Swevenings Pty Ltd v Ferguson Consolidated Holdings Pty Ltd & Anor (No.3)
[2009] FMCA 255
•27 March 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| SWEVENINGS PTY LTD v FERGUSON CONSOLIDATED HOLDINGS PTY LTD & ANOR (No.3) | [2009] FMCA 255 |
| TRADE PRACTICES – Misleading and deceptive conduct – sale and purchase of business – entry into licence agreement – alleged franchise agreement. PRACTICE & PROCEDURE – Application to strike out statement of claim. |
| Federal Court Rules O.11 r.16 Federal Magistrates Act 1999 (Cth), s.3(2)(a) and (b) Federal Magistrates Court Rules 2001 (Cth), r.1.03(1),(2) and (4) Trade Practices Act 1974 (Cth), ss.51AD, 52, 82, 87 Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth), cl.4 |
| ACCC v Kyloe [2007] FCA 1522 Barnes v Hay (1988) 12 NSWLR 337 Buckingham v KSN Engineering Pty Ltd & Anor [2008] FMCA 546 Capital Networks Pty ltd v .au Domain Administration Ltd [2004] FCA 808 Elna Australia Pty ltd v International Computers (Aust) Pty Ltd [No. 2] (1987) 16 FCR 410 Goodall v Nationwide News Pty Ltd [2007] FMCA 218 Henville & Anor v Walker & Anor (2001) 206 CLR 459; [2001] HCA 52 Sterling Commerce v Iliff (2008) 173 IR 378; [2008] FCA 702 |
| R.Allen, Allen’s Dictionary of English Phrases (London: Penguin Books, 2006) |
| Applicant: | SWEVENINGS PTY LTD |
| First Respondent: | FERGUSON CONSOLIDATED HOLDINGS PTY LTD |
| Second Respondent: | ERIC JOHN FERGUSON |
| File Number: | PEG 45 of 2008 |
| Judgment of: | Lucev FM |
| Hearing date: | 27 March 2009 |
| Date of Last Submission: | 27 March 2009 |
| Delivered at: | Perth |
| Delivered on: | 30 March 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr W Chestnutt |
| Solicitors for the Applicant: | Mackinlays |
| Counsel for the Respondents: | Mr P Whight |
| Solicitors for the Respondents: | Patrick Whight |
ORDERS
That part of the first and second respondents’ application in a case filed 27 March 2009 which seeks to strike out:
(i)the applicant’s further amended statement of claim; or
(ii)alternatively, paragraphs 31-38, 41-68 and 69 of the further amended statement of claim,
be dismissed.
The balance of the first and second respondents’ application in a case filed 27 March 2009 be dealt with forthwith.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 45 of 2008
| SWEVENINGS PTY LTD |
Applicant
And
| FERGUSON CONSOLIDATED HOLDINGS PTY LTD |
First Respondent
| ERIC JOHN FERGUSON |
Second Respondent
REASONS FOR JUDGMENT
Introduction
The substantive application in this matter alleges:
a)misleading and deceptive conduct by the first respondent contrary to s.52 of the Trade Practices Act 1974 (Cth)[1] and accessorial liability on the part of the second respondent; and
b)contravention of an applicable Industry Code contrary to s.51 AD of the TP Act, namely the Franchising Code of Conduct,[2]
by reason of which the applicant says it has suffered loss and damage.
[1] “TP Act”.
[2] See the Trade Practices (Industry Codes – Franchising) Regulations 1998 (Cth).
On 27 March 2009 the first and second respondents[3] filed an application in a case.
[3] “the respondents”
The application in a case seeks:
a)to strike out:
i)the whole of the applicant’s further amended statement of claim; or
ii)alternatively, paragraphs 31-38, 41-68 and 69 of the further amended statement of claim;
and
b)the making of various orders concerning discovery, abridgement of time and costs.
The application in a case was supported by an affidavit of Patrick David Whight sworn 26 March 2009.[4]
[4] “Mr Whight’s Affidavit”.
That part of the application in a case seeking to strike out the statement of claim, alternatively paragraphs of the statement of claim, was heard on the day it was filed and judgment was reserved to today.
Law
Order 11 rule 16 of the Federal Court Rules relevantly provides that:
16 Embarrassment etc
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.
The general rules concerning pleadings need to be considered in the context of the Federal Magistrates Act 1999 (Cth)[5] which provides that the objects of the Court are:
(a)to enable the Federal Magistrates Court to operate as informally as possible in the exercise of judicial power; and
(b)to enable the Federal Magistrates Court to use streamlined procedures[6]
[5] “FM Act”.
[6] FM Act, s.3(2)(a) and (b).
The Federal Magistrates Court Rules 2001 (Cth)[7] provide that:
(1)The object of these Rules is to assist the just, efficient and economical resolution of proceedings.
