The Trade Practices Act claim: reliance and causation
14 In respect of the claim made under s 52 of the Trade Practices Act 1974, the respondent complains that the applicants have not specified how they were misled or deceived by the Board resolutions on which they rely. Nor is it pleaded how the resolutions were communicated to the applicants, if, in fact, they were. These defects do not go to the existence of a cause of action. They can be overcome by the giving of appropriate further and better particulars.
15 The respondent's principal contention under this head appears to be that a claim for damages resulting from a mere loss of an expectation cannot be pursued under the Trade Practices Act. Reliance is placed, in this context, on Gates v City Mutual Life Assurance Society Ltd (1996) 160 CLR 1 at 14-15, Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at 502 (Gaudron J), 514 (McHugh, Hayne and Callinan JJ) and 532-533 (Gummow J) and Murphy v Overton Pty Ltd (2001) 112 FCR 182 at 191-192. In considering the respondent's motion to strike out on this basis, I am mindful of what was said by Lockhart J in Australian Competition and Consumer Commission v Golden West Network Pty Ltd [1997] FCA 792 (unreported):
'Today, courts are playing an increasingly active role in case management. Motions to strike out pleadings are matters of practice and procedure. In its role of case management, courts devise various procedures to overcome deficiencies in pleadings other than by simply ordering that the offending paragraphs be struck out. Sometimes it is appropriate to strike them out, sometimes not. On some occasions it is better for the court to direct the applicant, whose statement of claim is under challenge, to furnish particulars or to file and serve affidavits to show that there really are facts which can be proved and which, if proved, would support the general statements made in the statement of claim. This was the course which I took in Trade Practices Commission v Australian Iron and Steel Pty Ltd (1990) 22 FCR 305, a practice which other judges adopt from time to time. This is not, of course, intended to be a substitute for a defective pleading in every case because, as is well known, pleadings must assert basic or constitutive facts, not the evidence by which they are to be proved. But case management is a sensible and flexible thing. It must not be unduly circumscribed.'
16 It becomes necessary at this point to set out at some length extracts from the applicants' statement of claim. By way of context it should be observed that paragraph 13 of the statement of claim describes in some detail the complex arrangements by which NAFDA derived income and distributed profits. The core contention, however, is that profit was distributed at the end of the financial year in accordance with a formula to members of NAFDA (NSW) and NAFDA (VIC) who had been members for the entire financial year. By paragraph 15 it is alleged that, on 18 February 2000, NAFDA's board resolved that "surplus income and/or profit" achieved in the 2000 financial year would be distributed on that basis and that the Board's resolution "would be implemented until further notice" ("the extraordinary profit resolution"). Despite specific reference in paragraph 15 to the 2000 financial year, the allegation makes little sense unless understood as meaning "would be implemented in the same manner in respect of profit in future financial years until further notice". In this context, the applicants formulate its claim under s 52 of the Trade Practices Act as follows:
Misrepresentation By NAFDA
17. At all material times in the period from 18 February 2000 until the applicants and each of them ceased to be members of VIC and NSW on or after 30 September 2001 each of the applicants:
(a) purchased goods from suppliers with whom NAFDA had negotiated rebates to which EDA's were applicable;
(b) purchased goods from NAFDA trading; and
(c) promoted sales of goods based on the "Best of the Best" marketing campaign;
(i) in reliance upon extraordinary profit resolution and upon the fact it was given effect to by NAFDA for the year ended 30 June 2000 and upon the fact that it was not revoked or varied ("the extraordinary profit conduct");
(ii) in reliance upon the ongoing trading basis representation and in the absence of any notice to the applicants that NAFDA proposed to conduct its affairs in 2000 -2001:
(x) other than as a co-operative for income tax purposes; and
(y) other than it had done in each of the financial years ended 1998, 1999 and 2000 ("the ongoing trading basis").
18. After the applicants ceased to be members of VIC and NSW on or about 30 September 2001 NAFDA, having achieved surplus income in the order of $1 m., contrary to the representations and conduct referred to in paragraphs 15 to 17 above:
(a) refused and failed to distribute such income by way of "extraordinary dividend" to members of VIC and NSW or otherwise to such persons;
(b) resolved to record a profit for the year ended 30 June 2001 which profit was not and has not been distributed to the members of VIC and NSW.
