Commissioner of Fair Trading v De Bray

DECISION : (1) Leave is granted to the plaintiff to file and serve an amended statement of claim within 14 days. (2) Costs are reserved.

CATCHWORDS : STRIKE OUT - parts of statement of claim

Fair Trading Act 1987 LEGISLATION CITED : Trade Practices Act 1974 Uniform Civil Procedure Rules 2005

ACCC v Universal Sports Challenge Ltd [2002] FCA 1276 Caple v All Fasteners (WA) (A Firm) [2005] FCA 1558 Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 General Steel Industries v Commissioner for Railways (NSW) (1964) 112 CLR CLR 125 CASES CITED : Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; (1988) 79 ALR 83 Kirby v Sanderson Motors Pty Ltd [2002] NSWCA; (2002) 54 NSWLR 135 Metal Corp Recyclers Pty Ltd v Metal Manufacturers Ltd [2003] NSWCA 213 Quinlivan v ACCC [2004] FCAFC 175; (2004) ATPR 42-010

Commissioner for Fair Trading (Plaintiff) Jeremy Sebastian Mandall De Bray (First Defendant) Loraine Margaret De Bray (Third Defendant) PARTIES : Jane Sheree McKenzie (Fourth Defendant) Sandbend Pty Ltd (Fifth Defendant) Australian Good Food Guide Publishing Pty Ltd (Sixth Defendant) Australian Good Food Guide Pty Ltd (Seventh Defendant)

COUNSEL : M Painter (Plaintiff) A R Zahra (Defendants)

SOLICITORS : D I Catt, Office of Fair Trading (Plaintiff) Anzarut & Holm Lawyers (Defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

20382/2007 - COMMISSIONER OF FAIR TRADING v JEREMY SEBASTIAN MANDALL DE BRAY

JUDGMENT (Strike out parts of statement of claim) 1 HER HONOUR: By notice of motion filed 2 April 2008, the defendants seek an order that the plaintiff's statement of claim filed 30 October 2007 be struck out pursuant to Rule 14.28 of the Uniform Civil Procedure Rules. 2 The plaintiff is the Commissioner for Fair Trading. The first defendant is Jeremy Sebastian Mandall De Bray. The third defendant is Loraine Margaret De Bray. The fourth defendant is Jane Sheree McKenzie. The fifth defendant is Sandbend Pty Ltd. The sixth defendant is Australian Good Food Guide Publishing Pty Ltd. The seventh defendant is Australian Good Food Guide Pty Ltd. The proceedings have been discontinued as against the second, seventh and eighth defendants. The plaintiff relied upon the affidavit of Barbara Mauro sworn 21 April 2008. The defendants relied on the affidavit of Jonathan Paul Namey affirmed 2 April 2008.

Strike out the statement of claim 3 Rule 14.28(1) of the Uniform Civil Procedure Rules provides that the Court may at any stage of the proceedings order that the whole or any part of a pleading be struck out if the pleading firstly, discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, secondly, has a tendency to cause prejudice, embarrassment or delay in the proceedings, or thirdly, is otherwise an abuse of the process of the court. 4 Rule 14.28(2) provides that the Court may receive evidence on the hearing of an application for an order under sub-rule (1). 5 In the well known passage in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, Barwick CJ at 129 stated: "It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'" 6 As I understand it, the defendants are not submitting that the plaintiff's case is hopeless rather that it needs repleading and leave should not be granted to the filing of the proposed amended statement of claim ("PASC") (Ex A). 7 The dispute between the parties relates to the marketing and sale of a product known as the "Australian Good Food & Accommodation Guide" ("the Guide"). The Guide provides reviews of restaurants throughout Australia and New Zealand. In conjunction with the Guide, individuals and businesses could purchase a membership of the "Connoisseur Club" which would entitle the Connoisseur Club cardholder to certain benefits when dining at restaurants identified in the Guide with a Kangaroo (for Australia) or Kiwi (for New Zealand) symbol. Benefits were also available for cardholder staying at hotels identified in the Guide with such symbols. 8 There are three individual defendants and two corporate entities as defendants. It is the first and third defendants who play an alleged central role in these proceedings. Mr Jeremy De Bray, (the first defendant) is the director, secretary and sole shareholder of Sandbend Pty Ltd, (the fifth defendant). Mr De Bray is and was at all relevant times the managing director of the fifth defendant. Mr De Bray is also a director of Australian Good Food Guide Publishing Pty Ltd, (the sixth defendant). He is also the major shareholder in the sixth defendant. It is alleged that he is and was at all relevant times involved in the management of the Guide. He acted as a Sydney representative for the Guide in or about 2000 and attended management meetings of the fifth and sixth defendants. He was also involved in the management and training of Jane Sheree McKenzie (the fourth defendant). 9 It is alleged that Ms Loraine Margaret De Bray (the third defendant) was at all relevant times involved in the management of the fifth and sixth defendants, she attended management meetings of the fifth and sixth defendants and was responsible for updating the Guide which was published by the sixth defendant. Mr Jeremy De Bray and Ms Loraine De Bray are mother and son.

