BETWEEN : JACKSON McDONALD SERVICES PTY LTD (ACN 008 837 009)

Practice and procedure - Application to strike out statement of claim - Application for inspection of premises - Turns on own facts

Supreme Court Rules, O 16, O 28 r 2(1), O 52 r 2(1)

Trade Practices Act 1974, s 51A, s 52

First Plaintiff : Mr M J McCusker QC & Mr S Penglis

Second Plaintiff : Mr M J McCusker QC & Mr S Penglis

Bruce v Odhams Press Ltd (1936) 1 All ER 287

Collier Constructions Pty Ltd v Foskett Pty Ltd (1990) 97 ALR 461

Gould v Vaggelas [1984] HCA 68; (1983) 157 CLR 215

Henville v Walker [2001] HCA 52

John Holland Construction and Engineering Pty Ltd v Kvaerner R J Brown Pty Ltd (1996) 13 BCL 262

March v Stramare (E & MH) Pty Ltd [1991] HCA 12; (1971) 171 CLR 506

Marconi's Wireless Telegraph Company Ltd v The Commonwealth [1912] HCA 93; (1912) 15 CLR 685

Mount Isa Mines Ltd v Seltrust Mining Corporation Pty Ltd, unreported; SCt of WA; Library No 6016; 27 September 1985

Northpine Pty Ltd v Jezer Construction Group Pty Ltd [1997] 2 Qd R 253

Rubenstein v Truth and Sportsman Ltd [1960] VicRp 75; [1960] VR 473

TCN Channel 9 Pty Ltd v Berrigan (1996) Aust Torts Rep 81-404

Turquand v Fearon (1879) 60 LT 543

West's Process Engineering Pty Ltd (Administrator Appointed) v Westralian Sands Ltd & Anor, unreported; SCt of WA; Library No 980060; 17 February 1998

1 MASTER SANDERSON: This is the return of two applications. The first in time is the defendant's application to strike out the whole, or alternatively certain paragraphs of the plaintiffs' statement of claim. The second application is the plaintiffs' application for access to allow it to inspect certain premises which are the subject of the action. The pleading summons was dealt with first. In fact, owing to time constraints, neither counsel was able to make submissions on the plaintiffs' application for inspection of the premises. Both counsel indicated they were content to rely upon their written submissions.

2 The statement of claim was filed 16 November 2001. The first three paragraphs identify the parties. The second plaintiff is a partnership carrying on business as a legal firm. The first plaintiff was, at all material times, under the control of the second plaintiff. By par 4, it is pleaded that the defendant is the registered proprietor of certain premises known as 81 St George's Terrace.

3 In the statement of claim (par 4), the premises at 81 St George's Terrace are described as the "Land". The 11-storey office building erected on the Land, and known as the St Georges Centre, is described as the "Building". For the sake of consistency, this is the terminology I will adopt.

4 By par 5, it is pleaded that, on or about 3 May 1998, the first plaintiff entered into a lease agreement with respect to certain parts of the building. By par 6, it is pleaded that, since the commencement of the lease, the second plaintiff has occupied most of the lease premises as a sub-tenant of the first plaintiff. By par 7, it is pleaded that the lease agreement expired on 3 May 1998.

5 By pars 8 and 9, it is pleaded that there was an express term in the lease that the first plaintiff would pay to the defendant variable outgoings. The term "variable outgoings" was defined in the lease agreement and that is pleaded. It is pleaded by par 10 of the statement of claim that it was an express term of the agreement that the defendant "shall maintain the Building as good commercial premises". The details of the express term are pleaded. There is nothing in pars 8, 9 and 10 of the statement of claim which suggest the terms of the lease as pleaded were in any way unusual or exceptional.

