Scottish Pacific Business Finance P/L v Soundstage Australia Ltd
[1993] FCA 308
•14 MAY 1993
Re: SCOTTISH PACIFIC BUSINESS FINANCE PTY LTD
And: SOUNDSTAGE AUSTRALIA LTD; DAVID JAMES DOWNIE and RONALD JAMES DOWNIE
No. WAG42 of 1993
FED No. 308
Number of pages - 5
Practice and Procedure
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J(1)
CATCHWORDS
Practice and Procedure - pleadings - misleading or deceptive conduct - fraud - loss and damage - necessity to expose causal connection between conduct and loss - failure to do so fatal - conspiracy - requirement for pleading - utility of pleading where substantive contraventions are alleged - strike out motions generally - necessity to confine to critical issues - detailed points of drafting discouraged.
Bullen and Leake and Jacob's - Precedents of Pleadings 13th Edition
Trade Practices Act 1974
Fair Trading Act 1987 (WA)
Taco Company of Australia Inc. v. Taco Bell Pty Ltd (1982) 42 ALR 177
HEARING
PERTH, 14 May 1993
#DATE 14:5:1993
Counsel for the Applicant: Mr I.R. Freeman
Solicitors for the Applicant: Phillips Fox
Counsel for the Respondents: Ms. M. Saraceni
Solicitors for the Respondents: Jackson McDonald
ORDER
The Court orders that:
1. The statement of claim is struck out.
2. The applicant to pay the respondents' costs of the respondents' motion filed 23 April 1993.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
FRENCH J The present proceedings were instituted by an application filed on 18 March 1993 by Scottish Pacific Business Finance Pty Ltd ("SPBF"). The application was accompanied by a statement of claim. Programming orders for the filing of defences and a reply were made on 6 April and the matter adjourned to a case management conference which was initially listed for 27 April 1993 but relisted to today. In the meantime on 23 April, a motion was filed by the respondents seeking to strike out the statement of claim and for orders in the alternative for the supply of further and better particulars. Written submissions were filed by the respondents on the same day. On the return date of the motion, namely 28 April 1993, orders were made that the applicant file written submissions in reply by 10 May. Judgment was reserved until today. The applicant's submissions were filed on 10 May. Before going to the merits of the strike out motion it is necessary to summarise the content of the statement of claim.
The Case as Pleaded
2. SPBF alleges that on 16 April 1986 and 30 March 1990 it entered into factoring agreements with Woomera Management Pty Ltd (In Liquidation) and others by which Woomera agreed to assign to SPBF debts owing to it by third parties. SPBF was to pay Woomera an agreed price for the debts subject to the terms and conditions of the Factoring Agreement (para.3). Woomera is said to have warranted that each debt so assigned was bona fide, had arisen in the ordinary course of its business and was valid and enforceable for its full face value less any discount notified to SPBF and would not be voidable. Any representation by or on behalf of Woomera to SPBF as to face value or otherwise of the debts would be true and correct in every detail (para.4). SPBF pleads that between July 1989 and April 1992 in "pretended compliance" with the Factoring Agreement, Woomera delivered to SPBF copy invoices purporting to be copies of invoices issued by Woomera to Soundstage Australia Ltd (Soundstage) and others in the amount and for the services therein described (para.5.1). Woomera purported to assign to SPBF the debts reflected in the invoices (para.5.2). Particulars of invoices totalling $443,846 issued to Soundstage are set out (para.5.3.1). Particulars of invoices issued to other debtors are annexed to the statement of claim (para. 5.3.2). These are extensive, occupying some 53 pages.
SPBF says that relying upon "the truth of the matters pleaded in para.5 and pursuant to the Factoring Agreement" it gave notice of the assignment of the debts reflected in the invoices particularised in para.5.3 (para.6). By its conduct pleaded in para.5, i.e. the delivery of the copy invoices and their purported assignment, Woomera is said to have represented to SPBF that:
"7.1 (Soundstage) was truly indebted to Woomera in the amounts and in respect of the services recorded in the copy invoices addressed to (Soundstage); 7.2 As regards the remaining invoices, the persons to whom and business names to which such invoices were issued and addressed were respectively genuine existing persons and businesses;
7.3 Such other persons and businesses were truly indebted to Woomera in the amounts and in respect of the services described in the copy invoices relating to them;
7.4 The cause of indebtedness reflected in the copy invoice was in each instance a genuine transaction in the ordinary course of business between Woomera and the addressee of the invoice;
7.5 In consequence of the assignment (SPBF) would be acquiring a bona fide, valid and enforceable debt as against the addressee of the invoice."
