Plaintiffs v Defendant

2 The plaintiffs have commenced this proceeding alleging that Novamex engaged in unconscionable conduct in contravention of s 21 of the Australian Consumer Law (ACL).

3 The plaintiffs have applied for leave to file a proposed further amended statement of claim (PFASOC). Novamex opposes the grant of leave on the grounds that the PFASOC does not comply with r 13.02(1) of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) (Rules) and that the proposed amendments are likely to prejudice, embarrass or delay the fair trial of the proceeding.

4 Apart from a general complaint that the PFASOC is prolix, the main area of complaint relates to what the parties have generally referred to as the plaintiffs' proposed profit margin amendments. For the reasons given below I have decided that the plaintiffs should be granted leave to amend subject to the addition of further clarifying amendments foreshadowed in the plaintiffs' solicitor's letter to Novamex's solicitor dated 17 October 2022 (October Letter).

5 On 25 July 2011, Ernlu and Novamex entered into an agreement under which Novamex appointed Ernlu as the exclusive distributor of the Products in Australia and New Zealand (EDA).

6 Under the terms of the EDA, Ernlu was required to achieve minimum order requirements as set out in the EDA.

7 On 29 April 2017, Ernlu and Novamex agreed to vary and extend the EDA (Varied and Extended EDA). The Varied and Extended EDA set out new minimum order requirements (new MORs) that Ernlu was required to achieve.

8 On 12 June 2017, Ernlu assigned its rights and interests in the Varied and Extended EDA to J.C. Jarol.

9 On 11 November 2019, Novamex issued a notice terminating the Varied and Extended EDA on the basis that the plaintiffs had failed to achieve the new MORs.

10 The plaintiffs allege that Novamex has engaged in unconscionable conduct in breach of s 21 of the ACL by:

(a) requiring Ernlu to agree to the new MORs in the Varied and Extended EDA in order to continue its distributorship of the Products; and

(b) terminating the Varied and Extended EDA.

11 The plaintiffs' proposed amendments are numerous. Novamex makes a general complaint about prolixity which is relevant to the entirety of the plaintiffs' PFASOC. In addition Novamex specifically objects to the following paragraphs of the plaintiffs' PFASOC: [6BB], [6BBB], [7(d)], [8BB], [37A], [37AA], [40A(e)(vii)] and [40B(b)(iv)]. By these particular paragraphs the plaintiffs seek to amend their amended statement of claim (ASOC) to rely upon additional circumstances as forming part of the basis for Novamex's alleged unconscionable conduct.

12 Broadly speaking, and subject to the more detailed examination of the plaintiffs' proposed additional paragraphs below, the additional circumstances that the plaintiffs wish to introduce relate to Novamex's knowledge that the price and profit margin at which Novamex sold the Products to distributors in the USA could be increased while the volume of sales at all levels of the market also increased.

13 The October Letter was written to Novamex's solicitor within the context of court orders requiring the parties to confer about the plaintiffs' proposed amendments to their ASOC. Among other things, that letter set out further amendments to the PFASOC that the plaintiffs were prepared to make to address some of Novamex's concerns with the PFASOC. In their application for leave the plaintiffs' counsel submitted that the Court could consider making these additional amendments a condition of any grant of leave. Novamex's counsel objected to this course, arguing that the further amendments raised in the October Letter were not properly part of the PFASOC the subject of the plaintiffs' application.

14 I accept these further amendments are not formally included in the plaintiffs' PFASOC. Novamex's solicitors have, however, been on notice of the plaintiffs' proposed possible additional amendments since 17 October 2022 and so cannot be seriously prejudiced by the plaintiffs raising them in the context of this application. Consideration of these additional proposed amendments at this stage of the proceeding would, in my view, be consistent with the overarching purpose of the Civil Procedure Act 2010 (Vic) and the requirement that the Court seek to give effect to the overarching purpose in the exercise of any of its powers.

15 Accordingly, I have included the plaintiffs' proposed further amendments identified in its October Letter in the recitations of the relevant paragraphs in the plaintiffs' PFASOC below.

16 The structure of the plaintiffs' PFASOC is that:

(a) it pleads the history and circumstances of the EDA and the Varied and Extended EDA, in paragraphs [1]-[38];

(b) in paragraph [39] it pleads the alleged unconscionable conduct being, first, requiring Ernlu to agree to the new MORs in the Varied and Extended EDA and, second, thereafter terminating the Varied and Extended EDA; and

(c) in paragraphs [40A] to [40C] it pleads the particular circumstances the plaintiffs say are referrable to each or both categories of the alleged unconscionable conduct.

17 Proposed paragraph [6BB] is in the following terms (particulars omitted):

Further to paragraph 6B above, in the period from around 2009 to around October 2013, Novamex communicated to Bloustein and Ernlu, as was the fact that, in the USA, Novamex sold the Products to distributors at a profit margin which was lower than the profit margin at which the products (sic) were being sold pursuant to the Endorsed Strategy.

