Assoc Food v Baxter [1999] NSWSC 236 | Case summary

1 This is a judgment on an application by the plaintiffs for leave to amend their statement of claim to insert a new paragraph 29A together with particulars of the material pleaded in that paragraph, a new paragraph 112A and new prayers for relief by way of declarations numbered 8A to 8C inclusive. 2 I do not propose to make any decision now with respect to paragraphs 8B and C. I have indicated to counsel for the plaintiffs that there seems to me to be a difficulty with respect to the introduction of these prayers for relief, when so far as I can see the material facts pleaded in the statement of claim do not support that relief. Counsel for the plaintiff has indicated that he will consider the position and I have granted him leave to raise the matter again at the beginning of tomorrow morning's hearing. 3 So far as paragraph 8A is concerned, there is no objection to the amendment and I propose, whatever else happens, to allow an amendment to the statement of claim to introduce that paragraph. The principal issue for contention relates to paragraph 29A. 4 The application for leave to amend the statement of claim was foreshadowed yesterday, the first day of the hearing, and was orally made this morning. I set out the two paragraphs which the plaintiffs propose to insert in the statement of claim: '29A(a) From about March 1992 until 20 October 1992 ATS, Abroron, Rockbid and Kokab dealt with each other on the assumption that ABC had been substituted for ATS as the vehicle for Strong's interest in the Joint Venture. (b) After ATS was deregistered on 20 October 1992 Strong, Abroron, Rockbid and Kokab dealt with each other on that same assumption. (c) After Abroron was terminated as a Joint Venturer in May 1993 Strong, Rockbid and Kokab continued to deal with each other on the same assumption until ABC was terminated as a Joint Venturer on 30 June 1995. (d) That assumption formed the conventional and accepted basis which governed the relations between the Joint Venturers during those periods respectively. (e) It would be unjust or unconscionable if ATS resiled from that convention and ATS is accordingly estopped from denying that ABC was substituted for ATS as a Joint Venturer from about March 1992 to 30 June 1995 and that the termination of ABC's rights as a Joint Venturer on the latter date was effective to prevent any subsequent assertion by ATS of any entitlement to be a Joint Venturer. Particulars of dealings between the joint venturers (i) At a meeting of the directors AFT on 17 March 1992 it was agreed that if the Joint Venture were to be restructured as an incorporated joint venture, shares representing Strong's 40 per cent interest would be issued to ABC or other company nominated by Strong. (ii) By an agreement between Merck, AFT, ABC, Rockbid, Kokab, Strong and Dairy Farmers dated 22 September 1994 it was recited that AFT had entered into a joint venture agreement with ABC, Rockbid and Kokab and now held certain intellectual property rights on trust for the Joint Venturers, which term was defined to mean AFT, ACT, Kokab and Rockbid. (iii) In negotiations which were occasioned by the winding up proceedings brought against AFT by Abroron and in which Conserv was seeking to be substituted as plaintiff, which negotiations were conducted variously between the Joint Venturers and Campbell, Baxter and Pickwell it was assumed that ABC and not ATS was a Joint Venture member. (iv) At a meeting of the Joint Venturers held on 31 March 1995 for the purpose of changing the nominee from AFT to AFI, ABC was present by its attorney Ms Petterson and no person purported to represent ATS, and an agreement executed for the same purpose on the same date describes ABC as a Joint Venturer and is executed by an attorney for ABC. 112A If contrary to the matter pleaded in paragraph 29 above, ATS continued to be a Joint Venturer until its de-registration on 20 October 1992 and such rights and obligations as a Joint Venturer revested in it upon its re-registration on 29 August 1995, Rockbid terminated, as it was entitled to do, the rights of ATS to participate further in the Joint Venture by a notice dated 23 December 1995 issued under clause 11.3 of the First Joint Venture Agreement.' 5 Paragraph 29A pleads to a cause of action in estoppel by convention. This is a relatively unsettled branch of the law, particularly since the decision of the English Court of Appeal in Amalgamated Investment & Property Co Limited v The Texas Commerce International Bank Limited [1982] 1 QB 84. Prior to that decision estoppel by convention was seen as a limited form of common law estoppel generally thought to have been encapsulated in the following passage in Spencer Bower & Turner on Estoppel by Representation (3rd Ed 1977) page 157: 'This form of estoppel is founded, not on a representation of fact made by a representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped against the other from questioning the truth of the statement of facts so assumed.' 