PARTICULARS
As at 30 August 2001 management accounts of NAFDA disclosed a net profit return (estimated) to members of $17,924,381.00 including net profit from [the] Best of the Best of $1,491,000 and from Up Up and Away of $762,150.00. A copy of the Budget Proposal for the year 2002 may be inspected at the office of the applicants' solicitors. For the year ended 30 June 2001 NAFDA's accounts record that it earned a profit of $842,219 which after providing for income tax of $273,145 which was not payable if it had continued to conduct its business as a co-operative, disclosed a net profit attributable to members of the company of $569,074. The applicants refer to the special purpose financial report for the year ended 30 June 2001 filed by NAFDA with ASIC. The applicants will provide details of the actual profit after full and proper discovery.
(b)[sic] contrary to the ongoing trading basis, NAFDA did not account for its affairs in the 2001 financial year:
(i) as a co-operative for income tax purposes; and
(ii) accounted for its affairs contrary to the way it had done in each of the years ended 1998, 1999 and 2000 retaining within NAFDA after the applicants had ceased to be members of VIC and NSW what would otherwise have been distributed to members as an "extraordinary dividend" and payable to them as loans redeemed upon ceasing to be members.
19. The extraordinary profit conduct and/or the ongoing trading representation referred to in paragraph 17 constituted conduct engaged in by NAFDA:
(a) in trade or commerce;
(b) which conduct was misleading and deceptive or likely to mislead and deceive contrary to S.52 of the Trade Practices Act 1974 (Cth) ("the Act").
20. The said conduct:
(a) constituted representations as to future matters;
(b) is deemed pursuant to s51A of the Act to be made in the absence of reasonable grounds therefore; and
(c) in the circumstances, constitutes conduct which is misleading and deceptive contrary to 8.52 of the Act.
21. By reason of the said misleading and deceptive conduct the applicants have suffered loss and damage.
PARTICULARS
The applicants loss and damage is to be measured their true share of profit of NAFDA for 2000-2001, particulars of which sums the applicants will provide after discovery.'
17 Superficially, this seems an adequate pleading. The requirement that damage be pleaded is met. Causation, at least in part, is pleaded by the applicants' stipulating in paragraph 18(b)(ii) the mechanism by which they would have had a claim over profits. That is done by alleging that the respondent retained "after the applicants had ceased to be members of VIC and NSW what would otherwise have been distributed to members as an "extraordinary dividend" and payable to them as loans redeemed upon ceasing to be members" had not the respondent departed from its practice over the previous three financial years by changing the basis on which it "accounted for its affairs".
18 However, the respondent is entitled to be told how any nexus is said to have arisen between it and the applicants. The actual formulation of the applicants' claim for damages is "By reason of the said misleading and deceptive conduct the applicants have suffered loss and damage." This formula was found inadequate by Branson J in a case cited by the respondent, Kirela Pty Limited v Westfield Holdings Limited [2002] FCA 1223. That was a case in which the applicants, owners of a certain property, alleged that related Westfield companies had engaged in an "overt" campaign of lobbying communities and government to prevent the commercial development of the applicants' site, while also commissioning public relations consultants to conduct "covert" lobbying. In the event, a decision by the relevant Minister in the New South Wales Government resulted in the land being re-zoned in a way less favourable to the applicants than that ordained by an earlier local government decision. It was alleged that the "covert" lobbying had been misleading and deceptive and that "had the respondents not, in effect, conducted the covert campaign the Government would have given effect to the earlier local government decision" (Branson J at [4]). The difficulty her Honour identified in that case, at paragraph 15, was that the applicant did not;
'… plead any connection between the conduct of the covert campaign, which allegedly misled and deceived the public but is not pleaded to have misled or deceived the Minister, and the conduct of the Minister which led to the alleged loss and damage.'
19 Similarly, the applicants in this matter have not sufficiently drawn the threads of their case together. I have already indicated that the material facts alleged in the present statement of claim do not establish a fiduciary relationship (as a result of the alleged co-operative arrangement or otherwise). Nor have the applicants claimed that they stood in a contractual relationship with the respondent, or were parties to a joint venture with it or for which it was the corporate vehicle. There is also a logical difficulty in claiming an entitlement to a proportion of the retained profits under the Trade Practices Act, discussed further below.
