By an Amended Notice of Motion filed on 21 May 2018, the plaintiffs seek to strike out certain paragraphs of the Commercial List Response (CLR) to the Amended Commercial List Statement (ACLS) pursuant to the inherent power of the Court.
In order to explain the issues raised by the motion, it is necessary to say something about the history of the proceedings.
As originally pleaded, the first plaintiff, Built Development (Manly) Pty Ltd (Built Manly), and the second plaintiff, (Athas Holdings Pty Ltd) (Athas) (together, the Developer) sought to recover damages from the defendant, the Northern Beaches Council, as the successor to the assets, rights and liabilities of the Manly Council, for what is said to be the wrongful repudiation of a Development Deed (the Deed) entered into on 27 April 2016 between Manly Council and the Developer relating to the redevelopment of a site occupied by the Whistler Street carpark and Manly Library (the Project). It will be convenient in this judgment to refer to the Manly Council and to the defendant, as its successor, as "the Council".
By its Commercial List Response filed on 29 November 2017, the Council raised a number of defences to the Developer's claim, one of which (pleaded in para 20) was that the Deed was invalid because:
1. it was not executed in accordance with subclause 400(2) of the Local Government (General) Regulation 2005 (NSW) (the Regulation) and, in particular was executed by Mr Henry Wong, Manly Council's General Manager, pursuant to a delegated authority rather than in accordance with the requirements of subclause 400(2);
2. the Deed did not comply with subclause 178(2) of the Regulation because the tender had been submitted by Built Development Group Pty Ltd (Built Group) and Athas, whereas the Deed was entered into with Athas and Built Manly, a wholly owned subsidiary of Built Group which had been incorporated for the purpose of entering into the Deed;
3. Mr Wong acted outside his delegated authority by executing the Deed with entities other than the tenderer.
In response to that defence, the plaintiffs filed the ACLS joining Built Group as the third plaintiff and pleading a case that the Council engaged in misleading and deceptive conduct in contravention of s 18 of the Australian Consumer Law. That case has two limbs. First, the plaintiffs plead that by certain conduct, the Council represented to the Developer that each of the Council's conduct of the tender process, entry into the Deed and the granting of an extension "was authorised, was within power and was done in accordance with all applicable laws".
Second, the plaintiffs contend that:
1. by reason of certain facts the Council was aware that the Developer held the view that the Deed had been properly and lawfully executed by Council (para 106);
2. the Developer was reasonably entitled to expect that the Council would inform the Developer if it had reason to believe or proposed to contend that the Deed was invalid or unenforceable for any of the reasons alleged in the CLR (para 107); and
3. the Council engaged in misleading and deceptive conduct by reason of its failure to inform the Developer prior to November 2017 of its contention that the Deed was invalid or unenforceable (para 109).
Paragraph 107 refers to invalidity "for any of the reasons alleged in the Commercial List Response". The plaintiffs accept that those reasons are set out in para 20 (and not elsewhere). Consequently, the case that the Council engaged in misleading and deceptive conduct by silence is a case that the Council engaged in misleading and deceptive conduct by failing to inform the plaintiffs of the matters pleaded in para 20. Similarly, although not clear from the ACLS, the plaintiffs accept that the pleaded representation was misleading and deceptive by reason of the matters pleaded in para 20, and that it was by reason of that conduct that the plaintiffs suffered loss and damage.
The Council raises a number of defences to the case based on misleading and deceptive conduct. It is one of those defences that the plaintiffs seek to strike out. That defence occupies approximately 25 pages of the CLR. Its structure is to identify a broad range of matters which it is said Built Group and the Developer knew or ought to have known, and to plead (in para 232) that by reason of those matters:
(a) any conduct of Council which may be found objectively to be misleading or deceptive or likely to mislead or deceive or to comprise a representation or give rise to a state of mind, did not cause the plaintiffs or any of them to be misled, or deceived, induce in them any state of mind, or cause them to suffer loss or damage;
(b) the Developer was not reasonably entitled to expect that the Council would inform the Developer as contended in paragraphs 107 and 108 of the Amended List Statement; and
(c) insofar as they allege they relied upon and were induced to act by representations by Council, the plaintiffs were so negligent in protecting their own interests that each such representation was not in the circumstances a real inducement to act, or refrain from acting, as alleged and that negligence intervened to sever any causal connection between those things.