6 The Texas Commerce case extended the scope of this form of estoppel, though the exact effect of that decision (especially when assessed in light of the subsequent High Court decisions in Legione v Hatley (1983) 152 CLR 406; Waltons Stores (Interstate) Limited v Maher (1988) 164 CLR 387 and Commonwealth v Verwayen (1990) 170 CLR 394) is open to debate. Evidently it is at least true that an estoppel may arise out of post-contractual conduct rather than anything occurring before the relevant contract is made; and it may arise by virtue of the conduct of a relationship on the basis of assumptions about the effect of a prior contract, rather than out of anything as specific as an agreed statement of assumed facts. Thus in Hamel-Smith v Pycroft & Jetsave Limited (Unreported 5 February 1987) in a passage later endorsed by Bingham LJ in Vistafjord [1988] 2 Lloyds Rep 343 at 352, Peter Gibson J said that the estoppel applies where: 1) parties have established by their construction of their agreement or their apprehension of its legal effect a conventional basis; 2) on that basis they have regulated their subsequent dealings; and 3) it would be unjust or unconscionable if one of the parties resiled from that convention. 7 Similarly, in a partial formulation which is relevant here, the High Court of Australia said in Con-Stan Industries of Australia Pty Limited v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226, 244 that estoppel by convention is 'a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed set of facts, which both will be estopped from denying.' 8 Fortunately it is not necessary for me to decide the precise scope and content of estoppel by convention or its relationship with estoppel by representation or equitable estoppel generally. In its wider formulations estoppel by convention could be taken to undermine the law of rectification and even the law of contractual offer and acceptance, but its limiting principles are fluid to say the least. 9 The issue for me relates to the plaintiffs' proposed pleading in paragraph 29A. In the pleading context, a party is entitled to assert a cause of action which is not clearly established by the law, or even an entirely novel cause of action as long as the pleading satisfies the basic requirement of procedural fairness that the pleading must state with sufficient clarity the case which must be met. So long as the pleading does that, the opposing party is protected by its right to question the legal basis of the pleading by motion in the nature of demurrer. 10 Plainly the proposed paragraph 29A has been drafted with a view to the modern doctrine of estoppel by convention as formulated in the ways indicated above. The defendants say that as a pleading paragraph 29A and the accompanying particulars are deficient. The defendants begin by referring to the following basic propositions with respect to proper pleadings: 1) A pleading of a party shall contain and contain only a statement in a summary form of the material facts on which he relies but not the evidence by which those facts are to be proved: Supreme Court Rules, Part 15 rule 7(1). 2) The material facts are those facts necessary for the purpose of formulating a complete cause of action: Multi Group Distribution Services Pty Limited v TNT Australia Pty Limited [1996] ATPR 41,522 at 42,679. 3) It is not sufficient that the statement of claim simply expresses a conclusion drawn from facts which are not stated: Multi Group Distribution at 42,679. 4) A party is required to plead facts rather than their legal effect: Ritchie's Supreme Court Procedure (Looseleaf), paragraph 125(7)(ii). 5) Not only must all material facts be pleaded but they must be pleaded with a sufficient degree of specificity to convey to the opposite party the case which that party has to meet: Multi Group Distribution at 42,679. 6) It is not a function of particulars to take the place of the necessary averments in the statement of claim: Multi Group Distribution at 42,679. 7) The requirement to plead facts is not satisfied merely by referring to the existence of documents and claiming to rely upon them in order to prove a stated conclusion: Philipps v Philipps [1898] 2 QB 127. 