Murran Investments Pty Ltd v Aromatic Beauty Products Pty Ltd

REASONS FOR DECISION 1 The first applicant Murran Investments Pty Ltd ("Murran") seeks orders against the respondents for damages and other relief for contraventions of ss 52(1), 53 and 59(2) of the Trade Practices Act 1974 (Cth) ("the Act"), and for negligence, breach of contract, and misrepresentation. The statement of claim filed with the application on 17 June 1999 alleges that Murran's claims arise from representations made by the respondents leading to, and the circumstances surrounding, its entry into a franchise agreement with the respondent Aromatic Beauty Products Pty Ltd ("Aromatic"), and the performance of that franchise agreement. 2 The second applicant Andrea Margaret Deegan ("Deegan") seeks orders against the respondents for damages and other relief for "mental distress, inconvenience, upset and frustration" only under the Act. 3 By notice of motion of 11 October 1999 the respondents applied to dismiss Deegan's claim, and to strike out the statement of claim or significant parts of it. They also sought orders for security for costs from Murran, and for the proceeding to be transferred under the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) to the Supreme Court of Victoria or alternatively from the Northern Territory Registry to the Victorian Registry of the Court. The issue of security for costs has been dealt with. The parties reached an accord on that issue, and the Court ordered that Deegan provide a guarantee of $65,000 to the respondents in respect of any costs that Murran may be ordered to pay to the respondents to reflect that understanding. The parties are agreed that the issue of transfer of the proceedings, or the Registry from which it should be conducted, should be deferred until the pleadings are closed. 4 Unfortunately, the pleadings have not yet closed. On 21 January 2000 the applicants, pursuant to leave given on 1 December 1999, filed and served an amended statement of claim. The respondents maintained their claims to dismiss Deegan's claim, and to have the amended statement of claim struck out. On 2 May 2000, a judge of the Court ruled that the amended statement of claim was defective in significant respects. He struck it out, and gave leave to the applicants to file and serve a further amended statement of claim. He indicated that Deegan's claim was not legally sustainable in the terms in which it was then pleaded. 5 On 26 May 2000 the applicants filed and served their third amended statement of claim. According to the respondents, it too had significant defects. They also claimed that Deegan's claim was still unsustainable. That pleading did not alter or add to the way in which her claim was pleaded in the earlier amended statement of claim. They contended that it (1) failed to disclose a cause of action in favour of Deegan, and that her claim should be dismissed; (2) made assertions which were inconsistent with "admissions" previously made, and despite the general leave given on 2 May 2000 to file and serve a further amended statement of claim the applicants needed leave to be permitted to withdraw those "admissions" and they further contended that that leave should not be given; and (3) was not properly particularised in certain respects. 6 Those matters were argued on 15 August 2000. The respondents also sought an order under O 62 r 3 of the Federal Court Rules ("the Rules") that the costs of this further application, if successful, should be able to be recovered forthwith, notwithstanding that any costs order would be made on an interlocutory application. 7 The applicants made certain submissions in response, but were then given leave to file further written submissions. As it appeared that they, through their counsel, recognised that there may still be some defects in the third amended statement of claim, they were also given leave to provide such further and better particulars of the third amended statement of claim, and to give notice of any further proposed amendments to the third amended statement of claim for which they would seek leave to amend that document. It was intended that, subject to considering further submissions of the respondents, the proposed final version of the applicants' statement of claim would then be evident and the respondents' objections would be considered in relation to it. The respondents were therefore given leave to make further written submissions in reply, and in response to any further particulars provided and in response to any further proposed amendments to the third amended statement of claim. 8 The applicants then on 6 September 2000 applied by motion for leave to file and serve a fourth amended statement of claim. The supporting affidavit acknowledged defects in the third amended statement of claim. The proposed fourth amended statement of claim is exhibited to that affidavit. 9 The parties were anxious that the pleadings issues be finally resolved. I therefore gave directions for the applicants' motion of 6 September 2000 to be determined on written submissions. As a result of receiving such submissions, and the submissions on the respondents' motion of 6 October 1999, the matters now to be addressed are: (1) whether the applicants should be given leave to file and serve the proposed fourth amended statement of claim (which I shall hereafter call the fourth amended statement of claim) either in whole or in part (2) if that leave is granted, what consequential orders, including for costs, should be made on the applicants' motion of 6 September 2000 (3) what orders for costs should be made on the respondents' motion of 6 October 1999, apart from those costs already ordered, and (4) whether any costs ordered in favour of the respondents on the motion of 6 October 1999 should be payable forthwith. 10 I shall in any event adjourn the respondents' motion of 6 October 1999 to a date to be fixed to hear and determine whether this application should be cross-vested to the Supreme Court of Victoria or should be transferred to the Victorian Registry of the Court.

THE GENERAL NATURE OF MURRAN'S CLAIM 11 This section of my reasons reflects the general allegations in the third amended statement of claim and in the fourth amended statement of claim. 12 Aromatic was the franchisor for the distribution and sale in Australia of "Red Earth" bath and body care products and cosmetics ("the products"). I infer that Red Earth Pty Ltd ("Red Earth") is the international franchisor of the products.

