Traderight (NSW) Pty Ltd (ACN 108 880 968) and Ors v Bank Of Queensland Limited (ACN 009 656 740) (No 10) and 15 related matters
[2012] NSWSC 1181
•04 October 2012
Supreme Court
New South Wales
Medium Neutral Citation: Traderight (NSW) Pty Ltd (ACN 108 880 968) & Ors v Bank Of Queensland Limited (ACN 009 656 740) (No 10) and 15 related matters [2012] NSWSC 1181 Hearing dates: 25 September 2012 Decision date: 04 October 2012 Jurisdiction: Equity Division Before: Ball J Decision: See paragraph 54 of this judgment.
Catchwords: EVIDENCE - admissibility of evidence - whether evidence relevant to issues in case as pleaded - where evidence concerned whether defendant had "reasonable grounds" for representations made with respect to future matters - where plaintiff relied on deeming provisions in s 51A of the Trade Practices Act 1974 and s 41 of the Fair Trading Act and defendant had pleaded specific "reasonable grounds" - where plaintiff had not replied and there was deemed joinder of issue.
PRACTICE AND PROCEDURE - pleadings - UCPR r 14.14, the "surprise rule" - whether rule applies where party is aware of the new matter by way of evidence already served in the proceeding - held that it does not.
TRADE PRACTICES - misleading and deceptive conduct - existence of "reasonable grounds" for representation as to future matter - whether representor's knowledge, experience and expertise relevant when considering whether "reasonable grounds" existed - whether qualifications and experience of expert relevant to "reasonable grounds".Legislation Cited: Fair Trading Act 1987 (NSW)
Trade Practices Act 1974 (Cth) (now the Competition & Consumer Act 2010)
Uniform Civil Procedure Rules 2005 (NSW)Cases Cited: Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881; (2003) 60 IPR 296
Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
Bowler v Hilda Pty Ltd (1998) 80 FCR 191
Chapple v Electrical Trades Union [1961] 3 All ER 612; [1961] 1 WLR 1290
Cummings v Lewis (1993) 41 FCR 559
Darbyshire v Leigh [1896] 1 QB 554
Davis v Veigel [2011] NSWCA 170
Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300; (2011) 284 ALR 601
Forrest v Australian Securities and Investments Commission [2012] HCA 39
Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49
Lewame v Momentum Productions Pty Ltd [2007] FCA 1136
McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230
Makita (Australia) Pty Limited v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705
Re Rica Gold Washing Co (1879) 11 Ch D 36
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Traderight Pty Ltd v Bank of Queensland [2010] NSWSC 139; (2010) 266 ALR 503
Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Ltd (1998) 42 1 PR 1; (1998) ATPR 41-633
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189; (1989) ATPR 40-940
X v Sydney Children's Hospitals Specialty Network (No 4) [2011] NSWSC 1310Category: Interlocutory applications Parties: Traderight (NSW) Pty Ltd (ACN 108 880 968) (First Plaintiff in 06/258216 and First Defendant in 06/258225)
Bronwyn Smith (Second Plaintiff in 06/258216 and Second Defendant in 08/258225)
Geoffrey Versace (Third Plaintiff in 06/258216 and Third Defendant in 08/258225)
Smith Partners Development Pty Ltd (Fourth Plaintiff in 06/258216)
Verich Holdings Pty Ltd (Fifth Plaintiff in 06/258216)
Bank of Queensland Limited (ACN 009 656 740 (Defendant in 06/258216; Plaintiff in 08/258225; Plaintiff in 08/279848; Defendant in 08/281332; First Defendant in 08/282126; First Defendant in 08/282304; First Plaintiff in 09/287360; Defendant in 09/287814; First Defendant in 07/256081; Fourth Defendant in 09/287816; First Defendant in 09/287824; Defendant in 10/304306; Defendant in 10/305568; Defendant in 10/306022; Defendant in 10/367086; Defendant in 10/367117)
SME Business Assist Pty Limited (ACN 108 524 232) (First Defendant in 08/279848; Tenth Defendant in 09/287360; First Plaintiff in 09/287814; Sixth Plaintiff in 07/256081)
Scott Rolfe McCoy (Second Defendant in 08/279848; Eleventh Defendant in 09/287360; Second Plaintiff in 09/287814; Seventh Plaintiff in 07/256081)
Geraghty & Palmer (NSW) Pty Ltd (First Plaintiff in 08/281332)
Shauna Margaret Geraghty (Second Plaintiff in 08/281332)
Barry Palmer (Third Plaintiff in 08/281332)
Rossmick No 1 Pty Limited (First Plaintiff in 08/282126; Second Defendant in 09/287360; First Plaintiff in 07/256081; First Plaintiff in 09/287816)
Rossmick No 2 Pty Limited (Second Plaintiff in 08/282126; Third Defendant in 09/287360; Second Plaintiff in 07/256081; Second Plaintiff in 09/287816)
Michael Bradley (Third Plaintiff in 08/282126; Fourth Defendant in 09/287360; Third Plaintiff in 07/256081; Third Plaintiff in 09/287816)
Ross Chapman (Fourth Plaintiff in 08/282126; Fifth Defendant in 09/287360; Fourth Plaintiff in 07/256081; Fourth Plaintiff in 09/287816)
Luke Nolan (Fifth Plaintiff in 08/282126; Sixth Defendant in 09/287360; Fifth Plaintiff in 07/256081; Fifth Plaintiff in 09/287816)
David Liddy (Second Defendant in 08/282126; Second Plaintiff in 09/287360; Second Defendant in 07/256081; First Defendant in 09/287816; Second Defendant in 09/287824)
