Traderight (NSW) Pty Ltd (ACN 108 880 968) and Ors v Bank Of Queensland Limited (ACN 009 656 740) (No 8) and 15 related matters
[2011] NSWSC 1514
•15 December 2011
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 8) and 15 related matters [2011] NSWSC 1514 Hearing dates: 2 December 2011 Decision date: 15 December 2011 Jurisdiction: Equity Division Before: Ball J Decision: The OMB Parties' motion filed on 7 November 2011 be dismissed with costs.
Catchwords: PROCEDURE - civil - pleadings - application to amend - whether undue delay in bringing application - whether pleadings unambiguous - take into account affect on trial date - whether defendants will be prejudiced - where pleadings change the substance of the case being put - existence of same or similar allegations in existing pleadings where not central to cause of action - failure to particularise allegations - unparticularised pleadings should not be permitted at advanced stage of trial preparation -application dismissed Legislation Cited: Civil Procedure Act 2005 (NSW)
Fair Trading Act 1987 (NSW)
Industrial Relations Act 1996 (NSW)
Trade Practices Act 1974 (Cth) (now the Competition & Consumer Act 2010)Cases Cited: Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; 239 CLR 175
Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230
McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308
Traderight & Ors v Bank of Queensland (No 6) [2011] NSWSC 972
Traderight & Ors v Bank of Queensland (No 7) [2011] NSWSC 1265Category: Procedural and other rulings 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: N A Cotman SC with R D Glasson (OMB Parties)
S Couper QC with J V Gooley and G A F Connolly (Bank Parties)
McCabe Terrill Lawyers (OMB Parties)
HWL Ebsworths (Bank Parties)
File Number(s):
Judgment
Introduction
By a notice of motion filed on 7 November 2011, the plaintiffs seek leave to amend the statements of claim filed in these proceedings to allege that the first defendant, the Bank of Queensland (referred to in the statements of claim as the BOQ or BoQ ), engaged in misleading and deceptive conduct by silence in contravention of s 52 of the Trade Practices Act 1974 (Cth) (as it then was) ( TPA ) and what was then s 42 of the Fair Trading Act 1987 (NSW) ( FTA ). It is also alleged that the same conduct was unconscionable conduct within the meaning of ss 51AC and 51AA of the TPA.
Background
The background to these proceedings are set out in judgments I delivered on 31 August 2011 ( Traderight & Ors v Bank of Queensland (No 6) [2011] NSWSC 972) and 31 October 2011 ( Traderight & Ors v Bank of Queensland (No 7) [2011] NSWSC 1265), both of which were also concerned with issues relating to the pleadings filed in these proceedings. It is not necessary to repeat all that I said in those judgments. However, some background is necessary to understand the current application.
The Bank of Queensland operates part of its business through franchisees. The branches operated by those franchisees are referred to as Owner Manager Branches or OMBs. These proceedings concern 10 OMBs located in New South Wales. There are separate proceedings in relation to each OMB which are currently set down to be heard together commencing on 23 April 2012. The trial is estimated to take 28 weeks. In each of the proceedings, the franchisee of a particular branch and persons associated with the franchisee (together, referred to as the OMB Parties ) claim that, as a result of misrepresentations made by the Bank (and, in some cases, its employees), they were induced to enter into the relevant franchise agreement and associated agreements. They claim that as a consequence of doing so they have suffered substantial losses. The losses are said to arise in various ways, but in each case, they include losses arising from the fact that the branches in question were unprofitable.
A broad range of representations are pleaded and there is a considerable overlap in the representations that are pleaded in each case. It is not necessary to describe all of the pleaded representations. Some, however, should be mentioned. In order to do so, it is convenient to take the further amended statement of claim ( FASC ) filed in the proceedings commenced by Best Deal Pty Limited and Mr and Mrs Jones. Best Deal was the franchisee that operated the Toronto branch of the Bank in northern New South Wales. Mr Jones was Best Deal's sole director and shareholder who managed the branch. Mrs Jones worked in the business.
In para 33 of the Best Deal FASC, the plaintiffs allege that the Bank "impliedly represented that it actually believed on reasonable grounds that a viable business could be conducted by a prospective franchisee of a BoQ OMB business conducted in NSW and other States and Territories on the proposed terms of the BoQ's OMB Franchise". That representation is defined to be the Viable Business Representation . The representation is said to be implied from various facts and matters. Essentially, though, what is alleged is that the representation is to be implied from the fact that the Bank actually made offers to persons to become franchisees of the Bank on the terms of the relevant franchise agreements.
Paragraph 49 of the Best Deal FASC alleges that Mr Allsopp, an employee of the Bank, represented to Mr Jones that BoQ's minimum lending and deposit targets for all branches at the relevant time was $4 million in new lending per month, which amount was achievable. Paragraph 50 of the Best Deal FASC then alleges that by making that statement the BoQ represented that there was a reasonable expectation or that reasonable grounds existed for having an expectation that the OMB to be operated by Best Deal would write $4 million in new lending per month. That representation is referred to as the Sales Target Representation . The Best Deal FASC also alleges that various other representations were made concerning the $4 million target. So, for example, para 53 of the Best Deal FASC alleges that at a meeting on 18 January 2006, Mr Allsopp made representations, among others, to Mr Jones to the following effect:
(b) That BoQ's minimum lending and deposit targets were easily achievable and realistic;
...
(j) That to breakeven or to start making a profit in a franchise of the BoQ, Jones would have to write loans of $4 million per month;
(k) That having regard to the size of mortgages in New South Wales, writing loans of $4 million per month was achievable. All the BoQ branches in NSW were achieving that target and were operating profitably;
(l) The writing of home loans of $4 million per month would be sufficient to cover all of the business' overheads and start making a profit and that does not take into account the business Jones would be able to generate by selling products other than residential home loans;
(m) That usually the writing of $4 million in loans per month occurs at between six (6) to twelve (12) months of opening the branch with most OMB's achieving this month after around 6 months;
(m1) That given Jones' background an OMB conducted by him would be able to reach the target of writing $4 million in loans per month, even sooner within 6 months. Given the average loan size of NSW, an OMB conducted by Jones would have no trouble writing $4 million in loans per month;
...
In paras 53D and 53E of the FASC, it is alleged that by making the representations referred in para 53(b), (j), (k), (m) and (m1) the Bank impliedly represented that "it did believe on reasonable grounds that an OMB branch conducted by Jones could and would achieve $4,000,000 loan turnover within 6 months" (the Turnover Achievable Representation ) and that "it did believe on reasonable grounds that an OMB branch conducted by Jones could and would achieve break even turnover within 6 months" (the Break Even Representation ).
