Practice and procedure - Application to strike out statement of claim - Turns on own facts

Adour Holdings Pty Ltd (In Liq) v Commonwealth Bank of Australia (1991) ATPR 41-147

Anderson & Ors v Regal Investments Pty Ltd & Ors [2000] WASC 258

Arbuthnott v Fagin & Feltrim Underwriting Agencies Ltd (1995) 8 ANZ Insurance Cases [61-238]

Attorney-General of the Duchy of Lancaster v L & NWR [1892] 3 Ch D 274

Commonwealth Bank of Australia & Anor v Smith & Anor [1991] FCA 375; (1991) 102 ALR 453

Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64

Dalgety Australia Ltd & Anor v Rubin & Ors, unreported; FCt SCt of WA; Library No 5485; 24 August 1984

Equity Access Pty Ltd v Westpac Banking Corporation [1989] FCA 506; (1989) 16 IPR 431

Katina Pty Ltd v Westfield Design & Construction Pty Ltd, unreported; SCt of WA; Library No 980059; 13 February 1998

Kimberley Downs Pty Ltd & Ors v State of Western Australia & Anor, unreported; SCt of WA; Library No 6141; 25 August 1986

Lloyd's Bank Ltd v Bundy [1974] EWCA Civ 8; [1975] QB 326

Sellars v Adelaide Petroleum NL [1994] HCA 4; (1964) 179 CLR 332

Staffa v Michael, unreported; SCt of WA; Library No 980383; 10 July 1998

1 MASTER SANDERSON: This is a pleading summons. The defendant seeks to strike out all of the plaintiffs' statement of claim. The statement of claim itself raises a number of causes of action. To understand the nature of the defendant's complaint it is necessary to say something briefly about the facts of the case.

2 The first plaintiff is a trustee company. The second, third and fourth plaintiffs are directors of the first plaintiff. The fifth plaintiff is a beneficiary of one of the trusts, of which the first plaintiff is trustee. At all material times the first plaintiff was the registered proprietor of certain real property. It also conducted what might be described as an earthmoving business, although this is not directly relevant to the matters in issue. The second plaintiff also owned certain real property and he, too, held this property in trust. The pleading quite properly treats the five plaintiffs as a business entity for the purposes of the action. I will refer to "the plaintiffs" throughout these reasons.

3 Prior to June 1998 the plaintiffs were customers of the Commonwealth Bank of Australia and the Primary Industry Bank of Australia. The plaintiffs' borrowings amounted to something over $11.3 million. Between February and October 1998 representatives of the plaintiffs held discussions with representatives of the defendant with a view to the defendant acting as the plaintiffs' banker. These discussions anticipated the defendant taking over the plaintiffs' loans then held by the Commonwealth Bank of Australia and the Primary Industry Bank of Australia.

4 Of particular concern to the plaintiffs was a property known as Alvito House. As at April 1998, Alvito House was let to the Commonwealth of Australia but the Commonwealth had expressed an intention to vacate the premises. The rental income from Alvito House was in the region of $400,000 per annum. The plaintiffs were aware that once Alvito House was vacated by the Commonwealth the property would need to be refurbished before it could be relet. The refurbishment would cost between $200,000 and $500,000. The rental income from Alvito House was necessary to allow the plaintiffs to meet the interest repayments on the loans. It is pleaded that all of these facts were made known to the defendant: see par 25 of the statement of claim. The plaintiffs say that at meetings between representatives of the plaintiffs and the defendant in April 1998, it was agreed that the defendant would refinance the plaintiffs' loans, replacing the Commonwealth Bank of Australia and the Primary Industry Bank of Australia. Certain further capital would be made available by the defendant to the plaintiffs: see par 26. Paragraph 27 is then in the following terms:

"At the April 1998 meetings Wood orally represented to MA Stampalia and Borrello (both representatives of the plaintiffs) to the effect that, he would obtain a valuation of Alvito House and BankWest would provide the Borrowings on the basis that:

(a) repayments of principal need not be made on Borrowings until Alvito House had been refurbished and relet after the CA (Commonwealth of Australia) vacated; and

(b) BankWest would charge only normal, commercial rates of interest and only normal, commercial fees and charges on the Borrowings."

5 The statement of claim goes on to plead that the refinancing took place. It is pleaded (par 36) that on 28 May 1998 the defendant advised the plaintiffs that "in principle" agreement approval had been given by the defendant to the financing arrangements. Paragraph 37 then pleads that the defendant represented to the plaintiff that construction of certain premises on land owned by the plaintiffs could commence. The plaintiffs plead that the defendant confirmed the approval of finance by letter dated 16 September 1988: see par 39. By par 41 it is pleaded that in or about October 1998 one Wood, who had been representing the defendant, retired and was replaced by two individuals - Moulton and Cordery. By par 42 it is said that in early December 1998 the fourth plaintiff advised Moulten that any reduction of the borrowings was only possible from rental income from Alvito House when Alvito House was refurbished and relet. Paragraph 42(b) then pleads:

"Moulten did not inform MA Stampalia that this was not acceptable by BankWest, and, thereby led MA Stampalia to believe that BankWest still accepted this and would prepare the loan documents for the Borrowings on that basis ('BankWest's conduct by silence')."