6 In pars 11 through to 14, the plaintiffs plead a deed of variation of the lease entered into on 25 November 1989, and a deed of extension and variation of the lease which took effect on 1 September 1994. It appears that both of these deeds increased the floor area leased by the plaintiffs. The deed of extension and variation set the rental rate per square metre. Paragraph 14 pleads cl 18 of the deed of extension and variation and because of the importance of that clause in relation to this application, I will quote it in full:

"The Lessor shall maintain the Building in a state at least equal to that of similar and comparable buildings in the Perth Central Business District which attract similar rents to those received by the Lessor from the Lessee and at such time as in the reasonable opinion of the Lessor seems appropriate shall undertake a refurbishment of the Building including but not limited to improvements to the lift cars and lift lobby on the ground floor."

7 By par 15, the plaintiffs plead what they say is the proper construction of the clause I have quoted. Essentially, it is alleged that the defendant was obliged "to carry out such works from time to time as are necessary to ensure that the Building is in such a state as to be at least equal to similar and comparable buildings in the Perth Central Business District which attract similar rents ... ". Further, by par 15(b) it is alleged that the defendant was obliged pursuant to the terms of the clause "to undertake a refurbishment of the Building regardless of the rental received by the Defendant from the First Plaintiff within a reasonable period of time from the commencement of the Deed of Extension and Variation". By par 16, it is pleaded that the reasonable period pleaded in par 15(b) expired on 1 September 1998, or at least prior to the issue of the proceedings. By par 17, it is pleaded because of a failure to carry out works on the building and undertake a refurbishment, the defendant has breached cl 18 of the deed of extension and variation.

8 By par 18, the plaintiffs say that, by virtue of the defendant's breaches of the terms of the deed of extension and variation, they have suffered loss and damage. The particulars given of this plea are as follows:

"Full particulars will be provided after discovery, interrogatories and the provision of expert reports. The best particulars which the Plaintiffs can give at present are as follows:-

(a) since 1 September 1998 the First Plaintiff has leased and continues to lease and the Second Plaintiff has sub-leased and continues to sub-lease premises of a substantially lesser standard than that which they would have enjoyed;

(b) the Plaintiffs have paid and continue to pay an amount for the Lessee's Variable Outgoings greater than that which they would have paid or would have to pay,

had the Defendant complied with the term pleaded in paragraph 14 above."

9 By paragraphs 19 to 21, it is pleaded that, prior to the parties entering the deed of extension and variation, negotiations took place between the plaintiffs and the defendant. The persons who took part in these negotiations are identified. By par 22, it is pleaded that, during the course of these negotiations, an agent for the defendant made certain representations to the plaintiffs. The representations are pleaded. Paragraph 23 pleads that, during the course of the negotiations, certain matters were known to the defendant. This is an aspect of the complaint made by the defendant and I will refer to this paragraph later in these reasons. Paragraphs 24 through to 27 complete a plea in relation to the Trade Practices Act 1974. Essentially, it is said that the representations made by the defendant's agent were representations as to future matters within s 51A of the Trade Practices Act and that the plaintiffs relied on these representations in entering into the deed of extension and variation. Paragraph 28 pleads that the representations, or some of them, were false and the pleading goes on to claim damages for breach of s 52 of the Trade Practices Act.

10 For the sake of completeness, I should mention par 29. It is in the following terms:

"The Defendant has previously sought and is presently seeking to sell the Building."

11 Complaint is made of this paragraph and I will deal with it below. However, it is to be noted at this point that it has no relevance to the plea made in relation to the Trade Practices Act, which is set up in pars 19 through to 32.

12 The defendant's first complaint related to the inclusion of the second plaintiff as a party to the proceedings. The statement of claim pleads a lease between the first plaintiff and the defendant. The second plaintiff occupied the premises as a sub-lessee. On that basis, it was submitted by the defendant that the second plaintiff had no right of action independent of any claim by the first plaintiff. It was therefore submitted that the second plaintiff was not properly a party to the proceedings.