In addition, during the same meeting, Mr Allsopp is alleged in para 53(c) to have made a representation to the following effect:
That the BoQ's pricing, products and credit standards were competitive with or better than those of the major players in the NSW market and were 'market leading' products. The products offered by the BoQ are as good as, if not better than, most products on offer in NSW as far as the terms and conditions, pricing and placement in the market place is concerned.
This representation is defined to be the Competitive Terms Representation .
The Viable Business Representation, the Turnover Achievable Representation, the Break Even Representation and the Competitive Terms Representation are alleged to have been repeated either expressly or impliedly by the Bank on a number of occasions before the Toronto branch opened. Similar allegations are made in the other statements of claim. These representations are said by the plaintiffs to be at the heart of the various proceedings since the first of them was commenced in September 2006. In each claim, the representations said to have been made by the Bank before the relevant branch opened, including the representations I have referred to, are defined in each of the statements of claim as the Pre Opening Representations .
The OMB Parties' primary case is that by making the Pre Opening Representations, the Bank engaged in misleading and deceptive conduct in contravention of s 52 of the TPA and s 42 of the FTA and that they are entitled to damages under s 82 in respect of those contraventions. The representations are said to have been misleading and deceptive for various reasons. So, for example, para 141 of the Best Deal FASC gives the following particulars, among many others, of the falsity of the Viable Business Representation, the Turnover Achievable Representation, the Break Even Representation and the Competitive Terms Representation:
Viable Business/Commercial Viable/Turnover Achievable Representations
...
(ii) The OMB model conducted by the BoQ in NSW was not (at the time the representation was made or subsequently) a commercially viable and successful business model;
(iii) There were no reasonable grounds for believing at the time the representation was made nor subsequently that the OMB model conducted by the BoQ in NSW was a commercially viable and successful business model;
(iv) The BoQ's minimum lending deposit targets were not easily achievable and were not realistic;
(v) There were no reasonable grounds for believing at the time the representation was made nor subsequently that the BoQ's minimum lending deposit targets were easily achievable and were realistic;
Competitive Terms Representation
(vi) The BoQ's pricing, products and credit standards were not competitive in NSW with nor were they better than the major players in the NSW markets and they were not 'market leading' products;
(vii) There were no reasonable grounds for believing at the time the Competitive Terms Representation was made nor subsequently that the BoQ's pricing, products and credit standards were competitive with or were better than the major players in the NSW market or that they were or would be 'market leading' products;
...
Viable Business/Commercially Viable/Turnover Achievable Representation
(xxiii) The Owner Managed branches under the BoQ's franchise model that were then operating in Sydney were not (at the time the representation was made, or subsequently) performing extremely well and writing good volumes because they were not;
(xxiv) There were no reasonable grounds for believing at the time the representation was made that Owner Managed branches under the BoQ's franchise model that were then operating in NSW were performing extremely well and were writing good volumes;
...
Break even/Turnover Achievable/Viable Business Representations
(xxvi) The Toronto OMB business did not write approximately $4 million in loans per month or anywhere near that figure that was required to reach break-even point or make a profit within 3 to 6 months or, consistently or at all;
(xxvii) It was not reasonable to expect that a NSW OMB would write or could achieve $4 million per month in new lending. In fact, the majority of the NSW metropolitan OMBs had not then and have not written anywhere near $4 million per month in new lending;
(xxviii) There were no reasonable grounds for believing at the time the Turnover Representation was made nor subsequently that a NSW OMB could write or could achieve $4 million per month in new lending because the BoQ did not have reasonable grounds on which to base its forecast of $4 million per month in new lending as being achievable;
(xxix) Despite the size of mortgages in New South Wales, the Plaintiffs could not and did not write loans of $4 million of new lending per month (with the exception of two months) as was forecast by the BoQ as being 'achievable';
(xxx) The writing of $4 million in new loans per month was not able to be achieved by the Plaintiffs within about 6 to 12 months of opening the branch (as represented). In fact, the majority of the NSW OMBs had not then and have not written anywhere near $4 million per month in new lending and have, hence, failed to reach break-even point or make a profit at all, let alone within a 6 month timeframe or ever;
(xxxi) There were no reasonable grounds for believing at the time the Break Even Representation was made nor subsequently that the writing of $4 million in new loans per month would be able to be achieved by the Plaintiffs within 6 to 12 months of opening the branch or within a time that could be funded by the OMB from its resources, or at a time that would or could commercially justify the losses incurred until the time as a capital investment in the business or at all;
...
Finally, in para 286 the plaintiffs plead that to the extent that the representations they plead relate to future matters, they rely on s 51A of the TPA. That section relevantly provides:
(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) ....
The Bank has given particulars of the grounds on which it relies for the purposes of s 51A in letters dated 30 June 2009 and 15 March 2011 from its solicitors, HWL Ebsworth, to the solicitors for the OMB Parties, McCabe Terrill. Again, it is not necessary to set out all those particulars. However, it is necessary to refer to some of them.
In relation to the question whether an OMB in Sydney would or could be a viable business, the Bank says that it had reasonable grounds for making that representation (assuming it was made) because it had reasonable ground to believe the following matters, among others:
(a) the Bank's products were and would remain competitive;
(b) the Bank's credit policies and criteria were comparable to those of other banks;
...
(g) a metropolitan owner managed branch could write loans of $4m per month after approximately four months of operation;
(h) if a metropolitan OMB wrote $4m per month in loans, that OMB would break even within a reasonable time, and become profitable within a reasonable time such that the business would be viable:
...
In relation to the statement that the Bank's products were and would remain competitive, the Bank gave the following particulars among others:
(a) Neil McCann, the then Senior Manager - Lending of the Bank, prior to the commencement of operations of New South Wales OMBs carried out regular reviews comparing the features of the Bank's home loan products with products offered by other financial institutions, including by reference to reports produced by Cannex and review of competitors' websites;
(b) The purpose of those reviews was to ensure that the Bank's home loan products remained competitive. Based on those reviews, the Bank's belief was that its home loan products were competitive;
(c) The Bank intended that Mr McCann would continue to perform those reviews. He did so.
(d) Part of the role of Mr McCann was to monitor the Bank's market share over time.
(e) Market share is a major indicator of competitiveness.