11 The defendant relies on these principles to attack paragraph 29A itself. As to the adequacy of the particulars supporting paragraph 29A, the defendants refer to Trade Practices Commission v David Jones (Australia) Pty Limited (1985) 7 FCR 109, 112-113 where it was said that all material facts constituting the cause of action ought already to be plainly stated in the pleading itself, rather than in the particulars, since the opposing party ought not to be required to plead to particulars. It was also said that the proper function of particulars is not to state material facts omitted from the statement of claim nor to fill in the gaps. 12 Applying those principles as best I can to paragraph 29A and its particulars, I have reached the conclusion that the paragraph pleads the material facts upon which the plaintiffs propose to rely with respect to some of the ingredients of estoppel by convention, but that the paragraph omits to plead clearly enough one of the ingredients which the modern law requires. 13 If one refers to Peter Gibson J's presentation of the requirements of estoppel by convention, it is evident that paragraph 1 of that formulation is adequately pleaded in paragraphs 29A(a)-(c). There the plaintiffs assert that the parties dealt with each other and that they did so on the basis of an assumption. The assumption is specifically stated as an assumption that ABC had been substituted for ATS in the joint venture. 14 The dealings are not pleaded but it is unnecessary in the statement of claim itself that those facts be particularised. Indeed the very articulation of the point implies the distinction which seems to me to be crucial, namely the distinction between the assertion of the material fact and the support of that fact by particulars. 15 So far as paragraph 2 of the formulation by Peter Gibson J is concerned, paragraph 29A(d) formulates an assertion which is identical in substance with Peter Gibson J's formulation. So far as paragraph 3 of Peter Gibson J's formulation is concerned, paragraph 29A(e) contains an assertion along the same lines as Peter Gibson J's formulation. 16 In my opinion that what is missing from the two sub-paragraphs of the statement of claim is a clear articulation of the material facts which lead to the conclusion that the parties have regulated their subsequent dealings on the basis of the assumption which is pleaded in such a manner which would be unjust or unconscionable for one of the parties to resile. There needs to be some assertion of a material fact or facts which establishes a change of position or detrimental reliance supplying what seems to me to be an otherwise missing ingredient of the estoppel which is pleaded. That some such requirement is needed appears to me to flow from cases on estoppel by convention since the Texas Commerce case, although the requirement might be loosened to a degree in the special sub-category known as estoppel by deed: see Ferno Holdings Pty Ltd v Lee (1992) NSW ConvR 55-645; Offshore Oil NL v Southern Cross Exploration NL (1985) 3 NSWLR 337; R Derham, 'Estoppel by Convention' (1997) 71 ALJ 860, 976, esp. at 985, 987. 17 I therefore conclude that while the pleading in paragraph 29A(a)-(c) is sufficient to assert the existence of a course of dealing based upon an assumption, paragraph 29A(d)-(e) are not sufficient to assert the essential material facts relating to change of position or detrimental reliance. 18 So far as the particulars are concerned, in my opinion they have been prepared on the basis of a proper distinction between the pleading of material facts in the pleading itself and the articulation of particulars pursuant to the pleading. However, as the heading of the particulars itself declares, the particulars are no more than particulars of the dealings between the relevant parties and they do not particularise any other matters, such as, especially, the element of change of position or detrimental reliance. 19 So far as paragraph 112A is concerned, the defendants attack the pleading principally because it asserts that Rockbid terminated the rights of ATS 'as it was entitled to do'. It is said that the pleading does not assert the material facts upon the basis of which that entitlement arose. 20 In my opinion the pleading is sufficient, in that it asserts the fact of termination and it asserts that the termination was by a notice, the date of which is specified and the source of which is given by reference to clause 11.3 of the first joint venture agreement. I believe that in the context of the remainder of the statement of claim paragraph 112A is a sufficient pleading. 21 I therefore propose to allow counsel for the plaintiff time to consider whether to press on with the application for amendment to introduce paragraphs 8B and 8C and to review the draft amendment in paragraph 29A and particulars supporting that paragraph in light of the reasons which I have just delivered. 22 I am very much concerned with potential prejudice to the defendants and for that reason, without giving any formal direction to this effect, I note that I expect counsel for the plaintiffs to indicate his clients' intentions with respect to paragraph 29A, 8B and 8C when the hearing resumes tomorrow morning. **********

Assoc Food v Baxter

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