18 The reference to Bloustein is a reference to David Bloustein, the sole director and shareholder of J.C. Jarol and Ernlu.

19 The 'Endorsed Strategy' is defined in paragraph [6A] which pleads that during the term of the EDA until around 10 December 2015, Novamex agreed with and endorsed Bloustein's strategy of seeking to sell the Products in Australia and New Zealand as premium products and to people who were not from a Latino ethnic or cultural background.

20 Proposed paragraph [6BBB] states (particulars omitted):

In the period from around October 2013 to 2015, Novamex changed its strategy for distributing the Products in the USA in a way that resulted in Novamex:

(a) terminating its relationships with distributors of the Products in the USA to whom it had been selling the Products at a lower profit margin than the profit margin at which the Products were being sold pursuant to the Endorsed Strategy (Terminated Distributors);

(b) replacing the Terminated Distributors with distributors in the USA to whom it sold the Products at a higher profit margin than the profit margin at which it had sold the Products to the Terminated Distributors;

(c) increasing the volume of Products it sold to distributors in the USA; and

(d) in the circumstances pleaded in paragraph 6BBB(a), 6BBB(b) and 6BBB(c) above:

(i) the price at which retailers of the Products in the USA sold the Products to consumers increased; and

(ii) the volume of Products which retailers of the Products in the USA sold to consumers increased.

21 Paragraph [7(d)] currently pleads that '[t]hrough the term of the...EDA, and in performing the EDA, Ernlu and Bloustein assisted Novamex in selling and marketing the Products in countries where they had not previously been marketed and sold by assisting Novamex in implementing the Endorsed Strategy, or parts of the Endorsed Strategy.' The plaintiffs' PFASOC seeks to add to the end of the previous sentence, 'rather than Novamex only marketing and selling the Products in the way pleaded in paragraph 6B and paragraph 6BB above'.

22 The reference to the way the Products were being sold as pleaded in paragraph [6B] is a reference to the strategy Novamex employed to sell the Products in other countries at the time the EDA commenced. This involved primarily selling the Products to people from a Latino ethnic or cultural background at a price generally lower than other carbonated drinks imported from Mexico.

23 In paragraph [8B] the plaintiffs plead that from around 10 December 2015, Novamex withdrew its agreement to the Endorsed Strategy and required Ernlu to try to double its sales of the Products in the following three years in Australia and New Zealand by: reducing the price at which the Products were sold and as a consequence the profit margin at which the Products were sold; repositioning the Products as a 'value' brand; and selling the Products to as many supermarkets as possible (the New Strategy).

24 The plaintiffs' PFASOC seeks to introduce paragraph [8BB] which is in the following terms:

Novamex did the things pleaded in paragraph 8B above in circumstances where, in the period from around October 2013 to 2015:

(a) it had increased the profit margin at which it sold the Products to distributors in the USA; and

(b) it had increased the volume of Products it sold to distributors in the USA; and

(c) in the circumstances pleaded in paragraph 8BB(a) and 8BB(b) above:

(i) the price at which retailers of the Products in the USA sold the Products to consumers increased; and

(ii) the volume of Products which retailers of the Products in the USA sold to consumers increased (see, paragraph 6BBB above).

25 In proposed paragraph [37AA] the plaintiffs allege that by reason of the matters pleaded in paragraph [37A], Novamex negatively affected Ernlu's ability to achieve the new MORs in each of 2017 and 2018. Paragraph [37A] is a paragraph in the existing ASOC that alleges that in 2017 and 2018 despite specific clauses in the EDA, Novamex sought to, and did in fact, exert control over the way in which Ernlu operated its business and, in doing so, caused Ernlu to implement the New Strategy. Particulars are provided.

26 Paragraph [40A] sets out the circumstances said to be referrable to the first category of alleged unconscionable conduct; Novamex's requirement that Ernlu agree to the new MORs in the Varied and Extended EDA. Paragraph [40A(e)] lists Novamex's alleged unfair tactics. The plaintiffs' PFASOC seeks to add subparagraph [40A(e)(vii)] to the list of alleged unfair tactics. The proposed additional subparagraph is in the following terms:

1. [Novamex] set the MORs listed in paragraph 25(d) above on the basis that Ernlu could achieve them by pursuing the New Strategy (see, paragraphs 8A, 8B, 12, 14A and 16A above) in circumstances where:

(i) Novamex knew sales volumes for the Products could be increased without lowering profit margins or prices (see, paragraphs 6BBB above); and

(ii) Ernlu would have sold a greater number of Products by implementing the Endorsed Strategy only (see, paragraphs 37A, 37AA, 37B and 37C above).