The broad range of matters include the following:
1. That Built Group and the Developer knew or ought to have known "of matters pertaining to events within Manly Council and the Manly local government area in relation to the proposed development of the Project … and of Manly Oval" (CLR, para 167a)). The reference to Manly Oval is a reference to the redevelopment of the Manly Oval carpark, the granting of development consent for which was a condition precedent to the Deed. No particulars are given of the "events" which it is said the Built Group and the Developer knew or ought to have known;
2. The prospects of the redevelopment being a PPP (public private partnership) (and as a result being the subject of various regulatory requirements) was the subject of consideration by Manly Council and the subject of publicity (CLR, paras 170-1);
3. The proposed redevelopments were controversial, widely criticised and strongly opposed by members of the community and by Councillors, and on occasions debate about them in Council was prevented by Mr Wong or the Mayor, all of which was the subject of substantial adverse publicity (CLR, paras 178-181);
4. The administrative practices and governance of Manly Council and Mr Wong, including in respect of the Project and the Manly Oval carpark, were criticised in reports of the New South Wales Ombudsman and in correspondence of the Office of Local Government (CLR, para 185);
5. There were substantial differences between the Invitation Brief and the Tender. The Tender was inconsistent with Manly Council's planning controls and the structures it contemplated greatly exceeded the 15 metre maximum permitted height. As a result, it was reasonable to expect concern from members of the public and Councillors and for those opposed to the Project to press for inquiries to be conducted in relation to the tender process (CLR, paras 187-192);
6. The meeting approving the Project was conducted in the absence of the public, without an agenda being publicly notified and in circumstances where there was intensive dispute among the Councillors. Those matters were the subject of wide publicity at the time, which caused various bodies to question the legality of the meeting and the validity of the relevant resolutions (CLR, paras 196-200);
7. At the time, council mergers including the merger of Manly Council were under active consideration by the NSW Government and upon a merger being implemented, the Councillors of Manly Council would lose their position and Mr Wong would lose his position as General Manager, which were matters known by Mr Wong (CLR, paras 202-9). It is also pleaded that Mr Wong and representatives of Built Group and Athas negotiated and finalised the terms of the Deed and the Development Deed relating to the Manly Oval as a matter of urgency in order to execute them before the proposal to merge Manly Council with other councils was implemented (CLR, para 210);
8. There were risks that the Deed would be found to be an agreement to agree, void for uncertainty, that the condition precedent would not be satisfied and that the Project would not be completed (CLR, para 211);
9. There had been widely publicised concerns expressed by Councillors as to the adequacy of investigations of the risks and benefits to Council in circumstances where the Project had the potential to generate significant profits for Built Group and the Developer (CLR, para 213);
10. It was reasonably likely that upon a merger, the new administration would investigate the Project and suspend implementation of the Deed pending the outcome of an investigation (CLR, paras 215-16);
11. In or about May 2016, the Council commenced an investigation into the Project and suspended implementation of the Deed during the investigation. Those matters received wide publicity (CLR, paras 218-21);
12. It was reasonable to expect that Mr Wong would not be General Manager of any merged Council and that by 20 May 2016, he had no authority to deal with Built Group or the Developer in relation to the Project (CLR, paras 223-6).
The plaintiffs object to this pleading on two broad grounds. First, they submit that the allegation that the plaintiffs knew or ought to have known of various matters and a number of other allegations are inadequately particularised. More fundamentally, they submit that there is no logical connection between the broad range of facts which it is said the plaintiffs knew or ought to have known and the allegation in CLR para 232. Consequently, to allow the response to stand in its current form will greatly widen the factual issues in the case for no apparent benefit.
