Johnson Tiles Pty Ltd v Esso Australia Ltd

Introduction 1 On 25 September 1998 an explosion and fire occurred at the Longford gas plant in the State of Victoria. The plant was owned, operated and conducted by the respondents ("Esso"). As a consequence of the explosion, reticulated gas ceased to be available to gas consumers in the State of Victoria until the resumption of supply on 12 October 1998. 2 The applicants, representing themselves and group members, commenced proceedings against Esso under Pt IVA of the Federal Court of Australia Act 1976 (Cth) ("the Act"). The applicants claim that, as a result of Esso's negligence and misleading and deceptive conduct, the applicants and group members have suffered loss and damage. The loss and damage alleged to have been suffered is said to have been caused by the unavailability of gas to consumers between 25 September 1998 and 12 October 1998. The proceeding was commenced as a representative proceeding under Part IVA as the Court was alleged to have jurisdiction in the matter by reason of the misleading and deceptive conduct claim ("the s 52 claim") which is made pursuant to ss 52 and 82 of the Trade Practices Act 1974 (Cth) ("the TPA"): see s 33G of the Act. 3 Esso brought proceedings, by way of cross-claim, against a number of instrumentalities and authorities of the State of Victoria which were involved in the distribution and sale of gas to consumers ("the State entities"). The State entities brought proceedings, by way of cross-claim, for contribution against other entities involved in the distribution and sale of gas and a number of insurance companies against whom they claimed a right to be indemnified under various insurance policies. The State entities also brought a proceeding, by way of cross-claim, against BHP Petroleum (Bass Strait) Pty Ltd ("BHP") on the basis that Esso operated the Longford plant as agent for BHP, alternatively, that BHP was itself an operator of the plant and was responsible for the loss and damage allegedly suffered by the applicants and group members. 4 It is unnecessary for present purposes to outline the various cross-claims. An essential element in each is that one of the bases of alleged liability is predicated upon Esso being liable to the applicants and to group members by reason of the s 52 claim. Although a number of the cross-respondents to the various cross-claims ("the cross-respondents") have brought motions which seek to strike out certain paragraphs that relate to s 52 claims in the cross-claim that relate to them in substance, if not in form, the strike out motions can be determined by reference to the s 52 claim pleaded by the applicants. If the applicants' pleading of their s 52 claim is to be struck out, the main basis for claiming contribution in the cross-claims in relation to misleading and deceptive conduct will fall, essentially for the same reasons. The parties have approached and argued the motions before the Court on that basis. 5 In the result all parties, other than the applicants, have joined in contending that the s 52 claim is misconceived and ought to be struck out. The issues for determination by the Court are whether the s 52 claim pleaded in paras 16-27 of the Second Further Amended Statement of Claim ("the statement of claim") is to be struck out and whether the negligence claim in the proceeding should no longer be permitted to continue as a claim in the representative proceeding, or otherwise, in the Federal Court on the ground that it is not a matter or part of a matter in respect of which the Federal Court has, or should exercise, jurisdiction. 6 Esso has sought to strike out the s 52 claim on two previous occasions. If Esso was the only party seeking to raise the issues the subject of the present motions there might be some force in the contention of the applicants that the Court, as a matter of discretion, should not consider Esso's motion at this late stage. However, two factors make that course inappropriate. The first is that the motions are reliant on the particulars of the s 52 claim that operate to limit the generality of the pleading which, in that form, have not been the subject of previous consideration by the Court. The second factor is that the cross-respondents are entitled, as of right, to raise the pleading issues they seek to agitate. The fact that Esso might benefit from that course cannot preclude the cross-respondents from raising the issues the subject of their respective motions. 7 The main submission on the s 52 claim was put by senior counsel for BHP and the main submission as to the consequences of the matter before the Court not having a sufficient federal element to give the Court jurisdiction was put by senior counsel for the State entities. As Esso and the cross-respondents, in general, adopted those submissions it is appropriate to refer to the various submissions as submissions of the cross-respondents. Esso's previous strike out applications 8 The genesis of the current s 52 pleading was the striking out of critical paragraphs of the s 52 claim pursuant to orders made by me on 21 April 1999. The claim against Esso, at that time, was based upon an alleged failure by Esso to correct or contradict assumptions made by gas consumers that the availability of gas to them was "secure, reliable, continuous and adequate" for their needs. If the collocation of words used to express the assumptions is to have any meaning in the present context it must, at the least, mean that the continuity of supply will not be seriously or significantly interrupted. It was not alleged that Esso's conduct contributed to the assumptions made by gas consumers or that Esso was under a duty to correct or contradict the assumptions. At that stage the only conduct of Esso that was relied upon as constituting a contravention of s 52 was the failure to correct or contradict the assumptions, that is, silence. 