Jude Financial Services Pty Ltd (ACN 115 763 481) (First Plaintiff in 08/282304; Seventh Defendant in 09/287360; Eighth Plaintiff in 07/256081; First Plaintiff in 09/287824)
Russell Jude Edward Gardner (Second Plaintiff in 08/282304; Eighth Defendant in 09/287360; Ninth Plaintiff in 07/256081; Second Plaintiff in 09/287824)
Penelope Ann Gardner (Third Plaintiff in 08/282304; Ninth Defendant in 09/287360; Tenth Plaintiff in 07/256081; Third Plaintiff in 09/287824)
Industrial Court of New South Wales (First Defendant in 09/287360)
Donna Quinn (Third Plaintiff in 09/287360; Third Defendant in 07/256081; Second Defendant in 09/287816; Fourth Defendant in 09/287824)
Gary Allsop (Fourth Plaintiff in 09/287360; Fourth Defendant in 07/256081; Third Defendant in 09/287816; Third Defendant in 09/287824)
Southpole Financial Services Pty Ltd (First Plaintiff in 10/304306)
Harunur Rashid Chowdhury (Second Plaintiff in 10/304306)
Iftekhar Tarek Hassan (Third Plaintiff in 10/304306)
Ikthedar Hassan Murad (Fourth Plaintiff in 10/304306)
Best Deal Pty Limited (ACN 119 366 433) (First Plaintiff in 10/305568)
Jeffrey Bruce Jones (Second Plaintiff in 10/305568)
LJH Group Pty Limited (ACN 123 507 497) (First Plaintiff in 10/306022)
Leslie Xu (Second Plaintiff in 10/306022)
Jin Yu Yang (Third Plaintiff in 10/306022)
Leokate Pty Ltd (ACN 111 162 068) (First Plaintiff in 10/367086)
Stephen Sargent (Second Plaintiff in 10/367086)
Lauren Sargent (Third Plaintiff in 10/367086)
Shamarbre Pty Ltd (First Plaintiff in 10/367117)
Ronald George Johnson (Second Plaintiff in 10/367117)Representation: NA Cotman SC with RD Glasson (OMB Parties)
S Couper QC with JV Gooley, GAF Connolly and RM Higgins (Bank Parties)
McCabes (OMB Parties)
HWL Ebsworths (Bank Parties)
File Number(s):
Judgment
Introduction
In these proceedings, a number of franchisees of the Bank of Queensland (BOQ, or the Bank), all of whom operated branches of the Bank in New South Wales, claim, among other things, that they were induced to enter into their respective franchise agreements and to continue to operate branches of the Bank by misleading or deceptive conduct by the Bank in contravention of s 52, as it then was, of the Trade Practices Act 1974 (Cth) (now the Competition & Consumer Act 2010) (the TPA) and s 42, as it then was, of the Fair Trading Act 1987 (NSW) (the FTA). The branches operated by franchisees of the Bank are referred to as "Owner Manager Branches" or "OMBs". In this judgment, I will refer to the plaintiffs as the OMB Parties.
One of the issues raised by the claims based on contraventions of s 52 of the TPA and s 42 of the FTA is whether, on the assumption that the BOQ made certain representations to the OMB Parties and on the assumption that those representations are properly characterised as representations with respect to the future, the BOQ had reasonable grounds for making them.
A question has arisen concerning what evidence the OMB Parties are entitled to lead concerning that issue. The evidence in question includes a number of documents created at the time the BOQ was considering entering the New South Wales market concerning BOQ's marketing plan and whether successful entry into the New South Wales market using the Bank's franchise model was possible. The evidence also includes two expert reports prepared by Professor Burton, who is professor of marketing at the University of Western Sydney. Professor Burton is critical of the conclusions reached by the Bank concerning its ability to expand into the NSW market and of expert advice the Bank obtained from Enhance Management, an independent marketing consultant, on that subject.
The pleading of reasonable grounds
In explaining how the question arises, it is convenient to take as an example the pleadings in the proceedings commenced by Jude Financial Services Pty Ltd (JFS) and its shareholders, Mr and Mrs Gardner. JFS operated the Bathurst branch of the BOQ between 12 December 2005 and 20 February 2007 as a franchisee of the Bank.
In its third further amended statement of claim (3FASC), JFS pleads that BOQ made a large number of representations to it. It is sufficient for present purposes to refer to just one of those representations which is at the heart of JFS's case, and, indeed, the cases of the other OMB Parties. That representation is described as "the Viable Business Representation" which in para 33 of the 3FASC is relevantly pleaded in these terms:
BOQ ... impliedly represented that it actually believed on reasonable grounds that a viable business could be conducted in NSW as a BOQ franchisee, and in particular in Bathurst, by the Plaintiffs on the proposed terms of the BOQ OMB Franchise.
Paragraph 33A pleads various matters from which it is said that the representation is to be implied. Nothing, however, turns on that pleading for present purposes.
Paragraph 231 of the 3FASC pleads that the representations pleaded by JFS were "false, misleading or deceptive or likely to mislead or deceive" in contravention of both s 52 of the TPA and s 42 of the FTA. Particulars are given of that allegation. So far as the Viable Business Representation is concerned, the particulars, broadly speaking, fall into four categories.
