Smurfs Childcare Centre (Ballajura) Pty Ltd v Commonwealth Bank of Australia Ltd
[2013] WASC 49
SMURFS CHILDCARE CENTRE (BALLAJURA) PTY LTD -v- COMMONWEALTH BANK OF AUSTRALIA LTD [2013] WASC 49
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2013] WASC 49 | |
| Case No: | CIV:3381/2011 | 11 OCTOBER 2012 | |
| Coram: | ALLANSON J | 7/03/13 | |
| 29 | Judgment Part: | 1 of 1 | |
| Result: | Statement of claim struck out in part | ||
| B | |||
| PDF Version |
| Parties: | SMURFS CHILDCARE CENTRE (BALLAJURA) PTY LTD GERARD MAURICE CARVER LOUIS MARCEL ALLAN CARVER NORMAN REGAN LANGAN JOSEPH GERARD CLIFF CARVER COMMONWEALTH BANK OF AUSTRALIA LTD JENNIFER ELIZABETH LOW |
Catchwords: | Practice and procedure Application to strike out statement of claim Prejudice, embarrass or delay fair trial Turns on own facts |
Legislation: | Corporations Act 2001 (Cth) Fair Trading Act 1987 (WA), s 11A, s 68, s 77 Legal Professional Conduct Rules 2010 (WA), reg 36(3) Rules of the Supreme Court 1971 (WA), O 1 r 4B Trade Practices Act 1978 (Cth), s 51AC |
Case References: | Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 238 CLR 570 Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119 Arthur Young v Tieco International (1995) 182 LSJS 367 Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 Boase v Axis International Management Pty Ltd [2009] WASC 331 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 Cashman v 7 North Golden Gate Mining Co (1897) 7 QLJ 152 Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337 Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394 Day v William Hill (Park Lane) Ltd (1949) 1 KB 632 Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62 Forrest v Australian Securities and Investments Commission [2012] HCA 39 General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 Gould & Birkbeck & Bacon v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490 Grainger v Williams [2009] WASCA 60 Hart-Roach v Public Trustee (Unreported, WASC. Library No 980044, 11 February 1998) Hurley v McDonald's Australia Ltd [1999] FCA 1728; (2000) ATPR 41-741 MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271 Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850 Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110 Murchison Zinc Company Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167 Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270 NT Power Generation Pty Ltd v Trevor [2000] WASC 254; (2000) 23 WAR 482 Nyoni v Patterson [2012] WASCA 171 Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387 Yorke v Lucas [1983] FCA 230; (1983) 80 FLR 143 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- First Plaintiff
GERARD MAURICE CARVER
LOUIS MARCEL ALLAN CARVER
NORMAN REGAN LANGAN
JOSEPH GERARD CLIFF CARVER
Second Plaintiffs
AND
COMMONWEALTH BANK OF AUSTRALIA LTD
First Defendant
JENNIFER ELIZABETH LOW
Second Defendant
Catchwords:
Practice and procedure - Application to strike out statement of claim - Prejudice, embarrass or delay fair trial - Turns on own facts
(Page 2)
Legislation:
Corporations Act 2001 (Cth)
Fair Trading Act 1987 (WA), s 11A, s 68, s 77
Legal Professional Conduct Rules 2010 (WA), reg 36(3)
Rules of the Supreme Court 1971 (WA), O 1 r 4B
Trade Practices Act 1978 (Cth), s 51AC
Result:
Statement of claim struck out in part
Category: B
Representation:
Counsel:
First Plaintiff : Mr J Eastoe
Second Plaintiffs : Mr J Eastoe
First Defendant : Mr G D Cobby
Second Defendant : Mr J Garas
Solicitors:
First Plaintiff : Jonathan Eastoe
Second Plaintiffs : Jonathan Eastoe
First Defendant : Norton Rose Australia
Second Defendant : HBA Legal
Case(s) referred to in judgment(s):
Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 238 CLR 570
Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119
Arthur Young v Tieco International (1995) 182 LSJS 367
Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132
(Page 3)
Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157
Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82
Boase v Axis International Management Pty Ltd [2009] WASC 331
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304
Cashman v 7 North Golden Gate Mining Co (1897) 7 QLJ 152
Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337
Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394
Day v William Hill (Park Lane) Ltd (1949) 1 KB 632
Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62
Forrest v Australian Securities and Investments Commission [2012] HCA 39
General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125
Gould & Birkbeck & Bacon v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490
Grainger v Williams [2009] WASCA 60
Hart-Roach v Public Trustee (Unreported, WASC. Library No 980044, 11 February 1998)
Hurley v McDonald's Australia Ltd [1999] FCA 1728; (2000) ATPR 41-741
MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271
Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850
Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110
Murchison Zinc Company Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167
Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388
NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270
NT Power Generation Pty Ltd v Trevor [2000] WASC 254; (2000) 23 WAR 482
Nyoni v Patterson [2012] WASCA 171
Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405
(Page 4)
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191
Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387
Yorke v Lucas [1983] FCA 230; (1983) 80 FLR 143
(Page 5)
1 ALLANSON J: In 2007 the Bank of Western Australia (the Bank) agreed to advance $440,000 to Cuddles Management Pty Ltd. As security for that loan, the second plaintiffs (Gerard Maurice Carver, Louis Marcel Allan Carver, Norman Regan Langan and Joseph Gerard Cliff Carver) gave personal guarantees and mortgaged two childcare businesses that they carried on at Rivervale and Forrestfield. Cuddles Management also executed a fixed and floating charge over its assets and undertakings.
2 On 7 December 2009, the second defendant, Jennifer Elizabeth Low, was appointed voluntary administrator of Cuddles Management. This was an event of default under the terms of the agreement with the Bank, and on 15 December 2009 the Bank gave notice of default and demand to the second plaintiffs under the guarantee. Neither Cuddles Management nor the second plaintiffs have paid any money in satisfaction of the notice of demand.
3 On 13 October 2011, the Bank commenced an action against each of the second plaintiffs for payment of the outstanding principal amount and interest: CIV 2958 of 2011. In their defence in that action, the second plaintiffs admit the facts alleged against them by the Bank. They deny liability to pay the amount claimed on a variety of bases. They have also joined Ms Low as a third party, claiming an indemnity from her should they be found liable to the Bank.
4 On 15 December 2011, the second plaintiffs and Smurfs Childcare Centre (Ballajura) Pty Ltd (as first plaintiff) commenced these separate proceedings against the Bank and Ms Low. Smurfs Childcare Centre (Ballajura) is no longer a necessary party to these proceedings.