9 In my reasons for judgment of 21 April 1999 (Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 477) at [4] and [5] I noted that, putting to one side the vexed question of a duty to disclose, silence has been recognised as justifying a claim of misleading and deceptive conduct in two situations. I described those situations as follows: "The first situation is where it is an element, in all the circumstances of a case, which renders the conduct in question misleading or deceptive: see Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 at 88 per Samuels JA and Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 per Black CJ and at 40-41 per Gummow J. For example, where the relevant conduct involves the supply of goods or services in circumstances where there is an omission to impart information relating to a particular quality or aspect of the goods or services, silence may be the element which renders the conduct in question misleading or deceptive. Such an omission might occur where a product is supplied to a consumer who, to the knowledge of the supplier, dedicates its manufacturing process to that supply on the basis of its continuity, and the supplier fails to inform the consumer that it cannot provide continuity of supply. The conduct in question in that example is not silence alone; it is supply of the product in circumstances in which the failure to inform might render the supplier's conduct misleading and deceptive. The example given is of conduct, involving silence, which is capable of, and therefore may be properly pleaded as, constituting misleading and deceptive conduct. The second situation is where silence alone constitutes misleading and deceptive conduct. That situation arises by reason of the extended definition of 'conduct' in s 4(2) of the TPA which provides that, for the purposes of the TPA, 'conduct' includes a refusal to do any act and refraining from doing that act otherwise than where the refraining was inadvertent. However, in this situation there must be an element of intent in the refusal to do, or the refraining from doing, the act in question: see Costa Vraca Pty Ltd v Berrigan Weed & Pest Control Pty Ltd (1998) 155 ALR 714 at 722 per Finkelstein J and the authorities there cited. In substance, the authorities referred to by his Honour require that the silence be intentional or deliberate. Applying these principles to the present case, the applicants' pleading of misleading and deceptive conduct is deficient. It plainly falls outside of the two situations, discussed above, as it relies on the mere silence of the respondents as constituting their contravening conduct without an allegation that: · the silence was the element that resulted in the respondents' conduct being misleading or deceptive; or · that the respondents' silence was intentional or reckless." 10 As a consequence of the orders made on 21 April 1999 the applicants delivered a further statement of claim which, in turn, was the subject of a further strike-out motion by Esso. After certain minor amendments were made to the statement of claim in the course of the hearing of that motion I concluded that the motion should be dismissed. In my reasons for judgment of 4 May 1999 (Johnson Tiles Pty Ltd v Esso Australia Ltd [1999] FCA 569) at [2] to [4] I described the s 52 cause of action of the applicants as follows: "Complaint was made as to the manner in which the material facts establishing the necessary causal link between misleading conduct and loss and damage have been pleaded. In Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 222 French J observed that, in pleading the necessary material facts establishing the causal relationship between contravention of s 52 and the loss which is a necessary element of the cause of action pleaded, the facts and circumstance should be set out which lead 'to a reasonable inference that the conduct and the damage stood to each other in the relation of cause and effect.' The substantive allegation made by the applicants is that Esso's conduct in operating its plant and being the monopoly supplier of gas used by consumers in Victoria and its failure to correct or contradict assumptions made by the public as to the reliability and continuity of that supply constituted misleading and deceptive conduct. It is then pleaded that in reliance upon that 'conduct' the applicants, business users, domestic users and stood down workers ordered their affairs on the basis of the assumptions and, in the case of business users and stood down workers, did not take certain steps to protect themselves against cessation of supply. It is then alleged that, as a consequence of those matters, the applicants and the various group members suffered economic loss and damage by reason of the explosion at the Longford plant that led to a cessation of gas supply. In my view the pleading, as it has been