13 Counsel for both the plaintiffs and the defendant relied upon the decision of the House of Lords in Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43; (2001) 1 AC 518. The facts of this case, taken from the headnote, were as follows:

"The building contractor entered into a contract with the employer for the construction of an office block and car park on a site which was owned by another company in the same group of companies as the employer. In addition to the contract with the employer, the building contractor entered into a duty of care deed with the owner of the site. By that deed the owner acquired a direct remedy against the contractor in respect of any failure by the contractor to exercise reasonable skill, care and attention to any matter within the scope of the contractor's responsibilities under the contract. The deed was expressly assignable by the owner to its successors in title. Serious defects were found in the building and the employer served notice of arbitration claiming damages for defective work and delay. The arbitrator rejected the building contractor's preliminary objection that the employer, having suffered no loss, was not entitled to recover substantial damages under the contract and made an interim award. The judge reversed that ruling and allowed the contractor's appeal. The Court of Appeal allowed the employer's appeal and restored the arbitrator's decision."

14 The House of Lords, by a three-two majority, allowed the appeal. The ratio of the decision (again quoting the headnote) can be summarised in this way:

"since the duty of care deed provided the owner with a direct remedy against the contractor for losses resulting from the contractor's defective performance of the contract with the employer, there were no grounds upon which the employer, having suffered no financial loss, was entitled to anything more than nominal damages."

15 It is worth noting that the facts in the McAlpine decision were significantly different from the facts in this case. In the McAlpine case the building contractor entered into a contract with the employer for construction of the office block. That suggests that any defects in the construction of the office block would leave the employer with a right of action against the building contractor. But the building contractor also entered into the duty of care deed with the owner of the site. That deed provided a direct remedy against the contractor for any defects in the building. In other words, the deed bypassed the employer. In this case there is no equivalent of the duty of care deed. The primary contractual liability rests between the first plaintiff and the defendant. However, the second plaintiff occupied the premises as a sublessee. Clearly, if there was a breach of the lease, it is possible the second plaintiff could suffer loss. The question then is whether the second plaintiff in that situation has any independent right of action against the defendant or whether all claims must be made by the first plaintiff.

16 All members of the House of Lords undertook a careful examination of the problems raised by any attempt by a party, not a party to a contract, who seeks to recover loss sustained as a consequence of a breach of that contract. Apart from a number of old cases, the Court considered in some detail the decision of Lord Diplock in The Albazero (1977) AC 774. Lord Clyde defined the problem in these terms (at 532):

"The approach under The Albazero exception has been one of recognising an entitlement to sue by the innocent party to a contract which has been breached, where the innocent party is treated as suing on behalf of or for the benefit of some other person or persons, not parties to the contract, who have sustained loss as a result of the breach. In such a case the innocent party to the contract is bound to account to the person suffering a loss for the damages which the former has recovered for the benefit of the latter. But the so-called broader ground involves a significantly different approach. What it proposes is that the innocent party to the contract should recover damages for himself as a compensation for what is seen to be his own loss. In this context no question of accounting to anyone else arises."

17 Lord Clyde was not satisfied that this was the proper approach to be adopted. After acknowledging the difficulties occasioned by the doctrine of privity of contract and the need to ensure that some compensation was available to an aggrieved party, his Lordship concluded (at 535):

"It seems to me that a more realistic and practical solution is to permit the contracting party to recover damages for the loss which he and a third party has suffered, being duly accountable to them in respect of their actual loss, than to construct a theoretical loss in law on the part of a contracting party, for which he may be under no duty to account to anyone since it is to be seen as his own loss. The solution is required where the law will not tolerate a loss caused by a breach of contract to go uncompensated through an absence of privity between the party suffering the loss and the party causing it. In such a case, to avoid the legal black hole, the law will deem the innocent party to be claiming on behalf of himself and any others who have suffered loss. It does not matter that he is not the owner of the property affected, nor that he has not himself suffered any economic loss. He sues for all the loss which has been sustained and is accountable to the others to the extent of their particular losses."

18 There is no doubt that if I were to follow the McAlpine decision, I would strike out the second plaintiff as a part to these proceedings. The McAlpine decision is yet to be considered by an Australian Court. However, the decision of the High Court in Trident General Insurance Co Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107 suggests, at least, that the approach in this jurisdiction may be to follow the Albazero decision rather than the McAlpine decision. The position cannot be put any higher than that. But what I think is clear is that it is at least arguable that the second plaintiff has a cause of action, although it was not a party to the lease agreement. It must be remembered that this is a pleading summons, and it is important the development of the law is not stifled. I would therefore not be prepared to strike out the second plaintiff as a party to these proceedings.

