Denian Enterprises Pty Ltd v Northern Beaches Enterprises Pty Limited as trustee for the Northern Beaches Trust

Supreme Court of NSW|2020-11-04|Before: Davies J

Judgment

These proceedings commenced on 5 May 2020 by the filing of a statement of claim. They arise out of the purchase of a Domino's franchise at Manly by the first plaintiff (Denian Enterprises Pty Ltd). The second and third plaintiffs, the directors of the first plaintiff, were the guarantors.
The plaintiffs entered into a Business Sale and Purchase Agreement with the first defendant, Northern Beaches Enterprises Pty Limited and Hot Cell Pty Ltd (together "the Seller"), and a Sub-franchise Agreement with the fourth defendant, Domino's Pizza Enterprises Limited. The negotiations were carried out between the plaintiffs and the third defendant (Daniel Evans) who was a director of Northern Beaches. Northern Beaches and Hot Cell were in a partnership in the business of operating Domino's Pizza stores including the store at Manly. Hot Cell was a wholly owned subsidiary of Domino's.
The claims against the various defendants include claims for breach of contract of both the Business Sale and Purchase Agreement and the Sub-franchise Agreement; misleading and deceptive conduct contrary to ss 18 and 21 of the Australian Consumer Law (ACL); unfair terms of the Sub-franchise Agreement; and negligence against Mr Evans.
The solicitors acting for Hot Cell and Domino's ("the applicants") considered that the statement of claim served upon them was fundamentally flawed. In an attempt to avoid an interlocutory dispute, the solicitors wrote a detailed letter to the plaintiffs on 29 May 2020 identifying what they said were the fundamental flaws, and inviting the plaintiffs to file an amended pleading which addressed those matters. On 26 June 2020 the plaintiffs filed an amended statement of claim.

