondent, it is alleged that it entered into written agreements styled "Agreement for Profit Sharing" with the applicants in or about April 1987. These were made pursuant to the covenant by each applicant to enter into a management agreement appointing the second respondent as managing agent for a term of five years with an option for renewal of a further five. Various terms of the profit sharing agreement are pleaded. (para.30) As para.31 discloses the applicants contend that the second respondent knew of the "plan", knew of the "Representations" and their falsity and entered into the profit sharing agreements in furtherance of and in pursuance of the plan. Further, it is said, that the second respondent knew that each of the contracts to purchase units had been entered into by the applicants in reliance upon an inducement by the first respondent, but did not advise the applicants that the representations were false or misleading or deceptive. Because of these matters the second respondent is said to have been at all material times "a person who had aided, abetted, counselled, procured and has been directly or indirectly involved in every pleaded contravention of the Trade Practices Act contrary to Section 75B of the Trade Practices Act". The statement of claim concluded with an allegation that the third and fourth respondents were also at all material times directors of the first and second respondents "and in the premises pleaded herein" persons who had aided, abetted, counselled, procured and been directly or indirectly concerned in every pleaded contravention of the Trade Practices Act.

The Attack on the Pleadings

1. The attack on the statement of claim is wide-ranging and relies on both O.11 r.16 and O.20 r.2 of the Federal Court Rules. Order 11 r.16 provides:
   

"16 Where a pleading -

(a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading;

(b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or

(c) is otherwise an abuse of the process of the Court,

the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out.

And O.20 r.2 provides:

"2(1) Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding -

(a) no reasonable cause of action is disclosed;

(b) the proceeding is frivolous or vexatious; or

(c) the proceeding is an abuse of the process of the Court,

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2) The Court may receive evidence on the hearing of an application for an order under sub-rule (1)."

The power to summarily dispose of any action under O.20 r.2 or to strike out any pleading under O.11 r.16 is to be exercised sparingly - General Steel Industries Inc. v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129 (Barwick CJ); Dey v Victorian Railways Commissioners (1949) 78 CLR 62. It should only be exercised where the action or the pleading is so manifestly untenable that it cannot succeed.

1. Where it is a part of a pleading that is attacked and the defect, if there be one, is curable by amendment, the Court may feel less reluctant to strike it out where it does not follow the rules of pleading and transgresses the requirement that it "contain and contain only a statement in a summary form of the material facts" on which the party relies, "but not the evidence by which those facts are to be proved".

2. In the present case paragraphs 5, 6 and 7 which plead the formation of a plan by the third and fourth respondents for the promotion and marketing of the units, disclose no material facts. Those pleaded in these three paragraphs are likely to be of evidentiary significance, but do not support any cause of action. Nor are they necessary to be pleaded in order to establish involvement by the third and fourth respondent in the contravention. On the other hand knowledge and intent are essential elements of their claimed accessorial liability which is alleged in para.32 - Yorke v Lucas (1985) 158 CLR 661, 669-670 (Mason ACJ, Wilson, Deane and Dawson JJ). Paragraphs 5, 6 and 7 raise false issues and are embarrassing. An essential element of the cause of action against the third and fourth respondents under the Trade Practices Act is not pleaded. No other cause of action is raised against them and on the face of the pleading, no cause of action is disclosed so far as they are concerned.

3. Notwithstanding the respondents' complaint about para.9 of the statement of claim as pleading irrelevant material, the representations there alleged form part of the content of the material representations pleaded in para.10.

4. Paragraph 11 which alleges that "George Ridout verbally expressed an interest in the project" pleads what is at best evidence and not material fact.

5. Paragraph 12(a) which alleges that the first respondent prepared and published the Introduction and Profit Projection documents is inconsistent with sub-para.12(c) which assumes their preparation by the third and fourth respondents in furtherance of the plan pleaded in paras.6 and 7. The last sub-paragraph is irrelevant in so far as it relates to the purpose for which the publications were prepared and in any event is inconsistent with sub-para.12(a).

6. Paragraph 17 is largely evidentiary in character. While it is appropriate to plead the relevant terms of the contract and its execution in reliance upon the impugned representations, the additional material in para.17 falls outside that framework and serves no purpose.

7. The substitution of the applicants as purchasers is pleaded in para.20 as is the execution of a further contract by the second applicant (para.21). As they stand these paragraphs are not objectionable.

8. Paragraph 22 begins "The Representations were made or deemed to have been made by the First Respondent to each of the Applicants and acted upon by them by reason of the following matters..." and various facts are then alleged. The paragraph opens with an argument rather than a pleading of material fact. All that it would have been necessary to assert is that the applicants entered into the contracts in reliance upon and were induced by the pleaded representations. Paragraph 22 is prolix, pleads evidence and contains argument and should be struck out.

9. Paragraph 23 however, forms a necessary link between the first set of contracts and those executed in January 1987 and I reject the respondents' complaint about it.

10. In para.25 the form of pleading is, in my opinion, objectionable. It pleads a construction of the express representations earlier set out. If this paragraph were intended to convey that there were implied representations arising out of the express oral written ones, this could have been done and if that were the sole basis for the implication in each case that could have been indicated. Otherwise any facts relied upon to support the implications could have been pleaded. In my opinion, para.25 does not have the character of a statement of material facts. It is embarrassing and cannot stand in its present form. The applicants had at this point already pleaded reliance upon the express representations. If by the phrase "represented in effect" appearing repeatedly in para.25, it is meant to convey that there was an implied representation associated with each of the express representations mentioned, then there has been no plea made to indicate these implied representations were relied upon or induced the applicants to act to their detriment. The respondents have complained about the use of the terms "honest or reasonable belief" which repeatedly appears in para.25. If it were intended to allege that there were implied representations as to "an honest or reasonable belief" in the truth of various matters on the part of the respondents, then the use of that term simply describes the content of the implied representation. It is not objectionable per se. Whether such an implied representation could be established in any particular case is, of course, a matter of evidence and argument.

11. As to para.29 which sets out the allegation that the applicants have suffered loss and damage, there is no pleading to indicate whether the applicants in fact paid the contractual price which according to para.29 was "agreed to be paid". Nor is there any express plea that they sought finance for up to 80% of the purchase price and were unable to obtain it from the first respondent. This paragraph also lacks support from material facts necessary to establish a causal connection between the representations and the alleged loss and damage. And as was rightly pointed out in argument, the express representations are not falsified by the pleading. It is their pleaded "effect" which is said to be false.

12. So far as paras. 30 and 31 are concerned they are evidently intended to lay the groundwork for an assertion that the second respondent was involved in the first respondent's contravention of s.52. In doing so they trespass well beyond the pleading of material facts into prolix and unnecessary detail and evidence. They raise false issues, are embarrassing and should be struck out.

1. The statement of claim as a whole is defective. Whilst some cause of action might be able to be spelled out of the pleading, I am unable to perceive it. And even if I am wrong in that perception, the objectionable material is so closely intertwined with other matter, that the pleading as a whole would tend to embarrass the fair trial of the action. In such a case the pleading may be struck out even though a cause of action might be able to be spelled out of it - Coe v Commonwealth of Australia (1979) 24 ALR 118, 132 (Jacobs J.); Turner v The Bulletin Newspaper Co. Pty Ltd (1974) 131 CLR 69, 88 (Menzies J.). In my opinion the statement of claim as it presently stands is manifestly untenable as a whole and will be struck out pursuant to O.11 r.16. That is not to say however, that the applicants do not have a cause of action and they will be allowed time to file an amended statement of claim.