(2)In accordance with the objects of the Act, the Rules aim to help the Federal Magistrates Court:
· to operate as informally as possible
· to use streamlined processes
· to encourage the use of appropriate dispute resolution procedures.[8]
[7] “FM Rules”.
[8] FMC Rules, r.1.03(1) and (2)
There is also an obligation on the parties to avoid “undue delay, expense and technicality.”[9]
[9] FMC Rules, r.1.03(4)
In Goodall v Nationwide News Pty Ltd this Court observed, in relation to the FM Act and FMC Rules and their objects, that:
Reading together the objects of the FM Act in s.3, the mode of operation in s.42, and having regard to the objects of the FMC Rules in r.1.03, it is apparent that the Court is intended to operate in a manner:
(a) as informal as possible in the exercise of judicial power;
(b) which is not protracted in its proceedings;
(c)which resolves proceedings justly, efficiently and economically;
(d) uses streamlined procedures; and
(e) avoids undue delay, expense and technicality.[10]
[10] [2007] FMCA 218 at para.21 per Lucev FM.
The Federal Court dealt with the issue and nature of pleadings required in this Court in Sterling Commerce v Iliff[11].
[11] (2008) 173 IR 378 at 378-379 per Gordon J; [2008] FCA 702 at paras.21-23 per Gordon J (“Iliff”).
In Iliff it was alleged that an issue determined by this Court was not raised by the pleadings, evidence or submissions before it.[12] The Federal Court (on an appeal heard by a single Judge) said as follows:
21. In considering this ground of appeal, “the philosophy of the Federal Magistrates Act and the intention of the Attorney-General at the time of the introduction of the Federal Magistrates Bill” in establishing the Federal Magistrates Court cannot be ignored (per Lander J in Rana v University of South Australia (2004) 136 FCR 344 at [34]): see also Granada Tavern v Smith [2008] FCA 646; (2008) 173 IR 328 at [106]. As Lander J stated in Rana at [37]:
The Federal Magistrates Court has abandoned pleadings in favour of affidavits. In doing so, it has recognised that the Court has been created to offer relatively inexpensive and expeditious justice. It is a court which should proceed without undue formality and should ensure that the proceedings are not protracted: s 42. It has abandoned the formal procedures of superior courts. That course is consistent with the Act and the FMC Rules.
See also O’Neill v Medical Benefits Fund of Australia Ltd (2002) 122 FCR 455 where the Full Court of the Federal Court (Carr, Moore and Marshall JJ) said at [16]:
We are prepared to accept that in a case such as the present MBF was entitled to know, as a matter of procedural fairness, that s 51A was relied on either expressly or by clear implication. It is unnecessary to address the question of whether it needed to be pleaded in this case particularly having regard to the comparative informality created by the legislative scheme governing the Federal Magistrates Court including its Rules.
[12] Iliff IR at 28 per Gordon J; FCA at paras.18-19 per Gordon J.
22. What then did the Federal Magistrate do? His Honour made the following finding at [147]:
On one view [Sterling Commerce] might be thought to have been likely to have sought a release from any employee with an enforceable entitlement to return to work who had ended up in dispute about that return. Nonetheless, it seems to me that the return to work provisions in the WR Act, involving civil penalties as they clearly do, is more probably than not the reason why the Respondent required a release from Ms Iliff. Even if it was not the only reason, it was clearly part of the reason, and this is enough (s 8 - SDA)
23. Sterling Commerce submitted that the finding of Burchardt FM that Sterling Commerce contravened the SDA in the manner outlined above (see [17]) involved a breach of procedural fairness. It relied on what was said in Kioa v West (1985) 159 CLR 550 (at 588 per Mason J, 628 per Brennan J and 634 per Deane J). It may be doubted that the analogy with an administrative decision maker is wholly apt. It is true that a party to proceedings in the Federal Magistrates Court must be put on notice of the case against it and have an opportunity to respond. That obligation is not of the same kind as the obligation of an administrative decision maker to accord procedural fairness. It is a fundamental principle of justice that a Court must not determine an issue that is not raised by the pleadings, or in the evidence or submissions before it.[13]
[13] Iliff FCR at 387-388 per Gordon J; FCA at paras.21-23 per Gordon J.
The Court recently dealt with the approach to be adopted in relation to a strike out application in Buckingham v KSN Engineering Pty Ltd & Anor where it said:
In considering the relevant procedural rules it is appropriate to note that this Court was not originally a court of pleadings. In Rana v University of South Australia the Federal Court observed that:
a)the Federal Magistrates Court Rules 2001 (Cth) do not require pleadings;
b)parties are not obliged to tender all their evidence when the Application and Response is filed; and
c)the Court should be cautious about summarily dismissing a proceeding.