Legal principles

In McGuirk v The University of New South Wales [2009] NSWSC 1424 Johnson J said: [21] The function of pleadings is to state with sufficient clarity the case that must be met by a defendant. In this way, pleadings serve to define the issues for decision and ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her: Banque Commerciale SA En Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 286, 296, 302-3. The issues defined in the pleadings provide the basis upon which evidence may be ruled admissible or inadmissible at trial upon the ground of relevance: Dare v Pulham [1982] 148 CLR 658 at 664; Banque Commerciale at 296. [22] In Perpetual Trustees Victoria Limited v Dunlop [2009] VSC 331, Forrest J observed at [24] that the rules of pleading are "the servants of the interests of justice", with those interests demanding that a party have every opportunity to plead out an arguable case against other parties, but that those other parties have, at an early point in the proceedings, the opportunity to be properly appraised of the case against them. [23] Pleadings provide the structure upon which interlocutory processes, such as discovery, are governed and they constitute the record of the matters which the Court has resolved and become relevant if, in any subsequent proceedings, any party claims issue estoppel or res judicata: Australian Competition and Consumer Commission v Fox Symes & Associates Pty Limited [2005] FCA 1071 at [100]-[103]. [24] Proper pleading is of fundamental importance in assisting Courts to achieve the overriding purpose of facilitating the just, quick and cheap resolution of the real issues in the proceedings: s.56 Civil Procedure Act 2005. … [27] For a Statement of Claim to comply with the rules of Court, a party should plead, in a summary form, a statement of the material facts upon which the party relies, but not the evidence by which those facts are to be proved: Rule 14.7 UCPR. In doing so, the pleadings should be as brief as the nature of the case admits: Rule 14.8 UCPR. [28] In Kirby v Sanderson Motors Pty Limited (2001) 54 NSWLR 135, Hodgson JA (Mason P and Handley JA agreeing) said at 142-143 [20]-[21], with respect to the requirement for a pleading to state material facts: "It might appear that these rules [the Supreme Court 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 - '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 the defendant can understand the materiality of the facts, that is, how they are material to a cause of action. Accordingly, even on the basis of these rules which are common to the District Court and the Supreme Court, I do not take cases such as Konskier as establishing that there is a 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 specific causes of action." [29] In Gunns Limited v Marr [2005] VSC 251, Bongiorno J observed at [57]: "Not only must the pleading inform the defendants of the case they must meet now, but it must clearly set out the facts which the plaintiffs must assert to make good their claim with sufficient particularity to enable any eventual trial to be conducted fairly to all parties. Vague allegations on very significant matters may conceal claims which are merely speculative. If this be not the case, the plaintiffs must put their allegations clearly." Embarrassing Pleadings [30] A pleading is embarrassing where it is "unintelligible, ambiguous, vague or too general, so as to embarrass the opposite party who does not know what is alleged against him": Meckiff v Simpson [1968] VR 62 at 70; Gunns Limited v Marr at [14]-[15]. [31] In Shelton v National Roads & Motorists Association Limited [2004] FCA 1393 at [18], Tamberlin J explained the concept of "embarrassment" with respect to pleadings: "Embarrassment in this context refers to a pleading that is susceptible to various meanings, or contains inconsistent allegations, or in which alternatives are confusingly intermixed, or in which irrelevant allegations are made that tend to increase expense. This is not an exhaustive list of situations in which a pleading may be embarrassing: see Bartlett v Swan Television & Radio Broadcasters Pty Ltd (1995) ATPR 41-434." [32] A pleading may be embarrassing even though it contains allegations of material facts sufficient to constitute a cause of action, if the material facts alleged are couched in expressions which leave difficulties or doubts about recognising or piecing together what is referred to: Northam v Favelle Favco Holdings Pty Limited (Bryson J, 7 March 1995, BC9504276 at 5-6). [33] Although the pleading of a conclusion may, in some circumstances constitute a material fact, nevertheless, the pleading will be embarrassing if allegations are made at such a level of generality that the defendant does not know in advance the case it has to meet: Charlie Carter Pty Limited v Shop Distributive and Allied Employees Association (1987) 13 FCR 413 at 417-418. In such a case, the appropriate remedy is to strike out the pleading rather than to order the provision of particulars, as it is not the function of particulars to take the place of the necessary averments in a pleading: Trade Practices Commission v David Jones (Australia) Pty Limited (1985) 7 FCR 109 at 112-114. [34] Rule 14.28 UCPR provides that pleadings that involve non-compliance are liable to be struck out as an embarrassment. However, generally the Courts recognise that a wide range of discretionary considerations arise where there is a failure to comply with the technical requirements of the pleading rules: Beach Petroleum NL v Johnson (1991) 105 ALR 456 at 466. In many instances, the appropriate order may be to strike out the offending pleading, but grant leave to amend: Rubenstein v Truth & Sportsman Limited [1960] VR 473 at 476; H 1976 Nominees Pty Limited v Galli (1979) 30 ALR 181 at 186. [35] It is not the function of the Court to draw or settle a party's pleading. The Court is confined to the function of ensuring that pleadings are within the rules and fulfil the functions for which they exist. Objectionable matter that is so mingled with other matter may lead to the conclusion that the pleading as a whole would tend to embarrass the fair trial of the action ought be struck out: Turner v Bulletin Newspapers Co Pty Limited (1974) 131 CLR 69 at 72, 87-88, 97-98; Gunns Limited v Marr at [57]-[58]; Fleet v Royal Society for the Prevention of Cruelty to Animals NSW and Ors [2005] NSWSC 926 at [55].