(f) Prior to the opening of the first New South Wales OMB, the Bank's market share had been increasing since November 2002.
...
In relation to the statement that a metropolitan owner managed branch could write loans of $4 million per month after approximately four months of operation, the Bank gave the following particulars:
(a) The Bank formed an interstate expansion team ...
(b) Each [member of the team] had significant experience in retail banking
The particulars then go on to state what enquiries members of the team made regarding the achievability of lending $4 million per month and the analysis they did to determine the average home loan size in New South Wales. The particulars also go on to state what the Bank did to satisfy itself that an OMB which wrote $4 million per month in loans would be profitable. In particular, it is said that the interstate expansion team carried out an investigation of the costs of operating a New South Wales OMB and that Mr Zillman, an employee of the Bank, prepared a spreadsheet analysis based on those enquiries. It is alleged that that analysis showed that a metropolitan OMB that achieved lending of $4 million per month would break even within a reasonable time and become profitable within a reasonable time so as to make the business viable.
The Viable Business Representation, the Turnover Achievable Representation and the Break Even Representation are clearly representations concerning the future. They each involve predictions about what was reasonably achievable by operators of OMB branches. On the other hand, the Competitive Terms Representation appears to be a representation concerning the then existing state of affairs - that is, it is a statement that the products and credit standards of the Bank were competitive with those of other banks at the time the representation was made. Put in that way, the representation is a representation of opinion; and it seems that implicit in the pleading of the representation is a pleading that by making the representation the Bank was impliedly representing that it held that opinion on reasonable grounds. Nonetheless, in its reasonable grounds particulars, the Bank asserts that it had reasonable grounds for believing that its products were and would remain competitive and it gives particulars of that assertion.
Although the OMB Parties' primary case is that the Bank (and some of its employees) contravened s 52 of the TPA and s 42 of the FTA by engaging in misleading and deceptive conduct, they also put their claims in a number of other ways. So, for example, it is said that the Bank engaged in unconscionable conduct (within the meaning of ss 51AC and 51AA of the TPA), breached duties of care it owed to the OMB Parties by making negligent statements, breached warranties contained in the relevant franchise agreement and, in some cases, contravened s 106 of the Industrial Relations Act 1996 (NSW). It is not necessary to explain these claims in any further detail for present purposes. Suffice it to say that, in the case of each pleading, the various claims are said to arise out of substantially the same substratum of facts as the claims based on s 52 of the TPA and s 42 of the FTA.
In earlier versions of the pleadings, the OMB Parties also pleaded claims based on conduct said to have been engaged in by the Bank (or its employees) after the relevant OMBs opened. Essentially, what was pleaded was that at various times after the relevant branches opened, the Bank made representations (referred to in the pleadings as "Post Opening Representations"). It was alleged that, in reliance on those representations, the OMB Parties continued to trade and suffered further losses. Associated with the claims based on the Post Opening Representations, the OMB Parties also made allegations that appeared to amount to allegations that the Bank had engaged in misleading and deceptive conduct by silence. An example of such a pleading was contained in para 149A of the Best Deal amended statement of claim, which pleaded:
149A. Had the Bank told Best Deal in September 2006, that:
(a) the experience of the operation of OMBs in NSW was showing that the Bank's products were not competitive in NSW;
(b) the majority of other OMBs in NSW were not achieving their monthly lending targets to make them profitable;
(c) any adjustments to the OMB model would not, or it was highly likely that any adjustments would not, make the Toronto OMB or the OMB model successful;
(d) the issues raised by the former Owner Managers of the Hurstville and Maroubra Junction OMBs with the OMB network did apply to the Toronto OMB and should be a cause of concern for you;
(e) the failure of the Hurstville and Maroubra Junction OMBs was not related to the conduct of the individual owner managers;
(f) by reason of these matters, regardless of how hard you work, whether you "hang in there", "do everything right" or keep "pounding the pavement", you will not, or it was highly likely that you will not, be able to make the Toronto OMB earn sufficient income to achieve break even and become profitable;
(g)by reason of these matters, the Toronto OMB was not, or was highly likely not to be, viable because the OMB model was not sound or proven but was flawed and could not yield the results represented by the Bank,
Best Deal would have ceased operating the Toronto OMB.
In the judgment I delivered on 31 August 2011 ([2011] NSWSC 972), I concluded that there were a number of flaws in the way in which the claims based on the Post Opening Representations were pleaded and I ordered that those paragraphs be struck out. That order extended to the paragraphs that appeared to allege that the Bank had engaged in misleading or deceptive conduct by silence, such as para 149A of the Best Deal amended statement of claim. As I pointed out in my 31 August 2011 judgment (at [32]), one difficulty with para 149A of the amended statement of claim is that it did not itself allege that the Bank had engaged in misleading or deceptive conduct by not disclosing the pleaded matters; and that allegation was not pleaded anywhere else in the amended statement of claim.
I gave leave to the OMB Parties to replead a number of the claims that had been struck out. It appears that the OMB Parties assumed that that leave extended to cover the allegations of misleading and deceptive conduct by silence; and the amended claims filed by the OMB Parties following the judgment I delivered on 31 August 2011 contained a number of paragraphs of that type. However, in the judgment I delivered in these proceedings on 31 October 2011 ([2011] NSWSC 1265), I pointed out (at [5]) that the new claims alleging misleading and deceptive conduct by silence went beyond the leave I granted following my judgment on 31 August 2011. It is in response to that later judgment that the current application is made.
One other point should be made by way of background. As I have said, these proceedings have been set down for hearing commencing on 23 April 2012 with an estimate of 28 weeks. They were set down on 30 March 2011 at a time before the pleadings were closed in a number of the proceedings and at a time before evidence was complete. The cases were set down for hearing with two goals in mind. First, in cases of this size it is often desirable to set the proceedings down for hearing in advance of the completion of preparation. That is partly because of the amount of advanced notice required to set down a case of such length. It is also partly to provide the parties with a goal to work towards. Necessarily, however, that means that there must be some flexibility in the hearing date, since it was fixed when there was still substantial preparation to do and it is not always possible to predict how long preparation will take. The Bank has already indicated that it does not expect to be ready for a hearing until at least June next year, and I have indicated that I will hear any application to postpone the commencement of the hearing on 8 February 2012. Without prejudging that application, the matters I have mentioned are relevant to the current application because the Bank has also submitted that, if the current application is granted, it will be necessary to postpone the commencement of the hearing to permit the Bank to deal with the claims that are now sought to be raised and that that is a matter the court should take into account in considering whether to grant the application.