13 Between August 1995 and September 1995, the respondents made certain representations to Murray Roy Deegan ("Mr Deegan") and others concerning the products, the marketing of the products, the availability of the products, the extent to which bath and body care products on the one hand and cosmetics on the other hand were sold by existing franchisees of Aromatic in Australia, the expected turnover and profitability of a franchise if granted by Aromatic to Murran, and the nature and quality of services which Murran would receive from Aromatic if it acquired a franchise for the products ("the representations"). The fourth amended statement of claim adds that the representations were made to Mr Deegan in his own right and to Deegan and to Murran (in each case through Mr Deegan). It also expands upon the terms of the representations and supplies greater particulars of the circumstances in which they came to be made.

14 On 17 October 1995, Murran executed a franchise agreement with Aromatic for the conduct of a franchise for the retail sale of the products in Darwin ("the franchise agreement"). It acquired premises at Casuarina Shopping Centre for five years, the term of the franchise agreement. It paid $250,000 for the franchise.

15 The franchise agreement contained a number of warranties by Aromatic about the products, the reputation of the products, the marketing of the products, the quality of the products, the availability of the products during the term of the franchise, the capacity of Aromatic to provide the products to Murran, and the services to be provided by Aromatic to Murran to support its business as a retail seller of the products under the franchise agreement. There was also implied into the franchise agreement terms that the products would be of merchantable quality, would be reasonably fit for sale by retail to customers of Murran, and about the continued quality, range and availability of the products during the term of the franchise agreement ("the warranties"). The fourth amended statement of claim provides particulars of the terms of the franchise agreement which give rise to the express warranties, and the facts relied upon to support the implied warranties in the franchise agreement. It also alleges further implied warranties about Aromatic maintaining sufficient stock reserves to enable Murran's stock requirements to be satisfied.

16 The respondents breached the representations and the warranties by failing to supply the products as required, by failing to maintain the availability of the full range of the products, by supplying the products which were not reasonably fit for sale by retail to persons in Darwin, by altering the ingredients in the products, by failing to supply the products of merchantable quality and to maintain the quality of the products, and in other respects. The fourth amended statement of claim substantially recasts the allegations of breaches of the representations, and to a lesser degree the allegations of breaches of the warranties. It does so in a way that is responsive to one of the perceived defects in the third statement of claim, namely that it was difficult to tie the allegations concerning the representations and the warranties to the allegations concerning their breaches.

17 As a result, Murran had to adjust its manner of conducting the franchise business and was unable to maintain adequate stock of the products or the full range of the products. It therefore operated with diminishing sales levels from July 1997 and began to operate at a significant loss. In August 1999, Aromatic refused to continue to supply the products to Murran, and Murran treated that conduct as a repudiation of the franchise agreement. On 30 August 1999, the franchise agreement was treated by the parties as at an end. Again, the fourth amended statement of claim substantially recasts and expands the allegations concerning the consequences of the breaches of the representations, including identifying that the claim is based in part upon loss of goodwill of the business of Murran and increasing interest charges as the cash flow of the business diminished.

18 Murran claims that the representations were with respect to future matters, and that the respondents did not have reasonable grounds for making them. It therefore relies upon s 51A of the Act. The fourth amended statement of claim provides detailed allegations concerning the claim based on s 51A of the Act.

19 In addition to claims under the Act, Murran claims damages for deceit and misleading conduct, for breach of contract, for misrepresentation and for negligence. There are separate allegations of negligence made by Murran against Aromatic, largely also concerning the maintenance and provision of adequate supplies of the products.

20 Deegan's claim, as expressed in the third amended statement of claim is entirely derivative. Mr Deegan and Deegan both suffered mental distress as Murran's business increasingly came under financial pressure due to the conduct of the respondents. On 17 January 1999, Mr Deegan died. Deegan then ran Murran's franchise business alone until 30 August 1999. She suffered severe stress and illness as a result of the conduct of the respondents. As noted, the application makes that claim only under the Act. The third amended statement of claim does not allege conduct of the respondents in relation to her so as to give rise to a cause of action for the loss which she claims. The fourth amended statement of claim does respond to that deficiency. It pleads that the representations were made, inter alia, to Deegan. It also pleads that she relied upon them to procure Murran to enter into the franchise agreement and to guarantee the due performance by Murran of the franchise agreement and a further "outlet licence" agreement between Red Earth and Murran. It then alleges that the breach of the representations led to financial pressure on Deegan, so that she suffered severe nervous distress and financial loss both as a guarantor and as a shareholder in Murran. Her claim is still confined to a claim under the Act.

the respondents' objections to the fourth amended statement of claim

21 The respondents maintain their contention that the fourth amended statement of claim does not disclose a cause of action in favour of Deegan, and that her claim should be dismissed.

22 They also maintain their contention that the fourth amended statement of claim makes assertions which are inconsistent with admissions previously made, and that leave under O 11 r 8 of the Rules should not be given to permit those admissions to be withdrawn. Alternatively, they contend, if leave to withdraw the admissions is to be given, it should be confined to the particular matter concerning stock as that is the only topic for which any explanation is proffered for the need to withdraw what previously was acknowledged.