(a) The position of Mr Evans

Paragraph 6 of the pleading set out the role of Mr Evans as follows: 6. At all material times the Third Defendant ("Mr Evans") was: a. a person involved in contraventions of provisions of Chapters 2 and 3 of the ACL and/or the State Consumer Law who: i. aided, abetted, counselled or procured the contraventions of the Seller and ii. was directly or indirectly, knowingly concerned in, or party to. the contraventions of the Seller. b. a director of Northern Beaches, and/or c. the duly authorised agent of the Seller acting within his scope of his actual and/or ostensible authority, and/or d. engaged in conduct on behalf of the Seller (or Northern Beaches or Hot Cell) as a director, employee or agent of the body corporate within the scope of his actual or apparent authority and which conduct is taken, for the purposes of the ACL, to have been engaged in also by the body corporate as provided for by section 139B of the Competition and Consumer Act 2010 (Cth) and/or the corresponding provisions of the State Consumer Law. Particulars i. Mr Evans was the sole director of Northern Beaches. ii. Northern Beaches and Hot Cell were in a partnership in the business of operating Domino's Pizza stores including locations in Manly, Dee Why, Mount Colah and Hornsby. iii. Mr Evans was the only person who conducted negotiations with the plaintiffs for the purchase of Manly Domino's as the Seller. iv. Mr Evans was the person who led the negotiations even when employees of Domino's (the Fourth Defendant) was (sic) present, those employees include Ryan Bohm and Julie Mitchell. v. Mr Evans was authorised to enter into agreements on behalf of the Seller such as a CovaU (sic) Pty Ltd contract. vi. When communicating with Mr Evans and Domino's (the Fourth Defendant), the parent company of Hot Cell, no staff member advised the Plaintiffs that Mr Evans was not authorised to make representations and/or enter into agreements on behalf of the Seller.
Paragraph 8 then set out what was said to be the further role of Mr Evans as follows: 8. At all material times Mr Evans was; a. a person involved in contraventions of provisions of Chapters 2 and 3 of the ACL and/or the corresponding provisions of the State Consumer Law who: i. aided, abetted, counselled or procured the contraventions of Domino's: and ii. was directly or indirectly, knowingly concerned in, or party to, the contraventions of Domino's. b. the duly authorised agent of Domino's acting within his scope of his actual and/or ostensible authority, and/or c. engaged in conduct on behalf of Domino's as an agent of the body corporate within the scope of his actual or apparent authority and which conduct is taken, for the purposes of the ACL, to have been engaged in also by the body corporate as provided for by section 139B of the Competition and Consumer Act 2010 (Cth) and/or the corresponding provisions of the State Consumer Law. Particulars i. On 16 March 2017, Mr Evans indicated via email from beachhq@optusnet.com.au 'Management reports, I only have data from 2015 when I took over. I can ask DPE for prior year.' ii. On 6 July 2017, Mr Doyle asked Julie Mitchell, employee of Domino's via email from idoyley@bigpond.com I would like the financial/sales results for Manly Franchise 1/7/16 to 30/6/17** **needed for Finance Application. iii. On 24 July 2017, Mr Evans sent 2017 financial year profit and loss statements to Mr Doyle, by email from beachhq@optusnet.com.au attributed to DBS (Domino's Bookkeeping Service). iv. On 1 August 2017, Mr Evans sent 2017 periodic profit and loss statements titled 'DBS PeriodicProfitLoss20l62017' and attributed to DBS.
Paragraph 26 pleaded that Mr Evans made representations on behalf of the Seller during the course of negotiations. These representations were called "the Oral and Written Inducement Representations", and were set out in paragraphs 27 to 30.
Paragraph 42 pleaded that Mr Evans acted as the agent of Domino's for the purpose of Domino's compliance with the Franchising Code of Conduct, and paragraph 43 pleaded that Mr Evans made representations on behalf of Domino's during the course of negotiations for the acquisition of the sub-franchise agreement.
The applicants submitted that although Mr Evans was the person who was alleged to have made each of the representations pleaded, it is not clear to what extent he is alleged to have made those representations in a personal capacity, or on behalf of Northern Beaches, Hotcell, the partnership (the Seller) or Domino's. The applicants submitted that paragraphs 6, 8, 42 and 43 allege that Mr Evans was the duly authorised agent of the Seller and Domino's, and that he engaged in conduct on behalf of the Seller, Northern Beaches and Hotcell individually, and Domino's.
The plaintiffs submitted that the pleading was set out in such a way that it was clear when it was being said that Mr Evans was acting on behalf of the applicants, and when he was acting on behalf of Domino's. What appeared in paragraphs 26 to 30 were representations on behalf of the Seller, and what appeared at paragraph 43 were representations on behalf of Domino's.
