Morris v Danoz Directions Pty Ltd

HIS HONOUR: I mean ordinarily I would have liked to have fixed it for hearing today, but one possibility of this process is that leave might not be granted, and I presume you would, if leave were not granted, you still had complaints about the prior form of the pleading don't you?

HIS HONOUR: So, there probably needs to be a motion by you as well to strike out what has been pleaded as well as an application by Mr Lynch to seek leave to amend.

3 If follows from this that I do not regard the respondents as prevented by that directions hearing from raising any complaint about the pleading. It is convenient then to deal with the various pleading issues separately.

First issue: paragraph 72 4 Paragraph 72 of the proposed further amended statement of claim is as follows: 72. Each of the Second, Third and Fifth to Sixth Respondents is a person who: - (a) has aided, abetted, counselled or procured; or

(b) has been knowingly concerned and/or a party to the contravention by the First Respondent of Section 51A and 52 of the Trade Practices Act 1974 as alleged in paragraph 64 above.

The facts and circumstances relied upon by the Applicants in support of this allegation are:-

(i) so far as concerns the Second Respondent-the facts alleged in paragraphs 1, 2, 9, 10, 15, 16, 19, 20, 21, 23, 24, 27-40, 43, 44, 46, 50-60, 62, 72A and 72F;

(ii) so far as concerns the Third Respondent-the facts alleged in paragraphs 1, 3, 15, 16, 19, 20, 28-31, 46, 50(b), (c), 51, 52(a)-(c), (e), (f), and 53, 57, 59, 72B and 72G;

(iii) so far as concerns the Fifth Respondent-the facts alleged in paragraphs 1,4, 5, 15, 16, 18-20, 28-31, 46, 50(b), (c), 51, 52(a)-(c), (e) and 53, 57 and 59, 72C and 72H;

(iv) so far as concerns the Sixth Respondent-the facts alleged in paragraphs 1, 6(a), 6(b), 15, 16 19, 20, 28-31, 46, 50(b), (c), 51, 52(b), (c) and 53, 57 and 59,72D and 72I.

5 It is apparent from this paragraph that the conduct in which the respondents are said to have been complicit is the conduct referred to in paragraph 64. Paragraph 64 in turn alleges: 64. The conduct of the First Respondent as alleged in paragraph 10 to 46:-

(a) was misleading or deceptive or likely to mislead and deceive; and

(b) and was thereby in contravention of Section 52 of the Trade Practices Act 1974.

6 I do not propose to set out paragraphs 10 to 46. It is sufficient for present purposes to note that the conduct alleged in those paragraphs does not involve all of the respondents. For example, paragraph 15 is particularised in a way which makes plain that it is only the sixth respondent who was involved in the contravention. The respondents submit that the effect of paragraphs 64 and 72 is to roll all of these allegations together in a way which impermissibly suggests that conduct alleged against some respondents (for example, the sixth respondent at paragraph 15) constitutes a breach of s 52 by all of the other respondents (via paragraphs 72 and 64). 7 The applicants submit that the particulars provided for paragraph 72 show that it does not operate in the way the respondents suggest. Whilst I think a practical and robust reading of paragraph 72 might support the applicants' view, the fact is that paragraph 64 has the effect for which the respondents contend. Strictly, the particulars provide the basis on which the allegation they support will be proved. Read precisely, the particulars provided in relation to the second respondent indicate how the applicants propose to prove the allegation that the second respondent was knowingly concerned in all of the conduct in paragraph 64. This difficulty would be removed if the pleadings sought to deal with the position of each respondent in a separate paragraph in a way which did not utilise paragraph 64. Subject to other conclusions in these reasons for judgment, I would not grant leave to amend in a form which contained paragraph 72. I would, however, grant leave to plead the conduct of each respondent relied upon. Any such pleading must omit the vice of paragraph 64. 8 Before leaving this topic I should observe that the respondents sought to amplify this point by noting that certain paragraphs pleaded conduct by the first respondent (being the corporate respondent in whose conduct each of the other respondents was said to be involved) which did not involve any apparent conduct of the other respondents. For example, paragraph 39 of the proposed pleading is in the following terms: The First Respondent failed to disclose to the Applicant that the special conditions referred to in paragraph 38 had been added to Appendix F of the final version of each franchise agreement and thereby by its silence represented to the Applicant that the appendix F to the four franchise agreements provided by the First Respondent was blank. 9 The respondents submitted that this was a pleading of representation by silence. No particular vice lay in that but when combined with paragraph 64 and 72 it meant that it was impossible to identify which respondent was involved. There is considerable force in this criticism. The consequence of requiring the particular conduct of each respondent in paragraph 72 to be pleaded - as I have held above - should resolve this problem.