amended in the course of the present application, satisfies the criteria stated by French J in Bond Corporation at 222. An alternative argument was put on behalf of Esso that even if that difficulty was overcome the s 52 cause of action has still not been properly pleaded as the pleading of loss and damage must be alleged to have been caused by the silence of Esso as the conduct in question rather than the operation of the plant, supply and silence as the conduct in question. In my view the submission misconceives the basis upon which the applicants are putting their claim. The applicants have not pleaded that silence alone constituted the misleading conduct giving rise to their loss. Rather, they have pleaded that the operation of the Longford plant and the supply of gas as a monopoly supplier together with the 'silence' is the misleading conduct upon which they relied to order their affairs which led to their reliance on continuity of supply of gas and to the loss they allege they have suffered. The fact that it is the silence that is the element that resulted in the conduct being misleading does not alter the claim that it is the totality of the conduct, rather than the silence alone, that is being relied upon as constituting the breach of s 52. Whether the causal link sought to be pleaded between conduct and loss can be successfully established at trial is not the question presently before me. In my view the amendments made to para 27 sufficiently deal with the complaint made by Esso." 11 The cross-respondents did not challenge my decision on either of the previous strike-out applications. Rather, the cross-respondents contended that the generality of the s 52 claim has now been limited by the particulars and, when so limited, is demonstrably untenable: see Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91 and General Steel Industries Ltd v Commissioner for Railways (1964) 112 CLR 125. The s 52 claim 12 The s 52 claim can be summarised as follows: · Esso is a monopoly supplier of natural gas to gas users in Victoria (para 16); · since 1970 gas has been regularly advertised in Victoria as a reliable source of energy for domestic, business and industrial users (para 17); · as a result of Esso being a monopoly supplier, and as a result of the advertising, persons in the State of Victoria assumed that the supply of gas to gas users was, and would remain, secure, reliable, continuous and adequate ("the assumptions") (para 19); · Esso, although aware of the assumptions and of the fact that the supply of gas to gas users was not, and would not remain, secure, reliable, continuous and adequate, continued to operate the Longford gas plant and to supply gas for distribution to gas users but failed to correct or contradict the assumptions ("Esso's conduct") (paras 18, 20, 22, 23, 24 and 25); · Esso's conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the TPA (para 26); · the applicants and group members suffered loss by reason of Esso's conduct (paras 21, 26 and 27). 13 It appears that the allegations that are relied upon by the applicants as being central to the s 52 claim include: · the assumptions made by the public were induced by reason of Esso being the "monopoly" supplier of natural gas and by certain advertising in Victoria by entities other than Esso; · Esso was aware of the assumptions and of the facts that made them erroneous but failed to correct the misconception of the public. 14 The cross-respondents accepted that whether or not the public made the assumptions may be a question for evidence, rather than of pleading. However, they contended that whether the fact that Esso was a monopoly supplier and the advertising were capable of giving rise to the assumptions was able to be determined from the pleadings now that full particulars had been given of the relevant allegations. In that regard the applicants have had discovery on both issues and did not state in the statement of claim that further particulars will be provided. In the course of argument senior counsel for the applicants suggested that further particulars may be provided but I indicated that, in the absence of any detail of the content of the further particulars, I would assume that they would relate to advertising to the same effect as the advertising set out in the current particulars. 15 It is well established that particulars limit the generality and ambit of the pleadings (Saunders v Jones (1877) ChD 435, Yorkshire Provident Life Assurance Co v Gilbert (1895) 2 QB 148 at 152 and Trade Practices Commissioner v George Weston Foods Pty Ltd (1979) 39 FLR 182 at 186. Further, particulars are part of the pleading and, as such, are subject to the rules relating to striking out a pleading: see Davey v Bentinick (1893) 1 QB 185 at 188, Searle v Mirror Newspapers Ltd (1974) 1 NSWLR 180 at 186-187 and Minchin v Adamson (1975) 10 SASR 119 at 122. 16 Accordingly, it is open to the cross-respondents to contend that the pleadings they challenge ought to be struck out if the particulars given are incapable of supporting or sustaining the substantive allegation. In any such case the pleading would have a tendency "to cause prejudice, embarrassment or delay in the proceeding" (O 11 r 16(b) of the Federal Court Rules) and may also fail to disclose a "reasonable cause of action" (O 20 r 2). 