Although I consider that the applicants have overstated the extent of any confusion arising from the pleading in this regard, there is nevertheless some lack of clarity which became apparent during the course of the submissions of Mr Green of Counsel on behalf of the plaintiffs. A particular difficulty arises from paragraph 43 which reads: Mr Evans made representations on behalf of Domino's during the course of negotiations for the acquisition of the Franchise Agreement ("the Code Inducement Representations") Particulars a. On or about 24 July 2017, during the course of Mr Evans acting as agent of Domino's for the purposes of Domino's compliance with the Code, Mr Evans emailed to Denian and Mr Doyle the reported profit of the Manly Store contained in the DBS report for the period ending 30 June 2017 showing $124,108. b. The reported profit contained in the DBS report for the period as $124, 108 was overstated by between $70,000 to $100,000. c. Further particulars are unable to be provided from the documents presently available to the Plaintiffs, however the claim is based on estimates using the misrepresentations pleaded at paragraphs 51(c)(i) to (v) and 52(c)(i) to (ii). d. The Earnings Information as provided by Mr Evans, as pleaded in paragraphs 21i to 21iii of those pleadings. e. Earnings Information as provided by Mr Evans as pleaded as the Oral and Written Inducement Representations above.
In the first place, it does not appear that what is contained in particular (b) is a representation. Rather, it appears to be a statement to the effect that what was in particular (a) was a misrepresentation. However, the real difficulty arises from particular (e) which seemingly picks up all of "the Oral and Written Inducement Representations" in paragraphs 26 to 30. During submissions the following exchange occurred: GREEN: In addition, the matters set out under the heading "Oral and Written Inducement Representations" were also part of, we say, the code documents which were required to be produced or delivered under the code, and that appears of paragraph 26 through to paragraph 30. HIS HONOUR: Right. GREEN: So Mr Evans is trying to sell his business and Mr Evans is also acting on behalf of Dominos in delivering the code information. … HIS HONOUR: So you're in effect picking up the representations said to have been made by Mr Evans on behalf of the seller and asserting here that he's making them on behalf of Dominos, is that right? GREEN: Yes. He's wearing two hats. He's trying to sell his business and he's also assisting Dominos in complying with the code. … GREEN: …[Mr Bannan] says he can't discern or understand who made representations at any particular point. This is set out in our particulars, but because it's important, can I take your Honour to paragraph 26. HIS HONOUR: Of the statement of claim? GREEN: Yes, your Honour. HIS HONOUR: Yes. Yes. GREEN: The words "Mr Evans made representations on behalf of the seller". HIS HONOUR: Yes. GREEN: So it's perfectly apparent what are the representations on behalf of the seller. HIS HONOUR: But then later on, all of those representations are said to be made on behalf of Dominos. GREEN: Yes, in another capacity. HIS HONOUR: Yes. GREEN: And those representations on behalf of Dominos are set out at paragraph 43, "Mr Evans made representations on behalf of Dominos during the course of negotiations". HIS HONOUR: So is this the position overall, that all representations except the contractual representations were made on behalf of Dominos? GREEN: Yes, and independently on behalf of the seller.
That, of course, cuts across the principal submission of the plaintiffs that the pleading makes clear which entity Mr Evans is acting for when he makes any representation. Although paragraph 26 says that Mr Evans made those representations on behalf of the Seller, he apparently made them on behalf of everyone. Although paragraphs 42 and 43 are said to concern Domino's, it seems that paragraphs 26 to 30 also concern Domino's.
There is the further difficulty that, although paragraph 43(e) purports to pick up all of those representations, it is doubtful if paragraphs 28 and 29 concern "Earnings Information". Mr Bannan said that the Agreement defined "Earnings Information", but a copy of the Agreement was not vouchsafed to me at any time. The point is, however, that although paragraph 43 refers to "Earnings Information" as if it is a defined term in the pleading, what is referred to in particular "d" seems to be different from what is referred to in particular "e".
Although Mr Green may ultimately have made the matter clearer, if not pellucid, in his submissions, that clarity does not appear from the pleading as it stands. The pleading is embarrassing. The issue of whom Mr Evans was speaking for when he made representations needs to be re-visited.