Second issue: particulars of knowledge 10 The respondents contend that the applicants have not provided any particulars of the states of knowledge alleged in paragraphs 72A to 72J. By way of example paragraph 72A says: 72A The Second Respondent: (a) knew about the matters alleged in paragraphs 50, 51(b)-(f), 52, 53, 54, 55 and 56 of the Further Amended Statement of Claim;

(b) knew that by September 2003, or alternatively by a date no later than 11 February 2004 that the statement of the Fifth Respondent in Annexure A (paragraph 20.3) of the disclosure document and the attached unaudited statement of financial performance of the First Respondent no longer presented a true picture of the financial position and financial performance of the First Respondent and the Danoz Group;

(c) knew that the First Respondent was seeking to sell franchised business to members of the public including the Applicants;

(d) failed to disclose to the Applicants the matters alleged in paragraphs 50(b), 51(b)-(f) and 52 of the Further Amended Statement of Claim

11 No particulars are provided for this allegation. Order 12 r 3 provides: (1) A party pleading any condition of mind shall give particulars of the facts on which he relies.

(2) In subrule (1) condition of mind includes any disorder or disability of mind, any malice and any fraudulent intention, but does not include knowledge.

12 The applicants submit that the effect of r 3(2) is that they do not have to particularise the knowledge allegations. The respondents point to O 12 r 2 which provides: A party pleading shall give particulars of any fraud, misrepresentation, breach of trust, wilful default or undue influence on which he relies.

13 They say that an allegation under s 75B of the Trade Practices Act 1974 (Cth) is analogous to a pleading of fraud so that O 12 r 2 requires the allegations in paragraph 72A to be particularised. However, as a matter of textual reality this rule is not activated by a s 75B pleading because it is not a pleading of fraud even assuming it is analogous to one. 14 The respondents also submitted that account must be taken of O 12 r 5. This rule does not apply when a defence has not been filed unless an order is made under subrule (1). Since there is presently no order it does not seem to provide a basis for refusing the amendments. The respondents also relied upon O 12 r 1 which provides: (1) A party pleading shall state in the pleading or in a document filed and served with it the necessary particulars of any claim, defence or other matter pleaded by him.

(2) Rules 2 to 4 do not affect the generality of subrule (1).

15 It has been held that the corresponding rule in the old Supreme Court Rules (NSW) - Pt 16, O 1 r 1 - requires particulars to be given of knowledge allegations where that knowledge forms part of a claim made under s 75B: Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 599 at [43], [53]-[54] per Einstein J. I do not read those remarks as laying down a hard and fast rule that particulars of knowledge are always required where a claim under s 75B is made. As his Honour's remarks at [52]-[53] show, the basic consideration is the need to avoid a party being taken by surprise. There is, I think, a tension between O 12 r 1 which is pitched at a high level of generality and r 5(3) which deals specifically with knowledge allegations. Unassisted by r 1, one could read r 5 as creating a regime which explicitly permits unparticularised pleadings of knowledge but couples that with an ability to order particulars of those allegations after the delivery of a defence. Rule 5(3) permits a departure from this where it is necessary to have particulars in order to enable a respondent to plead or for some other "special reason". This, to my mind, suggests that r 5(3) particulars are concerned not with notions of avoiding trial surprise (with which Einstein J was concerned in Idoport) but instead with the facilitation of the provision of a defence. 16 It is true that r 1(2) is expressed in such a way that it might operate to require the provision of particulars even where particulars are not required by r 5. However r 1(1) itself only requires the provision of particulars where they are "necessary". The machinery of r 5(3) means that generally a respondent will obtain particulars of a knowledge allegation but only after a defence is filed. That being so, it is important to focus on why such particulars might be "necessary" before the filing of a defence. This is, of course, a different question to why such particulars might be necessary prior to a trial. 17 Turning to this case, particulars would be "necessary" in my opinion if the respondents could not plead without them or if there was a risk of trial surprise. I note that in Idoport the propinquity of the trial date created a real risk of trial surprise. In this case I can at present see no such risk. The operation of r 5(3) is such that the applicants will have to supply the particulars of these knowledge allegations but not until the respondents' defences are delivered. This will be well before any trial. On the other hand, I see nothing which would prevent the respondents pleading to the knowledge allegations in paragraphs 72A(b) and (c). The suggested basis is not sufficient to refuse to grant leave. The same may be said of each of the equivalent sub-paragraphs of 72B to 72J.

Third issue: repetition of s 75B 18 The respondents contend that paragraph 72 merely repeats the text of s 75B and ought not to be permitted for that reason. I have already accepted that paragraph 72 must be redrawn in a way which pleads the particular conduct of particular respondents. If that is done, this problem will not arise.