Each of these representations was said to have been false and fraudulent. In particular it is alleged that Soundstage was not truly indebted to Woomera for any of the amounts recorded in the copy invoices whether in respect of the services recorded or otherwise (para. 8.1). Other persons to whom the invoices were addressed were not truly indebted to Woomera in the amounts or in respect of the services stated on the invoice (para.8.2) and certain of the persons to whom invoices were issued and addressed did not actually exist (para. 8.3). There was therefore said to be no genuine or bona fide underlying transaction giving rise to the cause of indebtedness reflected in the invoices and SPBF would not in consequence of the assignment be acquiring any bona fide valid and enforceable debt as against the addressee of such invoices (paras. 8.4 and 8.5).
SPBF says that whenever a schedule of batched invoices was submitted by Woomera it selected not less than 40% of the invoices so delivered and telephoned the addressees including David and Ronald Downie representing Soundstage (para. 9.1). On each such occasion, it is alleged, David Downie, on behalf of Soundstage, represented that the company had placed orders for the services referred to, that it was satisfied with the services supplied and that the invoice evidenced a valid and subsisting debt which would be paid on the due date (para.9.2). The Downies and Soundstage are said to have been aware that the services referred to in the invoice had not been rendered and that Soundstage was not indebted to Woomera. They were also aware of the assignment of the debts and that SPBF had or would be paying Woomera in the belief that it was taking a valid assignment of a subsisting debt in respect of the services referred to in the invoices. They were said therefore to be assisting Woomera in deceiving SPBF (para.10). In various telephone conversations between March 1991 and April 1992, representatives of Soundstage are alleged to have promised payment of various sums by specified dates. These promises are particularised in para.11. Various payments were made between July 1990 and March 1992 totalling $428,756 "in purported payment of the debts recorded in the ... invoices" issued and addressed to Soundstage (para.12.1). The payments are particularised. They are said to have been made from funds paid by Woomera to Soundstage for the purpose of enabling Soundstage to make such payments to SPBF. Woomera had in turn obtained them from SPBF under the Factoring Agreement.
By its conduct (as pleaded in paras. 9 and 11) Soundstage is said to have represented that it was truly indebted to Woomera in the sums and for the services described in the invoices issued to it (para. 13). Woomera, Soundstage and the Downies are all alleged to have engaged in misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cwth) and/or the Fair Trading Act 1987 (WA). Further the Downies are said to have been knowingly concerned in and party to contraventions of the Trade Practices Act 1974 by Woomera and Soundstage (para.18).
Because of the various pleaded representations it is alleged that SPBF was induced to believe that invoices issued by Woomera were true and accurate and that SPBF thereby refrained from making additional inquiries as to the genuineness of the invoices issued by Woomera and the existence and financial standing of the other persons and business names referred to in sub-para.8.3 (para.19). In reliance upon the representations of Woomera and Soundstage and the Downies and by virtue of the matters pleaded in para.19, SPBF says that it paid Woomera a total of $4,588,652.28 during the period July 1990 to April 1992 (para.20). The conduct occurred and the representations were made by Woomera, Soundstage and the Downies with the intention that SPBF would make payment of the amounts described in the invoices and with the knowledge that the representations were false and untrue and alternatively with reckless indifference as to their truth (para.21). Further it is alleged that on dates unknown to SPBF, Woomera and Soundstage and the Downies wrongfully and maliciously conspired and combined among themselves to cause injury to SPBF by wrongfully inducing it to make payments to Woomera in respect of the various invoices and that it did so by reason of matters pleaded in the earlier paragraphs of the statement of claim. On 17 June 1992 Woomera was wound up by order of the Supreme Court of Western Australia by reason of insolvency (para.23). For these reasons, SPBF says that it has suffered loss and damage in a sum of $908,125 which is the difference between the sum it advanced under the Factoring Agreement and the amount which it has recovered from Woomera or other persons to whom the invoices were issued and addressed (para.24). If the invoices were valid and subsisting then Soundstage remains indebted to SPBF for the sum of $28,850 for unpaid invoices assigned to SPBF pursuant to the Factoring Agreement, SPBF having given to Soundstage notice of the assignment of the debts reflected in the invoices (para.25).
The Sufficiency of the Pleading
7. The submissions made for the respondents are detailed and, in my opinion, excessively so. They go to the point of inviting the Court to a minute consideration of the drafting of the statement of claim. That is an exercise that the Court has neither the time nor resources to undertake and it is opposed to the well established principle that strike out orders will not be made except in cases in which the pleading is manifestly untenable or defective. I do not therefore propose to address each of the matters raised in the respondents' submissions many of which could be cured by the provision of particulars. There are however two matters of significance which go to the heart of the claims in conspiracy and in misleading or deceptive conduct and fraud.