(2) Representations as to future matters

The applicants submitted that a number of representations pleaded in paragraphs 25, and 27-30 are or appear to be representations in relation to future matters. The applicants said that the representations are alleged to be misleading only because they were not fulfilled. The applicants said there is clear authority that the mere non-fulfilment of a representation does not make it misleading. The applicants submitted that the matter was significant because s 4(2) of the ACL imposes an evidentiary onus on the defendants where the allegation is that a representation as to a future matter is made and the representation is misleading and deceptive. In that way, the applicants needed to know whether they had to adduce evidence on the point. The importance of that matter, the applicants said, was underscored by what was said by the High Court in Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 94 ALJR 714; (2020) 381 ALR 427 at [66] and [72].
The plaintiffs submitted that whether or not there was a reasonable basis for making the representation is a matter for evidence. The plaintiffs submitted that because in many cases the future promises were broken almost immediately, it is apparent that the representations were misleading.
The applicants relied on what was said in SPAR Licensing Pty Ltd v MIS Qld Pty Ltd (2014) 314 ALR 35 to submit that there was a requirement to plead that at the time the promise was made the promisor knew it to be false. Reliance was also placed on the provisions of the UCPR.
In SPAR Buchanan J said: [16] The matters relied upon by MIS were representations with respect to future matters within the meaning of s 51A of the Trade Practices Act (s 4 of the ACL). If the representations were made, SPAR was to be taken not to have had reasonable grounds for making the representations unless evidence was adduced to the contrary. As is apparent from its defence, SPAR denied that the representations were made at all. It conducted its evidentiary case upon that footing. However, contrary to SPAR's intended case, cross-examination by counsel then appearing for SPAR elicited evidence from Mr Gale which confirmed the allegations. At a factual level, therefore, the trial judge accepted that the asserted representations were made. On the appeal, SPAR accepted that position. [17] In the circumstances which developed in relation to the conduct of the case, neither side referred the trial judge to some important authorities concerning the way in which representations as to future matters are to be assessed. On the appeal, those matters were raised. The principles are not in issue. They are referred to below. [18] In Bill Acceptance Corporation Ltd v GWA Ltd (1983) 78 FLR 171; 50 ALR 242, Lockhart J recorded (at 172): The applicant's case rests upon the correctness of the proposition that a contravention of s 52 may occur merely if a representation by the respondent as to future conduct does not come to pass, notwithstanding that, at the time it made that representation, the respondent may have believed that it would come to pass or that it was not recklessly indifferent as to what it said. Lockhart J rejected the proposition, saying (at 179): The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive, notwithstanding that the applicant has relied on them and has altered his position on the faith of them … [19] The following year, in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 ("Global Sportsman"), a Full Court of this court stated (at 88): The non-fulfilment of a promise when the time for performance arrives does not of itself establish that the promisor did not intend to perform it when it was made or that the promisor's intention lacked any, or any adequate, foundation. Similarly, that a prediction proves inaccurate does not of itself establish that the maker of the prediction did not believe that it would eventuate or that the belief lacked any, or any adequate, foundation. Likewise, the incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation. The applicants argued that, nevertheless, the statement of an incorrect opinion is misleading or deceptive or likely to mislead or deceive merely because it misinforms or is likely to misinform. An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps that there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing. [20] The legal principle stated in Global Sportsman has been applied many times in this court. For example, in Mobil Oil Australia Ltd v Wellcome International Pty Ltd (1998) 81 FCR 475, the Full court said (at 521): It is, of course, not sufficient to establish that a representation was made as to a future event and that a contrary decision was made some time afterwards. If it is established by the respondents that at the time a representation was made there were reasonable grounds for making it, it cannot be described as "misleading" or "deceptive". [21] More recently, in Fubilan Catering Services Limited (Incorporated in PNG) v Compass Group (Australia) Pty Ltd [2008] FCAFC 53, the Full Court said (at [91]): It is clear that to make a promise which is not performed or a prediction which is not fulfilled is not, without more, misleading or deceptive: Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 1 FCR 82, at 88, per curium (sic); Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242.
SPAR was a decision at a final hearing, and the issue was one of substance and not pleading, although it may be noted that the pleading of the misleading and deceptive representations (set out in the judgment at [14]) did not assert other than that the misrepresentations were misleading and deceptive.
However, the decision of Bill Acceptance Corporation Pty Ltd v GWA Ltd (1983) 50 ALR 242 was a case concerned with the pleading of matters alleging representations as to future conduct. In that case all that was pleaded was (as Lockhart J said at 247): that the respondent made certain promises as to its future conduct, that the applicant acted on the face of them and that those promises did not come to pass.
