Pioneer Electronics Australia Pty Ltd v Edge Technology Pty Ltd

Federal Court of Australia|1994-08-24|Before: Branson J, Kenny J

REASONS FOR JUDGMENT 1 This proceeding was begun by Pioneer Electronics Australia Pty Ltd ("Pioneer") by application and statement of claim dated 24 April 1998. Pioneer's claim against Edge Technology Pty Ltd ("Edge") is for damages for breach of contract and for misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1994 (Cth). The claim arises out of contracts for the supply by Pioneer to Edge of "DR - 511" drives which, so Pioneer says, were to be sold by Edge only in PCs and Multi-Media Kits. The claim also arises out of representations said to have been made in connection with the supply of the drives. Pioneer alleges that it has suffered loss and damage because Edge has permitted the drives to be sold separately. Further, by reason of the late payment of the purchase price under the contracts, Edge is, according to Pioneer, liable to pay certain finance charges. 2 On 1 June 1998, Edge filed a defence and cross-claim. It filed particulars of the cross-claim on 3 July, 16 September and 22 September 1998. By notice of motion dated 17 November 1998, Pioneer applied, pursuant to Order 11 rule 16, for orders (1) that the cross-claim be struck out in whole or in part, or (2) that Edge file and serve full particulars of the allegations made in paragraphs 2, 4 and 6 of the cross-claim. By notice of motion dated 1 December 1998, Edge applied for leave to amend its cross-claim in the form of a draft annexed to the notice. The motions were heard by me on 14 December 1998 and, at the conclusion of the hearing, orders were made to the effect that: (1) The notice of motion dated 1 December 1998 be dismissed. (2) Paragraphs 2, 4 and 6 of the cross-claim dated 29 May 1998 be struck out. (3) Edge be at liberty to re-plead the cross-claim as it may be advised. (4) Any notice of motion contesting Edge's re-pleaded cross-claim be marked returnable at 9.30 am on 15 March 1999. (5) Costs be reserved until the next directions hearing. (6) There be a further directions hearing at 9.30 am on 15 March 1999. 3 The focus at the hearing was on the draft of the proposed amended defence and cross-claim, the material parts of which are set out in an appendix to these reasons. Pioneer opposed Edge's application for leave to amend its cross-claim because, so Pioneer submitted, the proposed amendments did not overcome the deficiencies in that pleading, particularly in paragraphs 2, 4 and 6 of the cross-claim. I deal with each of those paragraphs below. A. THE REPRESENTATION - PARAGRAPH 2 4 As counsel for Pioneer submitted, paragraph 2 of the cross-claim, in both its original and amended forms, gives rise to a number of possibilities as to what representations are alleged and relied on as elements in the relevant cause of action. The use of the words "was willing and able" may be indicative of a representation of fact, namely, that Pioneer then had the present intention and ability to supply the drives to Edge. The use of the words "and would be in the future willing and able" and "on a long-term basis" may be indicative of a representation of Pioneer's intention and ability to supply the drives to Edge in the future, or, of Pioneer's then opinion (or, perhaps, hope) that it would be so willing and able. Pioneer is entitled to know whether it is required to address one or other or all of these possibilities and how it is alleged the relevant (mis)representations arose. Cf Banque Commerciale SA en liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286; Harris v Cigna Insurance Australia Ltd (1995) ATPR 41-445 at 41,009 per Kiefel J; and Council for the City of the Gold Coast v Pioneer Concrete (Qld) Pty Ltd (1998) 157 ALR 135 at 148 - 149 per Drummond J. Read as a whole, the pleading does not provide that information. 5 Even if it is proper to consider the cross-claim and the particulars together, the deficiency is not cured. If it is said that some representation is to be inferred from Pioneer's knowledge as at 1 September 1997 (i.e., after the representation was made), that fact should be pleaded, with an adequate statement of how it is that that inference arises: cf City of the Gold Coast v Pioneer Concrete at 148-9 per Drummond J. Further, at least some of the matters in the particulars are in the nature of material facts and ought to have been pleaded as such: see, for example, sub-paragraphs (c) and (d). 6 Counsel for Pioneer submitted that Edge was relying on statements more in the nature of puffery than in the nature of a representation capable of amounting to potentially misleading and deceptive conduct: compare sub-paragraph (b) of the particulars and Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234 - 235 per Fisher J. He further submitted that there was a degree of implausibility about the cross-claimant's claim because the representation (as to the long-term supply of Edge's requirements for its world-wide sales) appeared to be inconsistent with the contractual arrangements pleaded in the statement of claim and admitted in the defence. Those are, I think, matters of a kind best left to trial.

