Johnson Tiles Pty Ltd v Esso Australia Ltd

REASONS FOR JUDGMENT 1 By a notice of motion dated 8 April 1999 the respondents moved the Court for orders that the Second Further Amended Statement of Claim of the applicants ("the statement of claim") be struck out on the ground that it did not disclose a reasonable cause of action and would prejudice, embarrass or delay the fair trial of the proceeding. The statement of claim was delivered on 26 March 1999 pursuant to the leave granted on 1 March 1999 when I ordered that the previous statement of claim be struck out. 2 The challenge to the present statement of claim relates to the manner in which the causes of action alleging misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TPA") and negligence have been pleaded. Misleading and Deceptive Conduct 3 The misleading and deceptive conduct alleged against the respondents was based upon a failure on their part to correct or contradict assumptions allegedly made by gas consumers to the effect that the availability of gas to them was secure, reliable, continuous and adequate for their needs. It was not alleged that the respondents' conduct contributed to the assumptions made by gas consumers or that the respondents were under a duty to correct or contradict the assumptions. Thus, the only conduct of the respondents relied upon by the applicants as constituting a contravention of s 52 was the failure to correct or contradict the assumptions that is, silence. 4 The respondents' challenge to the applicants' pleading of the s 52 claim raises the issue of whether silence alone can constitute "conduct" for the purposes of the TPA and, in particular, s 52. Silence, without more, would not normally constitute conduct. However, 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. 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. 5 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. 6 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. 7 I have added "reckless" as, in my view, it is arguable that recklessness or a conscious indifference to making a correcting statement may be equivalent to the intention otherwise required for the application of s 4(2). Accordingly, para 25 of the statement of claim which defines the respondents' misleading or deceptive conduct solely by reference to the respondents' failure to correct or contradict the assumptions made by gas consumers should be struck out. 8 There is a further problem with the s 52 pleading in its present form. Paragraphs 19(d) and 19(e) refer to assumptions in terms that are so broad that they are embarrassing. In particular, the assumptions pleaded are not sufficiently related to the cessation of gas supply which allegedly gave rise to the loss claimed by the applicants and the group members. Accordingly, paras 19(d) and 19(e) should also be struck out. 9 In my view, the other complaints made by the respondents in respect of the s 52 pleading are without substance. It was contended that the assumptions made and pleaded do not logically flow from the content of the advertisements which were said to have given rise to the assumptions. There are two difficulties with that contention. The first is that the validity of the submission depends upon the precise content of the advertisements in question, which has not yet been particularised, rather than the brief summary or description of their content pleaded in para 17. Secondly, and more importantly, the pleading does not rely on a logical connection between the advertising and the assumptions; rather it relies, inter alia, on the fact that to the knowledge of the respondents the assumptions were made as a result of the advertising. As explained above, the alleged failure of the respondents to correct those assumptions is the conduct relied upon as misleading. Thus, although the contention may be relevant to the merits of the claim, it does not afford a basis for the Court to exercise its discretion to strike out the relevant paragraphs of the pleading. 10 It was also argued that there was an omission to plead that the respondents' conduct contributed to the assumptions made by gas consumers. However, the cause of action pleaded by the applicants does not require an allegation that the respondents' conduct contributed to the assumptions being made if that is not part of the applicants' case. The cause of action, as presently pleaded, is based upon the respondents' failure to contradict or correct the assumptions. Negligence 11 The main criticism of the cause of action pleaded in negligence was that it pleads a contractual duty to supply rather than a tortious duty of care in relation to the product supplied. I considered that criticism in my reasons for judgment (dated 1 March 1999) for striking out the previous statement of claim. For the reasons there given, the duty pleaded is not based upon a contractual duty to supply. Rather, the cause of action is based upon a duty of care in respect of conduct of the respondents relating to the supply of gas from the Longford gas plant. The duty is pleaded as a duty of care to avoid causing loss and damage to gas consumers. In my view, the pleading observes the distinction required to be drawn between a contractual duty to supply and the tortious duty of care in relation to supply: see John Holland Construction & Engineering Pty Ltd v Kvaerner RJ Brown Pty Ltd (1996) 13 BCL 262 at 274 per Byrne J and Minchillo v Ford