Have the allegations of implication in contraventions of the Act been properly pleaded against the second respondent?
5 A preliminary question arises as to whether the alleged breaches of s 52 have been properly pleaded. If the pleadings disclose no arguable cause of action against WSA, it follows that accessorial liability cannot attach to the second respondent by reason of "knowing involvement" in contraventions by WSA. The first issue is thus whether the pleading adequately alleges the falsity of each of the alleged representations by WSA that the applicant claims were misleading or deceptive or false. The representations in pars 7(a), 7(b) and 7(e) are mirrored and negatived in the particulars at pars 12(a), 12(b) and 12(e). There is nothing objectionable in this. Paragraph 7(c) appears to contain two alleged representations, the first being "that the transaction fees which would be payable by the Applicant in respect of each sale by the Wineries to the Visitors conducted via the website would be between 2 and 2.5% of the sale price … ." The "second representation" is "… that as the Applicant had negotiated with Wineries a commission of 5% of the sale price of all sales conducted via the Applicant's website the Applicant's business if transacted via the web site to be designed and constructed by the First Respondent would be viable". Despite the use of "would", this does not appear to be pleaded as a representation as to the future events, presumably because the ANZ product already existed and the terms of its operation were able to be known. The particulars in sub-par (c) of the particulars appended to par 12 do not demonstrate the falsity of the second representation in sub-par 7(c). Sub-paragraph (d) of the particulars to par 12 does not, in terms, clearly falsify the representation pleaded in sub-par 7(d). The representations alleged in sub-par 7(f) and (i) seem to be as future matters, although sub-par 7(i) does not make clear whether the representation is as to future revenue, or the applicant's business having the capacity (by some unspecified future date) to earn such revenue. Their falsity does not appear to be adequately demonstrated by sub-pars (f) and (i) of the particulars appended to par 12. As French J observed in Revian v Dasford Holdings Pty Ltd [2002] FCA 676 at [19]:
'Representations of a promissory or predictive nature are not falsified by the failure of the promise to be honoured or the prediction to come true.'
The alleged representations here as to the day on which the site would be ready and the potential for future income streams are comparable with the alleged representation made to lessees in Revian that a pharmacist would relocate to a new shopping centre:
'The asserted representation that a chemist would relocate to the shopping centre is not relevantly falsified by the statement that no chemist had ever relocated to the shopping centre. There must be some implied representation such as a representation that there were reasonable grounds for making the statement which is falsified by the absence of such grounds. The proof thereof may be aided by the application of s 51A.' (ibid at [17])
In my view, the observations of French J apply with equal force to the present pleadings. At present pars 7(f) and (i) coupled with pars 12(f) and (i) only allege that promised or predicted events did not, in the result, come to pass. Allegations in this form do not found an action under s 52.
6 The central contention advanced on behalf of the second respondent is that the applicant has not adequately set out in his pleadings facts which, if made out, would disclose the cause of action alleged under s 75B which is discussed at [3] above. Keifel J, in Batten v CTMS Ltd [1999] FCA 1576 at [29], indicated as follows what is required to establish "knowing involvement";
'That leaves the question whether the Minister could be said to have been "knowingly concerned" in the contraventions as alleged. It must be recalled that this refers, again, to involvement in a contravention. The applicants' case goes so far as to allege some knowledge and an interest in an overall plan, but not all aspects of how it was secured. Mere knowledge of the prospect that a contravention will, or has, occurred will not suffice. It must be shown that the respondent in question had knowledge of the facts which establish the contravention and that they acted in some positive way in connection with it: Bell v Australasian Recyclers (WA) Pty Ltd (1986) ATPR 40-644; 47, 222; Sent & Petres & Collier v Jet Corporation of Australia Pty Ltd (1984) 2 FCR 201; R v Tannous (1987) 10 NSWLR 303, 307-8.' (emphasis added)
7 The only particulars given as to what, allegedly, was known or actively done by the second respondent are contained in the applicant's further and better particulars dated 16 August 2002 which are in these terms:
'The Second Respondent's (Mr Houghton's) representation was partly in writing and partly oral.