B. THE FALSITY OF THE RESPRESENTATIONS - PARAGRAPH 4 7 Paragraph 4(a) is a conclusion, presumably drawn from other facts. Those other facts are not pleaded in the statement of claim as material facts as O 11 r 2 of the Rules of Court requires. Neither paragraph 4 nor any other paragraph sets out any statement of material fact which would, if established at trial, constitute a contravention of s 52 of the Trade Practices Act. It is not sufficient to assert a conclusion without the material facts upon which it depends: cf Liberty USA Pty Ltd v Telstra Corporation Limited & Anor (unreported, Branson J, 24 August 1994). For a statement of claim to disclose a cause of action, it must set out the material facts that give rise to the cause of action. In a case such as this, a cause of action for misleading and deceptive conduct is not established unless the statement of claim sets out the circumstances which gave the representation its misleading and deceptive character at the time it was made. It should be borne in mind that the mere non-fulfilment of a statement as to a future matter does not establish that that statement was relevantly misleading and deceptive. If that non-fulfilment is to be relied upon as part of the circumstances which rendered the statement misleading and deceptive, such an inference must be specifically pleaded along with the facts and matters relied on to support the inference: cf Western Australia v Bond Corporation Holdings Ltd (1990) 99 ALR 125 at 128. A vice in the pleading, in its present and proposed forms, is that it leaves Pioneer to speculate as to the circumstances which it is alleged gave the representations their misleading and deceptive quality. 8 Even if it were legitimate to consider the pleading and the particulars together, paragraph 4(a) does not, in my view, give Pioneer a clear indication of the way in which it is said that its conduct was misleading and deceptive (or likely to mislead and deceive) contrary to s 52 of the Trade Practices Act. The particulars under paragraph 4(a) relate to events that occurred after the alleged making of the representations. They do not show in what way it is said that the representations pleaded were misleading and deceptive at the time they were made. The proposed introduction of the words "at the time the representations were made" would not cure that deficiency, because the pleading alleges no relevant material facts (and provides no relevant particulars) contemporaneous with the making of the alleged representations. 9 Further, I do not think it is enough to assert in the present cross-claim, as Edge in substance does in paragraph 4(b), that it relies on s 51A of the Trade Practices Act 1974 to the extent that the provision applies. Such a pleading leaves it to Pioneer to speculate as to the extent to which the alleged (mis)representations concern a "future matter". Such a pleading is embarrassing: cf Hunt Contracting Co. Pty Ltd v Roebuck Resources NL (1992) 110 ALR 183 at 186, 190.

C. DAMAGES - PARAGRAPH 6 10 Finally, I do not think it sufficient to plead, as Edge does in paragraph 6, that, "by reason of the matters alleged", it has suffered loss and damage. In order to make out a cause of action, material facts must be pleaded which, if proven at trial, would establish that loss or damage was a relevant consequence of the misleading and deceptive conduct: Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 71 ALR 615 at 621 - 623. 11 In this connection, "reliance" (pleaded in paragraph 3 of the cross-claim) is capable of "forging a link in the chain of causation" between the conduct and the loss necessary to establish the cause of action: cf Adelaide Petroleum NL v Poseidon Limited (1988) ATPR 40-901 at 49,700. In the present case, however, the reliance pleaded in paragraph 3 does not effect this end. 12 In particulars dated 16 September 1998 and proposed to be incorporated into the new cross-claim in paragraph 6, two claims for damages are made: first, in respect of lost profits on sales over a four month period amounting to $1,823,250; and, secondly, the additional cost of purchasing 38,700 CD-Rom drives at an extra $ 5 (US) per unit over a five month period amounting to $297,692. The claim for loss of profits apparently arises from a promise (not specifically pleaded) to supply Edge with 40,000 units per month over a four month period. 13 I do not accept the submission made by counsel for Pioneer that the claim made by Edge for "the loss resulting from lost profit on CD-Rom drives bundle kits that it would have been able to sell if [Pioneer] had not made the representations" is untenable. If reliance on Pioneer's representation has deprived Edge of the opportunity of entering into a different contract for the purchase of CD-Rom drives out of which Edge would have made profit, then Edge may recover the profit on the footing that it is part of the loss which Edge suffered in consequence of altering its position under the inducement of the representation. Thus, if Edge can establish that it could and would have entered into a different contract, and that that contract would have yielded the benefit claimed, then it may be able to recover that loss. As Mason, Wilson and Dawson JJ said in Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 13: "The lost benefit is referable to opportunities foregone by reason of reliance on the misrepresentation. In this respect the measure of damages in tort begins to resemble the expectation element in the measure of damages in contract save that it is for the plaintiff to establish that he could and would have entered into the different contract." This is the case which, I think, Edge is seeking to make in paragraphs (a) to (f) of the particulars under paragraph 6. As I have already said, however, material facts which establish the relevant causal connection must be pleaded as such. The inclusion of such matters in particulars does not satisfy Order 11 rule 2. 14 Counsel for Pioneer also submitted that the claim for the extra costs of purchasing the drives was unsustainable. I would accept, as presently pleaded, that there would seem to be some serious difficulties with this aspect of Edge's claim. Under the particulars to paragraph 6, Edge alleges that, but for Pioneer's alleged representation, it would not have been required to purchase 38,700 CD-Rom drives at $ 5 (US) per unit above the price of Pioneer and/or Edge's previous supplier. The matters set out in the cross-claim provide little, if any, support for that assertion. If the prices (set out in the statement of claim and admitted in the defence, and set out in the cross-claim) are correct, then it would appear that no units were so purchased. This is, however, a matter which would be better explored at trial. 15 It is enough to say that I accept Pioneer's submission that the particulars of loss provided under paragraph 6 produce uncertainty as to what is claimed and what might be the basis of the claim. Further, they contain matters that ought to be pleaded as material facts. For these reasons, they are embarrassing.