The second goal that was sought to be achieved by choosing the current hearing date was to avoid a hearing that was interrupted by the Christmas vacation. Both the OMB Parties and the Bank agreed that that was a desirable goal. However, in my opinion, achievement of that goal should not be determinative of any application. Although there are advantages in not interrupting the hearing, those advantages cannot outweigh other considerations which make it desirable for the hearing to commence as soon as possible consistently with the need to give the parties a reasonable opportunity to prepare.
The claim of misleading and deceptive conduct by silence
There are a substantial number of paragraphs that together make up the OMB Parties' claim that the Bank engaged in misleading and deceptive conduct by silence. The claim is pleaded in each of 10 statements of claims in similar terms. Moreover, in each statement of claim it is pleaded that at various times the Bank learned of matters which it did not disclose, giving rise to different instances of misleading and deceptive conduct by silence at different times. But again those different instances are pleaded in similar terms. It is convenient to take as an example paras 149B to 149F of the Best Deal FASC.
Paragraph 149B pleads:
Further, or in the alternative, as at late August 2006, the Bank knew or ought to have known that:
(a) the Pre Opening Representations were false or misleading;
(b) the Maroubra Junction and Hurstville Representations were false or misleading;
(c) there were no reasonable grounds for believing that that [sic] a BOQ OMB operating in NSW was or could be a viable business;
(d) there were no reasonable grounds for believing that the Bank's products were competitive in the NSW market;
(e) the majority of other OMBs in NSW were not achieving $4 million new lending per month or a level of lending sufficient to make them break even or be profitable;
(f) the monthly new lending target of $4 million was not easily achieved by an OMB in NSW or, in the experience of most NSW OMB, not achievable at all;
(g) there were no reasonable grounds for the believing that an OMB in NSW could easily achieve $4 million lending per month;
(h) by reason of these matters, regardless of how hard Jones worked, whether he "hung in there", did "everything right" or kept "pounding the pavement", he would not, or it was highly likely that he would not, be able to make the Toronto OMB earn sufficient income to achieve break even and become profitable;
(i) by reason of these matters, the Toronto OMB was not, or was highly likely not to be, viable because the OMB model was not sound or proven but was flawed and could not yield a viable or profitable business or achieve the results represented by the Bank from time to time.
Paragraph 149B1 pleads that the Bank did not disclose the matters referred to in para 149B and paras 149C and 149D essentially plead that the plaintiffs had a reasonable expectation that those matters would be disclosed. That reasonable expectation is said to arise from a number of matters including the fact that the Bank had made the Pre Opening Representations and the fact that the Bank knew and the OMB Parties did not know the financial performance of all OMBs in New South Wales. Paragraph 149E pleads that failure by the Bank to disclose to the plaintiffs in August 2006 any of the matters referred to in para 149B was conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the TPA and s 42 of the FTA. Paragraph 149F pleads that the same conduct was unconscionable conduct within the meaning of s 51AC and s 51AA of the TPA.
The parties ' submissions
The OMB Parties make two general points in support of their proposed amendments.
First, they say that the amendments are intended to complement the OMB's primary case. Relevantly, the OMB's primary case is that the Bank did not have reasonable grounds for representing that an OMB business in New South Wales would be viable because it did not have reasonable grounds for believing that a branch would generate new loans of $4 million per month or that that would be sufficient to enable the OMB to generate a profit. It might be inferred from the pleadings that one of the reasons it is alleged that the Bank did not have reasonable grounds for believing that a branch would generate new loans of $4 million per month was that its products and services were not competitive with those offered by other banks. The case alleging misleading and deceptive conduct by silence is said to complement this primary case because by it the OMB Parties allege that even if, at the time the relevant Pre Opening Representations were made, the Bank had reasonable grounds for making the representations, it subsequently learned that what it had predicted was not achievable and that, instead of informing the OMB Parties of that fact, it encouraged them to continue to trade, with the result that they suffered further losses. As Mr Cotman SC, who appeared for the OMB Parties, put the point in oral submissions:
As your Honour quite correctly puts it, if you are holding the hypothesis period then you didn't have reasonable grounds for making that prediction and then when you were in the reality period, your representations are actually false to your knowledge because you are aware of the true state of affairs (T21).
Put in this way, the case sought to be raised by the amendments is simply a natural extension to the case already pleaded. It only arises if the OMB Parties fail on their primary case that the Pre Opening Representations were misleading or deceptive because the court holds that those representations were not misleading or deceptive at the time that they were made.
Second, the OMB Parties submit that the case that they now seek to raise does not raise any new factual issues with the result that they say that it should be unnecessary for the parties to give any additional discovery or lead any further evidence if the amendments are allowed. Certainly, for their own part, they say that they do not seek to lead any additional evidence. In support of the contention that the amendments do not raise any new factual issues, the OMB Parties tendered a folder of extracts of current and past pleadings that have been filed in the various proceedings to demonstrate that in some form or another the allegations they now seek to make are made elsewhere or were made previously at a time when the parties gave discovery and prepared their evidence. Again, it is not necessary to deal with all that material in this judgment. Some examples are contained in the Best Deal FASC quoted above. For example, the particulars of falsity given in para 141 of the FASC state that there were no reasonable grounds for believing at the time the relevant representations were made or subsequently that the OMB model was "a commercially viable and successful business model" (para (ii)), or that "the BoQ's pricing, products and credit standards were competitive with or were better than the major payers in the NSW market" (para (vii)) or that "a NSW OMB could write or could achieve $4 million per month in new lending ..." (para (xxviii)).
Similarly, the OMB Parties say that a number of the factual issues that are raised by the paragraphs in respect of which leave is sought are raised by the defences filed by the Bank. One example that is given arises from the second further amended statement of claim filed in the proceedings commenced by Jude Financial Services Pty Ltd, which operated the Bathurst OMB. Paragraph 271(g) of that statement of claim alleges that the Bank, knowing that the plaintiff was losing money, engaged in unconscionable conduct, by failing to disclose:
(i) The true financial position of all other interstate and NSW OMB's ...;
(ii) ...
(iii) That the vast majority of Sydney Metropolitan OMB's have not written anywhere near $4 million per month in new lending;
(iv) That the BOQ did not have any reasonable grounds on which to base its forecast of $4 million per month in new lending for Sydney Metropolitan OMBs;
...