17 There is little point in outlining the detail of the advertisements. In general, they extol the efficiencies, comforts and general desirability of natural gas appliances and might be said to impliedly represent that natural gas is a reliable source of energy. The applicants go no further than contending that the gist of the advertisements is to encourage reliance on natural gas as a principal energy source. There is nothing in the advertisements that expressly, or impliedly, represents that the supply of gas was and would remain secure, reliable, continuous and adequate in the sense that it is not vulnerable to a shut down or some other interference with supply. Extolling, in general terms, the reliability of gas as a source of energy does not mean that the supply of gas will not be interrupted. Likewise, para 22 necessarily suffers from a similar deficiency in so far as it relies upon Esso's knowledge of the advertisements as a basis for its knowledge of the assumptions which relate to the reliability etc of supply. 18 The applicants contended that I had not struck out an earlier, but unparticularised, version of the pleading, inter alia, on the basis that the pleading did not rely on a logical connection between the advertising and the assumptions. Whilst that may be correct, the advertisements are relied upon as inducing the assumptions and as one of the bases for Esso's awareness of the assumptions. If the advertisements are not capable of giving rise to the assumptions then it is difficult to accept that they can have any material role in the s 52 claim. In any event the advertisements have been particularised and the generality of the pleading is limited by those particulars. 19 I also agree with the submission of the cross-respondents that the fact that Esso is a monopoly supplier, of itself, can have little relevance to inducing the public to assume that its supply of gas was and would remain secure, reliable, continuous and adequate in the sense set out above. 20 These conclusions must lead to paras 16 and 17, and para 19 to the extent that it relies on paras 16 and 17, being struck out on the basis that the matters pleaded (as limited by the particulars) are not reasonably capable of giving rise to the assumptions. Other paragraphs, such as para 22, which are dependent upon the assumptions, must likewise be struck out. 21 It does not follow that the deficiency in those paragraphs reveals a fundamental flaw in the s 52 claim or is otherwise not capable of rectification by an appropriate amendment. On the basis of the limited evidence before me at this stage I would expect that a domestic or industrial consumer of any essential service, whether water, gas or electricity, would be likely to make certain assumptions when he or she turns on a tap or a switch to receive the water, gas or electricity, or acquires an appliance or equipment dependent upon the service. One of the assumptions would be that the supply of the water, gas or electricity will be secure, reliable, continuous and adequate. The assumption is inherent in the nature of the essential service provided, the infrastructure that is known to be necessary to enable the provision of the service and the known dependence of consumers of the service on its supply being secure, reliable, continuous and adequate. Part of the "infrastructure" enabling continuous gas supply in Victoria is likely to be Esso's gas reserves in Bass Strait, Esso's facilities for the production and processing of gas at Longford and the system for the distribution of gas, via the State entities, to consumers. 22 Thus, although "monopoly" supply and the advertising relied upon by the applicants may not, of themselves, be capable of inducing the assumptions, there may be more relevant factors that might have done so. I need not pursue this aspect further other than to conclude that the deficiencies complained of by the cross-respondents might be overcome by amendment. 23 In the course of argument it became clear that the real and more fundamental difficulty with the pleading of the s 52 claim related to what was meant by the collocation of the words "secure, reliable, continuous and adequate supply of gas". The words relate to relative, rather than absolute, concepts. Thus, it would not be inconsistent with the assumptions if supply were interrupted by reason of a natural disaster or industrial action. Indeed, the retail contracts entered into by gas consumers for the supply of gas from the State entities and the regulatory regime specifically provide for interruptions of supply in certain circumstances. 24 The allegation of "secure, reliable, continuous and adequate supply of gas": · does not mean an uninterruptable supply of gas; · does not describe a system of supply of gas that is not vulnerable to an event that can lead to a shut down of supply whether that event be a natural disaster, a negligently caused explosion or industrial action. 25 It is relevant also to consider the particulars given under para 23 as to why, contrary to the assumptions, it is alleged that Esso was not able to provide a secure, reliable, continuous and adequate supply of gas. The gist of the particulars as to that alleged inability is: · the vulnerability of Esso's processing and supply network to a shutdown; · the vulnerability of Esso's network to a total cessation of supply of gas as a result of events such as those that occurred on 25 September 1998; · the systemically flawed management and operation of Esso's Longford gas plant; · the absence of an alternative means of supply of gas in the event of a critical failure in Esso's gas plant. 