Fourth issue: lack of pleaded participation 19 The respondents submit that insofar as the third respondent is concerned, the particulars to paragraph 72 do not allege acts of participation which would bring them within s 75B. The paragraphs particularised are: 1, 3, 15, 16, 19, 20, 28-31, 46, 50(b), 50(c), 51, 52(a)-(c), (e), (f) and 53, 57, 59, 72B and 72G. The respondents submit that it is only paragraph 28 which contains an allegation of participation. Unfortunately, it is necessary to deal with this point in some detail. The structure of the particulars provided to paragraph 72 picks up allegations of facts going to involvement (paragraphs 1, 3, 15, 16, 19, 20 and 28-31), makes an additional allegation of misrepresentation arising from the combined operation of all of those paragraphs (paragraph 46), picks up various paragraphs which allege the falsity of the representations (paragraphs 50(b)-(c), 51, 52(a)-(c), (e), (f), 53, 57 and 59) and finally picks up the allegations of knowledge in paragraphs 72B and 72G. 20 It is useful to focus on the allegations relating to actual participation. There are four aspects to this. First, it is alleged that the first respondent is incorporated together with other similar allegations (paragraph 1); secondly, it is alleged that the third respondent was the chief operating officer of the first respondent (paragraph 3); thirdly, it is allegedthat there was a conference held at the Gold Coast on the weekend of 5 March 2004 at which the first respondent made the following broad representations to the applicants: (a) that there would be 100 franchised Danoz Directions stores operating in Australia by the end of 2004; (b) that the Danoz Group was on target to meet budget and achieve EBITDA of $500,000 for the year ending 30 June 2004; and (c) compendiously, that there was an extensive range of Danoz products for which there was increasing demand. 21 It would appear that, although the dates of 5 and 6 March 2004 are alleged to have been a Saturday and a Sunday, they were in fact a Friday and a Saturday, but nothing turns on that. 22 Fourthly, each of the above representations were said to have been made by the sixth respondent on behalf of the first respondent with the exception of the matter in (c) above which was alleged to have been made by the sixth respondent or, in the alternative, the third respondent. In the case of the representations in (a) and (b), the third respondent was said to have been involved simply because he was present when the sixth respondent allegedly made the statement. So understood, the respondents' complaint is that it is not alleged in relation to (a) and (b) that the third respondent did anything. In the case of the matter in (c) it was said that the pleading of the third respondent having made the representation is embarrassing because it is pleaded in the alternative. 23 The first of these submissions should be accepted. It is not enough for a s 75B case to plead that the respondents were merely present when a representation was made. This cannot amount to "aiding, abetting, counselling or procuring". However, it seems to me that it may be possible for the respondents to plead a s 75B case on the present facts, albeit, not the one they have presently suggested. Presumably, the various officers of the first respondent were involved in the organisation of the conference and it may be that their conduct in that regard - rather than the conduct constituted by their standing around silently - is capable of being put as s 75B conduct. That is sufficient to require the rejection of the matter in (a) and (b), but it does not dispose of (c). I do not think there is a difficulty with the pleading in paragraph 28; that is, in the present context an allegation that the person making the representation was either the sixth or the third respondent may stand. It is not the case, as the respondents submit, that this must involve the applicants pleading something they know cannot be true. It is entirely possible that the applicants' recollection is that either the third respondent or the sixth respondent made the statement but they cannot remember which. 24 Paragraph 46 (which deals with the representation said to arise from all of the other representations) refers to "each" representation. Textually that suggests that the compendious representation arose on the making of "each" of the other representations. However, from the way in which the argument was developed it became apparent that what was meant was that the representation arose as a result of the making of "all" of the representations. I would not permit the word "each" in paragraph 46 but I would permit the word "all". 25 The respondents did not make submissions about the position of the other respondents in paragraph 72. That being so, I will not deal with them. However, in any further version of the pleading the gravamen of the points just made should be borne in mind.

Fifth issue: lack of clarity 26 The respondents complained that taken as a whole the pleading about s 75B was too unclear. As will become apparent, I do not need to deal with this allegation.

Disposition 27 I decline to grant leave to amend the pleadings in the form sought by the applicants. The amended statement of claim filed on 7 January 2009 does not allege knowledge on behalf of the second, third, fifth and sixth respondents. This is a fatal defect in the pleading. That being so, I order that paragraphs 72 and 79 be struck out of the amended statement of claim. However, the applicants should have leave to file and serve another attempt at a further amended statement of claim consonant with these reasons within 14 days of the date of this judgment. It follows that the respondents' applications for summary judgment must be dismissed.

Costs 28 Many of the respondents' complaints about the pleading were entirely well-founded. On the other hand, their application for summary disposal has failed. Whilst it is true that I have granted leave to amend the pleadings, it is not on the terms sought by the applicants. In those circumstances, both sides have had a measure of success and failure. I will make no order as to costs on either motion. I certify that the preceding twenty-eight (28) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Perram.

Associate: Dated: 20 February 2009 Solicitor for the Applicants: Mr PG Lynch of Lynch Morgan Lawyers

Counsel for the Second, Third, Fifth and Sixth Respondents: Mr RM Foreman

Solicitors for the Second, Third, Fifth and Sixth Respondents: Minter Ellison Lawyers