Motor Company of Australia Ltd [1995] 2 VR 594 at 597 per Brooking J. 12 The respondents next contended that the statement of claim failed to plead the circumstances establishing the relationship of proximity required to give rise to the duty of care alleged. In substance, it was submitted that all that has been pleaded was forseeability, likelihood or knowledge that a member of a class might or would rely upon the respondents for the secure and continuous supply of gas and that those circumstances were not sufficient to create the relationship of proximity required for a claim of negligence occasioning economic loss: see Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 at 249 per Brennan CJ, 252 per Dawson J, 262 per Toohey and Gaudron JJ and 275 per McHugh J. In my view, this submission is without substance as the pleading does not rely upon those matters alone as giving rise to the necessary relationship of proximity. The pleading relies on additional factors which include; dependence by gas consumers upon the respondents as the sole supplier of gas for their needs, knowledge by the respondents of the dependence upon them by gas consumers for a secure, reliable, adequate and continuous supply of gas, an intention by the respondents that such a dependence be created and knowledge of the respondents that, in the event of a cessation or interruption of the supply of gas, gas consumers would suffer economic loss. The issue of proximity and the content of a possible duty of care owed by a sole supplier in relation to continuity of supply of a basic commodity to the community, are substantive issues for trial rather than issues appropriate for determination on a strike out application. For present purposes I need go no further then state that I am not satisfied that the circumstances pleaded cannot give rise to the proximity required in law to establish that the respondents owed the duty of care alleged by the applicants. 13 Criticism was next made of the failure of the applicants to plead the content of the duty of care allegedly owed by the respondents. In accordance with my previous reasons for judgment, the applicants have pleaded the duty of care owed by the respondents as a duty to avoid causing economic loss and damage to gas consumers. Whilst that is a necessary element in a pleading of the content of a duty of care in an economic loss case, it is not definitive of the content of the duty of care. The present pleading fails to plead the content of the duty of care relevant to the circumstances of the breaches said to have given rise to the loss suffered by the applicants and group members as a consequence of the cessation of gas supply. As a result, there is some force in the respondents' contention that the applicants' pleading of breach of duty appears to be at large and is not identifiably related to the loss and damage claimed. 14 In my view it is appropriate to strike out para 13 on the basis that it is an incomplete pleading of the content of the duty of care. When that paragraph is repleaded I expect that it will provide the necessary framework to enable the causal connection, between the breaches of duty relied upon and the loss suffered, to be identified. I have concluded that it is inappropriate to strike out the pleading of breach of duty as it can be reconsidered, if necessary, in the context of the manner in which the content of the duty of care is pleaded. 15 Finally, criticism was made of para 15 which contains the bald allegation that the breaches of duty of care pleaded caused the economic loss claimed. The substantive allegation appears to be that the breaches of duty pleaded caused the explosion which led to the cessation of supply and the resulting economic loss. It seems to me that those matters should be specifically pleaded. Accordingly, I also propose to strike out para 15 of the statement of claim. 16 Other incidental matters were raised by the respondents but, in my view, those matters were not sufficiently meritorious to warrant the exercise of the Court's discretion to strike out the statement of claim or any other part thereof, save for the paragraphs to which I have referred. For the above reasons, I propose to order that paras 13, 15, 19(d), 19(e) and 25 of the statement of claim be struck out with leave to replead those paragraphs or otherwise amend the statement of claim as the applicants may be advised. The amended statement of claim should be delivered within 7 days. As the respondents have substantially succeeded in their challenge to the statement of claim on points of substance in respect of each of the causes of action, it is appropriate that the applicants pay the respondents' costs of and incidental to the motion dated 8 April 1999. 17 Finally, I would add that I have taken a stricter, and possibly more technical, approach to pleadings in the present matter than I might usually take in respect of other matters on my docket. The reason for that is that the magnitude of the present litigation and the nature of the issues arising are such that it is appropriate in the interests of the administration of justice that the causes of action relied upon by the applicants and the defences of the respondents are pleaded with clarity and precision. Thus, I have been prepared again to exercise my discretion in favour of the respondents on their strike out motion. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.