His Honour then went on to say (at 247): This difficulty was recognized by Fitzgerald J in Stack v Coast Securities No 9 Pty Ltd (1983) ATPR 40-342 at 44,119 ; 46 ALR 451 at 456 , where his Honour said: "It would be appropriate at this interlocutory stage, and not inconsistent with any submission made before me on behalf of either applicants or respondent, for me to act upon a view which has been consistently adopted by a number of judges of this court that irrespective of whether representations as to the future events or conduct constitute promises or predictions, they involve contraventions of the presently relevant provisions of the Act only if it is established that the belief of the respondent was at the time different from what was stated, or that the respondent did not believe what was stated, or was recklessly indifferent as to what was stated. Accordingly, an issue as to the respondent's state of mind at the relevant time is, in fact, central to these proceedings as it was to the proceedings in the Supreme Court" see also Fitzgerald J's judgment in Lyons v Kern Konstructions (Townsville) Pty Ltd (1983) ATPR 40-343 at 44,153 ; 47 ALR 114 . … If the respondent had made representations or statements with knowledge of their falsity or with reckless indifference to their accuracy the applicant's case may then fall within what I believe to be the present law on this subject as expressed by Fitzgerald J on Stack's case to which I have already referred. However, the applicant has not pleaded any intent on the part of the respondent to mislead or deceive, nor has it pleaded any reckless indifference as to the accuracy of the statements made. (emphasis added)
The application in Bill Acceptance Corporation was to strike out the statement of claim on the equivalent Federal Court rule as is now contained in r 14.28 UCPR. Justice Lockhart made an order striking out the statement of claim, saying (at 252): I am satisfied that the applicant's case, as presently pleaded, is so clearly untenable that it cannot possibly succeed. The applicant's claim for relief for an alleged breach of s 52 of the Act is without foundation. On no analysis of the statement of claim can a breach of s 52 be said to exist, or to be likely to exist.
In Berry, Gageler and Edelman JJ said in a case concerning s 52 of the Trade Practices Act 1974 (Cth) at [66]: The practical burden of introducing evidence - the so-called "evidentiary onus" - is a different matter. In the pre-trial and trial processes that lead up to a court ultimately having to determine whether a plaintiff has discharged the legal onus of proof by inferences drawn from the whole of the evidence, the practical burden of introducing evidence can and often does shift. Whether, and if so how and to what extent, an evidentiary onus might shift from a plaintiff during the conduct of an action depends in large measure on how the plaintiff chooses to formulate the loss or damage claimed to have been suffered, and on how the parties thereafter choose to join issue on the questions of connection with the contravention and quantum that arise in respect of the chosen formulation. Much, in other words, depends on the pleadings.
That the issue concerning representations relating to future matters is a matter of pleading as well as substantive law is confirmed by two other matters. First, s 4 of the ACL relevantly provides: (1) If: (a) a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and (b) the person does not have reasonable grounds for making the representation; the representation is taken, for the purposes of this Schedule, to be misleading. (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by: (a) a party to the proceeding; or (b) any other person; the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
Subsection (1) points strongly to the view that the pleading of an absence of reasonable grounds is essential to distinguish representations relating to future matters which simply did not come to pass. A defendant needs to be alerted to the distinction because of the obligation under subs (2) to adduce evidence of the reasonable grounds.
Secondly, s 4 coupled with the obligation under r 14.14 of the UCPR to plead specifically any matter that may take the defendant by surprise, means that if a liability is asserted to flow from reliance on a representation relating to a future matter, it must be pleaded that the representor had no reasonable grounds for making the representation.
Quite apart from the foregoing, paragraphs 53 and 60 of the proposed pleading say that the Selling Representations and the Code Inducement Representations were misleading, with respect to future matters within the meaning of sub-sections 4(1) and (2) of the Consumer Law and in particular, the representations at paragraphs 27(1), 28(a) and (b) and 29(a). Does this mean that there are other representations, although not specified, that amount to representations with respect to future matters? In fact, it became clear during argument, and Mr Green confirmed, that the representation at paragraph 25(a) was with respect to a future matter. Further, on the face of them, the Code Inducement Representations in paragraph 43 are not representations as to future matters although paragraph 60 asserts that they are, and rather confusingly proceeds to particularise representations that do not obviously fall within paragraph 43.
The defendants should not be left in the position of having to guess which representations are in respect of future matters on the one hand, and which relate to matters which simply did not come to pass, or are merely predictions which are not within the scope of ss 18 and 29 of the ACL: Thompson v Mastertouch TV Service Pty Ltd (1977) ATPR 40-027 at 17,364. In that way the pleading is embarrassing.