5 The relief that the second plaintiffs seek is primarily defensive to the claim of the Bank. The substance of the claims in the present action would be raised by way of defence and counterclaim, and third party claim against Ms Low, in the action brought against them by the Bank.
6 The Bank and Ms Low applied to strike out parts of the statement of claim on the grounds that those paragraphs do not disclose a reasonable cause of action, and may prejudice, embarrass or delay the fair trial of the action. The plaintiffs put forward a proposed amended substituted statement of claim, dated 17 September 2012. That proposed plea contains further amendments which are in response to the strike out application. I will deal with the application as an objection to the statement of claim, and, where applicable, to the amendments proposed to be made.
(Page 6)
The principles to be applied
7 On an application to strike out pleadings, there is a tension between competing principles. The court must apply case management principles and attain the objects set out in O 1 r 4B of the Rules of the Supreme Court 1971 (WA). It is also necessary to consider the role of pleadings in the context of case management techniques, including the pre-trial exchange of witness statements and documents: see Barclay Mowlem Construction Ltd v Dampier Port Authority [2006] WASC 281; (2006) 33 WAR 82 [8]. Providing a pleading fulfils its basic function by identifying the issues, disclosing an arguable cause of action, and apprising the other party of the case it has to meet at trial, then the action should proceed: Murchison Zinc Company Pty Ltd v Thiess Contractors Pty Ltd [2000] WASCA 167 [38]; Barclay Mowlem [5] - [9].
8 But it remains an essential requirement that a pleading fulfil this basic function: Boase v Axis International Management Pty Ltd [2009] WASC 331 [5]; MacMahon Contractors Pty Ltd v Woodside Energy Ltd [2008] WASC 271 [11] - [26]. Pleadings ensure a basic requirement of procedural fairness, and, to do so, must state the case sufficiently clearly to allow the other party a fair opportunity to meet it: Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279, 286 - 287; Gould & Birkbeck & Bacon v Mount Oxide Mines Ltd (in liq) [1916] HCA 81; (1916) 22 CLR 490, 517; Forrest v Australian Securities and Investments Commission [2012] HCA 39 [26]. The need for the statement of claim to state the material facts to support the claim for relief, and for the pleadings to define with clarity and precision the issues or questions which are in dispute between the parties and fall to be determined by the court, was recently re-affirmed by the Court of Appeal in Nyoni v Patterson [2012] WASCA 171 [36] - [38].
9 The court will onlystrike out in a clear case: General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125, 129 - 130; Dey v Victorian Railways Commissioners [1949] HCA 1; (1949) 78 CLR 62, 91. Where it is contended that the pleading does not disclose a reasonable cause of action, the question is whether it would be open to the plaintiffs, on the facts they have pleaded, to prove facts at the trial which would constitute a cause of action: Pancontinental Mining Ltd v Posgold Investments Pty Ltd [1994] FCA 983; (1994) 121 ALR 405, 414; Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union of Workers Western
(Page 7)
- Australian Branch v Bell-A-Bike Rottnest Pty Ltd [2005] WASCA 157 [54].
10 The alternative ground in the strike out application is that the pleading may prejudice, embarrass or delay the fair trial of the action. It is a composite phrase. Pleadings may be struck out on this ground 'because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general': see Hart-Roach v Public Trustee (Unreported, WASC, Library No 980044, 11 February 1998) 8 (Murray J).
The facts alleged
11 In deciding this application, all of the facts alleged in the statement of claim must be accepted as true. In broad outline, the facts alleged are these.
12 The second plaintiffs carried on five child care businesses at Rivervale, Forrestfield, Halls Head, Lockridge, and Maddington. The first plaintiff carried on a child care business at Ballajura. Entities associated with the second plaintiffs carried on child care businesses at East Victoria Park and Cloverdale. Cuddles Childcare Centre Carlisle Pty Ltd carried on a child care business at Carlisle. In later paragraphs of the statement of claim, there are references (largely unexplained) to six other companies, and to 11 child care centres owned by entities other than Cuddles Management: par 13.2.
13 Another 'Cuddles' company, Cuddles Group Pty Ltd, either was, or had been, in administration and subject to a Deed of Company Arrangement (DOCA). In May 2009, the administrators of Cuddles Group (the DOCA Administrators) had obtained judgement against the second plaintiffs in the sum of $231,000 plus interest and costs (the DOCA Liability): pars 1 and 6.
14 The plaintiffs do not plead how Cuddles Management fitted into this business structure. Nor do they plead the relationship between Cuddles Management, the plaintiffs, those associated entities, or the relationship between any of them and Cuddles Group Pty Ltd.
15 On 7 December 2009, Ms Low was appointed administrator of Cuddles Management. At the time Ms Low was appointed, Cuddles
(Page 8)
- Management had no assets or no assets of significant value, and had an excess of liabilities over assets of $1,756,977 (including the sum of $413,000 owed to the Bank). It had incurred losses in each of the 2007, 2008 and 2009 financial years. The Forrestfield and Ballajura businesses were both unprofitable and Cuddles Management had been funding their trading losses for some time: par 7.5.
16 On 21 January 2010, Ms Low was appointed liquidator of Cuddles Management following a meeting of creditors that voted that the company be wound up: par 8. The Bank, as one of the creditors, voted in favour of the winding up.
17 Ms Low made three representations to the second plaintiffs in January 2010: par 10. The statement of claim does not say whether the representations were oral or in writing.
18 The first of the representations pleaded is the 'DEEWR Representation' (DEEWR being the Department of Education, Employment and Workplace Relations): par 10.3. Ms Low represented to the second plaintiffs:
1. that DEEWR had recently obtained legal advice to the effect that Cuddles Management was the operator of eight childcare businesses (the Businesses);
2. because of the legal advice and because she had been appointed liquidator of Cuddles Management, DEEWR confirmed to Ms Low that she was the operator of the Businesses;
3. the decision by the creditors to place Cuddles Management into liquidation meant that the operator was not financially viable and as a result DEEWR required the operator to cancel child care benefit payments,
4. failing that, DEEWR would invoke its right to cancel those payments and the Businesses could not continue to operate and would close;
5. because of DEEWR's legal advice, Ms Low was of the opinion that Cuddles Management owned the Businesses;
6. as owner of the Businesses, it was her preferred course of action to take control of the Businesses with a view to selling them to a new operator prior to the cessation of child care benefit payments, and
- that that course of action was the only realistic way in which some value would be derived from the Businesses.