27 Paragraph [40B] sets out the circumstances said to be referrable to the second category of alleged unconscionable conduct; Novamex's termination of the Varied and Extended EDA. Paragraph [40B(b)] pleads that during the term of the Varied and Extended EDA, Novamex required the plaintiffs to implement and pursue the New Strategy, which was not reasonably necessary for the protection of its legitimate interests and/or was an unfair tactic given a number of matters listed in subparagraphs. The plaintiffs' PFASOC seeks to add a new subparagraph [40B(b)(iv)] in the following terms:

[T]he New Strategy required Ernlu to decrease the profit margins and price at which it sold the Products in circumstances where:

1. Novamex knew sales volumes for the Products could be increased without lowering profit margins or prices (see, paragraph 6BBB above); and
2. Ernlu would have sold a greater number of Products by implementing the Endorsed Strategy only (see, paragraphs 37A, 37AA, 37B and 37C above).

The parties submissions on specific paragraphs of the PFASOC

28 Novamex's complaint about the profit margin allegations is that they are irrelevant and unclear such that Novamex is unable to understand the case put against it.

(a) section 21 of the ACL requires clear identification of two separate matters: first the conduct sought to be impugned as unconscionable and second, the circumstances said to render the conduct unconscionable within the meaning of the section;

(b) it is impermissible to intermingle the conduct with the circumstances;

(c) a pleading may be embarrassing if it includes irrelevant allegations that are said to be circumstances;

(d) a pleading must make clear how the circumstances are said to inform the alleged unconscionable conduct;

(e) any circumstances that are alleged that do not logically render the conduct complained of unconscionable are irrelevant;

(f) while paragraph [39] of the plaintiffs' PFASOC expresses the alleged unconscionable conduct as the inclusion of the new MORs in the Varied and Extended EDA and/or the termination of the Varied and Extended EDA because of the plaintiffs' failure to meet the new MORs, the vice complained of is really only termination 'because in the absence of termination the inclusion of the [new MORs] is really quite meaningless';

(g) it is impossible to understand how Novamex's profit margin in the USA, as a manufacturer to distributors, is relevant to termination of the Varied and Extended EDA because of the plaintiffs' failure to meet the new MORs; and

(h) the profit margin allegations seek to compare and conflate different concepts including different market levels, sales and orders, retail sales price and distributor or wholesale sales price, and price and profit margin.

30 It is convenient to set out Novamex's objections to the specific paragraphs of the PFASOC before setting out the plaintiffs' responsive submissions.

31 Novamex submitted that proposed paragraph [6BB] is vague, ambiguous, illogical and irrelevant.

(a) it was unclear whether this paragraph alleged that it, as a manufacturer, sold the Products to USA distributors at a profit margin that was lower than the profit margin at which Novamex sold the Products at wholesale to Australian retailers;

(b) the term 'profit margin' is not defined either explicitly in the PFASOC nor by reference to the plaintiffs' profit margin meaning a comparison of profit margins was not possible;

(c) this rendered the case Novamex has to meet unclear;

(d) if the allegation involves a comparison of the plaintiffs' and Novamex's profit margins, the allegation is illogical and involves a false comparison given their different operations and cost structures;

(e) the pleaded Endorsed Strategy alleged at paragraph [6A] does not refer to profit margins but rather to selling the Products to non-Latinos as 'premium products';

(f) the allegations contained in paragraph [6B] refer to retail prices of the Products, not profit margins;

(g) Novamex's profit margins in relation to its sales volumes of the Products to distributors is irrelevant to the alleged unconscionable conduct; and

(h) the meaning of the term 'negative financial implications for Novamex' as used in the particulars to paragraph [6BB] is vague, ambiguous and irrelevant.

(a) the meaning of 'profit margin' is unclear such that Novamex must hunt through the pleading to try to divine the case made against it;

(b) paragraph [6BBB] appears to ground the allegation of Novamex's knowledge of the matters in the particulars to paragraph [37AA] and subparagraphs [40A(e)(vii)] and [40B(b)(iv)];

(c) paragraph [6BBB] does not allege the same cause and effect relationship between higher prices and higher sales volumes alleged in the particulars to paragraph [37AA] and alluded to in subparagraphs [40A(e)(vii)] and [40B(b)(iv)]. Rather paragraph [6BBB] alleges a series of events in a vacuum without any link between them and seeks to draw an equivalence between that and Novamex knowing that a cause and effect relationship would have or could have eventuated in Australia;

(d) the plaintiffs seek to draw a false equivalence between higher profit margins of a manufacturer in the USA (without defining profit margins or how the higher profit margins were achieved) with higher wholesale prices in Australia;

(e) Novamex's manufacturing profit margin is irrelevant to the allegations of unconscionable conduct made at paragraph [39]; and

(f) paragraph [6BBB] is irrelevant, illogical, vague and invites speculation about unstated matters.