10 The Commissioner of Fair Trading has sought various declarations to restrain the defendants from conducting or being engaged in the business of selling or promoting a food and accommodation guide or food and accommodation club. 11 The plaintiff alleges that the defendants, separately and in concert engaged in a course of misleading and deceptive conduct in order to sell memberships to a food and accommodation club, known as the Connoisseur Club. Membership in the Connoisseur Club entitled the member to a copy of the Guide. 12 The plaintiff alleges breaches of s 40D of the Fair Trading Act 1987 and s 52 of the Trade Practices Act 1974. Two broad categories of contravening conduct are alleged: first, conduct involving direct commerce contracts and secondly, conduct involving the making of misleading or deceptive representations, by the making of positive representations and a representation by silence. 13 Section 52 of the Trade Practices Act 1974 reads: "Misleading and deceptive conduct (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1)." 14 The equivalent, s 42 of the Fair Trading Act, is pleaded in respect of the individuals.

Typical sales presentation 15 Memberships in the Connoisseur Club were marketed and sold by direct sales methods. Typically, a consumer was first contacted by telephone and an appointment with a sales representative arranged. The sales representative, in many but not all instances the fourth defendant, arrived at the business premises of the consumer and conducted a short sales presentation. 16 The sales presentation revolved around a copy of the Guide which was used by the sales representative to illustrate the purported benefits of membership of the Connoisseur Club. Broadly, the purported benefits were represented, to be the availability of discounted or free meals at various restaurants named by the sales representative and listed in the Guide, and listed in the Guide and marked with a Kangaroo symbol. Occasionally the sales representative also represented that discounted accommodation was available from institutions listed in the Guide. In all, seven types of representation were made (see paragraph [15] of the statement of claim). 17 The consumer was encouraged to take out a business membership rather than a personal membership. No deponent records being informed that business membership differed from personal membership in that there was no cooling off period for business memberships. It is alleged there was a positive requirement to make this disclosure by the operation of Division 3 of Part 4 of the Fair Trading Act, dealing with direct commerce. It is also alleged that the failure to so inform amounted, in the circumstances, to a representation by silence. 18 When the consumer signed up and provided credit card details for the payment of $985.60, the Guide and the actual Connoisseur Card was not immediately provided but was mailed to the consumer some time later. 19 The experience of the 12 consumer deponents differs, as one might expect, but many report their failed attempts to use the Connoisseur Club Card. The deponents report that they attempted to use their Connoisseur Club Card at, variously, restaurants specifically named during the sales presentation, restaurants listed in the Guide, and restaurants listed in the Guide and marked with a kangaroo symbol. Repeatedly the consumers deposed that their attempts to use the Connoisseur Club Card were futile. For example:

(a) Justin Sommer was told that that he could use his Connoisseur Club membership to obtain a free or discounted meal at restaurants listed in the Guide and in the Balmain and Rozelle area. He was also told that the card was transferable. His father took the Connoisseur Club Card to a restaurant in Balmain which was listed in the Guide, Rozelle Fish Bowl, but was refused a free or discounted meal;

(b) Jamie Brown attempted to use his card to obtain a free or discounted meal at a restaurant listed in the Guide and marked with a kangaroo symbol, Costa Esmerelda; however, the restaurant declined to provide a free or discounted meal;

(c) Jason Byron was told that membership of the Connoisseur Club would entitle him to a discount a meal at Tetsuya's. After further enquiries, he established that he would not be able to use the connoisseur club card at that restaurant.

What should a pleading contain? 20 It is trite that a pleading must plead the material facts relied upon by the plaintiff. Rules 14.7 and 14.14 of the Uniform Civil Procedure Rules relevantly provide: "14.7 Subject to this Part, Part 6 and Part 15, a party's pleading must contain only a summary of the material facts on which the party relies, and not the evidence by which those facts are to be proved.