First, there are particulars which simply amount to a denial that the representation was true. So, for example, particular (ii) provides:
The BOQ (by its servants and/or agents) had no reasonable grounds for believing at the time the representations were made that a BOQ OMB Agency operating in NSW, and in particular in Bathurst, was or could be a viable business.
Second, there are particulars to the effect that the BOQ had no reasonable grounds for representing that the majority of regional branches in NSW would or could expect to write approximately $3,000,000 in loans per month. It is pleaded elsewhere in the 3FASC that the BOQ had impliedly represented that it believed on reasonable grounds that a regional OMB branch could and would achieve $3,000,000 turnover within 3 to 6 months and it appears that the OMB Parties accept that a turnover of that amount was sufficient to enable a regional branch to break even and was therefore sufficient for such a branch to be viable.
Third, it is said that the Bank's products and services were uncompetitive. In particular, particular (xix) provides:
No reasonable grounds existed for believing that turnover would be significantly increased by an OMB undertaking marketing activity, by reason of the fact that the Bank's financial product was an uncompetitive product offered to the public and the service offered to the public by the BOQ was uncompetitive, relative to the product and service offered by other banks and financial services providers in NSW.
Fourth, it is said that the Bank did not intend to assist OMB franchises with their own marketing or to conduct a material amount of marketing itself. So, for example, particulars (xx) and (xxii) provide:
(xx) The BoQ did not and/or did not intend to assist the OMB Franchises, and in particular the Bathurst OMB Franchise with most of the marketing costs;
...
(xxii) The BoQ did not either intend to or in fact provide ongoing marketing and advertising from a corporate level which would include brand and product marketing at any material level.
In addition, para 268 of the 3FASC pleads:
In the premises, in trade or commerce, the Defendant, by its servants or agents made representations with respect to future matters and the Plaintiffs rely on section 51A of the Trade Practices Act 1974 (Cth).
The particulars then set out the representations said to be representations with respect to future matters. They include the Viable Business Representation.
Section 51A of the TPA provided:
(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
(3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.
Paragraph 269 of the 3FASC contains a similar pleading to para 268 relying on s 41 of the FTA. Section 41 of the FTA provided:
(1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person.
(3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.
Section 41(2) of the FTA shifts the legal or persuasive onus of establishing reasonable grounds to the person making the representation: Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300; (2011) 284 ALR 601 at [33] per Allsop P (with whom Macfarlan JA and Handley AJA agreed). The position remains unclear in the case of s 51A of the TPA, although the balance of authority appears to be in favour of the view that s 51A(2) only shifts the evidential onus: Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 at [46] per Emmett J; McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2; (2008) 165 FCR 230 at [192]-[193] per Allsop J; Lewame v Momentum Productions Pty Ltd [2007] FCA 1136 at [82] per Stone J; Traderight Pty Ltd v Bank of Queensland [2010] NSWSC 139; (2010) 266 ALR 503 at [49]ff per Ward J; Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300 at [19] per Allsop P.
By paragraph 268(c) of BOQ's amended defence, the Bank denies that there were no reasonable grounds for making the pleaded representations. Conscious of the fact that s 51A(2) of the TPA and s 41(2) of the FTA shifted the evidential or legal onus to it in relation the question of reasonable grounds, the Bank then gives detailed particulars of its denial that it did not have reasonable grounds for making the alleged representations, including, relevantly, the following:
The respondent [sic] sets out below the general categories of future representations alleged and the particulars of reasonable grounds that are relied upon by the respondent:
1. The respondent had reasonable grounds for any representation or belief to the effect that an owner managed branch in Sydney would or could be a viable business because it had reasonable grounds to believe the following:
A. ...
...
E. the respondent could successfully conduct business in New South Wales under the name Bank of Queensland;
F. there was a substantial potential market of retail and business customers in New South Wale prepared to change banks;
...
6. The respondent relies on the following as reasonable grounds for any representation or belief to the effect that the respondent could successfully conduct business in New South Wales under the name Bank of Queensland:
A. the respondent engaged Enhance Management, a professional marketing consultant firm to carry out investigations into the respondent's proposed entry into southern markets;
B. Enhance Management produced to the respondent a presentation entitled Bank of Queensland Southern Market Entry Quantitative Top Line Presentation dated September 2003 and a presentation entitled Bank of Queensland Southern Market Entry Quantitative Presentation dated October 2003;
C. the presentations reported the results of detailed market surveys undertaken by Enhance Management;
D. the reports expressed the conclusions that:
(i) New South Wales and Victoria represented a relatively substantial potential market for the respondent;
(ii) the respondent could launch in southern markets under the then current branding (Bank of Queensland);
E. the content of the presentations supported the stated conclusions;
F. once OMBs in New South Wales commenced to trade the performance of a number of OMBs demonstrated that the respondent could successfully conduct business in New South Wales.
7. The respondent relies on the following as reasonable grounds for any representation or belief to the effect that there was a substantial potential market of retail and business customers in New South Wales prepared to change banks:
A. the October 2003 presentation by Enhance Management stated the conclusion that approximately one-quarter of businesses and consumers are likely to consider moving to the respondent;
B. the survey evidence reported in the presentation supported that conclusion;
C. once OMBs commenced trading in New South Wales the performance of a number of OMBs demonstrated that such a potential market existed.