19 The second representation is the 'ASIC Representation': par 10.4. Ms Low, either as administrator or as liquidator, represented to the second plaintiffs that the Australian Securities and Investments Commission intended to take action to prevent them from acting as company directors and, because of that, it was in the best interests of the second plaintiffs to authorise her to sell the Businesses.
20 The third representation is the 'Bankwest Payout Representation': par 10.5. Ms Low represented that it was likely that the second plaintiffs' liability to the Bank would be paid out in full if Ms Low was authorised to sell the Businesses.
21 In reliance on the three representations, the second plaintiffs entered into an agreement, described as the February Agreement: par 11. In par 1 of the statement of claim, the February Agreement is defined as an agreement between Ms Low and the plaintiffs 'evidenced by a letter from the liquidator dated 1 February 2010 which was accepted by [the second plaintiffs] on 2 February 2010'. The pleading does not say whether all of the express terms of the February Agreement are contained in that letter.
22 In the proposed amended substituted statement of claim, the plaintiffs add a claim that, by letter dated 27 January 2010, Ms Low proposed that she be appointed as the agent of the owners of the Businesses (including the Ballajura business), with power to sell them and apply the proceeds as if they were funds belonging to Cuddles Management. Cliff Carver responded, proposing certain amendments to this proposed agency agreement. Ms Low rejected most of those proposed amendments, including an amendment to the effect that the second plaintiffs' liability to the Bank 'be cleared in full or as negotiated by the Liquidator': par 10.6.
23 On or about 29 January 2010 Cliff Carver advised Ms Low of the minimum amounts for which the Businesses could be sold: par 10.1 and 10.7. The total of those minimum sales amounts is $1.425 million.
24 Ms Low sold the child care centres at Forrestfield, Rivervale, Lockridge, East Victoria Park, Maddington and Cloverdale for less than those minimum sales values (a total of $730,453, with a net receipt of $329,323) without first obtaining the plaintiffs' consent: par 12. Ms Low also paid the selling agent excessive commission on the sale of the Forrestfield and Rivervale businesses: par 12.2.
(Page 10)
25 The gross proceeds from the sale of those businesses, after payment to the administrators of the deed of company arrangement for the Cuddles Group, were retained by the liquidator. Between about February 2010 and February 2011, Ms Low traded the Businesses at an overall loss of $156,330 and incurred liquidator's fees totalling $600,115.40: par 12.3.
26 One of the businesses sold by Ms Low was the Ballajura business. The February Agreement contained an express term that 90% of the net proceeds from the sale of the Ballajura business would be paid to the first plaintiff. The Bank was not aware of this term until about 27 July 2010, when it also became aware that the proceeds were also to be applied in discharging the second plaintiffs' DOCA Liability: par 13.1.
27 On 2 August 2010 in a letter to the second plaintiffs, copied to Ms Low, the Bank threatened to bankrupt the second plaintiffs if the proceeds were used in that way, and stated it would have no objection if the proceeds were paid to Ms Low in her capacity as liquidator of Cuddles Management: par 14.2. On about 22 September 2010, Ms Low negotiated an agreement between the second plaintiffs, the Bank, and the administrators of the Deed of Company Arrangement (the Compromise Agreement), under which:
(a) the Administrators of Cuddles Group agreed to accept the sum of $120,000 in full satisfaction of the DOCA Liability and to have their creditors petition for the bankruptcy of the second plaintiffs dismissed;
(b) the Bank and Ms Low agreed that $55,000 out of the Ballajura sales proceeds would be paid to the Administrators of Cuddles Group in partial satisfaction of the sum of $120,000;
(c) the second plaintiffs would pay $65,000 to the Administrators of Cuddles Group in partial satisfaction of the sum of $120,000;
(d) the balance of the proceeds from the sale of the Ballajura business would be retained by the liquidator in her capacity as liquidator of Cuddles Management: par 14.3.
28 The Compromise Agreement was carried out: par 14.4 and 14.5
The causes of action asserted
29 On the basis of those pleaded facts, the plaintiffs plead against Ms Low:
(Page 11)
- (1) Her conduct in making the three representations 'individually and collectively', and in inducing the second plaintiffs to enter into the February Agreement so as to secure a source of funds for payment of the liquidator's fees, was conduct in trade or commerce. It was misleading in that it led the second plaintiffs to believe their indebtedness to the Bank under the guarantee would be discharged by Ms Low acting in accordance with the February Agreement: par 15.
(2) She engaged in unconscionable conduct in contravention of s 11A of the Fair Trading Act 1987 (WA). As part of this allegation, the plaintiffs say Ms Low recommended that Cuddles Management be placed in liquidation when she knew that it had insufficient funds from which a liquidator's fees could be paid and 'intended to induce [the second plaintiffs] to enter into the February Agreement so as to create a source of funds from which liquidator's fees could be paid': par 16.1.
(3) As a person proposing to be appointed as their agent, Ms Low owed duties to the second plaintiffs. The duties were, first, to advise them that it was highly unlikely that their indebtedness to the Bank could be satisfied out of the proceeds of sale of the Businesses, unless the Businesses could be sold for the minimum sales values advised by Mr Carver; second, to advise them that they had other alternatives which might be preferable to entering into the February Agreement: pars 17.1 to 17.4.
(4) Ms Low owed duties to the second plaintiffs as their agent, following the making of the February Agreement, and breached those duties: pars 17.5 to 17.7.
(5) Ms Low owes the second plaintiffs $68,900 in unpaid fees under a separate agreement, referred to as the Management Fee Agreement: par 9.
30 Although the plaintiffs plead breaches of the February Agreement, the relief claimed does not include damages for breach of that contract, other than for breach of the duties as an agent.
(Page 12)
31 The statement of claim calls the loss said to arise from the various breaches of duty by Ms Low the 'Relevant Loss'. Relevant Loss is defined in par 1 to mean
the loss of the ability to utilise the Businesses as security to raise funds to discharge [the second plaintiffs'] indebtedness to [the Bank] and the ability to sell the Businesses and apply the proceeds of sale in discharging [the second plaintiffs'] indebtedness to [the Bank]. The quantum of such loss or damage is the amount, if any, found due by [the second plaintiffs] in [CIV 2958 of 2011].