(a) the entire paragraph is irrelevant to the alleged unconscionable conduct;

(b) the cross-referencing to paragraph [6B] is illogical; the Endorsed Strategy does not refer to retail prices and Novamex did not sell the Products to retailers; and

(c) the cross-referencing to paragraph [6BB] is circular and illogical in that it suggests that if Novamex did not use the Endorsed Strategy it would have sold Products at a lower profit margin than Products were being sold under the Endorsed Strategy (where the pleading defining the Endorsed Strategy does not refer to profit margins).

35 Novamex submitted that this allegation is irrelevant to the alleged unconscionable conduct. It repeated its submissions in relation to paragraph [6BBB] to assert that this paragraph was speculative, evasive and illogical.

36 Novamex submitted that the term 'negatively affected' is unclear in its meaning.

37 Further, Novamex submitted that the plaintiffs' central apparent profit margins allegation, that the 'plaintiffs would have sold more Products pursuant to the Endorsed Strategy', is not a pleaded material fact but rather buried in the particulars to paragraph [37AA].

38 Additionally, Novamex submitted that in this paragraph material facts are illogically and impermissibly cross-referenced as particulars.

39 Novamex submitted that by this subparagraph the plaintiffs allege that Novamex acted unconscionably by insisting on the new MORs in the Extended and Varied EDA (ie, the alleged unconscionable conduct) on the basis that the plaintiffs could achieve them by pursuing the New Strategy where Novamex knew that sales volumes for the products could be increased without lowering profit margins (ie, the circumstance). Accordingly, Novamex submitted that the alleged circumstance is irrelevant to the alleged conduct.

40 Further, Novamex submitted that the subparagraph is elusive and illogical. The New Strategy involved reducing the prices at which the plaintiffs sold the Products to retailers, with lower profit margins alleged to be a consequence, and selling the Products to supermarkets. Novamex submitted that the subparagraph asserts that Novamex knew that sales volumes could be increased without lowering 'its manufacturer profit margin'. Novamex submitted that its manufacturer profit margin is irrelevant. Novamex submitted that the equivalence the plaintiffs seek to draw with the New Strategy and lowering sales prices is illogical and the import of it to the plaintiffs' cause of action is elusive.

41 Novamex submitted that by this subparagraph the plaintiffs allege that Novamex acted unconscionably by terminating the Extended and Varied EDA because the plaintiffs did not meet the new MORs, in circumstances where Novamex required the plaintiffs to implement the New Strategy. This required the plaintiffs to decrease their profit margin where Novamex knew sales volumes for the Products could be increased without lowering profit margins.

42 Novamex submitted that this subparagraph concluded facts that the plaintiffs had not squarely alleged within the PFASOC. Specifically, Novamex submitted that the plaintiffs do not allege in the PFASOC that Novamex required the plaintiffs to reduce their profit margins. The New Strategy referred to lower wholesale sale prices, which the plaintiffs claim lowered or would have lowered their profit margins as a consequence.

43 Further, Novamex submitted that the circumstance alleged by this subparagraph is irrelevant to the conduct. Novamex repeated its submissions in relation to subparagraph 40A(e)(vii).

44 The plaintiffs refuted that the alleged unconscionable conduct was limited to the termination of the Varied and Extended EDA. According to the plaintiffs, the setting of the new MORs was a fundamental predicate to termination of the Varied and Extended EDA for failure to meet the new MORs, and was itself unconscionable conduct in circumstances that included Novamex's knowledge that one could increase margins and sales volumes.

45 The plaintiffs submitted that the Court could only reject the profit margin amendments if it was satisfied that they were irrelevant as circumstances informing the existence of the alleged unconscionable conduct. The plaintiffs submitted that, for the following reasons, the Court should not be so satisfied:

(a) The purpose of the amendments is to identify that at the same time as when Novamex required the plaintiffs to adopt the New Strategy, which had the effect of reducing the plaintiffs' profit margin in order to increase sales, Novamex had implemented a strategy by which Novamex was increasing its profit margins and sales, ie. Novamex required the plaintiffs to pursue a strategy that was diametrically opposed to its own strategy, albeit in a different distribution channel;

(b) The fact that the New Strategy would have the effect of reducing the plaintiffs' profit margins in order to increase sales is plain from the terms of paragraph [8B], the pleaded New Strategy;

(c) The New Strategy imposed by Novamex on the plaintiffs had as its core element a reduction in price and consequently profit margin, with the aim of increasing sales;

(d) The fact that Novamex had at the same time implemented an alternative strategy that recognised one could pursue higher profit margins and still increase sales is a relevant circumstance to the question of whether or not the requirement of the New Strategy was a circumstance giving rise to unconscionable conduct;

(e) the distinction between the manufacturer to distributor channel and the distributor to retailer channel is irrelevant to the plaintiffs' case. The reference in paragraphs [6B] and [6BB] to Novamex's communications to Bloustein make manifestly clear that Novamex was engaging in a comparison of manufacturer margin and distributor margin in the USA and in Australia and New Zealand, ie, a comparison of profit margin across different levels of different markets; and

(f) Novamex's comparison demonstrates Novamex's understanding that one could increase margins and increase sales volumes.