JFS says nothing in its reply in response to paragraph 268 of the 3FASC or paragraph 269. The result is that there is an implied joinder of issues in relation to the allegations made in those paragraphs: Uniform Civil Procedure Rules (UCPR) r 14.27(2). The implied joinder of issue operates as a denial of every allegation of fact made in the relevant paragraphs: UCPR r 14.27(5).
The OMB Parties' case as opened
In opening, Mr Cotman SC, who appeared for the OMB Parties, spent a considerable amount of time dealing with the question whether the BOQ had reasonable grounds for believing that a viable business could be conducted in NSW as a BOQ franchisee. Relevantly, he pointed to a number of analyses prepared by the Bank and Enhance Management which addressed the nature of the NSW market and the prospects of BOQ successfully entering it and sought to make a number of points in relation to them. One point was that the analyses were flawed largely for the reasons identified by Professor Burton. Another was that, on a proper analysis of the material, the conclusion that was reached or ought to have been reached by the Bank was that further research needed to be undertaken before the Bank could be satisfied that it could expand successfully into NSW using its OMB model and that research was never undertaken. A third point, connected to the other two, was that the strategy that the Bank proposed to adopt depended on the OMB Parties establishing personal relationships with customers and potential customers through local area marketing and that strategy was flawed, or at least, to the knowledge of the Bank, required further testing through market research, which was never undertaken. According to Mr Cotman, the strategy was flawed because it assumed incorrectly that the establishment of personal relationships through local area marketing could overcome other disadvantages facing the Bank including the fact that there was no budget for marketing at the corporate level, the Bank did not have a full suite of competitive products, it was at a competitive disadvantage in relation to pricing compared to the big four banks and it was at a competitive disadvantage compared to other regional banks because it was a new entrant which was not well known.
Mr Couper SC, who appeared for BOQ, submitted that, as opened, the OMB Parties' case is outside the pleadings. On that basis, he objects to the tender of a number of marketing documents referred to by Mr Cotman and to the two reports prepared by Professor Burton on the basis that that material is irrelevant to the issues in the case.
Before examining Mr Couper's argument, it is helpful to set out some of the provisions of the UCPR concerning the way in which a case must be pleaded.
Relevant rules
UCPR r 14.7 provides:
Subject to this Part, Part 6 and Part 15, a party's pleading must contain only a summary of the material facts on which the party relies, and not the evidence by which those facts are to be proved.
Part 6 is not presently relevant. Part 15 (about which something more is said below) deals with particulars. "Material facts" are all those facts that a party must prove in order to establish the party's cause of action or defence: Darbyshire v Leigh [1896] 1 QB 554; Re Rica Gold Washing Co (1879) 11 Ch D 36.
UCPR r 14.10 provides:
A party need not plead a fact if:
(a) the fact is presumed by law to be true, or
(b) the burden of disproving the fact lies on the opposite party,
except so far as may be necessary to meet a specific denial of that fact by another party's pleading.
UCPR r 14.14 relevantly provides:
(1) In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise.
(2) In a defence or subsequent pleading, a party must plead specifically any matter:
(a) that, if not pleaded specifically, may take the opposite party by surprise, or
(b) that the party alleges makes any claim, defence or other case of the opposite party not maintainable, or
(c) that raises matters of fact not arising out of the preceding pleading.
UCPR r 15.1 relevantly provides:
(1) Subject to this Part, a pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet.
UCPR r 15.3 provides:
A pleading must give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which the party relies.
Under UCPR r 15.10 the court may order a party to provide particulars. A party is not required to plead to particulars: Chapple v Electrical Trades Union [1961] 3 All ER 612; [1961] 1 WLR 1290.
The parties' submissions
Mr Couper submitted that the OMB Parties had a choice. They could allege positively that BOQ had no reasonable grounds for making the alleged representations. In that case, they would have to give particulars of that allegation and they would be bound by the particulars they gave. On the other hand, they could rely on s 51A of the TPA and s 41 of the FTA. In that case, they were bound by the case raised by the particulars given by the Bank. Implicit in this submission was that it was, for example, open to the OMB Parties to take issue with the proposition that the material contained in the Enhance Management reports supported the conclusions stated in those reports. However, it was not open for the OMB Parties to argue, and to lead evidence supporting the conclusion, that taking account of other facts the Bank did not have reasonable grounds for making the relevant representations. On the other hand, Mr Cotman's position was that there was an implied joinder in relation to the issue whether the Bank had reasonable grounds for making the representations in question and it was open to the OMB Parties to lead any evidence relevant to that issue, subject to the rule that it could not raise an issue that would catch the Bank by surprise.
Mr Couper's submission relied heavily on the following passage from the judgment of Cooper J in Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 215:
The consequence of a representor making out the requirements of reasonable grounds is to deny the benefit of the deeming provision. Section 51A(1) and (2) do not operate to prevent an applicant for relief seeking to prove up conduct in contravention of s 52 of the Act. However, if an applicant is not intending to rely solely on the operation of s 51A to prove up its case, then the positive case to be advanced must be specifically pleaded in order that the respondent knows the case which the applicant will seek to make out on trial.
A similar point was made by Foster J in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Ltd (1998) 42 IPR 1 at 7-8; (1998) ATPR 41-633 at 40,981:
If a pleader asserts positively the absence of reasonable grounds for the making of the prediction, it must of course plead the relevant factual matters specifically (although not, of course, the evidence upon which the factual assertions are based). If s 51A is also relied upon, then the respondent in its defence must deal with the applicant's factual allegations as to absence of reasonable grounds and also, in order to counter the deeming effect of s 51A, it must assert positively the facts relied upon as establishing reasonable grounds.