(viii) That the majority of OMB's did not reach break-even point after 3 to 4 months. In fact the vast majority of NSW OMB's have still not reached break-even point;
...
In response to this pleading, the Bank denies in its defence that "[it] failed to disclose any material information to the applicants at any material time ..." . The OMB Parties also point to a number of paragraphs in the Jude defence in which the Bank has pleaded that its products and services were competitive with those offered by other banks.
The examples I have given are by no means intended to be exhaustive; and the OMB Parties referred me to a large number of others. However, the examples I have given illustrate the point sufficiently for present purposes.
Putting the various examples together, the OMB Parties submit that the Bank cannot be prejudiced by the proposed amendments because the amendments do not raise a new factual case to which the Bank needs to respond.
In resisting any of the amendments, the Bank places reliance on the decisions of the High Court in Aon Risk Services Australia Limited v Australian National University [2009] HCA 27; 239 CLR 175 and of the Court of Appeal in Hans Pet Constructions Pty Limited v Cassar [2009] NSWCA 230 and McMahon v John Fairfax Publications Pty Ltd [2010] NSWCA 308. In the last of these cases, Allsop P (with whom Young JA agreed) said:
[26] The operation of the Civil Procedure Act, ss 56-60 has brought about important changes to the conduct of civil litigation in this State. To a significant degree those provisions enshrined many of the developments in case management and the approach to litigation over the previous 20-30 years in this country. They now have statutory form. They are, however, a clear statutory watershed. That statutory form comprises the over-riding purpose: s 56, the fulfilment of which binds the court (s 56(2)), the parties (s 56(3)) and legal advisers (s 56(4)). That over-riding purpose is the "just, quick and cheap resolution of the real issues in the proceedings".
...
[28] Section 58 requires the court in the management of proceedings including in dealing with amendments to "seek to act in accordance with the dictates of justice". That notion is explicated in s 58(2), which requires the court to have regard to ss 56 and 57 and permits the court to have regard to other relevant matters including those set out at s 58(2)(b)(i)-(vii).
...
[30] Sections 56-58 must be complied with. That will involve the weighing of competing considerations. A failure to have regard to s 57 made mandatory by s 58(2)(a) may lead to orders being set aside: see for example Hans Pet .
Section 57(1) is of particular significance. It provides:
For the purpose of furthering the overriding purpose referred to in section 56(1), proceedings in any court are to be managed having regard to the following objects:
(a) the just determination of the proceedings,
(b) the efficient disposal of the business of the court,
(c) the efficient use of available judicial and administrative resources,
(d) the timely disposal of the proceedings, and all other proceedings in the court, at a cost affordable by the respective parties.
According to the Bank, the effect of allowing the amendments will be to raise factual issues that may require the parties to give additional discovery and will mean that the Bank will need to consider leading additional evidence, including expert evidence. The result will be that the hearing will not be able to commence until 2013.
Originally, the Bank put this submission on the basis that the additional evidence was necessary because the amendments raised new factual allegations. However, the Bank also submitted that, even if that was not correct, it should be permitted to reconsider whether it should lead evidence in relation to factual allegations already made. It submitted that the fact that the Bank may have made a forensic decision not to lead evidence in relation to an issue should not prevent it from reconsidering its position if the factual allegations are now said to be relevant to a different issue.
The Bank submits that a delay of close to a year is inconsistent with the principles set out in ss 56 and 57 of the Civil Procedure Act 2005 (NSW). The Bank also points out that the OMB Parties have filed no evidence in support of their application to amend to explain the reasons for the delay in seeking to amend their pleadings or to explain why there is a reasonable basis for thinking that the proposed amendments have any merit. In relation to this second point, the Bank tendered part of the second affidavit of Mr Gardner, the sole director of Jude Financial Services, in which Mr Gardner deposes to the fact that he received "regular KPI weekly reports of individual OMBs, available to every OMB via the BOQ's computer systems" which showed the poor business performance of a number of OMBs. According to the Bank, that evidence substantially undermines the OMB Parties' case that they relied on the pleaded non-disclosures in deciding whether to continue to trade.
Consideration
In my opinion, if what the OMB Parties had sought to do was plead a properly particularised claim that the Bank knew specified matters that meant that it was no longer safe for the OMB Parties to continue to rely on the representations alleged to have been made to them (even though the Bank had reasonable grounds for making the representations at the time that they were made), then it may well have been appropriate to permit the amendments. The OMB Parties' application to amend is made in a context where some of the allegations that are now sought to be made were struck out from earlier versions of the statements of claim together with claims based on the Post Opening Representations. The current application is a response to the success of that strikeout application. That strikeout application itself was made well after a number of the relevant pleadings were filed. Looked at in that context, I do not think that there has been undue delay in making the present application. It is not obvious to me that a properly pleaded and particularised claim of the type that I described would involve a substantial delay in the commencement of the hearing. The commencement of the hearing may already be delayed and an additional delay of several months (assuming that were necessary) would not itself provide a reason for refusing the amendments having regard to the circumstances in which the hearing date was fixed, the time for which at least some of the proceedings have already been on foot and the circumstances giving rise to the amendments.
However, in my opinion, the amendments sought by the OMB Parties are inadequately particularised and suffer from other defects which mean that they should not be permitted in their current form. By saying that, I do not mean to rule out the possibility that other amendments may be permitted. Whether they are or not will depend on the precise nature of the amendments, when they are sought to be made and the delay, if any, those amendments will cause.
To explain why the amendments in their current form should not be allowed, it is desirable to start with para 149B of the Best Deal FASC, which is representative of what it is alleged in the various statements of claim that the Bank knew at various times.
Paragraph 149B of the Best Deal FASC
The allegation in paragraph 149B is that the Bank "knew or ought to have known" that certain matters were misleading. However, I do not see how in the context of this case it could be said that the Bank engaged in misleading or deceptive conduct because it did not disclose something that it did not know but merely ought to have known. Mr Cotman SC did not suggest otherwise and submitted that what was alleged was that the Bank knew the relevant facts. This point, therefore, can be put to one side.