46 The plaintiffs submitted that Novamex's change in strategy regarding its profit margins in the USA is a relevant circumstance giving rise to unconscionability because:

(a) from 2009 to October 2013 Novamex had profit margins for the Products in the USA which were lower than the profit margins at which Ernlu sold the Products under the Endorsed Strategy;

(b) from October 2013 to 2015 Novamex increased its profit margins for the Products in the USA and also increased its sales volumes of Products in the USA. As a result the price at which retailers in the USA sold the Products to consumers increased, as did the volume of Products retailers sold to consumers in the USA;

(c) from 10 December 2015 onwards, Novamex, as part of the New Strategy, required Ernlu to reduce the price at which the Products were sold and, as a consequence, the profit margin at which the Products were sold in Australia and New Zealand;

(d) one of the reasons why Novamex's conduct in setting the new MORs in the Varied and Extended EDA was unconscionable was because those new MORs were set by Novamex on the basis that Ernlu could achieve the new MORs by pursuing the New Strategy. This occurred in circumstances where Novamex knew because of its own experience when changing its strategy that Ernlu's sales would not necessarily increase even if it took those steps, and because Novamex knew that Ernlu would have sold more Products by pursuing only the Endorsed Strategy; and

(e) one of the reasons why Novamex's conduct in terminating the Varied and Extended EDA was unconscionable was because the termination occurred in circumstances where Novamex caused Ernlu to pursue the New Strategy and Novamex knew, because of its own experience when changing its strategy, that Ernlu's sales would not necessarily increase even if it took those steps, and because Novamex knew that Ernlu would have sold more Products by pursuing only the Endorsed Strategy.

47 The plaintiffs submitted that having regard to the above it was plain that Novamex's change in strategy from October 2013 to 2015 was the catalyst for a sequence of events resulting in the increase in price at which retailers sold the Products to consumers in the USA. According to the plaintiffs, paragraphs [6BB] and [6BBB] provide background to that sequence of events by setting out a comparison between the profit margins at which Novamex sold the Products in the USA and the profit margins at which the Products were sold under the Endorsed Strategy. This comparison demonstrates that: from 2009 to October 2013 Novamex had sold the Products in the USA at 'low' profit margins and as cheap soft drinks rather than as premium Products as under the Endorsed Strategy; but from October 2013 to 2015 Novamex changed its strategy for distributing the Products in the USA such that it increased the profit margins at which it sold the Products.

48 Further, the plaintiffs submitted the matters at paragraph [46] above demonstrate that given the increased sales of Products in the USA despite higher profit margins and prices at each level of the supply chain (Novamex as manufacturer, distributors and retailers), Novamex knew that sales of Products could be increased without decreasing profit margins and prices. Additionally, the plaintiffs argued it showed that despite that knowledge, Novamex pressed Ernlu to implement the New Strategy as a way of meeting the new MORs in the Varied and Extended EDA in circumstances where Ernlu would have sold more Products if it had only pursued the Endorsed Strategy. In this way, pursuing the New Strategy jeopardised Ernlu's profitability.

49 The plaintiffs submitted that it was open to Novamex to rely on the differences in markets and market levels by way of defence. That however, does not mean the profit margin allegations are irrelevant to the determination of whether or not the requirement of the New Strategy was a circumstance rendering the conduct unconscionable.

50 The plaintiffs submitted that to the extent Novamex had raised complaints about particulars, there were existing mechanisms in the Rules by which Novamex could request further and better particulars.

51 In relation to its prolixity allegation, Novamex submitted that:

(a) the PFASOC sets out the circumstances alleged to render the conduct unconscionable in a way that is unduly long, confusing and vague;

(b) the entire PFASOC, especially the narrative of the circumstances contained at paragraphs [4]-[38], is prolix;

(c) the PFASOC contains 215 instances of cross-referencing, including 91 instances of cross referencing in paragraphs [40A]-[40C] that take the reader back to paragraphs [4]-[38];

(d) some particulars contain cross-referencing to allegations of material facts such that it is difficult to discern what particulars are alleged to limit the generality of the material fact; and

(e) the cross-referencing is excessive and circuitous such that it makes the pleading unintelligible and burdensome to navigate to discern how the circumstances are said to render the conduct unconscionable.