14.14 (1) In a statement of claim, the plaintiff must plead specifically any matter that, if not pleaded specifically, may take the defendant by surprise." 21 Rules 15.1 and 15.9 of the Uniform Civil Procedure Rules provide: "15.1 (1) Subject to this Part, a pleading must give such particulars of any claim, defence or other matter pleaded by the party as are necessary to enable the opposite party to identify the case that the pleading requires him or her to meet.

… 15.9 The particulars to be given by a pleading must be set out in the pleading or, if that is inconvenient, must be set out in a separate document referred to in the pleading and filed with the pleading." 22 In Kirby v Sanderson Motors Pty Ltd [2002] NSWCA; (2002) 54 NSWLR 135 at [20] - [21], Hodgson JA, with whom Mason P and Handley JA agreed, said in respect of Part 15 rule 13 of the Supreme Court Rules 1970 (which is equivalent to Rule 14.14): "It might appear that these rules do not require that causes of action be stated in pleadings: the requirement is to have a statement of material facts, and indeed to have only such a statement. However, in my opinion -

"(1) Material" means material to the claim, that is, to the cause or causes of action which are relied on.

(2) The requirement of a statement of material facts does not exclude the allegation of legal categories, such as duty of care, fiduciary duty, trust and contract.

(3) The general requirement to avoid surprise means that material facts must be stated in such a way that a defendant can understand the materiality of the facts, that is, how they are material to a cause of action. … Where there is danger of surprise, which arises particularly where there is lack of precision and clarity in the pleading, it may well be appropriate to require a plaintiff, either in a statement of claim or in particulars, to explicitly relate the facts it pleads to specified causes of action." 23 The plaintiff has pleaded its case in its PASC. It is also necessary to refer to the schedule of particulars which picks up the paragraphs of the PASC. While the paragraphs pleaded both in the PASC and the schedule of particulars could be pleaded in the same document, I found it easier to understand the pleading by referring to the two separate documents. There are also affidavits of 12 consumers who have deposed as to their dealings with the Connoisseur Club and the Guide and those who marketed and sold it (see Exhibits BM3 - BM 14 of the affidavit of Barbara Mauro), but it is not necessary for the purposes of this application to refer to those affidavits, as they are really evidence. 24 The defendants submitted that from paragraphs [15] to [22] of the PASC is not properly pleaded.

25 Paragraph [15] reads: "15. During the period 12 February 2004 to 30 August 2006 each of the fourth, fifth and sixth defendants made representations by words or conduct ("the representations") to a consumer or consumers to the effect that purchasing a membership in the Connoisseur Club would confer certain benefits on the Connoisseur Club member." 26 Paragraphs [15(a) to (g)] set out the various representations. For example [15(a)] pleads: (a) by the fourth, fifth and sixth defendants, the restaurants listed in the Australian Good Food and Accommodation Guide ('the Guide") would, upon presentation of the Connoisseur Card, provide the Connoisseur Club member with a free meal when at the same time a second similarly priced or more expensive meal was purchased ("the Buy One Get One Free representation"). 27 If one then refers to the schedule of particulars under [15(a)], it gives particulars (i) to (ix) of the "Buy One Get One Free" representation. It states the date, place, the person to whom the representation was made and the person who made the representation. Likewise, paragraph [15(b)] refers to the free meal representation and if one then refers to the schedule of particulars under [15(b)(i) to (v)] it gives similar information. Paragraph [15] sets out the alleged representations that were made. Paragraphs [16A] to [16G] in seriatim take each representation in [15(a) to (g)] and allege, by reference, to the representation that it was false, misleading or deceptive or likely to mislead or deceive.

Future representations 28 Paragraph [15A] of the PASC reads: "15A To the extent that any of the representations identified in paragraph 15 was a representation as to a future matter, the maker of the representation did not have reasonable grounds for the representation and the plaintiff relies on the provisions of section 51A of the Trade Practices Act and section 41 of the Fair Trading Act ." 29 Each of the representations alleged in the statement of claim are said to be representations in respect of future matters. Section 51A of the Trade Practices Act and section 41 of the Fair Trading Act do not operate to reverse the onus in relation to a person who is involved in the making of a statement by another as to a future matter - see Quinlivan v ACCC [2004] FCAFC 175; (2004) ATPR 42-010 at [8] - [15]; ACCC v Universal Sports Challenge Ltd [2002] FCA 1276 at [44] - [45]. The defendants submitted firstly, that the allegations in paragraphs [10] to [12] (direct commerce claims) and [15] (misleading or deceptive conduct claims) of the statement of claim do not plead with any precision who engaged in the relevant conduct; and secondly, that the allegations in paragraph [21] of the statement of claim compounds the difficulty with a general pleading, with no particulars, that each of the first, second, third and seventh defendants were involved in all of the alleged contraventions. I do not agree. In my view paragraphs [15] to [16] set out the representations that were made and that each representation was misleading or deceptive or likely to mislead or deceive. Details of the date, place and persons involved are given in the schedule of particulars.