23 They further maintain their objection to certain paragraphs of the fourth amended statement of claim, in one respect simply because it is apparently of no purpose, but principally because the extensive additions to or changes to the allegations as to the nature of the representations are sought to be raised out of time: s 82(2) of the Act. Their other complaints about the adequacy of the third statement of claim have now largely been met by the fourth amended statement of claim.

24 They also make the overall submission that the applicants have had sufficient opportunity to plead their case, that (as now acknowledged by the applicants) the third amended statement of claim is deficient in material respects, and that therefore the third amended statement of claim should be struck out and that there should be no leave to file and serve any further pleading. The consequence would be that the application itself would then be dismissed.

the principles 25 There is no dispute about the principles relevant to an application to strike out a pleading and in effect to summarily terminate a proceeding. The Court should so proceed only in the clearest of cases: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125. It will only be where the impugned pleading is unarguable: Murex Diagnostics Australia Pty Ltd v Chiron Corporation (1995) 55 FCR 194 per Burchett J at 203. 26 In this matter, the applicants are now content for the third amended statement of claim to be struck out. They seek leave to file and serve the fourth amended statement of claim. In large measure, it replicates the third statement of claim, but with greater coherence and particularity. The particular objections to the fourth amended statement of claim, with the exception of the objection to par 24, raise matters which can be dealt with discretely. In general, I propose to exercise my discretion under O 13 r 2 to grant leave to file and serve the fourth amended statement of claim effectively to replace the third amended statement of claim. I do not consider that there is any particular injustice to the respondents in so doing, other than cost and delay. The cost detriment can be remedied by an appropriate order. The delay which the further amendment will occasion is not suggested to prejudice a fair trial of the issues in any event. The injustice to the applicants, if they are prevented from pursuing their claims at all, is self evident and of considerable moment. Despite the extensive pleading history, I am not of the view that the applicants have any other purpose in pursuing their application than properly seeking relief against the respondents, nor that they have demonstrated that in reality they do not wish to maintain their claims. Nor do I consider that the process of refining the claims by amendment has gone on so long that the application itself should be brought to an end. This is not a case where there is demonstrably no real prospect of a satisfactory pleading being attained: cp. Western Australia v Bond Corporation Holdings Ltd (French J, 6 April 1992, unreported). For those reasons, I do not accept the last submission of the respondents referred to above. 27 It is necessary, however, to determine whether I should disallow any paragraphs of the fourth statement of claim on the basis of the three substantive objections of the respondents.

deegan's claim 28 The general nature of Deegan's claim is set out at par 20 above. The fourth amended statement of claim adds significant new allegations that (1) the representations were made to her (through the agency of Mr Deegan): par 10, (2) she relied upon the representations in causing Murran to enter into the franchise agreement: par 12, and in guaranteeing the performance by Murran of the franchise agreement and in guaranteeing Murran's performance of the "outlet licence": par 14, and generally: par 43, and (3) she suffered loss as a result. 29 The claimed loss includes financial loss through the loss of "income that she would otherwise have anticipated receiving through the purchase of the franchise" (it is unclear whether that means that she is claiming changes for loss of the opportunity to sell the shares in Murran) and as a shareholder in Murran: par 46. Presumably, her guarantee was not called up as she makes no claim based upon her liability as a guarantor. She also claims loss for severe nervous distress caused by the downturn in Murran's fortune and the financial pressure that it imposed upon her. The prayer for relief refers to ss 82 and 87 of the Act, and for damages for deceit and misleading conduct, for negligence, and for misrepresentation. There are no factual allegations in the fourth statement of claim which could give rise to a claim by Deegan against either of the respondents in negligence. The negligence plea in par 42 of the fourth amended statement of claim is on behalf of Murran only. Paragraph (iv) of the prayer for relief which claims damages on that basis on behalf of Deegan must be struck out in any event. 30 The respondents' submission is that the suffering of mental distress, or loss as a shareholder, does not give rise to a claim on her behalf under the Act. It is submitted that the only reliance upon the representations which is alleged is the entering into the guarantee, and that the entering into the guarantee is not claimed to have led to loss suffered either by way of mental distress or as a shareholder. I agree that there is no claim that the entering into the guarantee has directly caused Deegan loss. 31 I do not think that Deegan has alleged that she relied upon the representations (which, by the fourth amended statement of claim, she now alleges were made to her) only in entering into the guarantee. I consider that pars 12 and 43 of the fourth amended statement of claim also assert that Deegan relied upon the representations in deciding to purchase a franchise from Aromatic and in procuring Murran to enter into the franchise agreement. Paragraphs 44 and 46 then allege loss as set out above, namely direct financial loss (which I suspect is really the loss of the opportunity to sell her shares in Murran to take advantage of the anticipated goodwill of Murran's business), and indirectly as a consequence of the diminution of the value of her shareholding in Murran as its financial fortunes waned. She also claims that her reliance upon the representations led to severe mental distress due to her commitment to Murran as it became under increasing financial pressure. 32 In my view, it is not unarguable that loss for severe mental distress, and economic loss of the kinds identified on the basis alleged are recoverable at law. The prayer for relief indicates that those claims are not simply based upon breaches of the Act; it encompasses claims for "deceit and misleading conduct" and for "misrepresentation". I have not heard argument about the nature of the remedies which those causes of action may encompass. Moreover, there is some arguable basis for allowing recovery of damages for mental distress under s 82 of the Act in certain circumstances: Steiner v Magic Carpet Tours Pty Ltd (1984) 6 ATPR 40-490; Zoneff v Elcom Credit Union Ltd (1990) 12 ATPR 41-009 and on appeal (1990) 12 ATPR 41-058; cp. Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112. In my judgment, that aspect of Deegan's claim should be permitted to proceed to trial. The outcome may depend upon the particular facts proven at that time. It may also require detailed argument as to the range of remedies which ss 82 and 87 encompass, and the circumstances in which they may be available. I am also not persuaded that the claim for "loss of opportunity" damages (as I have identified it) is unarguable. I observe that par 9 of the fourth amended statement of claim may nevertheless indicate that it is a theoretical, rather than an actual, possibility of loss. Paragraph 9 suggests Deegan would not have sought to capitalise on the goodwill of Murran by selling her shares in Murran. However, I do not consider that the claim for damages based upon the claimed loss "as a shareholder" of Murran is maintainable. If Murran's claim succeeds, its shareholders' funds will have been appropriately restored. If it does not succeed, subject to one reservation, it is apparent that Deegan's claim also will not succeed. The reservation is if Murran's claim did not succeed because it did not receive the representations, that is that the representations were found not to have been made to it but only to Mr Deegan and to Deegan. In that circumstance, it may be arguable that Deegan could recover by the indirect route of her portion as a shareholder of Murran the losses she claims. Even then, I have very grave doubts that that claim would be maintainable, but I am not at present prepared to categorise it as unarguable so as to strike it out. Accordingly, but with considerable hesitation, I am not prepared to dismiss that aspect of Deegan's claim at this stage. 33 Accordingly, subject to striking out par (iv) of the prayer for relief on behalf of Deegan, I do not accede to the respondent's application in respect of her claim.