19 It is, perhaps, appropriate to note in passing that declining to strike out the second plaintiff as a party to this action will make no practical difference at all to the way the defendant runs its case. There are only two potential claimants if there has been a breach of the lease and they are they first and second plaintiffs. With these two plaintiffs as a party to the proceedings, the defendant can, at least, rest assured that all claims made and to be made for any breach of the lease will be before the Court. That should provide the defendant with some small degree of comfort.

20 The defendant raises a number of other, what might be called, technical objections to the form of the pleading in relation to the second plaintiff. First, it is said that the second plaintiff is described as a "sub-tenant". This, the defendant says is inadequate. Moreover, under the "particulars of sub-tenancy" it is said that the sub-tenancy is a tenancy at will. These pleas, the defendant complains, do not adequately indicate the relationship between the plaintiffs. In my view, the pleading is, in all respects, adequate. The meaning of the term "sub-tenant" is well-understood. If further particulars of the sub-tenancy are required, they can be obtained by a request for further and better particulars. But it is difficult to imagine that the sub-tenancy would contain terms which materially affected any liability the defendant may have to the second plaintiff. I am satisfied the pleading is, in all respects, proper.

21 Secondly, the defendant complains that there is no nexus pleaded to show how the defendant's alleged breach of its contract with the first plaintiff has led to loss on the part of the second plaintiff. I accept that this causal connection could have been more clearly pleaded. However, what emerges from the statement of claim is that the second plaintiff, as a firm of solicitors, practised from premises leased by the first plaintiff. Companies such as the first plaintiff are sometimes referred to as "service companies". It is the exertions of the partners in the second plaintiff which generate the income and eventually pays the rental. It is the partnership which actually pays the variable outgoings. It may be that the first plaintiff charges the second plaintiff a premium for occupying the premises. It does not matter if that is the case - it is not pleaded and it need not be pleaded because it is irrelevant. But it is not difficult to understand how the second plaintiff could suffer loss and damage as a consequence of a breach by the defendant of its lease with the first plaintiff.

22 I am not satisfied that there is any substance to this aspect of the defendant's complaint.

23 The defendant also pleads that the claim under the Trade Practices Act made by the second plaintiff against the defendant is not properly pleaded. In par 26 of the statement of claim, it is pleaded that the second plaintiff relied upon representations made by the defendant's agent "in allowing the First Plaintiff to enter into the Deed of Extension and Variation ... ". On behalf of the defendant, it was said that there needs to be some plea to explain the relationship between the parties, otherwise the expression "allowing" was meaningless. With respect, that seems to me to ignore the relationship between the plaintiffs which I have discussed above. What is pleaded by the second plaintiff is that it relied upon certain representations and, as a consequence of that reliance, it took certain action - it allowed, permitted or caused the first plaintiff to enter into the deed of extension and variation. That is nothing more than a plea of reliance, an essential element of a claim under s 52 of the Trade Practices Act. In my view, the pleading is, in all respects, satisfactory and should stand.

24 The defendant then makes a number of other more general complaints. In particular, it is said that cl 18 of the deed of extension and variation, pleaded in par 14 of the statement of claim, is so imprecise that a court could not attribute to the parties any particular contractual intention. It is said, on that basis, the clause is void for uncertainty and the plaintiffs' claim must fail. Reference was made to Brown v Gould [1971] 2 All ER 1505 at 1512 and The Council of the Upper Hunter County District v Australian Chilling & Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429.

25 With respect to the defendant, this is not a matter to be determined on a pleading summons. Indeed, I doubt very much whether it is a matter which could be determined even if the application was brought under O 16 of the Supreme Court Rules. As Barwick CJ made plain in the Upper Hunter decision, courts will use their best endeavours to give meaning to a contract between the parties: see 436 - 437. To do that, it may be necessary for evidence to be led of all the surrounding circumstances so that if the contract is uncertain, unclear or obscure, it may, nonetheless, be interpreted in the light of the relevant circumstances. In my view, it would be a rare case, indeed, where a court would conclude that a contract is void for uncertainty at an interlocutory level. I could not reach such a conclusion in this case.