32 The claims against the Bank include direct liability for its own breaches, and liability for the conduct of Ms Low. The plaintiffs also seek declarations that are, essentially, by way of defence to the Bank's claims for the money due under the guarantee. The claims are:
(1) The Bank was involved in the misleading conduct by Ms Low in contravention of the Fair Trading Act, within the meaning of s 68(c) of that Act: par 15.3. That is, the Bank was directly or indirectly, knowingly concerned in or a party to the contravention of that Act.
(2) The Bank acquiesced in the conduct of Ms Low, including her conduct in breach of her duties as an agent, and as an administrator or liquidator: par 13.
(3) It was an implied term of the Compromise Agreement between the second plaintiffs, the Bank and the DOCA Administrators that the Bank waived its rights to recover any money due from the second plaintiffs under the guarantee; alternatively it waived its rights to take bankruptcy proceedings against the second plaintiffs in relation to that money: pars 14 and 19.
(4) By reason of entering into and ratifying the Compromise Agreement, the Bank is estopped from asserting any claims to the money otherwise due under the guarantee, or from asserting its rights to bankrupt the second plaintiffs: par 19.
(5) The Bank engaged in unconscionable conduct contrary to s 11A of the Fair Trading Act, alternatively s 51AC of the Trade Practices Act 1974 (Cth) in the supply of services by causing, inducing or permitting the plaintiffs to enter into the Compromise Agreement and pay $65,000 to the DOCA Administrators when it failed to disclose to them that it reserved the right to recover the money due under the guarantee: par 20.
(Page 13)
- (6) The Bank engaged in misleading and deceptive conduct in not disclosing to the second plaintiffs that it intended to seek recovery of the money due under the finance facility and the guarantee, and would proceed to bankrupt them, when the plaintiffs had a reasonable expectation that the Bank would disclose those facts. The second plaintiffs suffered loss, being the $65,000 paid to the DOCA Administrators under the Compromise Agreement: par 21.
33 Each of the defendants applies to strike out parts of the statement of claim. They identify individual paragraphs. But, in effect, they seek to strike out the substance of all of the claims made against them, except for the claim against Ms Low that she owes fees under the Management Fee Agreement.
The objections on behalf of the Bank
Paragraph 3
34 The Bank submits that the pleading in par 3 that various entities 'carried on' businesses, and that entities associated with the second plaintiffs 'carried on' the East Victoria Park business and the Cloverdale business, is embarrassing. First they say the expression 'carried on' is embarrassing because it fails to disclose whether the second plaintiffs are asserting that they (or others) owned or managed the relevant businesses. Second, there is a lack of clarity in the conclusion that entities are 'associated' with the second plaintiffs, when those entities are not identified, and where the facts from which the conclusion of association have not been pleaded.
35 The complaint, at first blush, seems to be trivial or pedantic; and that is the response of the plaintiffs to the application. Normally, I would consider it implicit in the allegation that the plaintiffs carried on a business, that they owned it. But the business structures used by the second plaintiffs appear to be complex, with five businesses identified as being carried on by the four individual plaintiffs, two carried on by entities associated with them, and two carried on by named companies. It is implicit in the way the matter has been pleaded that the two businesses which were carried on by separate companies, the Carlisle and Ballajura businesses, are in some way connected with the second plaintiffs or Cuddles Management or both. The pleading itself refers to eight other companies and 11 businesses. Cuddles Management fits into this business structure, but it is not clear how.
(Page 14)
36 The plaintiffs say that par 3 is introductory and intended to assist with an understanding of the background facts. The problem is that it does not assist. There are several matters pleaded by the plaintiffs that require them to make clear the material facts relating to the overall business structure. These include:
1. that it was misleading conduct from Ms Low to make the three representations;
2. that in selling eight businesses under the February Agreement, Ms Low was not acting as liquidator but as the agent of the second plaintiffs (or as agent of the owners of the Businesses);
4. the definition of Relevant Loss, which assumes that, but for the February Agreement, the businesses sold by Ms Low were, or would have been, available to the second plaintiffs to sell or use as security for personal borrowing;
5. that the second plaintiffs offered the Carlisle business, carried on by Cuddles Childcare Centre Carlisle Pty Ltd, as additional security to the Bank for borrowing by Cuddles Management.
37 The plaintiffs need to plead with some particularity the facts relating to the ownership and management of the various child care businesses. Without them, the pleading is embarrassing in the sense described above. At this stage of the proceedings, where the statement of claim more generally cannot stand, it is appropriate to strike out par 3 rather than attempt to remedy a defect by particulars.
Paragraphs 5.4 and 5.5
38 The plaintiffs plead that on or about 19 February 2009 they offered the Carlisle business to the Bank as additional security for the monies they owed, but the Bank did not accept that security. The Bank says that the plea is irrelevant to any cause of action, and those facts are not themselves the basis of a cause of action.
39 The plaintiffs say that the facts are relevant to explaining the context in which the Bank acquiesced in the liquidator's conduct. I am not sure that advances the matter, due to the difficulties in the plea of acquiescence. Nevertheless, on the basis that they are context in which other pleas are made, I will not order that these paragraphs be struck out. The plaintiffs may want to reconsider them in considering the plea of acquiescence.
(Page 15)
Paragraphs 10.3 to 10.5
40 In these paragraphs, the plaintiffs set out the content of the DEEWR Representation, the ASIC Representation and the Bankwest Payout Representation. The Bank says that the misrepresentations are not pleaded to be false or otherwise misleading, and so do not disclose a reasonable cause of action.
41 The plaintiffs do not expressly plead that any of the representations were false, although it is implicit in their plea that the Bankwest Payout Representation was false. They submit, correctly, that falsity is not the only basis upon which conduct can be misleading. But the examples they give, of misleading by silence or non-disclosure, demonstrate the difficulty of their present plea.
42 The basis on which the plaintiffs plead that the conduct of Ms Low was misleading is that it led the plaintiffs to believe that their indebtedness to the Bank under the guarantee would be discharged by the liquidator acting in accordance with the February Agreement: par 15.1. That plea does not identify the correct question. Where the allegation is that a representation made to a specific person is misleading, the question is whether the conduct of the representor had a tendency to lead the person to whom it was made into error. It is an objective test: see Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 [25]; Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 [109]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191, 199; Grainger v Williams [2009] WASCA 60 [26]. It is not enough to simply allege that the representations were made and the plaintiffs were misled.