In some respects, the role of this Court has changed since the judgment in Rana. The FMC Rules were amended in 2007 to provide that applications might be commenced by the filing of a Statement of Claim or Points of Claim to which a Defence or Points of Defence might be filed in response, and in neither case was there a requirement for the filing of an affidavit. Further, in 2006 this Court obtained significant jurisdiction under the WR Act, concurrent with that of the Federal Court in those matters in relation to which this Court was given jurisdiction. It is fair to observe that, where, as here, claims under the WR Act involve corporate entities or statutory bodies then the matter usually proceeds on pleadings, unless it is of such simplicity that pleadings are simply not necessary.
Because the FMC Rules are silent in respect of striking out pleadings the Federal Court Rules (Cth) can apply so far as is necessary, because of the insufficiency of the FMC Rules.
Because the parties to this matter have agreed that the matter ought to proceed on the pleadings, it is unnecessary to consider the First and Second Respondents’ objections to the application, because an application is not a pleading and an application cannot be struck out, under the FC Rules. However, a pleading which discloses no reasonable cause of action or which has a tendency to cause prejudice, embarrassment or delay, may be struck out at any stage of the proceedings, either in whole or in part.
The Court recognises that in determining to strike out all or part of a pleading it must exercise a discretion, and that that discretion is one to be exercised with caution having regard to the objects of the Federal Magistrates Act 1999 (Cth) and FMC Rules, and modern case management techniques.[14]
[14] [2008] FMCA 546 at paras.16-20 per Lucev FM (footnotes excluded).
The above principles apply to this application.
Consideration
Whole of the further amended statement of claim
The first and second respondents seek that the whole of the further amended statement of claim be struck out as disclosing no reasonable cause of action.
The respondents assert that there is no plea of causation for the claim of misleading and deceptive conduct under s.52 of the TP Act, and that there should be a plea along the lines that:
but for the representations the Applicants (sic) would not have entered the [relevant] agreement.[15]
[15] Mr Whight’s Affidavit, Annexure PDW1.
The applicant’s response is that following the High Court’s judgment in Henville & Anor v Walker & Anor[16] a “but for” plea is not required.
[16] (2001) 206 CLR 459; [2001] HCA 52 (“Henville”).
Determination of a causal link:
involves … a normative decision as to whether, for the purposes of the case, the precedent act for which the defendant is responsible should be seen as causal of the … loss. And ..., that evaluation is made, not by a ‘test’ or ‘guide’ such as the ‘but for’ test, but by a functional evaluation of the relationship and the purposes and policy of the relevant part of the law.[17]
[17] Barnes v Hay (1988) 12 NSWLR 337 at 353 per Mahoney JA, cited in Henville CLR at 491 per McHugh J; HCA at para.98 per McHugh J.
A question of statutory construction is therefore involved.[18] And:
What the [TP]Act directs attention to is whether the contravening conduct was a cause. It does not require, or permit, the attribution of some qualification such as "solely" or "principally" to the word "by".
… it is necessary to recognise that, on its face, the section permits recovery of the whole of the loss sustained by a person who demonstrates that a contravention of Pt V of the [TP]Act was a cause of that loss. Neither the words of s 82(1) nor anything in the intended scope and context of the [TP]Act suggest some narrower conclusion.[19]
[18] Henville CLR 490 per McHugh J; HCA para.96 per McHugh J and CLR 513 per Hayne J; HCA at para.135 per Hayne J, citing Elna Australia Pty ltd v International Computers (Aust) Pty Ltd [No. 2] (1987) 16 FCR 410 at 418-419 per Gummow J.
[19] Henville CLR at 509 per Hayne J; HCA at paras.163-164 per Hayne J.
It cannot therefore be said that in an action under s.52 of the TP Act a “but for” plea is required, and, if it is not made, that the action must be struck out. Consequently, this part of the application in a case to strike out in this case proceeds upon an erroneous premise. This part of the application in a case to strike out must be dismissed.
Paragraphs 31-38 of further amended statement of claim
The first and second respondents seek that the paragraphs 31-38 of the further amended statement of claim be struck out as they disclose no reasonable cause of action or are embarrassing.[20]
[20] Mr Whight’s Affidavit, Annexure PDW2.
The gist of paras.31-38 of the further amended statement of claim appears to be that:
a)acting in reliance on a representation made by the respondents in February 2005 that a lease would become available in September 2005 for a further business in an as yet not completed shopping centre, the applicant entered into a contract and paid $20,000 to purchase an exclusive licence to operate that business at that as yet not completed shopping centre, and when the lease did not become available, it suffered loss and damage;[21] and
b)in October 2005, relying upon earlier representations in relation to a business in Midland (which representations the applicant claims were misleading and deceptive), and in an endeavour to mitigate losses from the Midland business and the purchase of the abovementioned exclusive licence, the applicant agreed with one or other of the respondents to surrender the exclusive licence and purchase a further exclusive licence to operate a business in Rockingham, and incurred trading losses in that business.[22]
[21] Further amended statement of claim, paras.31-36.