20 In this case the respondent argues that the applicants have failed to plead what they would have done, or refrained from doing, had they not acted in reliance on the representations and how, as a result, they suffered loss or damage. The Court, where a breach of s 52 is made out, s 87 notwithstanding, will seldom hold a respondent to its representation as if it were a specifically enforceable contract. It is not an adequate statement of causation to plead in a case like this: "the respondent misled us about whether it would pay profits over to members of NAFDA (NSW) and NAFDA (VIC), and, if that misrepresentation had not been made, we would have received those profits." That does not follow as a matter of logic. The highest I think it can be put, on the present pleadings, is that, if NAFDA had not engaged in the alleged misleading conduct, the applicants would have had notice of its change in accounting policy and its policy on the payment of extraordinary dividends and would have had an opportunity to make alternative business arrangements. The loss which they would allege on that formulation would be the loss of the opportunity to enter better bargains or financial arrangements. That would require proof, either that there was some business arrangement available that would have delivered the same benefits which would have been achieved if NAFDA had continued trading according to the extraordinary profit resolution, or that a more profitable arrangement had been passed up due to NAFDA's representations. The only real alternative is for the applicants to establish, in effect, that the alleged misleading statements were made by way of a collateral contract: Marks v GIO Australia Holdings Limited (1998) 196 CLR 494 at 510 per McHugh, Hayne and Callinan JJ quoting Gates v City Mutual Life Assurance Society (1986) 160 CLR 1 at 14 per Mason, Wilson and Dawson JJ. Section 52 cannot simply be pleaded in order to create contractual relations between the parties where none ever came into existence or to allow a party to enforce the bargain which it thought it had made.
21 In my view, the present statement of claim does not disclose a set of facts, which, if proved, would found an entitlement to damages on the measure applicable to a breach of contract. Nor have the applicants pleaded a loss by way of some opportunity passed up to obtain either a bargain that would have delivered what it alleges was represented by NAFDA, or some better bargain. The use of a formulary like "by reason of the said conduct" may, in a case like BWK Elders (Australia) Pty Ltd v Westgate Wool Company Pty Ltd[2002] FCA 87 be sufficient to indicate the basis on which damage has been suffered on the measure pleaded. In that case the parties were purchaser and vendor of a fungible product (wool), where as a matter of custom and practice in the industry representations as to quality were frequently made and commonly understood and the loss of a better bargain (the ability to buy other, better, wool) could readily be inferred. Mansfield J observed in that case, at [16];
'I … consider that the Statement of Claim adequately pleads that the applicant has suffered loss or damage by conduct done in contravention of ss 52 ... In relation to each of the six transactions, it is specifically pleaded that the applicant relied upon the alleged representations, and was induced by them, to enter into the several contracts to purchase wool from the first respondent. Particulars of those contracts are given. Moreover, par 89 of the Statement of Claim commences in the following terms:
"B. By reason of the representations and the conduct of the respondent set out herein, [the applicant] has suffered and will continue to suffer loss and damage."
Standing alone, an expression such as "By reason of the foregoing …" may be deficient. But in the immediately preceding paragraphs of the Statement of Claim, there are allegations that the first respondent contravened ss 52, 53 and 58 of the TPA. The representations and conduct referred to in par 89 clearly are those which gave rise to those alleged contraventions of the TPA. In my view, the respondents know perfectly clearly the case which they are required to meet…'
22 In the same case, his Honour at [3], made the these general observations with which I respectfully agree about the function of pleadings;
'The purpose of pleadings is to define the issues so that the parties may know in advance of the hearing the case they have to meet. That enables them to prepare fairly and efficiently for the trial. It also enables the trial to be conducted sensibly and efficiently and to be properly controlled: see generally Dare v Pulham (1982) 148 CLR 658 at 664; Council for the City of the Gold Coast v Pioneer Concrete (Qld) Pty Ltd (1998) 157 ALR 135. The pleadings must disclose a reasonable cause of action by alleging material facts which, if established at the trial, will enable the applicant to make out all elements of the cause or causes of action. They must also contain sufficient particularity to inform the opposing party of the case which is to be met.'
23 As far as I can see, the present respondent is not at present on clear notice of the alleged contravention of s 52 of the Trade Practices Act which it has to meet or how that caused the applicants to suffer damage measured in some generally accepted way. Like Branson J in Kirela v Westfield I regard these as defects which may be curable by an amendment pleading additional material facts. I shall therefore order that the applicants have leave to amend their statement of claim, and stand over the respondent's notice of motion until after that has been done to allow the respondent an opportunity to consider whether such of its objections as I have upheld have been overcome. As indicated during the course of argument, I shall, at the resumed hearing of the motion, hear submissions on the respondent's motion for the transfer of these proceedings to the New South Wales Registry of the Court. The costs of all parties of the hearing on 31 March 2003 will be reserved.