(3) Accessorial liability

The applicants submitted that it is not clear if the amended statement of claim is alleging that Mr Evans' liability was accessorial liability, or whether he was acting merely as an agent of one or more of the defendants. The applicants pointed to paragraphs 8 and 53 of the amended statement of claim which said that Mr Evans was a person involved in the contravention of, variously, chapters 2 and 3 of the ACL and ss 18 and 21 of the ACL.
The applicants pointed to statements by the plaintiffs in their written submissions in which they say that where accessorial liability under the ACL is alleged, the amended statement of claim uses words such as "agent" of the body corporate, "acting within his scope of his actual and/or ostensible authority", and "made representations on behalf of the seller". The applicants say that those words and phrases echo the language of s 84 of the Competition and Consumer Act 2010 (Cth) ("CCA") which is concerned with attributing conduct to a corporation. On the other hand, accessorial liability is found in s 75B of the CCA and s 2 of the ACL.
The applicants submitted that it was important to understand the basis of the liability alleged against Mr Evans, noting that it could be a liability pursuant to s 84 of the CCA, a liability as identified in Houghton v Arms (2006) 225 CLR 553; [2006] HCA 59, or accessorial liability which is quite different, because in that case a plaintiff must show that the accessory knew the statement was false, or at the very least knew of matters which rendered the statement false.
The applicants submitted that although paragraph 8 of the amended statement of claim alleges that Mr Evans was a person involved in contravention of the provisions of chapters 2 and 3 of the ACL, a response to a request from the applicants' solicitors asking for identification of the provisions of chapters 2 and 3 that were relied upon only identified provisions in chapter 2. It was clarified during the hearing of the motion that the provision in chapter 3 was s 29. The proposed pleading refers to ss 18 and 21 of the ACL but does not refer to s 29. Given the drafting of s 29, a defendant is entitled to know which paragraphs of s 29 are relied upon.
The plaintiffs submitted that Mr Evans' liability, in an accessorial sense, is influenced and controlled by his level of knowledge as to what was being said and how accurate that representation might or could be. The plaintiffs submitted that where the Seller made representations, then they are liable, and where Mr Evans made a representation with a sufficient degree of knowledge and involvement, then he bears an accessorial liability. The plaintiffs submitted that there is no confusion in the statement of claim where accessorial liability is alleged, and where the primary liability of the seller is.
It should first be noted that Mr Evans is not one of the applicants in the present motion, and that although counsel for Mr Evans appeared at the hearing of the motion, no complaint was made by him about this issue. The complaints made in respect of accessorial liability have only a peripheral connection with the interests of the present applicants. The applicants say they cannot tell from the proposed pleading which contraventions they are said to be guilty of involve an accessorial liability on the part of Mr Evans.
For the reasons I have given in relation to the first two areas of complaint, I intend to strike out the existing amended statement of claim but give leave to re-plead otherwise than is set out in the proposed pleading. In an attempt to minimise further interlocutory skirmishes about pleading, I will briefly say something about this complaint.
The definition of involved in s 2 of the ACL is as follows: a person is involved, in a contravention of a provision of this Schedule or in conduct that constitutes such a contravention, if the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention.
Sections 236-239, 246 and 248 of the ACL then deal with the consequences for persons who are involved in the contravention of specified provisions of the ACL.
What was made very clear in Yorke v Lucas (1985) 158 CLR 661 at 667-8 is that knowledge and intent are necessary elements of being involved in a contravention, in contradistinction to the strict liability which is applicable for the principal contravenor. The plurality judgment said (at 670): There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. … In our view, the proper construction of para (c) [of s 75B] requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.
There appears to be some misunderstanding on the plaintiffs' part which is evident from paragraph 13 of the plaintiffs' written submissions. Mr Bannan is correct to say that the phrases referred to in that paragraph relate to the direct liability of the contravenor, as s 84 of the CCA shows.
It may be taken from the plaintiffs' oral submissions referred to above that any accessorial liability of Mr Evans is confined to representations made by the Seller. Contrary to the plaintiffs' submissions, although paragraphs 6 and 8 of the proposed pleading say that Mr Evans was a person involved in contraventions of provisions of chapters 2 and 3 of the ACL, nowhere is knowledge and intent on his part pleaded as part of a claim that he was a person involved. The only direct liability pleaded against Mr Evans is a claim in negligence. It follows that there is no pleading identifying the contraventions, and by whom, in which Mr Evans was involved.
It is embarrassing for the pleading to assert that Mr Evans was a person involved in the contraventions, but not to identify which, and not to plead, if it is the case, that he had the knowledge that the representations were misleading and deceptive but made them intentionally in any event.