26 The defendant says that cl 15(b) of the statement of claim cannot stand with par 14, which pleads cl 18 of the deed of extension and variation. Paragraph 15 sets out what the plaintiffs say is the proper construction of cl 18 of the deed. It may be the plaintiffs are wrong in their interpretation of the deed. But, in my view, the plea in par 15(b) is, at least, arguable. As with the defendant's argument that the pleading should fail because cl 18 is void for uncertainty, this objection to the pleading anticipates an interpretation of the clause. That issue must await trial. I would not strike out par 15(b) of the statement of claim.

27 Objection is taken to par 16, but that objection flows on from the objection taken to par 15(b). As I am satisfied that par 15(b) can stand, par 16 can also stand.

28 Complaint is made of par 17 of the statement of claim. Paragraph 17 pleads, by par 17(a), that the defendant has failed to carry out such works as were necessary to ensure the building was in a state at least equal to that of similar and comparable buildings and, by par 17(b), has not undertaken a refurbishment of the building. The defendant says that the plaintiffs have completely failed to plead any material facts to support their claim. As I understand the defendant's submissions, it was said that the plaintiffs should have pleaded the condition of the building, what work was necessary to bring the building up to the required standard and then the defendant's failure to do the work which results in the alleged breach of contract. The defendant says that this is not a complaint about a lack of particulars. Rather, it bespeaks a failure on the part of the plaintiffs to plead material facts central to their case.

29 On behalf of the plaintiffs, it is said that the material facts are pleaded. The statement of claim pleads the term of the contract and what the plaintiffs say the defendant was required to do to fulfil its obligations under the lease. The complaint, it is submitted, is as to the defendant's failure to act. It is not a matter of pleading what should have been done to satisfy the requirements of cl 18. Rather, the plaintiffs say, they have satisfied the requirements of pleading by simply referring to the fact of the defendant's inaction.

30 I am satisfied that the plaintiffs' plea is, in all respects, adequate. This is one of those situations where, if the plaintiffs had pleaded particular aspects of the building which were unsatisfactory and then pleaded a failure to rectify the position, they could not have been criticised for their approach. But the way in which the statement of claim is pleaded is equally valid and entirely proper. No doubt, in due course, the parties will join issue on what the present condition of the building is and what it should have been under the terms of the lease. But really, that is all a matter of particulars and evidence. In my view, by pleading the fact of the defendant's inaction, the plaintiffs have done all that was needed.

31 The defendant says that par 22(b) and par 28(b) are not representations which could give rise to a claim under s 52 of the Trade Practices Act. It is said that they are "puffery" and nothing more. That may be so, but it is an issue for trial. In my view, it is at least arguable that the representation pleaded in par 22(b) could be regarded as conduct within the meaning of s 52 of the Trade Practices Act and consequently give rise to liability. I would not strike out these two paragraphs of the statement of claim.

32 The defendant says that par 23 is embarrassing because it pleads matters which, it is said, the defendant knew. The defendant says that its state of knowledge of the plaintiffs' affairs can make no difference to a claim brought under s 52 of the Trade Practices Act. Paragraph 22 pleads what are said to be the representations made by the defendant to the plaintiffs. The plaintiffs thereafter assert, as they must to succeed in a claim based upon s 52, that they acted in reliance upon those representations. As I read par 23 of the statement of claim, it puts the representations in context. It is part of the factual matrix which goes to establish the significance of the representations and how they were relied upon.

33 The point can be illustrated by referring back to par 23(b). It is pleaded that, during the course of negotiations, the defendant's agents represented to the plaintiffs that the defendant would maintain the building so that it remained "competitive" for the next 10 years. Standing alone, that paragraph may, as the defendant submitted it did, amount to no more than bluster or "puffery". But by par 23(e), it is pleaded that the defendant knew that the issue of maintaining the building to a standard commensurate with the rent payable by the first plaintiff was "of crucial importance to the first plaintiff's decision whether or not it would agree to an extension" of the lease. When these two subparagraphs are taken together, the defendant understands the case it has to meet.