In late January 2000 and early February 2000, the Applicant (Arms) had at least 2 meetings with James Student and James Houghton which began at the offices of WSA Online, and which were then conducted at the Fringe Cafe on the corner of Shakespeare Grove and Acland Street in St Kilda (the Cafe). The first of these meetings was held in the last week of January 2000.
During the course of the meetings between Arms, Mr Student and Mr Houghton, Arms discussed with Mr Houghton the nature of Arm's business and Mr Houghton said, in substance, to Arms as follows:
(a) He was aware of a financial transactions product called ANZeGate, which would be "perfect" for the Arms Business.
(b) The ANZeGate product would enable the secure processing and management of orders from visitors to the Business' website direct to the winery and the payment from the visitor direct to the winery via the Business' website.
(c) The visitor to the Website would make a purchase, the transaction would be cleared and the order placed with the winery that delivers direct to the customer. Mr Houghton explained to Arms that the payment would be automatically deposited into the wineries' accounts with a maximum of 2.5% having been already deducted for transaction fees.
(d) The ANZeGate would facilitate payment by visitors to the Business' website to the wineries by all major credit cards.
(e) The transaction fees payable in respect of the use of credit cards by visitors to the Business' website would be paid by the wineries, and that the transaction fees payable by the wineries would be between 2 and 2.5%.
At a further meeting, which Arms attended at the Cafe in approximately mid-February 2000 with James Houghton and James Student, Arms advised both Mr Houghton and Mr Student that the on-line transaction facilitation was crucial to his business and Arms needed to know how this would work so that Arms could advise the wineries about this. At this meeting, Mr Houghton gave Arms a document, which he said summarised how the ANZeGate product would operate. This document may be inspected at the offices of the Applicant's solicitors. Mr Houghton said, in substance, in reference to this document/memo that:
(f) ANZeGate would allow e-commerce purchases to be cleared directly into the bank account of the relevant winery;
(g) each of the member wineries would be individual merchants for the purposes of credit card transactions;
(h) each of the wineries could go online to review their transactions at any time and all transaction reports will flow via WSA;
(i) wineries could be added to the system by simply filling in a form and paying a small set-up fee;
(j) all transactions would be cleared directly into the wineries' business' bank account without the set-up costs associated with setting up single client accounts; and
(k) WSA would control the transactions, which were conducted via Arms' website.
At a meeting between Arms, James Houghton and James Student in approximately mid-February 2000 at the Cafe, Mr Houghton and Mr Student gave Arms a further document titled "Auscellardoor". This document may be inspected at the offices of the Applicant's solicitors. They said that this document was an outline of the benefits for Arms to discuss with wineries for them entering agreements with Arms in relation to his business. Arms discussed this document with Mr Houghton and Mr Student, and they both told Arms that:
(l) the wineries would not be required to process credit card transactions as all orders would already be cleared before the wineries received the money; and
(m) the money for each sale would be deposited straight into the wineries' bank account.
In approximately mid-March 2000, Arms had a meeting with James Student and James Houghton at the Cafe at which they gave Arms a document. This document may be inspected at the offices of the Applicant's solicitors. Arms made notes on the reverse of the last page of matters, which were discussed at the meeting. Mr Houghton said to Arms that:
(n) he was confident by 2003 Auscellardoor could be turning over $4 million per annum;
(o) using the website constructed by WSA, Arms would be able to set up a separate and unique website for wineries which would link into Arms' website for transactions only and that Arms would be able to attract a set-up fee of around $250 with additional monthly charges between $25 and $50 for the services provided;
(p) through operating the website designed by WSA, Arms would have a competitive advantage over retail sites;
(q) the website developed by WSA for the Business would develop an email list to provide regular communication about the Business, wineries, new offers, and could be the basis of a future loyalty rewards program; and
(r) the website would be operational by mid-May 2000.
Mr Houghton went through the flow diagrams on page 5 of the document and in that context explained to Arms that the visitor to the website would make a purchase, the transaction would be cleared and the order placed with the winery who delivers direct to the customer. Mr Houghton explained to Arms that the payment would be automatically deposited into the wineries' accounts with a maximum of 2.5% having been already deducted for transaction fees.