43 The Bank is entitled to know in what way the representations are alleged to be misleading. For example, were they false by containing a representation of fact that was untrue? Did they contain an implied prediction, made without reasonable grounds? If so, what was it? Would they, even if true, objectively give rise to the belief that the liability of the second plaintiffs to the Bank would be discharged? Except for the Bankwest Payout Representation, the pleading of the representations, read with the rest of the plea, does not meet those basic requirements. The plea is likely to prejudice, embarrass or delay the fair trial of the action and should be struck out.
44 This conclusion affects the later plea in par 15.
(Page 16)
Paragraph 11
45 Paragraph 11 pleads the terms of the February Agreement. In par 11.2(c) it pleads an implied term that Ms Low would not sell the Businesses for below the minimum value advised by Cliff Carver without the plaintiffs' consent.
46 The Bank raises three objections to this plea. First, pleading that the agreement contained 'inter alia' specified terms implies that there were other material terms not pleaded.
47 The plaintiffs say that the use of 'inter alia' simply accepts that there were other terms, and not that they were material. It says that if the terms were relevant they would have been pleaded. I accept that the plea does not imply that there are other material terms which have not been pleaded.
48 Next, the Bank says that the implied term pleaded in par 11.2(c) should be struck out as it directly contradicts an express term.
49 The implied term does not contradict any of the express terms that the plaintiffs have pleaded. In their submissions, the plaintiffs appear to accept that it was a term of the agreement that Ms Low would be 'in control of the process of selling the child care centres (eg selection of agent, negotiations regarding potential sales, sale price accepted)'. But they submit that the agreement did not confer an unfettered discretion on Ms Low regarding sale price.
50 On the limited information currently before me, including the plea that the letter of 1 February 2010 'evidenced' the February Agreement, I believe that it will be necessary to determine what the express terms of the contract were, and the construction of those terms, before the court can determine whether they contradict the pleaded implied term. The principle on which the Bank relies may prove formidable at trial. But there are important findings that must be made on the evidence before the court could be satisfied that the plea of the implied term is untenable on the basis that it is inconsistent.
51 The same reasoning applies, and the same conclusion follows, for the Bank's next complaint, that the plaintiffs seek to contradict the language of an express term by evidence of other discussions between Ms Low and Cliff Carver. Whether there is such a conflict cannot be determined at this stage.
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52 While I do not accept the plea in par 11 should be struck out on the basis asserted by the Bank, it bodes ill for the future conduct of this matter that I reach that conclusion because I cannot determine what the plaintiffs say the express terms of the contract are. The plaintiffs' submissions appear to accept that the conditions stated in the letter of 1 February 2010 were terms of the agreement. They do not plead that. Nor do they plead whether there were other terms outside those stated in the letter. I will not separately strike out par 11. But the plaintiffs will need to recast their plea in the light of the extensive striking out of other parts of the claim.
Paragraph 13
53 In par 13, the plaintiffs plead that the Bank acquiesced in the sale of the Businesses, in the appropriation of the proceeds of sale by Ms Low and the application of those proceeds towards payment of her fees, in Ms Low's breaches of the February Agreement, and in her breaches of duty. In par 23.4(e) and (f), the plaintiffs seek a declaration that, by reason of matters including that acquiescence, they are entitled to an order refusing to enforce the guarantee, alternatively an order declaring it to be void.
54 The Bank makes several complaints regarding this plea: that acquiescence is not an answer to a cause of action already accrued; the Bank's claim against the second plaintiffs is a legal claim based on the guarantees and not a claim to equitable relief; and the plea appears to assert that the Bank is liable for Ms Low's conduct on the basis that she acted as its agent in the liquidation.
55 As to the last of these complaints, the plaintiffs say they do not rely on an assertion of agency.
56 The major difficulty in dealing with these complaints is that I have not been able to discern what the plaintiffs mean by the allegation that the bank 'acquiesced' in Ms Low's conduct.
57 Acquiescence is not a term of art: Cashman v 7 North Golden Gate Mining Co (1897) 7 QLJ 152, 154. In Halsbury's Laws of England (4th ed, reissue, 2003) [909], it is described as a species of estoppel by representation:
The term 'acquiescence' is, however, properly used where a person having a right, and seeing another person about to commit, or in the course of committing, an act infringing that right, stands by in such a manner as really to induce the person committing the act, and who might otherwise
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- have abstained from it, to believe that he assents to its being committed; a person so standing by cannot afterwards be heard to complain of the act.
58 The plaintiffs do not plead any acts of Ms Low, to which the Bank acquiesced, that infringed the Bank's rights against the second plaintiffs under the guarantee.
59 The allegations in par 13 are not part of a plea of estoppel by acquiescence. The plaintiffs do plead estoppel, but that is pleaded quite separately.
60 The particulars pleaded as part of par 13 are both extensive and detailed. The plea raises significant factual questions, and will affect both the preparation for and the conduct of the trial. The facts the plaintiffs now plead as constituting acquiescence identify no matter which could found any relief, by declaration or otherwise. In particular, the plaintiffs identify nothing which would make the guarantee void. As it is now pleaded par 13 is likely to prejudice, embarrass or delay the fair trial of the action.
Paragraph 14
61 The plaintiffs plead that when the Bank became aware that the proceeds of sale of the Ballajura business were to be applied in discharging the second plaintiffs' liability to the administrator of Cuddles Group, it threatened to bankrupt the second plaintiffs. Ms Low negotiated the Compromise Agreement between the second plaintiffs, the Bank and the administrators. The plaintiffs say that it was an implied term of the Compromise Agreement that, in consideration of the plaintiffs agreeing to allow the balance of the proceeds from the sale of the Ballajura business to be applied in the liquidation of Cuddles Management, the Bank waived its right to recover any monies due to it, or alternatively waived its right to bankrupt the plaintiffs.
62 The Bank makes two challenges to this pleading. First, the pleaded implied term is inconsistent with cl 22 of the guarantee, which provides that rights under it may not be waived except in writing signed by the party or parties to be bound. The only answer the plaintiffs make is that the agreement is not in evidence.
63 The plaintiffs have, however, pleaded the guarantee and specified the documents comprising it: 'Bankwest Guarantee and Indemnity - Details (Small Business and Consumer) September 2006 and Guarantee and Indemnity - Terms (Small Business and Consumer) September 2006'.