I accept that the allegations of knowledge are inadequately particularised. The plaintiffs are entitled to know who is alleged to have known the pleaded facts. They are also entitled to know by reason of what facts, matters and circumstances it is alleged that the plaintiffs ought to have known of the pleaded facts. A number of other allegations are also inadequately particularised. A clear example is the allegation in CLR para 167a). However, I do not think that that is a reason for striking out the pleading. The problem could be adequately addressed by a request for particulars and a response and an order for further and better particulars if that proved to be necessary.
On the other hand, in my opinion, the plaintiffs are right in relation to their second ground. The paragraphs in question raise a broad-ranging factual enquiry about the conduct of the Council in relation to the Project. However, there is no logical connection between those facts and the misleading and deceptive conduct relied on by the plaintiffs. If the conduct complained of is found to be misleading and deceptive, that must be because the Deed was invalid for one or more of the reasons pleaded in para 20 of the CLR and the Council failed to inform the plaintiffs of that fact. But none of the matters pleaded in the paragraphs to which objection is taken can shed any light on whether the plaintiffs were misled or deceived concerning the invalidity of the Deed for the reasons set out in para 20, whether they relied on the views they formed on that question for doing what they did or whether it was reasonable for them to rely on the views they formed on those questions (because, for example, it was obvious that those views were incorrect).
The defence that it appears the Council wishes to raise is a defence that, whatever the position in relation to the CLR para 20 grounds for invalidity, it must have been obvious to the plaintiffs that there was such opposition to the Project and such controversy about how approval of it was obtained from the Council that the Project would not have proceeded in any event, so that the plaintiffs could not have relied on any view they formed on the para 20 grounds for invalidity in deciding to proceed with the Project, or at least it was not reasonable for them to have done so.
However, that is not what is currently pleaded. Moreover, to the extent that that defence is concerned with actual reliance rather than reasonable reliance, it is difficult to see how it could be made out. The fact is that the Developer did enter into the Deed. It is difficult to see why it would have done so if it believed that doing so was a waste of time because, for one reason or another, the Project would not proceed. That is, it is difficult to see how it could be said that the plaintiffs did not rely on the (allegedly misleading and deceptive) conduct in relation to the CLR para 20 grounds of invalidity because they realised that the Project would not proceed in any event when the Developer entered into the Deed and the plaintiffs proceeded on the basis that it was enforceable.
On the other hand, it may be possible for the Council to plead an arguable case that any reasonable developer in the position of the plaintiffs would have appreciated that there was little prospect of the Project proceeding because of the opposition to it and the conduct of the Council, and that for that reason the plaintiffs could not reasonably have relied on the allegedly misleading and deceptive conduct in doing what they did. One difficulty that case may face is that none of the additional matters relating to the opposition to the Project and the conduct of the Council is pleaded as matters affecting the validity of the Deed. Consequently, if the Deed were valid but for the CLR para 20 grounds of invalidity, it is not apparent why a reasonable developer in the position of the plaintiffs would nonetheless take the view that it would never receive the benefit of it and therefore would not have entered into it.
Despite that, in my opinion, the Council should be given an opportunity if it wants to see whether it can remedy the defects with the existing CLR. It seems to me the most sensible way forward is to strike out the paragraphs of the CLR to which objection is taken and to give the Council leave to file an Amended Commercial List Response within 21 days of today's date.
Therefore, the orders of the Court are:
1. Paragraphs 165, 167, 170 to 172, 178, 179 to 182, 183 to 186, 187 to 193, 196 to 228 and 232 of the Commercial List Response to the Amended Commercial List Statement be struck out;
2. The defendant have leave to file an Amended Commercial List Response by 15 June 2018.
I will hear the parties in relation to costs.
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Decision last updated: 25 May 2018
Parties
Applicant/Plaintiff:
Built Development (Manly) Pty Ltd
Respondent/Defendant:
Northern Beaches Council
Legislation Cited (2)
Australian Consumer Law Local Government (General) Regulation 2005(NSW)