Consideration
In considering the passage relied on by Mr Couper, and the position it is said to support, it is necessary to bear in mind two points.
First, it is accepted that s 51A of the TPA and s 41 of the FTA are deeming provisions which are designed to facilitate proof. They do not provide a substantive defence: TPA s 51A(3); FTA s 41(3); Cummings v Lewis (1993) 41 FCR 559 at 567, cited with approval in Bowler v Hilda Pty Ltd (1998) FCR 191 at 206 per Heerey J and 215 per Cooper J. Consequently, it remains open to a plaintiff to seek to prove that a statement concerning the future is misleading or deceptive for some other reason. As Lee J explained in Wheeler Grace & Pierucci Pty Ltd v Wright (1989) 16 IPR 189 at 201-2; (1989) ATPR 40-940 at 50,251 (cited with approval by Heerey J in Bowler v Hilda Pty Ltd (1998) FCR 191 at 206):
A positive unqualified prediction by a corporation may be misleading conduct in trade or commerce if relevant circumstances show the need for some qualification to be attached to that statement or the possibility of its non-fulfilment to be disclosed as a requirement of fair trading. The fact that the corporation believed or had reasonable grounds for belief that the prediction would be fulfilled, would not answer the question as to whether the conduct was misleading or deceptive conduct in trade or commerce. The misleading or deceptive conduct may be found in the failure to qualify the statement or disclose the risk of non-fulfilment and the event of non-fulfilment of a prediction or promise may be evidence that raises an inference that such a risk of non-performance existed or that qualification of the positive statement, prediction or promise was required.
Clearly, however, if that is what a plaintiff alleges, it must allege the material facts said to make the prediction misleading or deceptive and prove those facts.
Second, what must be pleaded and proved may depend on whether the legal or only the evidential onus is shifted. In the case of s 41 of the FTA, which shifts the legal onus, it is clearly a material fact to the defence of a claim based on s 42 of the FTA, to the extent that the conduct complained of consists of representations with respect to the future, that the representor had reasonable grounds for making the representation because, in the absence of proof of that fact, the effect of s 41(2) is that it is presumed that the representor did not have reasonable grounds for making it and the effect of s 41(1) is that the representation is taken to be misleading. UCPR r 15.1 requires the representor to give adequate particulars of the grounds on which it says that it had reasonable grounds for making the representation and, in the absence of those particulars, the court will make an order under UCPR r 15.10 that they be provided.
The position is less clear if all that is shifted is the evidential onus. In that case, what is essential to the defence is not proof of the fact that reasonable grounds existed but rather that sufficient evidence is raised of reasonable grounds so that the deeming provision contained in s 51(2) does not operate. Strictly speaking, then, what the representor must allege and establish is that there is sufficient evidence that it had reasonable grounds for making the representation so as to prevent s 51(2) from operating. Heerey J expressed the requirement in these terms in Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513:
If there was a representation as to a future matter, s 51A requires the representor to show:
· some facts or circumstances
· existing at the time of the representation
· on which the representor in fact relied
· which are objectively reasonable and
· which support the representation made.
If the representor establishes those matters, then it is for the representee to allege and prove that the representor did not have reasonable grounds for making the representation. Again, it must give particulars of the matters that it relies on. In those circumstances, the representee appears to be faced with a choice. It can take issue with the allegation that there is sufficient evidence that the representor had reasonable grounds for making the representation. Necessarily, if it takes that position, it is confined to arguing that the matters particularised by the representor cannot be made out or, if made out, are not sufficient to discharge the evidential onus. On the other hand, the representor can seek to discharge the legal onus that remains with it. In those circumstances, it must allege and prove facts which demonstrate that the representor did not have reasonable grounds for making the representation. Once again, UCPR r 15.1 requires a representor who elects to adopt that course to give particulars of the allegation that the representor did not have reasonable grounds.
In Bowler v Hilda Pty Ltd (1998) 80 FCR 191, a real estate agent made representations in a hand out, which was distributed to potential purchasers of units in a motel redevelopment, to the effect that the units were able to be used for residential purposes. The motel was constructed on land owned by the Commonwealth and leased by Hilda, the developer. At the time the agent was engaged, the lease contained a clause by which Hilda covenanted to use the premises only for the purpose of a residential hotel and ancillary car parking. Hilda had, however, made an application to the planning authority for a variation of the purpose clause to permit residential use. Before distributing the hand out, the agent had sent a draft to Hilda's solicitors asking them to check that it was accurate. In the absence of a reply, the agent assumed that the hand out was accurate. At first instance, Finn J held that the agent had reasonable grounds for making the representation it did based on its correspondence with Hilda's solicitors and that consequently the claim failed. On appeal, a majority of the Full Court (Black CJ and Heerey J) held that the agent did not have reasonable grounds for making the representation. Having regard to other information the agent had concerning the redevelopment, the agent could not have reasonably assumed that the absence of a reply from the solicitors meant that the units could be used for residential purposes.