The submission is made that the conspiracy plea is inadequate and should be struck out. In the thirteenth edition of Bullen and Leake and Jacob's - Precedents of Pleadings, it is said at p 221-222:
"The gist of the tort of conspiracy is not the conspiratorial agreement to injure alone, but that agreement plus the overt acts causing damage (Marrinan v. Vibart (1963) 1 QB 234, affirmed (1963) 1 QB 528). The statement of claim should describe who the several parties to the conspiracy are and their relationship with each other. It should allege the conspiracy between the defendants giving the best particulars it can of the dates when or dates between which the unlawful conspiracy was entered into or continued, and the intent to injure...: there is no call for a general plea of "acting wrongly and maliciously" (Sorrell v. Smith (1925) AC 700 at 714) nor is that sufficient. It should state precisely the objects and means of the alleged conspiracy to injure and the overt acts which are alleged to have been done by each of the alleged conspirators in pursuance of the conspiracy, and lastly, the injury and damage occasioned to the plaintiff thereby."
In my opinion, the pleading in this case fails to specify the content of the alleged agreement by reference to the agreed means whereby injury was to be caused to SPBF. It is not good enough in that respect to refer to the earlier paragraphs of the statement of claim which at most describes some of what might be termed overt acts. In any event the overt acts relied upon should be specified and identified as such. Importantly it is not clear what purpose is served by the conspiracy plea beyond unnecessary complication and expense. It is difficult to see how the plea could succeed if neither the claims under the Trade Practices Act 1974 and Fair Trading Act 1987 nor the fraud claim were to succeed. In Taco Company of Australia Inc v. Taco Bell Pty Ltd (1982) 42 ALR 177, Deane and Fitzgerald JJ at 205-206 pointed out the undesirability of adding a claim for passing off in a s.52 action where there was no forensic benefit to be derived from it. They said:
"There are plainly many cases where an associated claim for passing-off provides no basis for wider or more effective relief than the primary claim for contravention of s.52 and where, if the primary claim fails, the associated claim will plainly also fail. In such cases, the court should not be troubled by the associated claim."
The same reasoning applies to the plea of conspiracy. In this respect the comments of Lord Denning in Ward v. Lewis (1955) 1 WLR 9 at 11 are apposite:
"It is important to remember ... that when a tort has been committed by two or more persons an allegation of a prior conspiracy to commit the tort adds nothing. The prior agreement merges in the tort. A party is not allowed to gain an added advantage by charging conspiracy when the agreement has become merged in the tort. It is sometimes sought, by charging conspiracy, to get an added advantage, for instance in proceedings for discovery, or by getting in evidence which would not be admissible in a straight action in tort, or to overcome substantive rules of law, ... When the Court sees attempts of that kind being made, it will discourage them by striking out the allegation of conspiracy, on the simple ground that the conspiracy adds nothing when the tort has in fact been committed."
Lord Justice Morris agreed with Lord Denning.
Attacking on a broader front the respondents complain that the pleading does not disclose how it is that they are said to be responsible for the loss allegedly incurred by SPBF. There is a reference to $28,850 being a shortfall between the amount allegedly due to SPBF under the assigned Soundstage debts and the amount actually recovered from Soundstage. That sum is an element of the primary claim of $908,125 said to represent the difference between the sum paid by SPBF to Woomera, in the belief that the invoices were genuine, and the amount recovered from Woomera or other persons to whom the invoices were said to have been issued. Of critical importance in this case however, is the fact that no causal connection is exposed between the conduct of Soundstage and the Downies and SPBF's belief that all invoices issued by Woomera were true and accurate. Nor is there any causal connection shown between the conduct of Soundstage and the Downies and the contention that SPBF refrained from making additional inquiries as to the genuineness of the invoices issued by Woomera and the existence and financial standing of the other persons and business names pleaded in para.8.3. It is not alleged, and the proposition could hardly be sustained, that Soundstage as a sample of one represented a statistically significant cross section of the debtors justifying an extrapolation from the represented authenticity of its invoices to an inferred authenticity of all invoices. If that is the basis of the claim then it would seem to have little prospect of success. The same comment applies to the allegations of fraud. These are critical omissions which, in my view, render the claim in misleading or deceptive conduct and fraud as presently pleaded unsustainable.
The pleading of the assignments is attacked on the basis that there is no plea of the acts which demonstrate how they were effected. It is also said to be necessary to plead that there was an express written notice of the assignments given before the action was brought. The principal plea of course is one of purported assignment and notice thereafter. In my opinion, the assignment and the notices thereof can be elaborated in a substituted statement of claim. The nature of the acts constituting those operations should be pleaded as material facts although the detail of the acts including the dates thereof can be the subject of particulars. This deficiency undercuts the claim for $28,850 which rests upon the plea of a valid assignment to SPBF of debts owed by Soundstage.
I do not propose to go further with the various matters raised by the respondents for, in my opinion, the statement of claim as a whole is fatally flawed in the critical areas I have mentioned. It should be struck out and leave given to replead. In so doing SPBF can have regard to the other objections raised by Soundstage to see whether and to what extent they can be overcome in a new statement of claim. I do not propose to attach any specific conditions to the repleading of the conspiracy claim as suggested on behalf of the respondents. I have indicated my preliminary view about the utility of such a plea. However that does not represent a concluded view and it may be that the applicant will be able to demonstrate some legitimate forensic advantage to be derived from it.
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