[22] Further amended statement of claim, paras.37-38.
The respondents protest about various factual aspects and outcomes of these claims, but the gist of it is this:
a)the respondents say that the applicant had six months of trading experience in a business at Midland, and were making a loss;
b)in those circumstances, the respondents ask how in purchasing a further exclusive licence to operate a business in Rockingham the applicant can say it relied on the same representations that had allegedly induced them to purchase the Midland business months earlier.
The respondents’ Counsel submits that the applicant knew the truth of the circumstances surrounding the operation of these businesses at the time of entry into the further exclusive licence to operate a business in Rockingham, and that the applicant’s claims are therefore “hard to reconcile”. But the phrase “throw good money after bad”, meaning “to try to recover … losses in an ill-advised plan or scheme by putting more money into it in the hope of eventual success” has been part of English business language since the seventeenth century.[23] The respondents’ Counsel may be right, and the actions of the applicant might at first blush strain credibility. However, resolution of questions as to why the applicant acted as it did, and whether it ultimately did so in reliance on the representations made months earlier are factual questions for resolution at hearing. They are not a basis to strike out paras.31-38 of the further amended statement of claim. This part of the application in a case to strike out must be dismissed.
[23] R.Allen, Allen’s Dictionary of English Phrases (London: Penguin Books, 2006), page 490.
Paragraphs 41-68 of further amended statement of claim
The first and second respondents seek that the paras.41-68 of the further amended statement of claim be struck out as they disclose no reasonable cause of action, or are embarrassing, or will delay a fair trial of the application.
The respondents say that paras. 41-68 do not contain material facts supporting the plea in para. 49 that the agreement to purchase the Midland business and the exclusive licences are franchise agreements, and in particular that there is no system or marketing plan as required under clause 4 of the Franchising Code of Conduct.[24]
[24] Mr Whight’s Affidavit, Annexure PDW3; and as to which see ACCC v Kyloe [2007] FCA 1522 and Capital Networks Pty ltd v .au Domain Administration Ltd [2004] FCA 808.
The applicant responds by saying that in the re-amended defence dated 1 April 2008 and filed 8 April 2008 the respondents admit the franchise agreements (as referred to in the preceding paragraph) pleaded in the statement of claim filed on 3 August 2006 in the Federal Court.[25] They also say that it is too late to withdraw that admission, particularly in the face of the plea, and the failure to file a further amended defence or any further substantive evidence going to the merits of the defence to the application.[26]
[25] In para.18 of the re-amended defence admitting para.42 of the statement of claim.
[26] The substantive evidence for the respondents is primarily contained in the affidavit of Eric John Ferguson sworn 12 February 2008 and filed in the Federal Court on 22 February 2008 (“Mr Ferguson’s February 2008 Affidavit”).
The Court also notes that even earlier, in the defence and cross-claim filed by the respondents on 17 October 2006 in the Federal Court, the franchise agreements had been admitted.[27]
[27] In para.18 of the defence and cross-claim admitting para.42 of the statement of claim.
In circumstances where:
a)the franchise agreements have been admitted by the respondents for more than two years and five months;
b)the franchise agreements were re-admitted just short of twelve months ago;
c)there is, understandably in view of the admissions, no evidence contrary to the admissions from the respondents;
d)as at the time of hearing there had been no application to withdraw the admission; and
e)the application to strike out these admitted provisions was made less than three weeks prior to hearing,
the Court considers that this part of the strike out application must fail as it is contrary to the admitted position of the respondents, as well as being very late in the course of the proceedings.
Paragraph 69 of further amended statement of claim
The first and second respondents seek that the paragraph 69 of the further amended statement of claim be struck out as embarrassing, or because it will delay a fair trial of the application.
The respondents say that the figures contained in the applicant’s expert’s report concerning trading losses do not accord with the figures claimed in the further amended statement of claim.[28] They do not say that there are not trading losses evidenced by the expert’s report. In all of the circumstances of this matter, and in particular the proximity of the hearing and the nature of the claim which relates to a factual inconsistency and not an absence of loss, any factual inconsistencies are matters which can be dealt with at hearing, on the evidence and in submissions.
[28] Mr Whight’s Affidavit, Annexure PDW4.
The Court considers that this part of the strike out application must fail.
Conclusion and orders
For the above reasons those paragraphs of the first and second respondents’ application in a case which seek to strike out the applicant’s Further Amended Statement of Claim must be dismissed.
The balance of the first and second respondents’ application in a case can be dealt with forthwith after the publication of these Reasons for Judgment and the making of orders arising from that Judgment.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: S. Gough
Date: 30 March 2009
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