Cooper J dissented. Like the trial judge, he thought that the agent was entitled to conclude that the solicitors thought that the hand out was accurate and that the agent was entitled to rely on that advice. However, Cooper J also considered a number of other arguments raised by the appellant. One of those was that the representation made by the agent was misleading since there was no objective basis in fact for making it because the planning authority had told Hilda and Hilda had agreed that the units failed to meet the criteria for residential (as opposed to transient) accommodation. It was in the context of considering that argument that Cooper J made the statement on which Mr Couper relies. His Honour concluded that the case propounded by the appellant had not been pleaded and it was too late to raise it on appeal. That case was clearly a case that the agent engaged in misleading conduct irrespective of whether it had reasonable grounds for making the representation it did. It did not rely on s 51A of the TPA. On any view, as Cooper J held, that case needed to be properly pleaded and particularised.
A second argument raised on appeal was that Hilda had no intention that the units would be used as residential apartments at the time the representation was made and the agent knew that fact and for that reason had no reasonable grounds for believing that the representation was true. Again, that case had not been pleaded or particularised at trial. It was raised for the first time in submissions at first instance. Again, Cooper J took the view that it could not be raised on appeal.
A third argument raised on appeal - which was accepted by the majority - was that the correspondence the agent sent to the solicitors did not support the inferences that the trial judge drew from them. In relation to that argument, Cooper J concluded that "[n]otwithstanding that the ground was not pleaded, I am of the view that there is no substance to the submission" (at 217). His Honour then goes on to explain the basis for that conclusion.
Three points are to be noted with the way that his Honour dealt with the second and third arguments. First, it is not clear whether his Honour thought that s 51A(2) of the TPA cast an evidential or legal onus on the agent. For the reasons I have given, that may well affect what must be pleaded and proved. However, whatever the position in relation to s 51A of the TPA, s 41 of the FTA clearly places the legal onus on the representor. Consequently, to the extent that his Honour took the view that s 51A(2) merely placed the evidential onus on the agent, his comments on what needed to be pleaded and proved do not necessarily apply to the OMB Parties' case insofar as it depends on s 41 of the FTA. Second, so far as the second argument is concerned, as Cooper J pointed out, that argument amounted to an allegation of fraud. It had not been raised before final submissions. On any view, an allegation of that type needs to be pleaded and properly particularised: UCPR r 15.3; Forrest v Australian Securities and Investments Commission [2012] HCA 39 at [24]-[27] per French CJ, Gummow, Hayne and Kiefel JJ. Cooper J's comments on this aspect did not necessarily depend on an analysis of what is required by s 51A. Third, so far as the third argument is concerned, Cooper J was prepared to consider the argument notwithstanding that it had not been pleaded, as were Black CJ and Heerey J. To the extent that his Honour was saying that the argument ought not to have been considered because it had not been pleaded, he was in the minority.
In the present case, the OMB Parties plead that BOQ did not have reasonable grounds for making various representations, including the Viable Business Representation. They also specifically rely on s 51A of the TPA and s 41 of the FTA. The OMB Parties do not suggest that the relevant representations were misleading for any other reason. Whatever may be said about the position under the TPA, the result is that the Bank, if it is to resist the effect of s 41(1), must plead and prove that it had reasonable grounds for making the relevant representations and give particulars of that allegation. It has done that, although in a somewhat round about way because what it has done is denied that there were not reasonable grounds. However, the double negative must be interpreted as the assertion of a positive in this case. The OMB Parties have not replied to that pleading. There is, therefore, a deemed joinder in relation to that issue - that is, there is a deemed joinder in relation to the issue whether BOQ had reasonable grounds for making the relevant representations. That is a material issue in the case and, subject to any requirements of the UCPR, the OMB Parties are entitled to lead any evidence that is relevant to that issue. The only relevant requirement in the UCPR is that contained in UCPR r 14.14(2) - that is, the requirement to plead specifically any matter that may take the opposite party by surprise. For the reasons I have given, I do not think that the decision of Cooper J in Bowler v Hilda Pty Ltd (1998) FCR 191 can be taken as authority to the contrary. To the extent that that case concerned the question whether the agent had reasonable grounds, the majority was prepared to determine the case by reference to all the facts that had been established by the evidence, whether or not those facts had been specifically pleaded.
Although the surprise rule is stated to be a formal rule of pleading, it is generally taken to be a rule concerning the way in which the trial must be conducted. That is, the rule does not require a party to plead any matter which, on the basis of what is alleged in the pleadings, would catch the other party by surprise if it were not pleaded. Rather, the rule prevents a party from raising at trial any matter which would genuinely catch the other party by surprise. If it is clear from other matters that a party intends to raise an issue, then the surprise rule is not normally interpreted as requiring that the matter also be pleaded before it can be raised. As Macfarlan JA (Hodgson and Young JJA agreeing) said in Davis v Veigel [2011] NSWCA 170 at [99] in relation to an allegation that a defendant had failed to plead that a motor vehicle accident had been caused by another driver, which was an allegation that had caught the plaintiffs by surprise at trial when a witness gave evidence to that effect:
I do not accept Messrs E Bell and Dee's argument that they would have been placed in an invidious position if they had pleaded Mr Davis' involvement in the accident. If they had real concerns about pleading this they could readily have rendered the subrule inapplicable by corresponding with the other parties to inform them of the evidence that Mr Owen Bell was expected to give. If they had done this, there would have been no prospect of "surprise" to the other parties and therefore no requirement imposed by the subrule to plead Mr Davis' involvement. ...
Macfarlan JA was concerned with Part 9 rule 9 of the District Court Rules which were then in force. However, that rule was not relevantly different from UCPR r 14.14.