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- While the general rule is that no evidence is admissible on an application to strike out, the court may refer to documents mentioned in the pleading: Day v William Hill (Park Lane) Ltd (1949) 1 KB 632, 639. It is appropriate to have regard to the documents specified by the plaintiffs as comprising their agreement with the Bank. The implied term alleged is inconsistent with cl 22. The plaintiffs have not pleaded anything which might overcome the objection made by the Bank.
64 Second, the Bank submits that, on the facts pleaded, the proposed term would not be implied. The plaintiffs plead, in effect, that a term would be implied waiving a debt of $440,000 as a consequence of the plaintiffs agreeing that Smurfs Child Centre (Ballajura) Pty Ltd would pay $55,000 from the proceeds of sale of the Ballajura business to the DOCA Administrators in partial satisfaction of an existing liability, and the balance ($116,000) to the liquidator. The requirements for implication of the term cannot be satisfied on the facts pleaded.
65 The only answer made by the plaintiffs is that the Bank should simply deny the implied term, and the dispute should be resolved at trial. The plaintiffs' response is inadequate. The requirements for implying a term into a contract are well settled: implication of a term in fact requires satisfaction of all of the five criteria in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283; Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337, 346, 347. Relevantly, it is not enough that it is reasonable to imply the term; it must be necessary to do so to give business efficacy to the contract. And that which is not expressed but implied must be something so obvious that it goes without saying. It is not sufficient to simply assert the conditions for implication of a term are met when, on the facts pleaded, the court could not presume the parties would have agreed upon that term had they turned their minds to it.
66 The pleaded implied term is both inconsistent with an express term, and untenable. The plea should be struck out.
Paragraph 15
67 The plaintiffs plead that Ms Low engaged in misleading conduct in trade or commerce in making the three representations, because her conduct led the second plaintiffs to believe that their indebtedness to the Bank would be discharged by Ms Low acting in accordance with the February Agreement. They say that the Bank was knowingly concerned in or a party to that conduct by reason of the following matters:
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- (a) it had been offered but had failed to take the Carlisle business as security;
(b) it had declined to enforce its other securities;
(c) it waived its future requirements;
(d) it allowed the liquidator to enter into and act under the February Agreement;
(e) it acquiesced in the liquidator's conduct;
(f) it had been made aware of the financial history of Cuddles Management, including its excess of liabilities over assets and financial history before administration; and
(f) it was aware of Ms Low's charge rates.
68 Even were those matters proved at trial, they would not establish liability against the Bank under s 68(c) of the Fair Trading Act. The plaintiffs must establish that the Bank was aware of the essential facts and details constituting the misleading or deceptive conduct. Without such knowledge it could not be knowingly concernedin, or a party to, a breach of the section: Yorke v Lucas [1983] FCA 230; (1983) 80 FLR 143. There are simply no facts pleaded from which the plaintiffs could establish the Bank had actual knowledge with regard to the conduct alleged to be misleading.
69 Paragraph 15.3 cannot stand.
70 The Bank also takes issue with the general pleading regarding misleading conduct. I have dealt with those allegations earlier in relation to par 10.
Paragraph 16
71 The plaintiffs propose to amend their plea in par 16 to remove the allegation that the Bank was involved in unconscionable conduct on the part of the liquidator. It is unnecessary to further consider the Bank's objections.
Paragraph 19
72 In par 19.1 the plaintiffs plead that 'by the compromise agreement' the Bank waived its right to recover money due from the plaintiffs under the guarantee, alternatively, waived its rights to initiate or continue
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- bankruptcy proceedings against them. The facts relating to the making of that agreement are set out in par 14.
73 Waiver has been described as an imprecise term capable of describing different legal concepts: Commonwealth v Verwayen [1990] HCA 39; (1990) 170 CLR 394; Mardorf Peach & Co Ltd v Attica Sea Carriers Corporation of Liberia [1977] AC 850, 871; Agricultural and Rural Finance Pty Limited v Gardiner [2008] HCA 57; (2008) 238 CLR 570 [100].
74 If the waiver pleaded in par 19.1 is based on the implied term dealt with earlier, the plea cannot be sustained. There is no other pleaded basis for the waiver. The plaintiffs have pleaded no facts which could identify a basis for the plea, for example, as a claim of an election, or as forbearance, or as an abandonment or renunciation of the Bank's rights under the guarantee: see Agricultural and Rural Finance Pty Ltd v Gardiner [52] - [55], [88] - [93].
75 In par 19.2 the plaintiffs claim estoppel 'by reason of Bankwest authorising entering into and ratifying the Compromise Agreement'. Estoppel may also take many forms. The Bank submits that the statement of claim does not identify the facts necessary to make out an estoppel. It makes the further point that the second plaintiffs cannot, on the facts pleaded, establish that they suffered any relevant detriment arising out of the entry into and carrying out of the Compromise Agreement.
76 The plaintiffs' response in their written submissions is, in effect, that the law of estoppel is complex and the present case 'is obviously a complicated factual scenario which needs to be put through the evidentiary process before the legal principles can be applied'.
77 The response is inadequate. It is true that the law is complex. But it is still possible to identify the matters that need to be established to make out the plea: see, for example, Alpha Wealth Financial Services Pty Ltd v Frankland River Olive Company Ltd [2008] WASCA 119 [164] (conventional estoppel); and Walton Stores (Interstate) Ltd v Maher [1988] HCA 7; (1988) 164 CLR 387, 428 - 429 (promissory estoppel). The 'evidentiary process' to which the plaintiffs refer must proceed in the context of the pleadings. The statement of claim cannot simply assert an estoppel without identifying the factual basis for the claim.
78 The plea in its current form is embarrassing and should be struck out.
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Paragraph 20
79 In par 20 the plaintiffs plead that the Bank supplied services to Cuddles Management. They further allege that the Bank's conduct in 'authorising, entering into and ratifying' the Compromise Agreement was conduct in trade or commerce, and that 'by causing, inducing or permitting' the plaintiffs to enter into the Compromise Agreement and pay the sum of $65,000 pursuant to it to the DOCA Administrators, the Bank engaged in unconscionable conduct. This is said to arise 'in circumstances where Bankwest failed to disclose to [the second plaintiffs] that it nevertheless reserved or intended to reserve unto itself the right to recover from [the second plaintiffs] the moneys due by them under the guarantee'.