(4) Causation and loss

The applicants submitted that it was not clear from paragraphs 62 to 69 of the proposed pleading what case was being made by the plaintiff for what relief. The applicants submitted that paragraphs 63 to 65 appeared to suggest a claim for compensation in the form of a more profitable contract. That, the applicants submitted, was not something available under s 82 of the CCA or s 236 of the ACL. On the other hand, the applicants submitted that the plaintiffs may be seeking to plead a no-transaction case on the basis that they should be put back into the position they would have been in had they not entered into the contracts concerned. The applicants made reference to what was said in the judgment of Gageler and Edelman JJ in Berry at [72].
The plaintiffs submitted that the proposed pleadings claims relief in the alternative, and accepts that at some point an election between remedies will have to be made. The plaintiffs submitted also that claims are made for breach of contract and negligence where the concept of loss is wider than a no-transaction claim.
In Berry, the judgment of Gageler and Edelman JJ said at [72]: "The function of pleadings is to state with sufficient clarity the case that must be met" and thereby to "ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and … to define the issues for decision": Banque Commerciale SA (En liq) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286. A plaintiff should be expected to plead all material facts on which the plaintiff relies to constitute the statutory cause of action, including any counterfactual on which that plaintiff relies to establish the requisite causal link between identified loss or damage and identified misleading or deceptive conduct. In the same way, a defendant resisting the statutory action should be expected to plead any different counterfactual on which that party might rely to deny the causal link. Unless and to the extent that the parties choose to depart from the pleadings in the way they go on to conduct the trial, (Banque Commerciale at 287), choice between the competing pleaded counterfactuals on the balance of probabilities should then exhaust the fact-finding that is required to be undertaken by the court on the issue of causation.
It was not at all clear, until counsel for the plaintiffs said so during the hearing, that the claims for damages on the one hand, and for orders avoiding the transactions on the other, were made in the alternative. All the prayers for relief claim both a refund (presumably on the basis of a no-transaction case) and damages in addition. Paragraphs 62 to 69 of the pleading seem to claim both. On the other hand, nowhere is it pleaded, if it be the case, that if the plaintiffs had known the true position they would not have proceeded with the purchase.
The counterfactual needs to be pleaded to establish the causal link between the misleading and deceptive conduct and the loss claimed, as Berry makes clear. All of the defendants need to understand the basis of the claim the plaintiffs are making.

Conclusion

Both the amended statement of claim and the proposed pleading are defective in the ways detailed above. The amended statement of claim should be struck out. Leave should be given to re-plead, but not as is proposed in the pleading which formed the basis of this judgment. Since any re-pleading will be the fourth attempt on the part of the plaintiffs, there would need to be powerful reasons to permit further re-pleading if the next iteration does not properly deal with the matters identified in this judgment:
Accordingly, I make the following orders:
The amended statement of claim filed 26 June 2020 is struck out pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW).
Leave to the plaintiffs to re-plead.
Any further amended statement of claim is to be filed and served by 19 March 2021.
The plaintiffs are to pay the costs of the second and fourth defendants.

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. Decision last updated: 19 February 2021

Trade Practices Act 1974(Cth)s 52

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