The loan documents were signed on or around 7 December 1998: see par 44.

6 In about October 2000 the defendant advised the plaintiffs that it required a reduction of the borrowings be made by 31 January 2001: see par 51. As at that date, Alvito House had not been relet. The plaintiffs say that they were thereafter charged penalty interest and fees and they were forced to dispose of their property holdings under pressure from the defendant and in what is commonly referred to as a fire sale. As a consequence, they say they have suffered loss and damage and they claim from the defendant an amount of just over $4,600,000.

7 What I have set out above is a general outline of the factual matrix pleaded by the plaintiffs. It is not a detailed, nor is it an exhaustive summary of what is a lengthy pleading. But it is sufficient to put in context the various causes of action raised by the plaintiffs.

8 The plaintiffs allege against the defendant five separate causes of action. First, there is a plea of unconscionable conduct which is tied in with s 51AA of the Trade Practices Act. This plea is to be found in par 55 of the statement of claim. With respect, the plea is clearly deficient. The elements of a claim for unconscionable conduct were identified by Deane J in Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 474. His Honour identified three prerequisites for any such claim. First, the plaintiffs must have a special disability with the consequence that there was an absence of any reasonable degree of equality between the parties to the transaction. Second, that disability must be known to the defendant. Thirdly, the transaction must be able to be characterised as not fair, just or reasonable. The plaintiffs do not plead any one of these elements. To that extent, par 55 cannot stand and the plea must be struck out.

9 Furthermore, it is difficult to see how the plaintiffs could ever be regarded as affected by a special disability. The very extent of the land holding and business interests of the plaintiffs suggests that they were experienced in the ways of commerce. That stands in contrast to Mr and Mrs Amadio, who were elderly, had a poor grasp of the English language and no business acumen. It might be said by the plaintiffs that as at the date they entered into the loan documentation they had, in reliance upon representations made to them by the defendant, committed themselves financially to an extent that they had no option but to sign the loan documentation and continue with their relationship with the defendant. To that extent they were under a disability. It is doubtful whether that is the disability that Deane J had in mind in the Amadio decision. His Honour referred (at 476 - 477) to the decision of McTiernan J, in Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362, where his Honour said (at 392):

"His weakness was of the kind spoken of by Lord Hardwicke (in Earl of Chesterfield v Janssen [1750] EngR 119; (1751) 2 Ves Sen 125) in defining the fraud characterised as taking surreptitious advantage of the weakness, ignorance or necessity of another. The essence of such weakness is that the party is unable to judge for himself."

10 It is difficult to imagine that the plaintiffs could fall within this definition. It may be that the need for finance removed the capacity for proper business judgment. If that is so, it will need to be pleaded with some care and eventually particularised. No doubt counsel will bear this in mind when redrafting the pleading.

11 The plaintiffs also claim against the defendant's misleading and deceptive conduct: this is the second pleaded cause of action. The plaintiffs plead a number of representations which are to be found in par 26, 27, 37, 42(b) and 47. There is no direct plea that any of these representations was false. By implication, the representations in par 27(a), 42(b) and 47 may be falsified by par 51. However, the position is not entirely clear. In any event, these representations would appear to relate to future matters - that is to say, the plaintiffs rely on s 51A of the Trade Practices Act. If that is the case, it should be made clear in the pleading that reliance is placed upon the section: see Western Australia v Bond Corporation Holdings Ltd [1990] FCA 522; (1991) ATPR 41-081; Truth About Motorways Pty Ltd v Infrastructure Investments Ltd (1998) ATPR 41-633. It is up to the plaintiffs to decide whether or not they will assert positively the absence of reasonable grounds for making the future representation. However, if they do, they must plead the relevant factual matters specifically and, if necessary, give particular: see Bowler v Hilda Pty Ltd (1998) 153 ALR 95; Adelaide Petroleum NL v Poseidon Ltd (1988) ATPR 40-901 per French J at 49,700.

12 There are further difficulties with the Trade Practices Act pleading. It is difficult to see, given the construction of the statement of claim as a whole, how the representations pleaded in par 26 can give rise to a cause of action. There is a plea of reliance in par 32 which refers to par 27 and 28. Reliance on the representation in par 37 is pleaded in par 38. There is no direct plea of reliance in relation to the representation pleaded in par 42(b). Nor is there any direct plea of reliance in relation to par 47. Furthermore, there is no plea as to what position the plaintiffs would have been in had they not relied on the alleged representations. This is important in determining what damages the plaintiff suffered as a consequence of the alleged breaches of s 51A. Presumably it is said the plaintiffs would not have gone ahead with the refinancing with the defendant, or they would not have proceeded with the refurbishment of Alvito House and the construction of the BBC premises. At present it is not possible to relate the alleged losses suffered by the plaintiffs to the pleaded misrepresentations. This aspect of the claim requires further careful consideration.