Similarly, in X v Sydney Children's Hospitals Specialty Network(No 4) [2011] NSWSC 1310, the plaintiffs objected to a paragraph in an expert report served in accordance with a court time table because they said the evidence took them by surprise as it related to causation, an issue not pleaded. Adamson J rejected that submission predominantly because there was sufficient material already in evidence on the same issue to show that plaintiff could not reasonably have been surprised: at [22].
Conclusion
The question in the present case, then, is whether BOQ could reasonably have been taken by surprise by the way in which Mr Cotman put the case in opening having regard to what is pleaded and to the evidence that has already been served - in particular, Professor Burton's reports.
Professor Burton summaries the conclusions of her first report in these terms:
(a) At the time that the Bank was planning its entry into the NSW financial services market (the NSW Market), and over the time covered by the documents and materials provided to me, the NSW Market was difficult to enter, due to the presence of established, strong competitors and smaller banks already competing on the basis of the Banks asserted superior service quality.
(b) At the time of planning and prior to its entry into the NSW Market, this level of competition meant that any new entrant to this market had a high risk of not obtaining any significant market share by causing switching of consumer allegiance from an incumbent to the entrant.
(c) At the time of planning and prior to its entry into the NSW Market, the Bank knew that another Queensland based financial service company, Suncorp, had tried entry into that market and had failed.
(d) At the time of planning and prior to its entry into the NSW Market, the Bank should have known that its success in Queensland might not be replicated in NSW because the market conditions in Queensland were not the same as in NSW.
(e) The information available to the Bank as to consumer behaviour in NSW:
(i) did not show a substantial inclination of consumers to switch suppliers of financial services;
(ii) did not show that perception of personal relationship or service was valued highly by consumers or as a basis for change of supplier;
(iii) showed scepticism by consumers about claimed service levels or benefits in fact being available when promised;
(iv) did show demand for appreciable price advantage as a basis for possible change; and
(v) did show low level of actual change of suppliers of financial services.
(f) At the time of planning and prior to its entry into the NSW Market the consumer behaviour identified increased the risk of a new entrant, such as the Bank not obtaining significant market share, unless it could demonstrate to consumers a meaningful difference in price of financial products or services.
(g) At the time of planning and prior to its entry into the NSW Market, there was evidence in the documents and material provided to me that Bank products to be offered in the NSW market were not competitive and/or were not considered competitive.
(h) At the time of planning and prior to its entry into the NSW Market, the Bank appears to have ignored information contained in its research and internal reports which should have increased concerns about the planned entry method (being a franchise of the Bank of Queensland name and business); in particular evidence of consumer concern about a "Queensland" brand, about the use of a franchised bank, and also internal reports that the Bank's products were not considered competitive.
(i) At the time of planning and prior to its entry into the NSW Market, the Bank should have known that the NSW Market was risky, in the sense described above and application of proper marketing practice would have provided further evidence of this risk. Despite this, the Bank decided to enter the NSW Market in a manner, which while it decreased the cost and risk for itself, did not decrease the risk of not obtaining any significant market share, the risk of which would fall on the franchisees.
(j) The manner of the Bank's entry (i.e. using a franchise model, and with no mass media support) significantly increased the risk of failure to obtain significant market share. The decision not to use mass media appears to have been driven by the Bank's unwillingness to invest in the NSW Market , without apparent consideration of the increase in risk of failing to achieve market share which would result from the lack of mass media support which was needed to inform consumers of any competitive product and improve confidence in the new entrant.
(k) Given the strong competition in the NSW Market, the consumer behaviour to be expected, the Bank's inability to differentiate its products from competitors by its features or by advertising of them, and the launch method planned, being franchisee initiative, in my opinion, the failure of a large number of franchisees to secure significant banking business was inevitable.
I) Had the Bank applied proper marketing practice, in my opinion, it should have anticipated or predicted these failures, and then would either have varied its planned entry strategy, or would have decided not to extend into the NSW market.
Professor Burton's supplementary report criticises the conclusions reached by Enhance Management. Professor Burton concludes:
In my view, a reasonable or prudent marketer could not reasonably recommend to the Bank that it should enter the NSW market (or the southern markets) on the basis of the evidence contained in these Presentations without substantial additional investigation into the viabillty [sic] of the Bank's proposed offerings in the southern markets.
In my opinion, the matters referred to by Mr Cotman in opening are sufficiently raised by the material that had already been served on the Bank so as to make it unnecessary for them to be pleaded in accordance with UCPR r 14.14. In particular, Professor Burton's two reports set out the matters on which the OMB Parties rely for the assertion that the Bank did not have reasonable grounds for relying on the marketing material it says it did rely on. A number of those matters - such as the allegation that there was no reasonable grounds for believing that the Bank's products and services were competitive with those of other banks and the absence of marketing and advertising support - have been included in particulars to para 231 of 3FASC. It is not suggested that what Mr Cotman said went beyond that material. Rather, what Mr Couper submitted was that that material went beyond the pleaded case. For the reasons I have given, I do not accept that submission.
In my opinion, the marketing material considered by the Bank in determining whether to enter the New South Wales market is relevant to the issues raised by Mr Cotman and should be admitted. Indeed, a number of the documents which Mr Cotman took me to have already been exhibited to affidavits that have been filed (although not yet read) by BOQ. Similarly, Professor Burton's reports are not inadmissible merely because they seek to deal with issues which are not specifically pleaded.