Rep r esentation by silence 30 Paragraph [17] of the PASC refers to representation by silence. It reads: "17 In addition to the representations set out at paragraph 15 above, during the period 12 February 2004 to 30 August 2006, each of the fourth, fifth and sixth defendants made representations by silence to the effect that the purchase of a Connoisseur Club business membership was not different in any material degree to a Connoisseur Club personal membership ("the Representation by Silence"). 31 Misleading and deceptive conduct in relation to the representation by silence is referred to in paragraphs [18] to [19]. They read: "18 The Representation by Silence referred to in paragraph 17 was misleading or deceptive or likely to mislead or deceive in that a business membership did not allow any cooling off period while a personal membership allowed a cooling off period of 5 clear business days. PARTICULARS Section 40 E Fair Trading Act 1987 19 By engaging in the conduct set out in paragraphs 15 and 17 above, each of the fourth, fifth and sixth defendants engaged in misleading or deceptive conduct or conduct likely to mislead or deceive in contravention of section 52 of the TPA and section 42 of the FTA." 32 In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546; (1988) 79 ALR 83, Lockhart J said of s 52 (at 555):

"Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it is erroneous to approach s 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words…[t]here is no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one's own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case it is necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of its nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to mislead or deceive." 33 As Lockhart J noted in leading up to this passage, in regard to its ordinary meaning in English (which is a 'useful touchstone' as he put it), "mislead" can encompass leading astray or causing another to err. Conduct is "likely to mislead or deceive" if there is, as the Full Court of the Federal Court stated in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87, a "real or not remote chance" that it will do so. It is sufficient if the conduct is prone or has a propensity, or is liable to mislead or deceive even though there is less than a 50% chance that this will in fact happen. 34 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd is not authority for the pleading point put by the defendants; rather, it is authority for the proposition that a silence can constitute a representation for the purposes of s 52 of the Trade Practices Act and that an assessment of whether that section is contravened is to be done on the facts of each case (per Lockhart J (at 95)). In Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, Black CJ (at 32) said:

"Silence is to be assessed as a circumstance like any other. To say this is certainly not to impose any general duty of disclosure; the question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive . . . To speak of "mere silence" or a duty of disclosure can divert attention from that primary question. Although "mere silence" is a convenient way of describing some fact situations, there is in truth no such thing as "mere silence" because the significance of silence always falls to be considered in the context in which it occurs. That context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed." 35 This passage was quoted with approval by Handley JA in Metalcorp Recyclers Pty Ltd v Metal Manufacturers Ltd [2003] NSWCA 213 at [14].

Accessorial liability 36 When accessorial liability is in issue in relation to a representation as to a future matter, the onus is on the plaintiff to show the accessory had actual knowledge that the representation was made and that, either it was misleading; or the maker of the representation had no reasonable grounds for making it - see Quinlivan v ACCC [2004] FCAFC 175; (2004) ATPR 42-010 at [15]; ACCC v Universal Sports Challenge Ltd [2002] FCA 1276 at [48] - [50]; Caple v All Fasteners (WA) (A Firm) [2005] FCA 1558 at [17] - [22]. 37 At paragraphs [21A] and [21B] it is pleaded that the first and third defendants were aware or "ought to have been aware" of the conduct of the fourth to sixth defendants as alleged in paragraphs [15] to [17]. 38 The first and third defendants had active roles within the fifth and sixth defendants. It has been pleaded that the first defendant was involved in the sale training of the fourth defendant (PASC [2]). This in my view is adequate. 39 It is my view that the PASC is properly pleaded. Each defendant can identify the case that it has to meet. Leave is granted to the plaintiff to file and serve an amended statement of claim (Ex A) within 14 days. 40 Costs are reserved.

(1) Leave is granted to the plaintiff to file and serve an amended statement of claim within 14 days.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.