(a) the PFASOC is not so prolix that Novamex is unable to ascertain with precision the cause of action and material facts alleged against it;

(b) while the PFASOC contains detailed factual allegations, these properly put Novamex and the Court on notice of the essence of Novamex's alleged unconscionable conduct; and

(c) the cross-referencing does not render the PFASOC unintelligible.

53 The plaintiffs' written submissions referred the Court to O'Callaghan J's judgment of Granite Transformations Pty Ltd v Apex Distributions Pty Ltd.[1] In that case O'Callaghan J found that although the pleading in question was difficult to follow 'because of the seemingly endless cross-references upon cross-references',[2] in accordance with the principles set out in the authorities, the pleading should be allowed to stand. The principles referred to by O'Callaghan J include:[3]

(a) 'Provided that a pleading fulfils its basic function of identifying the issues, that it discloses an arguable cause of action and that it apprises the other party of the case that it has to meet at trial, the pleading should be allowed to stand': Young Investments Group Pty Ltd v Mann;[4]

(b) 'The power to strike out a pleading because it discloses no reasonable cause of action should only be exercised in a plain and obvious case': Polar Aviation Pty Ltd v Civil Aviation Safety Authority.[5] 'It must be established that the applicant's case is so untenable that it cannot possibly succeed'; and

(c) '[A]pplications to strike out pleadings must be considered in the contemporary context of judicial case management': Barclay Mowlem Constructions Ltd v Dampier Port Authority.[6]

54 The plaintiffs' counsel submitted that the plaintiffs do not seek to shut Novamex out from objecting to the profit margin allegations on the basis of prolixity. He submitted, however, that Novamex had not identified how any of the proposed amendments take that which was not the subject of earlier objection by Novamex to render the new pleading so prolix that it does not allow Novamex to plead.

55 Order 13 of the Rules sets out the requirements of pleadings in this Court. Rule 13.02(1) requires every pleading to contain in a summary form a statement of all the material facts on which the party relies, but not the evidence by which those facts are to be proved.

56 There was no dispute between the parties about the relevant legal principles. Those principles include:

(a) the function of a pleading in civil proceedings is to alert the other party to the case they need to meet and to define the precise issues for determination so that the court may conduct a fair trial;[7]

(b) a statement of claim alleging a breach of s 21 of the ACL must identify the impugned conduct and the circumstances within which that conduct is to be characterised as unconscionable conduct;[8]

(c) rule 23.02 of the Rules provides the grounds on which the sufficiency of a pleading may be impugned;[9]

(d) a pleading ought to be struck out if it is confusing or embarrassing - in the sense that it conveys various meanings or inconsistent allegations - or if it contains irrelevant allegations or alternative positions which are confusingly intermingled;[10]

(e) pleadings should be as brief as is consistent with clarity. Brevity is of secondary importance when compared with clarity and precision;[11]

(f) a pleading may be struck out for prolixity if it is so prolix that 'the opposite party is unable to ascertain with precision the causes of action and the material facts that are alleged against it';[12]

(g) 'extensive cross-referencing of facts in a pleading may render parts of the pleading unintelligible';[13]

(h) the fact that a pleading arises from a complex factual matrix does not detract from the pleading requirements but rather makes them more poignant;[14]

(i) 'a pleading which contains unnecessary or irrelevant allegations may be embarrassing - for example if it contains a body of material by way of background factual matrix which does not lead to the making out of any defined cause of action, particularly if the offending paragraphs tend to obfuscate the issues to be determined';[15]

(j) a pleading is embarrassing...when it places the opposite party in the position of not knowing what is alleged. A pleading which is unintelligible, vague, ambiguous or too general is embarrassing;[16] and

(k) 'if the objectionable part of the pleading is so intertwined with the rest of the pleading so as to make separation difficult, the appropriate course is to strike out the whole pleading'.[17]

57 In addition to these principles Novamex's counsel referred to Gleeson CJ's statement in Goldsmith v Sandilands on irrelevant allegations:

It sometimes happens in the course of litigation that counsel will start a hare. The response of opposing counsel may be to pursue it. One of the duties of a trial judge is to control the proceedings, to exclude irrelevancy, and to maintain proper limits upon the extent to which the parties and their lawyers will be permitted to raise and investigate matters that are of only marginal significance.

The facts in issue in a civil action case emerge from the pleadings, which, in turn, are framed in the light of the legal principles governing the case. Facts relevant to facts in issue emerge from the particulars and the evidence. The function of particulars is not to expand the issues defined by the pleadings, but "to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial". The function of evidence is to advance, or cut down, the case of a party in accordance with the rules of statute or common law that determine the nature of the information a court will receive. The primary rule of evidence is that a court will receive, and will only receive, evidence that is relevant to the issues as defined by the pleadings. Evidence is relevant if it could rationally affect, directly or indirectly, the assessment of the probability of the existence of a fact in issue in the proceeding. The general rule that relevant evidence will be received is qualified by other rules based upon considerations of justice, or practicality. One such qualification limits investigation of collateral matters.[18]

58 Novamex's counsel noted that Connock J in Business Service Brokers Pty Ltd v Optus Mobile Pty Ltd & Ors[19] approved consideration of Gleeson CJ's comments above in the context of pleadings.