34 In my view, the same comments apply to the defendant's complaint as to par 24 of the statement of claim. This relates to the second plaintiff and its decision to give a guarantee to the defendant of the first plaintiff's obligations under the deed of extension and variation. The plea as to the extent of the defendant's knowledge of the second plaintiff's position does nothing more than put the plea of reliance in context.

35 There is a minor complaint as to par 25. It is said that the phrase "in fact" is unclear. While it is a point of no significance, in my view, the phrase is properly used.

36 The defendant complains of par 29. It is not entirely clear why that paragraph is in the statement of claim and it serves no useful purpose. However, it also raises no issue which will need to be addressed at trial and, while it might be best were it to be removed, I would not be prepared to strike it out.

37 Finally, the defendant complains of par 31. This paragraph simply alleges a contravention of s 52 of the Trade Practices Act. The defendant says that the plaintiffs have not pleaded any material facts establishing the causal nexus between the alleged breach and the loss suffered.

38 In my view, the pleading is, in all respects, proper. The plaintiffs have pleaded the representations as the defendant's conduct, their reliance upon those representations and their alleged falsity. Although it is not stated in as many words, it is clear that the plaintiffs are saying that they entered into the deed of extension and variation consequent upon the defendant's misleading and deceptive conduct. In due course, they will be required to particularise their loss. But, as matters stand at the present, I am satisfied that par 31 is an adequate plea.

39 I am satisfied, then, that the statement of claim ought to stand and ought not be struck out.

40 Before leaving this application, I should make some comment about the overall pleading of the statement of claim. It is clear from a reading of the pleading just what the plaintiffs' claim is against the defendant. There is a clear, logical narrative, with no jumble of facts giving rise to confusion. It is difficult to imagine that a defendant, properly advised, would not know the case that it has to meet. In my view, there is no basis for suggesting that the statement of claim is "embarrassing" in the way in which that word was used by Burnside J in Girando v Padbury (1919) 22 WALR 7.

41 That, then, leaves the plaintiffs' application for an order allowing inspection of the building. The order is sought under O 28 r 2(1), or alternatively, O 52 r 2(1). It would appear to matter not which of these two rules is relied upon; they are both to the same effect.

42 It is common ground between the parties that the condition of the building is central to the dispute. Clearly, both parties will rely upon expert evidence to support their respective positions, and, so far as the plaintiffs are concerned, that will necessitate an inspection of the building by an expert. Prima facie, then, the plaintiffs are entitled to the orders they seek.

43 The defendant is concerned that the plaintiffs wish to inspect the building in an attempt to discover defects, which, in reality, played no part in the plaintiffs forming the view that the building was not up to the required standard. It is the defendant's position that the plaintiffs should properly plead their case before inspection is permitted. In part, the defendant's position was based upon its objection to the way the plaintiffs formulated their claim in the statement of claim. It was the defendant's position that the alleged defects were material facts which had to be pleaded. Until those material facts were pleaded, it was said, it was inappropriate to order inspection.

44 Given that I am satisfied that the pleading is in proper form, much of the defendant's objection to the making of the order for inspection falls away. It also seems to me that the defendant's approach to this issue misunderstands the nature of the plaintiffs' claim. What the plaintiffs claim is that the defendant took no action in relation to the condition of the building when it was obliged to do so. It is not a question of there being specific defects which required the defendant to undertake remedial work. The building may have been entirely suitable for occupation by the second plaintiff and for use as legal offices. But that does not mean that it was of a standard required under the terms of the lease. In my view, it is appropriate that the plaintiffs' expert should have the opportunity to view the building and provide an expert report.

45 Accordingly, I am prepared to make orders in terms of the plaintiffs' application.

46 I will hear the parties as to the precise form of orders and as to costs.