The withdrawal of admissions 34 Paragraph 16 of the statement of claim filed when the application commenced contained the following:

"Between the period from the franchise commencement date to 30 June 1997, the First Respondent honoured its said representations made to the First Applicant and referred to in paragraph 7 hereof whereby revenue earned by the First Applicant from the operation of the franchise for the period from the franchise commencement date and 30 June 1996 amounted to $289,254.53 and revenue from sales for the period 1 July 1996 to 30 June 1997 amounted to $512,406. 18 resulting in both instances in a net trading profit after cost of sales but before expenses of approximately 44% of gross sales revenue to the First Applicant whereby the First Applicant was able to adequately meet its commitments in respect of the various expenses of the establishment and operation of the franchise during such period."

35 In the further amended statement of claim, that same paragraph appears (par 19) in much the same terms. The respondents' motion of 6 October 1999 did not seek to strike out par 19 of the further amended statement of claim or of the two draft versions of that document, one of which had been filed and served on 27 September 1999 (the document in relation to which the notice of motion was issued) and the other of which was handed up at a directions hearing on 1 December 1999. As noted earlier, however, those documents were all replaced by a substituted amended statement of claim which itself was struck out on 2 May 2000. Each of those documents before the third amended statement of claim also contained a paragraph to the same general effect as par 16 of the first statement of claim. Each then proceeded in the following paragraphs to allege breaches of the representations and of the warranties from and after 1 July 1997. 36 That paragraph does not however appear, in any terms, in the third amended statement of claim or in the fourth amended statement. Instead, it is now alleged that the respondents engaged in conduct in breach of the representations and in breach of the warranties from and after 14 November 1995, the franchise commencement date, until 30 August 1999. 37 The respondents submit that par 16 of the first statement of claim constitutes an "admission", for the purposes of O 11 r 8, that until 30 June 1997 Aromatic honoured or gave effect to the representations. In effect, it is submitted, the applicants now seek to allege a breach of the representations and of the warranties from 14 November 1995, whereas previously they had pleaded that no such breaches occurred. 38 Order 11 rule 8 provides:

"(1) A party shall not in a pleading make an allegation of fact, or raise any ground or claim, inconsistent with a previous current pleading of his (sic). (2) Subrule (1) does not affect the right of a party to make allegations of fact, or raise grounds or claims, in the alternative." 39 I note that O 18 r 1(2) permits the withdrawal of formal admissions made for the purposes of a particular proceeding only with the leave of the Court. 40 I do not consider that O 11 r 8 prevents the applicants from making allegations of fact inconsistent with their previous pleading. A rule in similar terms has existed in the United Kingdom from Rules of the Supreme Court 1883 (UK) (O 19 r 16), in The Rules of the Supreme Court 1965 (UK) (O18 r 10) and in the other States and territories of Australia, although it has not been replicated in the Civil Procedure Rules 1998 (UK) as it is no longer appropriate for the pleading rules then introduced (see Access to Justice, Interim Report to the Lord Chancellor, June 1995, pp 155-161 and 229-230). Its effect has been to prevent an applicant from setting up in the reply a new claim which is inconsistent with the cause of action alleged in the statement of claim: see eg. Herbert v Vaughan [1972] 1 WLR 1128. The emphasis is upon inconsistency with the current pleadings. In O 11 r 8 of the Rules, that feature has been made even clearer by the inclusion of the word "current". That word, so far as my researches go, does not appear in any other versions of the comparable rule in other jurisdictions. The third amended statement of claim is to be struck out, so the fourth amended statement of claim (if allowed) will not be inconsistent with any current pleading of the applicants. 41 The question, in my view, is whether leave should be given to allow the fourth amended statement of claim having regard to the terms of par 16 of the initial statement of claim. The respondents acknowledged that, notwithstanding the apparently blanket terms of O 11 r 8, the Court may grant leave to plead in a later statement of claim facts which are inconsistent with those pleaded in an earlier statement of claim. In my view, that was an appropriate acknowledgment. In Earp v Henderson (1876) 3 Ch D 254 at 259 Bacon VC said of an ancestor of O 11 r 8 that he would not envelop a plaintiff in an iron net from which he will have no power of escaping. 42 The purpose of pleadings is to define the issues between the parties. That definition of issues ensures that the parties are given an opportunity to prepare and present their respective cases in a fair manner, and also enables the proceedings to be conducted expeditiously and so that rulings as to admissibility of evidence and the like may be made: see generally Dare v Pulham (1982) 148 CLR 658 at 664. In considering whether to allow an amendment to pleadings, the correct approach was identified in State of Queensland v J L Holdings Pty Ltd (1997) 189 CLR 146 at 154 per Dawson, Gaudron and McHugh JJ. 43 Their Honours said: "But it ought always to be borne in mind, even in changing times, that the ultimate aim of a court is the attainment of justice and no principle of case management can be allowed to supplant that aim." See also per Kirby J at 167-172. In INP Consortium Ltd v Tourang Ltd (31 August 1993, unreported) Lockhart J stressed that the Court must do its best to hear all matters that are truly in dispute between the parties. 44 In Celestino v Celestino (Spender, Miles and von Doussa JJ, 16 August 1990, unreported) ("Celestino"), the Court had to consider an application made during the course of an assessment of damages that a written admission of liability be withdrawn. The Full Court quoted with approval the principle stated by Bowen LJ in Cropper v Smith (1884) 26 Ch D 700 at 710-711:

"… the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases … I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party … as soon as it appears that the way in which a party has framed his case will not lead to a decision of the real matter in controversy, it is as much a matter of right on his part to have it correct, if it can be done without injustice, as anything else in the case is a matter of right." 45 That statement of principle was approved by the High Court in Clough & Rogers v Frog (1974) 48 ALJR 481, and in JRL Holdings at 154. It is therefore necessary, as their Honours point out in Celestino at 8-10, to be satisfied · that an error or mistake by or on behalf of the party seeking the amendment has been demonstrated, · that a sensible explanation for the making of the admission has been provided, based on evidence of a solid and substantial character, and · that no injustice will be occasioned to the other party by the withdrawal of the admission, other than hardship by delay or cost which can be accommodated by an appropriate order for costs. 46 I propose to apply those general principles in considering the content of par 23 of the fourth amended statement of claim. 47 Deegan has sworn two affidavits asserting that the admission was made in error and seeking to explain how the admission came to be made in error. Her evidence discloses that Mr Deegan controlled the administration of the business of Murran and its records until his sudden death on 17 January 1999. Soon after, when she gave instructions to commence these proceedings (they were commenced on 17 June 1999), she believed that the problems complained of arose only after 1 July 1997. She was in error, but it was an error which was made by reference to the gross sales revenue in the financial years ended 30 June 1996 and 30 June 1997. She was then unaware of the net trading profit after operating expenses for those periods. The records concerning the gross monthly sales revenue of the franchise business indicated that the gross sales revenue did not commence to drop materially until after 1 July 1997, and (by inference) that reliance on that information led to the allegation of fact which appeared in par 16 of the first statement of claim. It was only after January 2000 that a full investigation of those records was undertaken. That investigation then "revealed" that the breaches of the representations and of the warranties in fact commenced soon after 14 November 1995, but that the impact of those breaches was not materially reflected in gross sales revenue until after 1 July 1997. During that period of some nineteen months between December 1995 and June 1997 inclusive, Deegan claims that Murran traded "to a large degree from its stock reserves". On 21 March 2000, as a result of that investigation, particulars of the breaches of representations and warranties covering that earlier period were provided to the respondents' solicitors. They subsequently found their way into the third amended statement of claim and are repeated with greater particularity (in the fourth amended statement of claim. 48 Deegan also deposes to her subsequent investigations revealing · significant failures by Aromatic in complying with stock orders, and · discontinuance of product lines · failure to achieve, or to approximate, the anticipated net profit per annum of $100,000 in breach of the representations or of the warranties in the period prior to 1 July 1997. 49 Section 51A of the Act deems representations concerning future matters to be false unless the respondents establish that they had reasonable grounds for making them at the time they were made. The fact that the applicants initially pleaded that, for the period October 1995 to June 1997, the respondents "honoured" the representations is a matter upon which the respondent would have been able to rely establishing the existence of reasonable grounds for the making of the representations. 50 The applicants have not contended that the alteration in the pleading does not constitute the withdrawal of admissions as claimed by the respondents. They have sought to prove the circumstances in which the admissions came to be made, and have sought to prove the matters which, they now contend, show that in fact the admissions was incorrect and that the falsity of the representations can be demonstrated much earlier than 1 July 1997. The respondents submit that that explanation is not sufficient to explain why the admission was made in the first place so as to enable it to be withdrawn, nor that there is any real merit in having it withdrawn because the applicants' case on that material cannot succeed. They also contend, by way of alternative, that the leave to withdraw the admission should be restricted to the issue to which the affidavit relates, namely levels of stock only. 51 In my judgment, the applicants have established that the factual allegations in par 16 of the original statement of claim were made on the instructions of Deegan, and on the basis of a misunderstanding by her as to the performance of the franchise business of Murran to 30 June 1997. That misunderstanding is explained by her limited role in the financial and administrative affairs of Murran until the sudden death of her husband, and given the timing of this proceeding after his death also serves to explain why the factual allegations were made in the first place. There is, moreover, no particular injustice to the respondents by allowing the applicants to withdraw that admission. They have not deposed to any such injustice. They have submitted that the withdrawal of the factual allegation will mean that, for the operation of s 51A of the Act, they will no longer be able to rely upon it to establish that reasonable grounds existed for the making of such of the representations as concern future matters. That is clearly so. But the respondents are not prevented from adducing evidence to prove the truth of the relevant representations, or that there was a reasonable foundation for the making of those representations. In that regard, the withdrawal of the "admission" simply means that the respondents no longer have available a piece of evidence which would assist in that proof. It is a piece of evidence which, on Deegan's affidavit, was erroneously provided. 52 Indeed, the respondents will still have the benefit of the applicants having to make the running on that topic because the applicants will need to prove the making of the representations and that the representations were untrue. The fact that the claims of the applicants also include claims for damages for deceit and misrepresentation shows that the applicants will carry the onus of proof, and will have to adduce their evidence on those issues, as part of their case. And ultimately, in relation to claims under the Act, if it is not proved that there was no reasonable basis for the making of representations about the future, there can be no injustice in the respondents not being entitled to rely upon that factual allegation which will have been found to have been erroneous. Of course any delay and cost which the respondents may suffer may be met by an appropriate order for costs, and the costs of the issue at trial also may be met by such an order if one is appropriate. 53 I am satisfied that the applicants now genuinely seek to withdraw the factual allegation and to plead their case as specified in the fourth amended statement of claim. I therefore propose, to the extent necessary, to grant them leave to withdraw the factual allegation. 54 That leave is subject to my consideration of the third substantive ground of objection to the fourth amended statement of claim. It is also, of course, on the basis that I am making no judgment about the reliability of the applicant's claims either as expressed in the fourth amended statement of claim or in the affidavits of Deegan.