Paragraph 149B(a)
Paragraph 149B(a) pleads that as at late August 2006 the Bank knew that the Pre Opening Representations were false or misleading. It is not necessary to deal with all the difficulties of that allegation because the OMB Parties now accept that the allegation should be confined to knowledge of the falsity of a number of specified representations which, in the case of the Best Deal FASC, include the Viable Business Representation, the Turnover Achievable Representation, the Break Even Representation and the Competitive Terms Representation. However, that does not solve all the difficulties with the pleading. There is still an ambiguity in the allegation because it is not clear whether what is asserted is that the Bank became aware that it had made misrepresentations before the Toronto branch opened and engaged in misleading or deceptive conduct by not disclosing that fact or whether what is asserted is that, to take the Viable Business Representation as an example, the Bank became aware in late August 2006 that a viable business could not be conducted by a prospective franchisee of a BoQ OMB business conducted in NSW and other States and Territories on the proposed terms of the BoQ's OMB franchise and that it was misleading or deceptive not to disclose that fact. It might be thought that what must have been intended was the latter. But if that is what is intended it is not clear what that allegation adds to the allegation contained in para 149B(c).
In addition, I do not think that the form of the pleadings is satisfactory. Assuming that what is intended to be alleged is that the Bank subsequently learned that the relevant representations no longer held true (even if there was a reasonable basis for making them originally), it seems to me that what must be pleaded is not that the Bank knew that there were no reasonable grounds for making the representations (which is the pleading of a conclusion), but the actual primary facts which it is said the Bank knew that made it unsafe to continue to rely on the representation. I say more about this point below.
Paragraph 149B(b)
It is not clear what the allegation in para 149B(b) in relation to the Maroubra Junction and Hurstville Representations adds to the existing pleading. Those representations are said to have been made in or about late August 2006 and were to the effect that Mr Jones should not be concerned by correspondence he had received from the former operators of the Maroubra Junction and Hurstville OMBs setting out issues with the NSW OMB network. The representations are said to have been made at the same time that it is alleged that the Bank should have disclosed that the representations were false. Consequently, the allegation that the falsity of the representation was not disclosed adds nothing to the allegation that the representation was made.
The point I have just made does not apply to later allegations that the Bank knew that the Maroubra Junction and Hurstville Representations were false or misleading. However, the form of the pleading is also unsatisfactory because, like the representations referred to in paragraph 149(a), it is not clear whether what is alleged is that the Bank became aware that it had made a misleading representation at the time the representation was made or whether the Bank became aware of facts which meant that its earlier representation, however reasonable it was at the time it was made, did not as things turned out hold true. Again, if the pleading really is intended to be no more than an extension of the case already pleaded, what the OMB Parties must do is plead the primary facts that the Bank is said to have learnt which made it unsafe for the OMB Parties to continue or rely on the relevant representation.
Paragraph 149B(c)
The allegation in para 149B(c) is that there were no reasonable grounds for believing that a BOQ OMB operating in NSW was or could be a viable business. That allegation is also ambiguous. It could be interpreted as an allegation that the Bank knew that there were no reasonable grounds for holding the alleged belief. Interpreted in that way, the allegation, like the Viable Business Representation to which it is obviously related, is an allegation about the future. It is a pleading which raises afresh the question whether there were reasonable grounds for a proposition which, at the time the non-disclosure is said to have occurred, is not itself alleged to be the subject of a representation. Put in that way, it is not a natural extension of the pleading of the Viable Business Representation; and it is not clear why the plaintiffs should be permitted to raise the allegation now. Certainly, the OMB Parties have filed no evidence to explain the delay in raising that claim now.
An alternative interpretation of para 149B(c) is that it is intended to be an allegation that the Bank learned that the grounds it once relied on for making the Viable Business Representation were, with the benefit of hindsight, not reasonable ones (with the result that it should have disclosed that fact to the recipients of the earlier representation so that they did not continue to rely on the earlier representation). This interpretation is more consistent with the OMB Parties' submission that the pleading is an extension of the case already pleaded and does not raise new factual issues. However, even if that is what is intended, I do not think that the pleading is satisfactory. The pleading does not identify the primary facts that it says the Bank learned that made it inappropriate for the recipients of the earlier representation to continue to rely on it. For example, it might be alleged that the Bank learned that one or more of the inputs used in the model prepared by Mr Zillman were overly optimistic having regard to what actually happened or that the model itself was flawed in some way and having learned those matters the Bank engaged in misleading and deceptive conduct by not correcting its earlier representation. But if that is what is alleged, the pleading needs to identify precisely what it is said the Bank learned and why what it learned meant that it was unsafe to continue to rely on its earlier representations.
It might be said that the matters I have referred to can be dealt with by way of appropriate requests for particulars, and that the generality of the paragraphs that are the subject of the amendment application are no greater than the generality of other paragraphs which are already included in the FASC. That may be an answer if the proceedings had just been commenced and no trial date had been fixed. But that is not this case. The OMB Parties have had the benefit of discovery and a substantial amount of evidence filed by the Bank. They must now be in a position to identify with precision what matters the Bank learned that made its earlier representations misleading even if they were not being misleading at the time. Only by identifying the case that they wish to raise with precision is it possible to make a reasonable assessment of what effect the amendment will have on the preparation for the hearing and the trial date. Although there may be good reasons for permitting an amendment of the type that I have described, it seems to me the court should have a better understanding of the consequences of the amendment so far as preparation and the hearing date is concerned before allowing the amendment. That is only possible when the allegation that is sought to be raised is properly particularised.
The OMB Parties sought to answer this last point by saying that in substance the amendments they now seek to make are pleaded elsewhere or were contained in earlier versions of the pleadings with the result that it can be assumed that the Bank has put on whatever evidence it wants to meet the allegation and so there can be no question that the Bank parties will be prejudiced by the amendments or that it may be necessary to postpone the commencement of the hearing to overcome whatever prejudice the Bank may suffer. I do not accept that submission. The question that must be addressed is what is the substance of the cases that the Bank must meet on the current pleadings and will those cases change as a consequence of the amendments in a way which might reasonably be expected to cause the Bank to reconsider the evidence on which it wishes to rely. If the answer to the second limb of this question is that it will, then it seems to me that the Bank is prejudiced by the amendments; and the only question is how is that prejudice to be accommodated. In my opinion, it is no answer to this point to say that, on some previous version of the case, the same issues arose and the Bank chose not to lead any evidence at that time. The choice that the Bank might have made was not to lead evidence in the expectation that the case would change or that part of it would be struck out (as happened, for example, with the case based on the Post Opening Representations). If that is the choice the Bank made, it cannot be held to that choice in the event that the OMB Parties seek to amend their case to raise the same factual issues but in a different context - or, at least, the OMB Parties cannot be heard to say that the Bank would not now be prejudiced if the amendments are allowed, but the Bank is prevented from leading any additional evidence in relation to them.