13 There is a further difficulty with par 42(b). This paragraph is a plea of a representation by silence. While there is no doubt that silence may, in some circumstances, amount to misleading or deceptive conduct, there is some doubt as to the utility of s 51A in relation to future matters, because of the application of s 4(2). If reliance is to be placed on s 52, then relevant facts must be pleaded which give rise to the duty to disclose certain matters to the plaintiffs: see Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83 per Lockhart J at 95; Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477.

14 The defendant also complains about a plea of misleading and deceptive conduct in relation to certain interest rate swap agreements which are pleaded in par 66 and 67. The plea is defective because there is no falsification of the representation, nor is there any plea of reliance. This part of the statement of claim cannot stand.

15 Thirdly, there is a claim which can be characterised as an action based in tort for negligent misstatement. It is not entirely clear from the pleading whether or not the plaintiffs' claim is based in negligence or whether there is a claim for a breach of fiduciary duty. If it is the latter, then the pleading is defective because it does not establish how it is that the fiduciary duty arises. Counsel for the plaintiffs accepted that a fiduciary relationship between a bank and its customer does not arise as a necessary incidence of that relationship. That can be contrasted with the solicitor/client relationship. Once such a relationship is established, it is accepted that it is a fiduciary relationship and certain consequences follow. Of course, a fiduciary relationship can exist between banker and customer. It is a question of whether the circumstances exist to give rise to such fiduciary relationship. In The Wik Peoples v The State of Queensland & Ors (1996) 187 CLR 1, Brennan CJ put the position as follows (at 95 - 96):

"It is necessary to identify some action or function the doing or performance of which attracts the supposed fiduciary duty to be observed. The doing of the action or the performance of the function must be capable of effecting the interests of the beneficiary and the fiduciary must have so acted that it is reasonable for the fiduciary to believe and expect that the fiduciary will act in the interests of the beneficiary (or, in the case of a partnership or joint venture, in the common interest of the beneficiary and fiduciary) to the exclusion of the interest of any other person or the separate interest of the beneficiary."

16 As the pleading stands at the moment, there is not defined or identified on the part of the plaintiffs "some action or function the doing or performance of which attracts the supposed fiduciary duty to be observed". If a claim of breach of fiduciary duty is to be pursued, then it must be clearly pleaded. At present, I can see no such plea and I have therefore approached the matter on the basis that the alleged breach of duty is a claim in tort. Put that way, the plaintiffs' action is a claim for negligent misstatement.

17 In Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180, Gaudron J (and all other members of the Court) accepted that there had developed sufficient body of case law from which it was possible to discern in relation to negligent misstatements that special circumstances led to the existence of a duty of care. Her Honour said (at 199):

"So far as concerns negligent misstatement, the circumstances which attract a duty of care are 'known reliance (or dependence) or the assumption of responsibility or a combination of the two', the word 'known' including circumstance in which reliance or dependence ought to be known. And in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241, it was not pleaded that the auditors in question knew or ought to have known that a finance provider would rely on their audited statement of accounts and, thus, it was held, on the pleadings, that no duty of care was owed by the auditors to the finance provider."

18 The deficiencies in the pleading in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords [1997] HCA 8; (1997) 188 CLR 241 are repeated in this statement of claim. Paragraphs 31 and 67 plead a duty of care but both paragraphs are inadequate. There is no plea as to how the defendant knew that the plaintiffs would rely on its advice, nor is there a plea that in some way there was an assumption of responsibility by the defendant. It has not been pleaded that the defendant knew or ought to have known that the plaintiffs would rely on such advice as they gave. In the circumstances there is no pleaded duty of care and the pleading is defective.

19 The fourth cause of action is what is referred to in par 58 and 62 of the statement of claim as "illegitimate commercial pressure", or "illegitimate economic pressure". In his submissions, both written and oral, counsel for the plaintiffs relied upon the decision in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 to support this plea. However, there is no plea that any commercial or economic pressure which was brought to bear by the defendant on the plaintiffs was improper. That is an element of the cause of action and in the absence of such a plea the cause of action cannot be sustained.

20 Finally, there is a claim for breach of contract. It is not entirely clear from the pleading what "contract" is referred to. It is mentioned for the first time in the prayer for relief. That can never be a proper pleading and the cause of action for breach of contract, such as it is, cannot stand.

21 In my view, the proper course here is to strike out the whole of this pleading and to allow the plaintiffs to replead. The plaintiffs should bring in a minute of proposed substituted statement of claim. I would accept that the statement of claim in its present form indicates that there may be causes of action which the plaintiffs can mount against the defendant. Of course, I express no concluded view on this issue. It must await a further pleading. But this is not a case where it would be proper to shut out the plaintiffs at this point. They should have a further opportunity to articulate their case against the defendant.

22 I will hear the parties as to the precise form of orders and as to costs.