80 Again the Bank challenges the adequacy of the plea on several bases. The plaintiffs rely on s 51AC(1) of the Trade Practices Act. That section is directed to conduct in trade or commerce in connection with the supply or acquisition of goods or services: Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197; (2002) 122 FCR 110 [114]. The Bank submits that the statement of claim does not identify the services provided by the Bank, and that the services in providing the loan facility to Cuddles Management ended when it was drawn down. The necessary connection between the conduct alleged to be unconscionable and the services provided is absent.
81 The plaintiffs argue that the services provided under a finance facility are not necessarily at an end when the loan is drawn down, and may continue until it is discharged. The Bank's argument is an artificial limitation on what are services in connection with the facility. I agree. On the facts pleaded it is open to the plaintiffs to prove that the Bank's conduct in relation to the making of the Compromise Agreement was in connection with the services provided under the facility. It is not appropriate to strike out on that basis.
82 Next the Bank submits that the allegation that the Bank authorised 'entering into and ratifying the Compromise Agreement' is embarrassing.
83 The plaintiffs say that to suggest the Bank took no relevant part in the Compromise Agreement being entered into is to ignore what is unambiguously pleaded in par 14. I am not sure what this means. Paragraph 14 pleads that the agreement was negotiated between the second plaintiffs, the Bank, and the DOCA Administrators. It says nothing about the Bank authorising any of the parties to the Compromise Agreement to enter into it. And it says nothing about ratifying the Compromise Agreement.
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84 The Bank also submits that the allegation that the Bank caused, induced, or permitted the second plaintiffs to enter into the Compromise Agreement and to pay $65,000 to the DOCA Administrators pursuant to it, is embarrassing. Each of those allegations is a conclusion, and the plaintiffs have not pleaded the facts which are the basis for those conclusions.
85 The plaintiffs again rely on the plea in par 14. The relevant allegations may be that Ms Low negotiated the Compromise Agreement after the Bank threatened to bankrupt the second plaintiffs if the proceeds of the sale of the Ballajura business were paid to the DOCA Administrators. But it is far from clear.
86 The action for unconscionable conduct in contravention of s 51AC is not constrained by reference to the circumstances in which the common law would grant relief in respect of unconscionable conduct. But the claim that conduct be unconscionable carries a pejorative moral judgment or moral obloquy: Hurley v McDonald's Australia Ltd [1999] FCA 1728; (2000) ATPR 41-741, 40,585; Australian Securities and Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132 [43]. When such an allegation is made, it should be pleaded clearly and with sufficient particularity. The pleader should also bear in mind a legal practitioner's obligations under the Legal Profession Conduct Rules 2010 (WA) reg 36(3). The practitioner's duties to the client cannot override these obligations.
87 The facts pleaded are not sufficient to support a claim that the Bank caused, induced or permitted the second plaintiffs to enter into the agreement. And they are not a sufficient foundation for the allegation that the Bank engaged in unconscionable conduct.
88 Paragraph 20 is embarrassing in its current form.
Paragraph 21
89 The plaintiffs plead that the Bank engaged in misleading or deceptive conduct in not disclosing to the second plaintiffs that, notwithstanding the terms of the Compromise Agreement and the withdrawal of the threat to bankrupt the second plaintiffs, it would seek recovery of the money due under the facility and the guarantee, and would proceed to bankrupt them. The plaintiffs say that they suffered loss, being the $65,000 paid by them pursuant to the Compromise Agreement.
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90 The Bank submits that it is an element of the cause of action in misleading or deceptive conduct that the plaintiffs suffered loss. The loss which they allege they suffered as a consequence of entering into the Compromise Agreement cannot be established, and the plea does not disclose a cause of action.
91 It is difficult to identify a loss. The DOCA Liability is defined in the statement of claim as a judgment against the second plaintiffs in the sum of $231,000 plus interest and costs, part of which had been paid. The Compromise Agreement resulted in the discharge of the balance of that liability by the payment of $120,000, of which the second plaintiffs paid $65,000. The asserted conclusion that this resulted in a loss to the second plaintiffs of $65,000 cannot be maintained. The plea does not disclose a reasonable cause of action and should be struck out.
The objections on behalf of the liquidator
Paragraph 8
92 Paragraph 8.1(a) and (b) plead that in her Administrator's Report, Ms Low stated that she had not received a proposal for a Deed of Company Arrangement from the directors of Cuddles Management, and failed to disclose that she had advised the plaintiffs that a Deed of Company Arrangement would not be accepted by the Australian Taxation Office (ATO).
93 Ms Low submits that these assertions suggest misconduct on her part, and do not disclose a reasonable cause of action.
94 The plaintiffs submit that par 8.1 simply pleads a material fact and is not intended or required, on its own, to disclose a cause of action. The plaintiffs do not identify to what cause of action the allegation in par 8.1 is a material fact. But they say it is part of the factual matrix which explains the decision to place Cuddles Management into liquidation and Ms Lowe's decision to put the February Agreement into effect.
95 It is implicit in par 8 that the plaintiffs allege that Ms Low had a duty to disclose that the ATO would not accept a Deed of Company Arrangement. If that is not a material allegation, it introduces an unnecessary issue likely to prejudice the trial of the action. The plea will be struck out.
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Paragraph 10
96 I have already dealt with the Bank's objection to parts of par 10. Ms Low raises a discrete objection to par 10.6.
97 Paragraph 10.6 pleads that by the letter of 27 January 2010, Ms Low proposed that she be appointed as the agent of the owners of the Businesses (including the Ballajura business) 'with power to sell the Businesses and apply the proceeds of sale as if they were funds belonging to Cuddles Management'.
98 The letter is a pleaded document and has been placed before me. I can have regard to its content.
99 There are two parts to the letter. The first contains what the plaintiffs have pleaded as the DEEWR representation. In it, Ms Low states:
I am now of the opinion that [Cuddles Management] owns the above-mentioned child-care centres and that the other entities within the Cuddles Group manage the child-care centres. It is my preferred course of action, as operator and owner of the above-mentioned child-care centres, to take control of the eight child-care centres with a view to selling them to a new operator prior to the cessation of the [child-care benefit] payments.