D. CONCLUSION 16 I was asked to consider whether the Court should order the whole or part only of the cross-claim to be struck out. Having regard to the whole of the cross-claim, in its original and amended forms, it seemed to me appropriate that the entirety be struck out, with leave to re-plead.

I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice KENNY.

APPENDIX - MATERIAL PARTS OF PROPOSED CROSS-CLAIM (NB: The underlining indicates what amendments were proposed.) 2. On or about 21 and 27 August 1997 Pioneer represented to Edge in trade or commerce that Pioneer was and would be in the future willing and able to supply Edge on a long-term basis with Edge's requirements for 24 speed CD-Rom drives for its world-wide sales of PCs and multi-media kits. Particulars (a) The representation on 21 August 1997 was made expressly and orally by Mr Simon Bartlett on behalf of Pioneer to Ms Leanne Coneybear on behalf of Edge. (b) The representation on 27 August 1997 was made impliedly in a facsimile transmission by Mr Robert Thompson on behalf of Pioneer to Ms Leanne Coneybear on behalf of Edge to the effect that Mr Thompson hoped that Edge's order for CD-Rom drives was the start of a long and enjoyable association between Edge and Pioneer. (c) Mr Bartlett of the applicant was aware from a discussion with Ms Coneybear on 21 August 1997 that the respondent required CD-Rom drives for the sale of approximately 30,000 PCs per month; (d) Mr Bartlett knew by 1 September 1997 that the respondent was assembling between 40,000 and 50,000 PCs per month and that figure was increasing. 3. [Edge pleads reliance on those representations.] 4. At the time the representations were made, the representations alleged in paragraph 2 above were false, in that:- (a) Pioneer was not willing and able to supply Edge on a long-term basis with Edge's requirement for CD-Rom drives for its world-wide sales of PCs and multi-media kits; and Further Particulars provided on 3 July 1998 The Cross-Claimant refers to the particulars provided under Paragraph 4 of the Cross Claim, and in addition will rely upon the fact that requests for CD Rom disc drives were made by telephone as follows: (i) Leanne Coneybear to Simon Bartlett on 12 September 1997, in which Mr Bartlett said that there would be no further supply until January 1998. (ii) Laslo Kovacs to Simon Bartlett on or about Monday 29 September 1997, to which Mr Bartlett said that there would be no further supply until January 1998. (iii) Leanne Coneybear to Simon Bartlett on or about Monday 29 September 1997, to which Mr Bartlett said that there would be no further supplies until January 1998. (iv) On several occasions to unknown persons in the Applicant's accounts department during October 1997, to which there was no response. Further Particulars provided on 16 September 1998 In addition to the particulars previously supplied, the Cross-Claimant relies upon: (a) The facsimile from Ken Barelli of Pioneer, to Johnson Wang of Edge dated 20 October 1997. (b) The facsimile from Johnson Wang to Ken Barelli dated 21 October 1998. Further Particulars provided on 22 September 1998 On or about 12 September 1997 Leanne Coneybear of the Respondent telephoned Simon Bartlett of the Applicant regarding the placement of further orders. Before any discussion could be initiated as to quantities Bartlett informed Coneybear that there was no stock available. In that conversation, Coneybear asked Bartlett if he would speak to Peter Lai of the Respondent as she would be away for two weeks. Between 12 and 29 September 1997 Peter Lai arranged for Leslie Kovacs of the Respondent to contact Bartlett. Bartlett stated to Kovacs that there would be no CD Rom drives available until January 1998. On or about 29 September 1997 Coneybear again phoned Bartlett, who confirmed that there would be no CD Rom drives available until January 1998. This position is confirmed by the letter of Ken Barelli, Pioneer to Johnson Wang dated 20 October 1997 where he confirmed that Pioneer would not supply any CD Roms until late January 1998. 4(b) to the extent that the representations were with respect to future maters, the Respondent relies on Section 51A of the Trade Practices Act 1974. Particulars (a) In September 1997 Pioneer refused to make available to Edge any further CD-Rom drives until January 1998. (b) Pioneer otherwise failed to respond to Edge's enquiries about further orders from Edge after the orders of 27 August 1997 and 2 September 1997. Further Particulars provided on 3 July 1998 See particulars provided in paragraph 4 of the cross claim, and the particulars provided in response to (para 4(a)) above. Further Particulars provided on 22 September 1998 The answers above in relation to paragraph 4(a), are applicable to this request. 5. By reason of the matters alleged in paragraph 2 to 4 above, Pioneer has engaged in conduct which was misleading or deceptive or likely to mislead and deceive in contravention of Section 52 of the Trade Practices Act 1974. 6. By reason of the matters alleged in paragraph 2 to 5, Edge has suffered loss or damage. Particulars provided on 16 September 1998 Further quantification of loss will be provided in due course in accordance with the timetable laid down by the Court, set for the provision of evidence. However, in the interim, the following particulars are provided: (1) Lost Sales (a) At the time of the Respondent's first order from the Applicant on 26 August 1997, the Respondent had reached a position where it was able to purchase 40,000 CD Rom Drives per month, all of which were to be on-sold in PCs or in bundled kits. (b) After the Applicant refused to supply the Respondent with CD Rom Drives in September 1997 until January 1998, the Respondent was unable to obtain a run rate of 40,000 CD Rom Drives per month until mid-1998.