In March 2000, Arms met with James Student and James Houghton at the Cafe. At this meeting, Mr Student and Mr Houghton gave Arms the Trade Presentation Kit which represented the completion of Phase 1 of the services to be provided by WSA and which was to be used by Arms in promoting his business and his website to wineries. The Trade Presentation Kit included a form for the wineries to complete their bank details for the purpose of depositing money from sales into their accounts, as well as a brochure and a mock up of the website. The brochure may be inspected at the offices of the Applicant's solicitors. In addition, Arms had created some standard form 'agreement' documents, which were to [scil. be] the basis of his relationship with each of the wineries Arms signed up to the Business. This document may be inspected at the offices of the Applicant's solicitors. Arms showed this document to James Student and James Houghton and asked them both if there were any further details Arms would require from the wineries in order to effectively run his Business and operate his website. Mr. Houghton told Arms there was not.'
8 These particulars go most, if not all, of the way to answering the second respondent's criticism that the pleadings do not identify with sufficient certainty which representations are alleged to have been made by him and which by the third respondent. This uncertainty is said to arise from the imprecise language of par 7 of the statement of claim that "the Second and Third Respondents or one or other of them on behalf of the First Respondent stated …". The applicant has made plain in oral submissions that it is pressing against the second respondent all allegations under par 7, with the exception of sub-pars 7(g) and (h). He has set out the substance of conversations said to have constituted those representations. Accordingly, it no longer seems open to the second respondent to claim that he does not know the case he has to answer in this respect.
9 However, the question has also been raised whether the further and better particulars given are capable of sustaining each of the representations alleged in par 7 of the statement of claim:
· it is apparent that nothing in these further and better particulars goes to the allegation in sub-par 7(a) that it was represented that the first respondent had "extensive experience" in the field. That allegation therefore cannot be maintained on the present state of the pleadings;
· the allegation in sub-par 7(b) appears to be made out by sub-pars (b) and (d) of the further and better particulars based on the first meeting in the last week of January 2000;
· the allegation in sub-par 7(c) appears to be made out by sub-pars (c) and (e) of the further and better particulars except for the second discrete allegation in 7(c) that the business would be viable, which would appear to be substantiated, at least partially, by the further and better particulars at sub-pars (n) and (p);
· the allegation in sub-par 7(e) appears to be made out by the further and better particulars in general and at sub-par (a) in particular;
· the allegation as to representations regarding a 1 July 2000 "launch date" and the functionality of the applicant's website given at sub-par 7(f), does not appear to correlate with the allegation at (r) of the further and better particulars that the second respondent represented that the site would be operational by "mid-May 2000". However, that representation, if proved, would, I consider, sustain the allegation in sub-par 7(f) of the statement of claim;
· the allegation at sub-par 7(i) is not clearly substantiated by sub-par (o) of the further and better particulars, which appears to be referable to the establishment of subsidiary business websites for individual wineries, which I take to be different from the provision of "design" services which seems to be the subject of the representation pleaded at sub-par 7(i) of the statement of claim.
When account is taken of the concerns expressed at [5] above regarding representations as to future events and my reservations about the correspondence between certain sub-paragraphs of par 7 and the relevant items of the further and better particulars, it will be clear that sub-pars 7(a), 7(g) and 7(i) of the statement of claim in their present form cannot stand.
10 Whether the remaining pleadings disclose an arguable case against the second respondent or are liable to be struck out is another question. However, it would appear that the applicant has either abandoned the claim of "knowing concern" under s 75B(c) or effectively concedes it is not at present properly pleaded. In the further and better particulars dated 16 August 2002, referred to above, the applicant stated;
'Paragraph 14 does not allege that the Second Respondent knew:
(i) that the representations were false; or
(ii) the first respondent had no reasonable grounds for making the representations.'
That concession alone would appear to dispose, in terms, of the basis for liability provided by s 75B(c). I cannot understand how an applicant could be knowingly involved in the making of false or misleading representations without knowing that the representations were false or there were no reasonable grounds for making them.