59 In outline, having regard to the PFASOC and the terms of the October Letter, I understand the profit margin case to be:

(a) when the EDA commenced Novamex told Bloustein and Ernlu that the Products were primarily sold to people from a Latino cultural background and as cheap Mexican soft drinks: [6B];

(b) from 2009 to October 2013 Novamex told Bloustein and Ernlu that in the USA Novamex sold the Products to distributors at a profit margin that was lower than the profit margin at which the Products were being sold under the Endorsed Strategy: [6BB];

(c) from October 2013 to 2015 Novamex changed its strategy for distributing the Products in the USA in a way that resulted in Novamex replacing existing distributors with distributors to whom it sold the Products at a higher profit margin. This resulted in retailers increasing the prices of the Products to consumers and an increase in the volume of Products sold in the USA to consumers: [6BBB] with additions from the October Letter;

(d) in December 2015 Novamex's representative told Bloustein that Novamex's executive had told its sales team to try to double sales of Novamex products in the next three years: [8A];

(e) from December 2015 Novamex stopped endorsing the Endorsed Strategy and required Ernlu to pursue the New Strategy of doubling sales over the following three years by reducing the sale price of the Products (and as a consequence the profit margin) and repositioning the Products as a value brand and selling the Products to supermarkets: [8B];

(f) Novamex did the things alleged in paragraph [8B] in circumstances where, from October 2013 to 2015 it had increased the profit margin at which it sold the Products to distributors in the USA and increased the volume of Products sold, with the result that the retail price of the Products in the USA increased as did the volume of retail sales to consumers: [8BB].

(g) Novamex engaged in unconscionable conduct in requiring the plaintiffs to agree to the new MORs in the Varied and Extended EDA: [39A];

(h) one of the circumstances which allegedly made that conduct unconscionable was that Novamex used unfair tactics, including by setting the new MORs in the Extended and Varied EDA on the basis that Ernlu could achieve them by pursuing the New Strategy, while knowing that sales volumes could be increased without lowering profit margins and that Ernlu would have sold more Products by implementing only the Endorsed Strategy: [40A(e)(vii)] as proposed in the October Letter;

(i) Novamex engaged in unconscionable conduct in terminating the Varied and Extended EDA because of the plaintiffs' failure to meet the new MORs: [39(b)]; and

(j) one of the circumstances alleged to make that conduct unconscionable was that during the term of the Varied and Extended EDA Novamex required the plaintiffs to pursue the New Strategy. The plaintiffs allege that this was not reasonably necessary for the protection of its legitimate interests and an unfair tactic given, among other things, the New Strategy required Ernlu to decrease the profit margins and prices at which it sold the Products when Novamex knew sales volumes of Products could be increased without lowering profit margins or prices and also knew Ernlu would have sold more of the Products by implementing only the Endorsed Strategy: [40B(b)(iv)] with additions from the October Letter.

60 A pleading will not be liable to be struck out on the basis of irrelevance unless it clearly is so. I accept the plaintiffs' counsel's submission that in order to disallow the pleading on the basis of irrelevance, I would have to be satisfied that the profit margin allegations are irrelevant as circumstances informing the existence of the alleged unconscionable conduct. That question has to be considered in light of the pleading as a whole.

61 I do not accept Novamex's submission that the alleged unconscionable conduct is limited to the termination of the Varied and Extended EDA. On the face of the pleading it is clear that the plaintiffs allege that requiring the plaintiffs to agree to the new MORs was also unconscionable conduct. The plaintiffs also plead that Novamex set the new MORs on the basis that Ernlu could achieve them by pursuing the New Strategy in circumstances where Novamex knew sales volumes could be increased without lowering profit margins. That knowledge is founded in the communications between Novamex and Bloustein pleaded in paragraphs [6B] and [6BB].

62 It appears to me that much of the basis of Novamex's submissions around irrelevance required the Court to be satisfied that the plaintiffs' profit margin allegations were illogical as a circumstance giving rise to the termination of the Varied and Extended EDA for failure to meet the new MORs. That illogicality was said to arise from a conflation of price with profit margin and an attempt to compare profit margins across different markets and different market levels.

63 I accept the plaintiffs' submissions that for the purposes of their pleading the change in profit margin is driven by the change in price at each level of the market in the USA market and the Australia and New Zealand market. That is now clearer on the face of the pleading due to the plaintiffs' proposed further amendments outlined in the October Letter. Paragraph [6BBB] now does allege a cause and effect relationship between higher prices and higher sales volumes. I also note that while paragraph [6B] refers to price but not profit margin, paragraph [6BB] does refer to profit margin and is expressed to be 'further to paragraph 6B'.