causes of action out of time 55 Paragraph 10 of the fourth amended statement of claim substantially restructures and enhances the allegations of representations made by the respondents. The respondents submit that it contains many new representations which are sought to be raised out of time, that is beyond the three year time limit imposed by s 82(2) of the Act. They therefore contend that those proposed additions should not be allowed. 56 It is clear that the cause of action arises when the suffering of loss or damage occurs: Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 ("Wardley"), and the question of when that loss or damage occurs or crystallises is one of fact: Wardley; Hawkins v Clayton (1988) 164 CLR 539. I am prepared to assume that the cause of action for breach of the Act in respect of those new representations arose when the franchise agreement was entered into, namely 14 November 1995, including the suffering or damage at that time: Keen Mar Corporation Pty Ltd v Labrador Park Shopping Centre Pty Ltd (1988) 61 ALR 501. It has also been decided that the three year limitation period may not be extended under the Limitation Act (NT); Vink v Schering Pty Ltd (1991) ATPR 41-064, although the applicants' submissions on this question appear to indicate that they may wish to challenge that proposition. They have advanced no argument as to why that decision should not be followed. 57 Accordingly, if the proposed amendments to the fourth statement of claim amounted to the fresh pleading of a cause or causes of action out of time, the rule in Weldon v Neal (1887) 19 QBD 394 would point to the conclusion that the Court should not permit that amendment. 58 There are, however, three reasons why I intend to allow the proposed amendments effected by the fourth amended statement of claim notwithstanding the respondents' submissions. The first is that the claims for relief are not confined to the Act. In the original application, they include claims at common law for deceit, negligent misrepresentation, and for negligence. Those claims are clearly within the accrued jurisdiction of the Court: Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261. The limitation period applicable to those claims prescribed by s 12 of the Limitation Act (NT) is three years, but that is a procedural bar only, to proceedings and that period may be extended by the Court: s 44 of that Act. The proposed amendments to par 10 of the fourth amended statement of claim to which objection has been taken relate also to those claims and accordingly, subject to other discretionary considerations, should not be disallowed simply because they may also relate to claims under the Act which are out of time. Furthermore, the fourth amended statement of claim also identifies that it is based on the tort of deceit. (It may be necessary in due course to seek leave to amend the application to identify that cause of action). The fresh allegations in par 10 of the fourth amended statement of claim apparently relate also to that cause of action. Section 42 of the Limitation Act (NT) prescribes an extended time limit in certain circumstances. If the respondents, in their defence, were to plead that the claim in deceit is itself statute-barred, issues may need to be addressed to which s 42 directs attention. In my judgment, it is not appropriate to resolve any issues under the Limitation Act (NT) at this stage. They should be left to be decided at the end of the hearing, in the light of the relevant findings of fact. The respondents' rights are not thereby diminished; if the claims are statute-barred, they will succeed in having the application dismissed. In my view, it is not appropriate to pre-emptively dismiss those claims at this point in the proceedings. The second reason is that it is, in my view, arguable that the additions to par 10 of the fourth amended statement of claim to which objection has been taken do not in fact plead new causes of action under the Act but rather expand upon the existing cause of action under the Act. In Wardley, Toohey J (with whom Deane J agreed on this point at 545) said at 561:

"When the Federal Court is faced with an application to amend a statement of claim by introducing allegations that, though they may relate to a time after the relevant limitation period has expired, do no more than expand a cause of action already pleaded, there is no difficulty in treating O. 13, r. 2 as wide enough to permit such an amendment." 59 I have carefully considered the terms of par 10 of the fourth amended statement of claim. I consider that each of the fourteen representations referred to can arguably be described as expanding upon representations alleged in par 9 of the third amended statement of claim. My comparative examination of those two paragraphs suggests that the representations in par 9(f), (g), (h)(i)(ii) and (i)(vi) are no longer to be pursued but otherwise there is an apparent correspondence between the representations alleged. In turn, there is an apparent correspondence between the representations in par 9 of the third amended statement of claim and those in pars 7 and 8 of the further amended statement of claim filed on 21 January 2000. The particulars of the representations in par 10 of the fourth amended statement of claim are almost entirely new, but as they are no more than particulars I think they too arguably fall into the category of being an expansion of the existing causes of action pleaded. 60 The third reason is that s 59(2B) of the Federal Court of Australia Act 1976 (Cth) enacted on 23 June 1994 empowers the Court to make Rules providing for the amendment of a document even though the amendment may be to allow a person to claim a remedy that otherwise would have been statute barred. Order 13 r 2 of the Rules as amended following the insertion of s 59(2B) has been held to permit such an amendment, notwithstanding the rule in Weldon v Neal: see Harris v Western Australian EXIM Corporation (1994) 129 ALR 387. Given the nature of the claim as originally expressed, I think that it is arguable that there is sufficient commonality of facts with those now sought to be alleged that I should exercise my discretion to permit the proposed further allegations in par 10 of the fourth amended statement of claim. If I were to do so, I do not think it is clear that that would work particular injustice to the respondents for the reasons already given. I do not decide that O 13 r 2 permits the amendment, as that would or might foreclose any defence of the respondents that the amendments are statute-barred. It would be unfair to the respondents to do so without further argument. But the existence of that power, and its arguable applicability, in my view on the present circumstances provides a further reason for not refusing to permit the fourth amended statement of claim, reserving to the respondents such rights to plead limitation points in their defence. As I have said, to do otherwise would be to foreclose those aspects of the applicant's claims when I am not persuaded that they have no prospect of being permitted to maintain them. 61 For those reasons, on the applicants' motion of 6 September 2000, I give leave to the applicants to file and serve a fourth amended statement of claim in terms of the fourth amended statement of claim being annexure A to the affidavit of David Edward Francis sworn on 6 September 2000. 62 In my judgment, there should be no order for costs of that motion. It was brought by the applicants in effect in acknowledging that the third statement of claim should be struck out, and so the respondents should not be exposed to costs for it having been brought. The respondents have, however, unsuccessfully resisted the leave sought by that motion. They had to consider the terms of a significantly more detailed document. It was the fourth or fifth version of a statement of claim with which they had been confronted. They reasonably incurred costs in so doing, but I think those costs will become costs of considering the fourth amended statement of claim in the proceeding. They need to do that work to prepare their defence. I further consider that their opposition was not unreasonable in all the circumstances. I think therefore it is more appropriate that they should not have to bear the costs of their opposition to the motion.

orders on the respondents' motion 63 It is clear that the third amended statement of claim should be struck out. The applicants have acknowledged deficiencies in that document, and now have leave to file and serve the fourth amended statement of claim. 64 In my judgment the respondents should have the costs of the hearing of their notice of motion of 6 October 1999 of and incidental to the hearing on 15 August 2000, including costs thrown away by reason of the striking out of the third amended statement of claim. I note that they have already received orders on 1 December 1999 and on 2 May 2000 for costs thrown away by deficiencies in earlier versions of the statement of claim. I do not think that the time taken in relation to the claim for security for costs warrants a separate order for costs. The intention of the order I propose is that those costs should be included in the order for costs as, in effect by the order made by consent that day, the respondents have obtained security for costs satisfactory to them. 65 As noted, the respondents seek an order that the costs on their motion ordered in their favour on 1 December 1999, 2 May 2000 and by this order should be taxed and be payable forthwith. In the normal course, as those costs orders relate to interlocutory proceedings, the respondents may not tax the costs and so recover them until the principal proceeding is concluded: O 62 r 3 of the Rules. The Court has power under that rule to order that such costs may be taxed before the conclusion of the principal proceedings. 66 In my view, it is necessary for the respondents to demonstrate that the demands of justice require a departure from the general rule: Thunderdome Racetiming and Scoring Pty Ltd v Dorian Industries Pty Ltd (1992) 36 FCR 297 at 312. 67 The respondents point principally to the history of these proceedings in support of their application. The proceedings were commenced on 17 June 1999, and there have since been three orders striking out various versions of the statement of claim as well as other versions of a proposed statement of claim upon which, in private communications, the respondents made comments. The scope of the allegations has expanded to encompass conduct said to be in contravention of representations, and in breach of warranties, prior to 1 July 1997. It is only after an excess of fifteen months that an apparently satisfactory and final version of the statement of claim has been settled upon. 68 In my view, those events do demonstrate that the course of the proceeding is out of the routine conduct of such a proceeding. I am, however, not satisfied that it warrants the exercise of the power under O 62 r 3. In All Services Australia Pty Ltd v Telstra Corporation Ltd (2000) 171 ALR 330 Kiefel J said at 333 [11]:

"The making of an order under O 62, r 3 is justified where a court can conclude that a party in whose favour costs orders have been made to date should not be required to wait until the finalisation of the proceedings to obtain payment of them. This may be so where, through no fault of that party, there has been substantial delay in the proceedings, having the effect of substantially postponing a final determination in the matter. This most commonly arises where an applicant has attempted a number of versions of the statement of claim with the result that additional directions hearings were necessary, which should not have been; interlocutory applications had to be brought; and, moreover, substantial delays were incurred in the attempt to plead a case: see Life Airbag Company of Australia Pty Ltd v Life Airbag Company (NZ) Ltd (Fed C of A, Branson J, 22 May 1998, unreported); Harris v Cigna Insurance Australia Ltd (1995) ATPR 41-445; Batten v CTMS Ltd [1999] FCA 1576 and generally McKellar v Container Terminal Management Services Ltd [1999] FCA 1639. In Batten, the effect of the delay was that the matter could not advance, since the respondent could not be required to plead to the statement of claim in its earlier forms." 69 There have, in this matter, been substantial delays in the attempt to plead a case. The respondents to now have not been able to plead a defence. However, as her Honour pointed out, it is not the fact of delay which is relevant but its effect upon the proceeding and the position in which the other party is then placed. Here, the respondents have been put to significant expense which, as the costs orders indicate, has been expense which they are entitled to recover from the applicants. 70 There is no evidence that the respondents will be seriously disadvantaged by being delayed in receiving the costs to which they are entitled until the completion of the matter. Nor is there any evidence that the applicants will be disadvantaged in any practical sense by having to pay those costs at this point. The contention of counsel for the applicants that the making of the order sought may "have the effect of stifling the proceedings" is not established on the material before me. There is no special reason to think that the applicants, but in particular Deegan, will be unable to pay those costs at the completion of the matter. Moreover, a consideration relevant to the exercise of the discretion to make the order sought by the respondents is the undesirability of having taxation issues dealt with seriatim rather than at the completion of a matter, and the possible consequence of a recovery of costs which might otherwise be the subject of some overall resolution of such issues when the final result of the application is known. I have also had regard to the fact, as deposed to by Deegan, that her knowledge of the affairs of Murran was significantly less than that of Mr Deegan, and it was only following his sudden death in early 1999 that she had to assume the role as its manager. Her progressive knowledge of its affairs thereafter does provide some explanation for at least part of the need to recast the third and fourth versions of the statement of claim. 71 On balance, I have come to the conclusion that the effect on the proceedings in the circumstances, or the consequences to the respondents or the position in which they presently find themselves in the conduct of the proceedings, are not sufficient to warrant a departure from the general rule at this point. 72 Accordingly, I decline to make the order sought by the respondents under O 62 r 3 of the Rules.

conclusions and orders 73 As I indicated, there are certain consequential orders to be made which I include in the formal orders of the Court. Paragraph 6 of the orders made on 15 August 2000 deals with the issue of security for costs. Those orders are: On the respondents' notice of motion of 6 October 1999: (1) Third amended statement of claim be struck out. (2) Applicants to pay respondents' costs of and incidental to the hearing of the motion on 15 August 2000 including costs thrown away by reason of the striking out of the third amended statement of claim. (3) Adjourn notice of motion to a date to be fixed to hear and determine pars 5 and 6 thereof. (4) Liberty to apply. On the applicants' notice of motion of 6 September 2000: (1) Leave to file and serve a fourth amended statement of claim in terms of the document entitled fourth amended statement of claim and being annexure marked A to the affidavit of David Edward Francis sworn on 6 September 2000. (2) No order as to the costs of and incidental to that motion. In the proceeding generally: (1) Direct applicants to file and serve their fourth amended statement of claim by no later than 8 December 2000. (2) Direct respondents to file and serve their defence to the fourth amended statement of claim by 26 January 2001. (3) Direct respondents to make any request for further and better particulars of the fourth amended statement of claim within twenty-eight days of service upon them of the fourth amended statement of claim, and direct applicant to provide such further and better particulars as they may be advised within twenty-one days of receipt of any such request. (4) Adjourn directions hearing generally to date to be fixed. (5) Liberty to apply. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Decision herein of the Honourable Justice Mansfield.

Counsel for the Applicants: Mr J B Waters QC

Solicitors for the Applicants: David Francis & Associates

Completion of written submissions: 19 October 2000

Date of Decision: 1 December 2000 (delivered via video link-up between Adelaide and Darwin)