Similarly, it is no answer to point to particular paragraphs of the existing pleadings and to say that the issue is raised by those paragraphs if the relevant allegation is not an essential part of the case pleaded in those paragraphs. The pleading in para 141 of the Best Deal FASC illustrates this point. It is alleged in various particulars to that paragraph that the Bank had no reasonable grounds for believing that various representations that are alleged to have been made, including the Viable Business Representation, were true either at the time they were made or subsequently. However, the only essential part of this allegation to the pleaded case is that the Bank had no reasonable grounds for believing that the representations were accurate at the time that they were made. The fact that the Bank might at some later point in time have concluded that the representations were not accurate does not make the representations misleading or deceptive at the time that they were made. Consequently, the pleading concerning the position subsequently is otiose. In those circumstances, the Bank may have concluded that it was unnecessary in its evidence to address that allegation. The position is quite different if the OMB Parties are permitted to allege that the Bank became aware of facts subsequently that meant that the grounds it previously had for making a representation no longer held true. That allegation is an essential element of the cause of action, and it is to be expected that the Bank would need particulars of it and would want to consider whether it should lead additional evidence if it is made.
Paragraph 149B(d)
The pleading in para 149B(d) to the effect that the Bank knew in late August 2006 that there were no reasonable grounds for believing that the Bank's products were competitive in the NSW market is also inadequately particularised. As I have said, that pleading is not a pleading concerning the future. Rather, it is a pleading concerning an opinion; and what is alleged amounts to an allegation that the Bank did not hold the opinion that its products were competitive, since it is very difficult to see how it could be said that the Bank held the opinion that its products were competitive but that it knew that there were no reasonable grounds for doing so.
Again, the OMB Parties seek to defend this amendment by pointing to other pleadings in which a similar allegation is made. In particular, the OMB Parties rely on various paragraphs in the statement of claim filed in the Jude proceedings, the proceedings commenced by Traderight Pty Ltd, the proceedings commenced by SME Business Assist Pty Limited and the proceedings commenced by Rossmick No 1 Pty Limited and the defences filed in those proceedings. However, not all of the paragraphs relied on by the OMB Parties support the point that they seek to make. To take some examples, the relevant paragraphs in the Jude statement of claim were struck out and consequently the defence no longer responds to those paragraphs. In the Traderight proceedings, the allegation in para 322 in the third further amended statement of claim (and earlier versions of the statement of claim) is that "In breach of the Competitive Product Warranty [a warranty said to arise from the Viable Business Representation and so one given at or about the time the franchise agreement was entered into] the BOQ offered significantly inferior product and service to that offered by its competitors in NSW ...". In response to that allegation the defence (to the further amended statement of claim) pleads that the Bank "is unable to plead to the allegations therein as they are unparticularised as to the allegedly "significantly inferior products" of the defendant" but then goes on to deny that "its products and services were significantly inferior to products of the defendant's competitors". The same structure is adopted in the SME pleadings. The Rossmick statement of claim contains a similar pleading, although in the case of the defence filed in response to that statement of claim there is only a denial of the allegation and not an assertion that it is not possible to plead to the allegation because it is unparticularised. However, the most recent version of that statement of claim is yet to be filed, and consequently there is no current defence.
More importantly, though, the relevant paragraphs involve an allegation that the Bank's products were inferior as at particular times or during particular periods and a response to that pleading which is in substance a denial. It is, therefore, for the OMB Parties to make out the allegation that the Bank's products were inferior. On the other hand, the allegation in para 149B(d) is in substance an allegation that the Bank did not believe in August 2006 that its products were competitive and did not disclose that fact to the OMB Parties. Before it is possible to consider an amendment making that allegation, it is necessary to know the underlying facts the Bank is alleged to have known (such as a disparity in interest rates of particular products) which caused it to form the opinion it is alleged to have held. The fact that other allegations concerning the competitiveness of the Bank's products made in different contexts have been left unparticularised does not provide a reason for not requiring particulars in the current context before considering whether the amendment should be allowed.
The point of the previous paragraph is not affected by the fact that, as part of its particulars, the Bank asserts that it had reasonable grounds for believing that its products were and would remain competitive. The Bank gives particulars of that assertion. It may be that what is intended by para 149B(d) is to assert that one or more of those grounds did not hold true. But if that is what was intended, then the OMB Parties must identify the relevant grounds. For example, are the OMB Parties intending to assert that Mr McCann did not carry out the reviews that it is said that he did? Or are they asserting that, as a result of those reviews, Mr McCann learned certain facts which demonstrated that it was unreasonable to hold the opinion that the Bank's products were competitive - in which case, what facts did Mr McCann learn? Or is something else being asserted? Once again, the case is sufficiently advanced that the OMB Parties should provide these particulars so that a proper assessment can be made of the consequences of the proposed amendments.
Paragraphs 149B(e), (f) and (g)
The allegation in paras 149B(e), (f) and (g) can be taken together. The allegation in para 149B(e) has two limbs. The first is that the Bank knew that a majority of other OMBs in NSW were not achieving $4 million in new lending per month. The second is that the Bank knew that the majority of other OMBs were not achieving a level of lending sufficient to make them break even. It is not clear whether the second limb is simply alleging that the Bank knew that the majority of OMBs were making a loss or whether it is alleging that the Bank knew that fact and the fact that the reason they were making a loss was that they were failing to achieve some unspecified target. The allegation in para 149(f) also appears to have two limbs. The first is that the Bank knew in August 2006 that the target was not easily achieved. The second is an allegation that most OMBs in NSW had not achieved the target in August 2006. Presumably, however, the second proposition is the basis for the first. In other words, what is alleged is that the Bank knew that the target was not easily achieved because most OMBs were unable to achieve it. There is a tension between paras 149B(e) and 149B(f) because the former is concerned with the majority and the latter with most. There is also a difficulty with para 149B(e) to the extent that it is alleging that the Bank knew the reason why the relevant branches were making a loss, since no particulars are given of the facts that the Bank knew which would underpin that reason. In particular, the pleading does not identify the level of lending the Bank knew that a particular branch needed to make in order to be profitable, and whether, in the case of metropolitan OMBs, that level is different from the $4 million.