64 The profit margin allegations involve an allegation of Novamex's knowledge that price, profit margin and sales volumes could all be increased. Contrary to Novamex's submissions, this concept does not involve a direct comparison of profit margins such as to render paragraphs [6BB] and [6BBB] illogical. Understood in this way it is not fatal to the pleading that profit margin is not defined. Nor is Novamex's knowledge based on its experience in its own market, at its own market level, necessarily an irrelevant circumstance incapable of forming a basis upon which its conduct could be understood as unconscionable. Accordingly, I do not accept Novamex's submission that paragraphs [7(d)] and [8BB], which go to Novamex's knowledge and acceptance of the Endorsed Strategy and its effect of increasing profit margin and sales, are irrelevant to the alleged unconscionable conduct. That finding flows through to address Novamex's submissions that other paragraphs of the plaintiffs' PFASOC are illogical and irrelevant.

65 In my view the plaintiffs' profit margin amendments are not as difficult to follow as Novamex's counsel submitted. The plaintiffs have achieved some clarity through the further amendments they suggested in the October Letter. This has resulted in some of Novamex's criticisms no longer being relevant. For example, the plaintiffs have added wording to subparagraphs [40A(e)(vii)] and [40B(b)(iv)] that clarifies Novamex's alleged state of knowledge.

66 I also cannot agree with Novamex's suggestion that the plaintiffs have not alleged that Novamex required the plaintiffs to reduce their profit margin. Paragraph [8B] refers to Novamex's requirement that Ernlu reduce the price 'and, as a consequence, the profit margin at which the Products were sold'.

67 The fact that the terms 'negatively affected' and 'negative financial implications' are not defined does not render their meaning so unclear that Novamex is unable to ascertain the allegations made against it. Should Novamex require further clarity there are existing mechanisms under the Rules available to it.

68 I am not satisfied that the profit margin allegations could not be a relevant circumstance within which the conduct of Novamex is said to be unconscionable, such that the plaintiffs should not be permitted to plead that allegation. I am satisfied that the case alleged by the plaintiffs gives Novamex clear notice of the case to be met at trial. Accordingly, I will grant the plaintiffs leave to file and serve their PFASOC including the further proposed amendments in the October Letter.

69 In reaching my view that the plaintiffs' proposed amendments should be allowed I have also had regard to case management principles, including that while important, pleadings are primarily used to assist the parties to define the real issues in dispute but are, however, a procedural tool only.

70 For the sake of clarity, nothing in this judgment is intended to suggest that Novamex cannot mount a defence to the profit margin allegations based on its alleged irrelevance as a circumstance against which its conduct could be considered unconscionable. It is open to Novamex to do so notwithstanding that I cannot be satisfied at this stage of the proceeding that the plaintiffs' profit margin allegations are illogical and irrelevant to that question, such that the plaintiffs should not be permitted to plead that allegation.

71 The plaintiffs' PFASOC extends to approximately 53 pages in length and contains extensive cross-referencing. While I agree that the cross-referencing makes the PFASOC cumbersome and challenging to navigate, I do not agree that the PFASOC is so prolix as to render the plaintiffs' case unintelligible.

72 I accept the plaintiffs' submission that Novamex has not pointed to specific parts of the PFASOC and explained how the new pleading is so prolix that Novamex is unable to plead to it.

73 In reaching my view on the issue of prolixity I have had regard to the fact that Novamex has previously filed both a defence and a defence to the plaintiffs' ASOC.

74 It does not appear to me that the additional paragraphs reflected in the PFASOC render the entire pleading so prolix that Novamex is unable to plead to it.

75 For the reasons given above, the plaintiffs will be granted leave to file and serve their PFASOC subject to the inclusion of the further amendments outlined in the October Letter.

[1] [2018] FCA 725; (2018) 359 ALR 62.

[4] [2012] FCAFC 107; (2012) 293 ALR 537, [6].

[5] [2012] FCAFC 97; (2012) 203 FCR 325, [43].

[6] [2006] WASC 281; (2006) 33 WAR 82, [6]-[8].

[7] Wheelahan & Anor v City of Casey & Ors (No 12) [2013] VSC 316, [25] (Wheelahan).

[8] Australian Battery Distributors Pty Ltd v Robert Bosch (Australia) Pty Ltd [2016] FCA 389, [82] (Bosch).

[11] Knorr v CSIRO and Ors [2012] VSC 83, [1]-[5].

[16] Hoh and ors v Frosthollow Pty Ltd and ors [2014] VSC 77, [12].

[18] [2002] HCA 31; (2002) 190 ALR 370, [1]-[2].

[19] [2021] VSC 310, [22].