100 The second part contains eight conditions which Ms Low requested each of the four second plaintiffs to sign 'as evidence of your agreement and cooperation'. Those conditions included that the proceeds from the sale of the child care centres were to be considered company funds and distributed in the liquidation according to the normal statutory priorities; that the second plaintiffs agreed that Cuddles Management was the owner of the eight child care centres; and that Ms Low as liquidator of Cuddles Management was entitled to retain the net proceeds of sale.
101 Were there any ambiguity, I would not, at this stage, engage in a construction exercise to determine the nature of the relationship proposed or established by the letter. There is, however, no ambiguity. Ms Low, as liquidator of Cuddles Management, proposed to sell businesses owned and operated by that company.
102 It is of the essence of an agency relationship that the agent act on the principal's behalf and in the principal's interests: NT Power Generation Pty Ltd v Trevor[2000] WASC 254; (2000) 23 WAR 482; NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270. On no construction of the letter of 27 January 2010 can it be said that the parties intended that Ms Low would act for or on behalf of
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- the second plaintiffs or in their interests in the sale of the Businesses. The fact that she sought their co-operation does not convert the arrangement she proposed in the letter into an agency.
103 The plaintiffs suggest no basis for the agency other than the February Agreement, based on the letter of 27 January 2010.
104 Paragraph 10.6 should be struck out.
Paragraph 15
105 I have already determined that par 15 should be struck out in its plea against the Bank. Ms Low also objects to this paragraph.
106 Part of the objection to par 15, and also to par 16, is the claim for damages under the Fair Trading Act, with the damages defined as the Relevant Loss (defined in par 1 - see above at [31]).
107 Ms Low submits that actual loss or damage is an element of the statutory tort: referring to Murphy v Overton Investments Pty Ltd[2004] HCA 3; (2004) 216 CLR 388 [46]. The Relevant Loss as defined in par 1 is not an actual loss. Further, to establish that they lost the ability to use the Businesses and discharge their indebtedness to the Bank, the plaintiffs must prove the steps they would have taken which would have actually discharged their liability to the Bank, without substituting liability to another party. Those matters are material to the loss and must be pleaded.
108 The plaintiffs say that the essence of their case is that if they had not been misled they would have retained 'ownership/control of the Businesses' and could have used them as security for further borrowing, or to raise funds by sale.
109 There are two aspects to this issue. First, the defendant's reference to Murphy v Overton Investments is not helpful. In the passage cited, the court was dealing with when loss occurs for the purposes of limitation periods. The plaintiffs in this action seek orders under s 77 of the Fair Trading Act: see statement of claim, par 22.2. Although the plaintiffs have expressed the prayer for relief as a claim for damages, s 77 also applies where the court is satisfied that a person is likely to suffer loss or damage by reason of contravening conduct. Actual loss is not required.
110 The second aspect is more strictly a pleading point. On the facts they have pleaded, the second plaintiffs could not establish that the Businesses were available to them to sell, or to use as security for further borrowing. Thus, they could not prove that they have suffered the loss of opportunity
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- to use the Businesses in that way. The facts pleaded are not sufficient to support the conclusion.
111 The level of detail that a pleading must contain, so that it may adequately define the issues and give fair notice of the case to be made against the other party at trial, must depend upon the cause of action, the complexities of the case, and the whole of the circumstances of the case: Arthur Young v Tieco International (1995) 182 LSJS 367, 370. The damages claim based on the Relevant Loss is complex, with issues as to the entitlement of the second plaintiffs to sell or charge the Businesses, the steps they would take, and the potential market. The plea is insufficient in failing to deal with these matters, and is embarrassing in the sense described earlier in these reasons.
112 Ms Low also submits that the allegations in par 15 do not disclose a reasonable cause of action in the plea that the three representations were misleading. It is not necessary to add to the reasons I have given above with regard to the submissions of the Bank. Paragraph 15 will be struck out
Paragraph 16
113 The plaintiffs plead that Ms Low engaged in unconscionable conduct in connection with the supply or possible supply of her services as an agent under the February Agreement, in contravention of s 11A of the Fair Trading Act. The conduct alleged to be unconscionable is:
(a) making the representations which are pleaded to be misleading or deceptive;
(b) inducing the second plaintiffs to enter into the February Agreement;
(c) recommending that Cuddles Management be placed in liquidation when she knew it had insufficient funds from which a liquidator's fees could be paid and 'she intended to induce [the second plaintiffs] to enter into the February Agreement so as to create a source of funds from which liquidator's fees could be paid';
(d) selling the Businesses at well below the minimum sales values recommended by Cliff Carver.
114 Ms Low submits that the allegation that she was supplying services in trade or commerce cannot be maintained because she was acting as a
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- liquidator in the discharge of statutory obligations under the Corporations Act 2001 (Cth).
115 The plaintiffs respond that Ms Low acted as liquidator with regard to Cuddles Management in its relationship with its creditors, but that was not the only capacity in which she was acting. They say that she was not acting in that capacity in selling the Businesses, but was acting under the February Agreement as their agent.
116 It is an element of the claim of unconscionable conduct in par 16 that Ms Low's conduct was in connection with the supply of her services as an agent. For the reasons I have given above, the plea of agency is untenable. The plea should be struck out.
117 I have commented above regarding the pleading of a claim of unconscionable conduct, and the obligations attendant on the practitioner pleading it. In particular, the claim that Ms Low acted unconscionably so as to create a source of funds for her fees is a serious allegation. Should the plaintiffs re-plead this cause of action, the facts on which they rely should be clearly stated.
Paragraph 17
118 Paragraph 17 asserts that Ms Low breached duties that she owed to the second plaintiffs: first, as a person proposing to be appointed as their agent, and later as their agent for the sale of the Businesses. The plaintiffs claim damages for the breach of these duties. The measure of damages is again the Relevant Loss.
119 Ms Low challenges this plea on several bases. It is a sufficient reason to disallow par 17 that the foundation for the duties is the 'agency' pleaded in par 10.6. Paragraph 17 must suffer the same fate as par 10.6.
120 It is unnecessary to decide the other objections to this paragraph.
Paragraph 18
121 The plaintiffs agreed to abandon this paragraph, while not conceding that
122 the objections to it were valid.
Conclusion
123 The effect of these reasons is that none of the causes of action pleaded in the statement of claim can stand, except the claim pleaded in
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- par 9 that Ms Low owes the second plaintiffs fees due under the Management Fee Agreement. I will hear the parties on whether, and to what extent, the plaintiffs will have leave to re-plead the other causes of action asserted and, if they may, the time within which that must be done.
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