26 The fundamental flaw in the pleading in relation to "secure, reliable, continuous and adequate" supply in paras 16, 17, 19, 23 and 24 is that the central allegation in the s 52 claim, that Esso's supply of gas was not reliable, secure, adequate and continuous, is not able to be sustained by the particulars under para 23 (see also para 24). The flaw is not merely technical in the sense of the particulars not sustaining the allegation pleaded. As I pointed out to senior counsel for the applicants in the course of argument, the gist of the applicants' s 52 claim appears to be an allegation that Esso failed to correct the erroneous assumption by the public that the supply of gas to the public was not vulnerable to interruption of supply by events of the kind that occurred at the Longford gas plant on 25 September 1998, or to the other matters particularised in para 23. As I am not prepared to construe the assumptions as relating to "uninteruptable" supply, it follows that there is a significant disconformity between paras 16, 17 and 19 which relate to the assumptions and paras 23 and 24 of the statement of claim which relate to why they were alleged to be erroneous. 27 For the above reasons I am satisfied that the main criticisms made by the cross-respondents of the applicants' s 52 pleading are well founded. As the assumptions and the failure to correct them are central to the s 52 claims it would be appropriate to strike out the whole of the s 52 claim rather than particular paragraphs of it. 28 The cross-respondents also criticised the pleading of causation in para 27. They contended that the s 52 claim for damages requires identification of a causal link between loss and damage and conduct in contravention of s 52: see Marks v GIO Australia Holdings Ltd (1998) 158 ALR 333 at 346. Where the cause of action is based on an alleged failure to warn or inform, it is said that it is necessary to identify the kind of warning or information which the circumstances called for and to prove that if the warning or information called for had been given, the loss or injury alleged would not have been suffered. Thus, it was contended that the evidence must establish that it is more probable than not that the applicants would have heeded the warning or acted upon the information and taken a course which would have resulted in the applicants not suffering the loss or damage claimed: see Qantas Airways v Cameron (1996) 66 FCR 246 at 293-294. 29 To support the submissions the cross-respondents also relied upon the recent High Court decision in Chappel v Hart (1998) 195 CLR 232 at 239, 246, 256-257 and 282 to argue that, where a breach of a duty to inform is relied upon, it is necessary for the plaintiff to establish what would have happened if the information in question had been provided. Thus, it is contended that the present pleading of causation is deficient because it fails to comply with the above requirements. 30 Putting to one side the fact that a number of the authorities relied upon relate to a claim in negligence based upon breach of a duty to inform, the cases are primarily concerned with the evidence that is required to be adduced at trial rather than the manner in which causation in such cases is to be pleaded. A distinction is to be drawn between the requirement to plead the material facts on which a cause of action is based and the evidence that is required to establish the factual basis of each element of the cause of action: see Bright v Femcare [1999] FCA 1377 at [18]. Further, in a claim for damages pursuant to s 82 of the TPA, the applicants must establish by evidence that the loss and damage they suffered was suffered "by reason of" Esso's conduct. The extent to which the principles relied upon in respect of a negligent failure to warn are applicable to cases where silence forms part of the conduct relied upon for the purposes of the claim for damages under ss 52 and 82 of the TPA may be a matter of some contention. 31 I am satisfied that I need not pursue these matters further in the present context as I dealt with a similar argument on the pleading of causation on an earlier challenge by Esso. In my reasons for judgment of 4 May 1999, the relevant part of which I set out earlier in these reasons, I stated that I was satisfied that the current pleading of causation in the s 52 claim (para 27 of the statement of claim) sufficiently sets out the facts and circumstances which lead to a reasonable inference that the conduct and damage stood to each other in relation to cause and effect: see Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 222 per French J. It may well be that further particulars are appropriate as to causation but that is a different matter from striking out the pleading. 32 In the result, it is appropriate to strike out the whole of the s 52 pleading. But for that conclusion I would not have acceded to the submissions of the cross-respondents in relation to the pleading of causation in para 27. However, as the pleading in para 27 is dependent upon the conduct of Esso outlined in para 26 which, in turn, is dependent upon pleadings relating to the assumptions, it is appropriate to strike out para 27 in any event.