However, assuming that the pleading was amended to overcome the problems I have referred to, I do not think that the proposed amendment would be objectionable. The allegation is that the Bank knew at particular dates that a majority (to take the weaker claim) of the OMBs in NSW were not writing new loans of $4 million per month and were not making a profit and that, having regard to what it had said before the relevant branch opened, it was misleading and deceptive not to disclose those matters to the plaintiffs in late August 2006. It is difficult to see that that allegation raises any new factual issues that would be difficult for the Bank to address. The allegation arises out of the Pre Opening Representations and, having regard to what I have said, I think that the OMB Parties should be permitted to make it if that is what they wish to do.
Paragraph 149B(g) falls into a different category. Once again, it is inadequately particularised. If all that is being alleged is that the Bank knew that there were no reasonable grounds than an OMB in NSW could easily achieve $4 million lending per month because as at August 2006 most OMBs in NSW were not achieving that target, then the allegation adds nothing to para 149B(f). However, if what is alleged is that the Bank became aware of other facts which meant that it could not have held the belief in August 2006 that an OMB in NSW could have easily achieved $4 million lending per month, then what should be pleaded is that the Bank knew those facts.
In the case of some pleadings, there is also an allegation that the particular branch never achieved the target of $4 million per month. For example, in para 194B(g) of the second further amended statement of claim ( SFASC ) file in the proceedings commenced by Leokate Pty Ltd and Mr and Mrs Sargent, who operated the Miranda OMB, it is alleged that as at April 2006 to July 2009 the Bank knew or ought to have known that "the Miranda OMB had not once achieved $4 million in lending per month". There can be no objection to that allegation as it is pleaded, although it is very difficult to see why Leokate Pty Ltd and Mr and Mrs Sargent did not know that fact as well and how, in those circumstances, it could be said that they relied on the Bank's failure to disclose that fact to them. In the absence of evidence that the relevant OMB Parties did rely on the failure of the Bank to disclose information of that type, it seems to me that there is no utility in permitting amendments of that type.
Paragraphs 149B(h) and (i)
The allegations in paragraphs 149B(h) and (i) are said to follow from the allegations in the previous paragraphs. For that reason they cannot stand without the allegations in earlier paragraphs. Moreover, like many of the earlier paragraphs, they are conclusory. They say nothing about the primary facts that the Bank is alleged to have known. However, in my opinion, it is those primary facts not the conclusions that must be pleaded. Of course, having pleaded the primary facts, it is open to the OMB Parties to plead that, knowing those facts, the Bank should have disclosed for example the matters pleaded in paras 149B(h) and (i). That, however, is a different point.
Other pleadings
If the OMB Parties are not given leave to plead the paragraphs that alleged that the Bank knew certain matters as various dates, then they should not be given leave to plead the other paragraphs which form part of their claim that the Bank engaged in misleading and deceptive conduct by not disclosing the matters it is said to have known. For the same reason, the OMB Parties should not have leave to plead the unconscionable conduct case that depends on the same facts.
The Bank, however, has raised a number of other objections to some of those paragraphs which I should deal with.
Examples of the pleadings in question are largely contained in the Leokate SFASC. For example, para 203H of that statement of claim relevantly pleads:
Had the Bank told Leokate in about May/June 2006 or there after, the matters in paragraph 203B above [which is in similar terms to para 149B of the Best Deal FASC] in particular that:
(a) the problems experienced by Hurstville and Maroubra Junction OMBs were not isolated events but applied to Miranda OMB and the failure of other specific OMBs was not based on issues related solely to the individual [owner managers] of those branches;
(b) ...
(c) the majority of other OMBs in NSW were not achieving their monthly lending targets so as to make them profitable;
(d) cross selling of other Bank products was not successful in most other OMBs in NSW;
(e) training and coaching had not increased sales of the Bank's products in other OMBs in NSW;
...
Leokate would have ceased to operate the Miranda OMB.
I accept that this pleading is unsatisfactory in its current form. Paragraphs 203H(a) and (c) are tied to allegations that I have held are improperly pleaded and particularised. Paragraphs 203H(d) and (e) are tied to allegations that are not even made - that is, it is not alleged that in about May/June 2006 the Bank knew the matters set out in those paragraphs. In this respect, they suffer from the same defect as paragraph 149A of the Best Deal FASC. Nor do I think this problem could be cured simply by pleading that the Bank did know those matters. The allegations in paras 203H(d) and (e) are allegations concerning opinions that someone might hold. In that case, it would be necessary for the plaintiffs to plead that the Bank actually held those opinions in May/June 2006 and that it was misleading or deceptive of the Bank not to disclose that fact at the time (presumably because of representations it had made previously concerning those matters). Alternatively, if it is not alleged that the Bank actually held those opinions at the time, it would be necessary to plead that the Bank knew facts from which it would be reasonable to form those opinions and to plead that the Bank did not disclose those facts.
In para 162G(e) of the Best Deal FASC it is alleged:
Had the Bank told Best Deal in October/November 2006 or subsequently the matters in paragraph 162B above, in particular that:
...
(e) the service differentiation between the BoQ and other banks or the OMB and other banks was not attracting sufficient customers to render the OMB viable;
...
Best Deal would have ceased operating the Toronto OMB.
In para 301F(d) of the SFASC filed in the proceedings commenced by Shamarbre Pty Ltd and Mr Johnson it is alleged:
Had the Bank in or about late 2007 told Shamarbre and/or Johnson the matters in paragraph 192B above [which are similar to those in para 149B of the Best Deal FASC], in particular the following matters:
...
(d) any adjustments to the OMB model would not, or it was highly likely that any adjustments would not, made [sic] the Hornsby OMB or the OMB model successful;
...
Shamarbre would have ceased to operate the Hornsby OMB.
Similar points may be made about these allegations as those that apply to para 203H of the Leokate SFASC. It is not alleged that the Bank knew the matters that were not disclosed. The relevant matters are not facts but opinions. At a minimum, it would be necessary to allege that the Bank held the relevant opinions or that the Bank knew facts from which it is said the relevant opinions followed and that the Bank did not disclose that it held those opinions or that it knew those facts. The question would then arise whether leave should be granted having regard to the precise allegations that are made.
Finally, the Bank points to para 194H(c) of the Leokate SFASC which alleges that Leokate would have ceased operating the Miranda OMB if it had been told that the issues with their OMB were not isolated events. I accept the Bank's submission that it is very difficult to know what to make of this allegation until the OMB Parties provide particulars of the events that are said not to be isolated. Only then would it be possible to consider whether or not the amendment should be allowed. As it stands, it should not be allowed.
Orders
The OMB Parties' motion filed on 7 November 2011 should be dismissed with costs.
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Decision last updated: 15 December 2011
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