Other issues
Professor Burton's reports, however, raise two other issues which may mean that all or some part of the reports are not admissible.
First, and not surprisingly, the reports are generally concerned with the conclusions that would be reached by a person who is expert in marketing. However, whether those conclusions are relevant to the existence of reasonable grounds is open to some doubt. The question whether there are reasonable grounds for making a particular representation is an objective not a subjective question. A genuine or honest belief on the part of the representor in a representation is not sufficient to show reasonable grounds: Cummings v Lewis (1993) 41 FCR 559 at 565. However, courts generally consider the position of the representor, including the representor's knowledge, experience and expertise, in considering whether the representor had reasonable grounds for making a particular representation. For example, in Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881; (2003) 60 IPR 296, Danoz Direct had made representations about the fitness benefits of a product known as the "AbTronic". To prove that it had "reasonable grounds" for making the representations, Danoz Direct argued that it relied upon information given to it by the manufacturer of the product. Dowsett J addressed that submission at [174] in these terms:
In many cases a retailer will rely upon representations made by a manufacturer or wholesaler as to the quality and capacity of a particular product and will make representations based upon them. It cannot be seriously suggested that a pharmacist who recommends a product to a customer, acting upon information provided by a reputable manufacturer, lacks reasonable grounds. Similarly, it cannot be asserted that s 51A requires a retailer of electrical goods to carry out testing on a television set supplied by a reputable manufacturer in order to ensure that it has the qualities asserted in relevant promotional material, before he or she represents that it has such qualities. In my view, such representations may well be made on reasonable grounds if they are based upon information provided by a supplier. In each case, the question will depend upon the reputation of the supplier and past dealings between it and the retailer. If goods of a particular kind have been consistently provided over a lengthy period of time, have always been of good quality and lived up to representations made by the supplier, then it may well be reasonable for the retailer to act upon representations concerning a new product. Each case will depend upon its own facts.
His Honour then went on to find that Danoz Direct did not have reasonable grounds for most of the representations it made because it had access to scientific material about the product and had not assessed the reliability of the manufacturer's claims in light of that material: at [175]ff.
Similarly, a person who relies on expert advice for making a representation may have reasonable grounds for making it if the person made reasonable enquiries concerning the qualifications and experience of the expert and had no reason to doubt the conclusions the expert reached, even if those conclusions were arrived at as a result of negligence: Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49 at 58.
It is not clear in those circumstances that material directed at establishing that Enhance Management's reports were not reliable or that an expert in marketing would not have formed the conclusions that the Bank says it did is relevant to the question whether the Bank had reasonable grounds for making the representations that it did.
Secondly, there is a question whether the reports prepared by Professor Burton, or parts of them, fail to satisfy the requirements set out by Heydon JA in Makita (Australia) Pty Limited v Sprowles [2001] NSWCA 305; (2001) 52 NSWLR 705 at [85]-[86]. Those requirements were stated by Heydon JA in these terms:
In short, if evidence tendered as expert opinion evidence is to be admissible, it must be agreed or demonstrated that there is a field of "specialised knowledge"; there must be an identified aspect of that field in which the witness demonstrates that by reason of specified training, study or experience, the witness has become an expert; the opinion proffered must be "wholly or substantially based on the witness's expert knowledge"; so far as the opinion is based on facts "observed" by the expert, they must be identified and admissibly proved by the expert, and so far as the opinion is based on "assumed" or "accepted" facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert's evidence must explain how the field of "specialised knowledge" in which the witness is expert by reason of "training, study or experience", and on which the opinion is "wholly or substantially based", applies to the facts assumed or observed so as to produce the opinion propounded.
To take an example, in her first report Professor Burton answers a series of questions posed for her. A number of those questions ask whether the material supplied to her contain or do particular things. So for example, question 3 asks "Does the material record or analyse any similarities or identify any differences between the market for financial services in New South Wales and that in Queensland?" It is not at all clear that the identification of material meeting a particular description involves the application of any specialised knowledge on the part of Professor Burton.
Neither of these issues, however, were fully addressed in argument before me. They should be addressed at the time I rule on particular objections to Professor Burton's reports.
Orders
The only order that I make at present is that the following documents be admitted into evidence:
(1) BoQ NSW & Vic Market Entry: Marketing Workplan, 22 May 2003 (BoQ.027.004.0115);
(2) Owner Managed Branches, Board Presentation, June 2003 (BoQ.013.002.0005);
(3) Expansion in Queensland - How many is Enough? (BoQ.026.003.0057)
(4) Interstate Expansion Media Strategy, September 2003 (BoQ.026.003.0070) (revised in December 2003);
(5) Memorandum OMB Commission Model - Interstate Expansion, 17 October 2003 (Exhibited at pages 660 to 680 of Exhibit MRZ-4 to the affidavit of Matthew Robert Zillman sworn 26 February 2010; at pages 6 - 26 of document WIT.GM14.009.0001);
(6) Marketing Plan 2003/2004, 22 October 2003 (Exhibited at pages 2634 of Exhibit "JC-M" to the affidavit of Jacinta Crabtree sworn 30 June 2010; at pages 161 to 207 of document WIT.GM10.011.0001);
(7) Interstate Expansion Marketing Plan, January 2004 (BoQ.026.001.0342; also version at BoQ.028.001.0030).
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Decision last updated: 05 October 2012
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