The Respondent's monthly purchases during the period when the Applicant said that it was unable to supply, were as follows: Month Number of CD Rom Drives Purchased Shortfall on 40,000 October 1997 14,000 26,000 November 1997 7,000 33,000 December 1997 10,200 29,800 January 1998 7,500 32,750

Totals 38,700 121,500

(c) If the Applicant had not made the representations, the Respondent would not have cancelled the Mitsumi order, and would have continued to trade with Mitsumi and/or other suppliers, receiving 40,000 units per month. The Respondent would have on-sold as part of PCs or bundled kits, 121,550 more CD Rom Drives than it was able to, during the period from October 1997 until January 1998. (d) Of the CD Rom Drives which the Respondent was able to purchase, approximately 50% were incorporated into PCs and the balance are incorporated into bundled kits. (e) The Respondent claims the loss resulting from lost profit on CD Rom Drives bundled kits that it would have been able to sell if the Applicant had not made the representations, inducing the Respondent to cancel the Mitsumi order. As 50% of the 121,550 CD Rom Drives the Respondent would have been able to otherwise purchase would have been incorporated into kits, the Respondent lost 60,775 sales. (f) The average sale price per CD Rom bundled kits to a retailer is $A 200. The average profit is between 15% and 20%. Assuming a profit of 15% per $A 200 kit, the Respondent has lost $ 30 per kit not sold. The loss is $A 30 multiplied by 60,775, equalling $A 1,823,250. (2) Higher Costs of CD Rom Drives (a) Further to (1), the 38,700 CD Rom Drives that the Respondent was able to purchase, were purchased at approximately $US 5 per unit above the price that the Respondent would have been able to purchase such units from the Applicant or Mitsumi, if the representations had not been made and if the Respondent had still been able to place bulk orders. (b) Accordingly, the Respondents loss is 38,700 multiplied by $US 5, equalling $US 193,500. Using the exchange rate as at the date of purchase (say at an average of 0.65), the loss is $A 297,692. (3) Total Loss Total loss is $A 1,823,250 plus $A 297,692 which equals $A 2,120,942. Further Particulars supplied 22 September 1998 (in response to request re further particulars of Mitsumi orders) It is noted that the nature of the damage set under paragraph 10 of the cross claim has changed. However the offer made by Mitsumi is reflected in the orders placed with Mitsumi in October 1997 - January 1998- see further list of discovered documents. In summary the orders placed with Mitsumi in this period were: Doc No Date Quantity Price per unit $US

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 10 October 1997   24        65
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 15 October 1997   8         36
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 17 October 1997   24        62
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31 December 1997  24        52
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Trade Practices Act 1994(Cth)s 51A, s

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