11 The issue remaining is what the applicant must allege the second respondent did in order to properly plead that he "aided, abetted, counselled or procured" the breaches of the Act. If the applicant must plead knowledge of falsity or absence of reasonable grounds on the part of the second respondent, then, in light of the concession discussed above, liability under s 75B has not been imputed to that respondent. That result, I consider, is dictated by the observations of the High Court in Yorke v Lucas (1985) 158 CLR 661 where, at pp 666-8, Mason ACJ, Wilson, Deane and Dawson JJ said of s 75B;
'Turning first to par.(a), the appellants immediately encounter the difficulty that the words used, "aided, abetted, counselled or procured", are taken from the criminal law where they are used to designate participation in a crime as a principal in the second degree or as an accessory before the fact. Both in the case of felonies where the principal offender and the secondary participant commit separate offences, and in the case of misdemeanours where no distinction is drawn between the two, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it. To form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime. So much was affirmed recently in Giorgianni v. The Queen (1985) 59 ALJR 461; 58 ALR 641 where the relevant authorities were examined. That was a case in which the appellant had been convicted of culpable driving under s.52A of the Crimes Act 1900 (N.S.W.) in reliance upon s.351 of that Act. The latter section provides that a person who aids, abets, counsels or procures the commission of any misdemeanour may be proceeded against as a principal offender and was held to be declaratory of the position at common law. The offence of culpable driving under s.52A is an offence of strict liability which … requires no proof by the prosecutor of any mental state on the part of the accused. Nevertheless it was held that to have aided and abetted or counselled and procured the offence of culpable driving the appellant must have intentionally participated in that offence and to have done so must have had knowledge of the essential matters which went to make up the offence … Those matters included the defective condition of the brakes upon the vehicle being driven, because the culpable driving alleged consisted of the driving of that vehicle with defective brakes. Proof of such knowledge on the part of the principal offender was, however, not part of the prosecution case because the principal offence was one of strict liability.
If par.(a) of s.75B imports the requirements of the criminal law, it is clear in the light of Giorgianni v. The Queen that Lucas [the natural person respondent] could only be brought within that paragraph if he intentionally aided, abetted, counselled or procured a contravention by the Lucas company of s.52 of the Trade Practices Act. Upon the findings of the trial judge, however, Lucas lacked the knowledge necessary to form the required intent. A contravention of s.52 involves conduct which is misleading or deceptive or likely to mislead or deceive and the conduct relied upon in this case consisted of the making of false representations. Whilst Lucas was aware of the representations - indeed they were made by him - he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention.
The appellants sought to meet this difficulty by submitting that s.75B(a) should not be construed in accordance with the requirements of the criminal law and that no intent was necessary in order to constitute a person an aider, abettor, counsellor or procurer within the meaning of that paragraph. A contravention of s.52, it was said, requires no intent and it follows that there is no reason why intent should play any part in secondary participation in a contravention of that section.
The nature of the prohibition imposed by s.52 is, however, governed by the terms in which it is created and the context in which it is found. Section 75B, on the other hand, in speaking of aiding, abetting, counselling or procuring, makes use of an existing concept drawn from the criminal law and unless the context requires otherwise, there is every reason to suppose that it was intended to carry with it the settled meaning which it already bore. Cf. Barker v. The Queen (1983) 153 CLR 338. Nor is there any reason to suppose that because the application of s.75B may occur in conjunction with a provision such as s.52, which requires no intent, it must also be construed so as to dispense with intent as an element of aiding, abetting, counselling or procuring. In Giorgianni v. The Queen it was held that secondary participation required intent based upon knowledge, notwithstanding that the statutory provision creating the principal offence imposed strict liability.'
12 Yorke v Lucas, quite properly, continues to be applied by this Court when examining knowledge as an element of liability under s 75B: see, for example, Australian Competition & Consumer Commission v Bio Enviro Plan Pty Ltd [2003] FCA 232 at [26]-[29] per RD Nicholson J; Leisure Boating Club (Roseville) Incorporated v Q-Corp Marine Pty Limited [2003] FCA 199. Given this clear authority, the concessions described at [10] above are entirely fatal to the applicant's case as pleaded under the Act. If the applicant lacked knowledge that the alleged representations were false or without reasonable foundation, he cannot be fixed with liability under s 75B and is not properly joined as a respondent on the current state of the pleadings.