Solicitors for the Applicants : P. Kerin and Associates

Counsel for the Respondents : Mr. D. Bleby QC with Mr R. Kennett

1. The respondent's motion to strike out Statement of Claim be dismissed.

2. Question of costs and whether the matter was fit for senior counsel, reserved.

3. Liberty to any party to list the matter on 7 days notice.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

In their statement of claim the five applicants have alleged that the respondent, REI Building Society, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive and that it had therefore contravened s.52 of the Trade Practices Act 1974 (Cth) ("the Act"). The first two named and the last two named applicants have sought, inter alia, damages pursuant to s.82. The remaining applicant, Andrew Thomas Abraham Reid (in conjunction with the applicant Franklyn Richard John White) seeks, pursuant to s.87, relief by way of the discharge of a guarantee that was executed by them in favour of the respondent. In addition, the first four named applicants have claimed that the respondent fraudulently misrepresented certain matters to them: (para 28.2 of the statement of claim). Even so, in the prayer for relief only the two companies, i.e., the first two named applicants, have claimed consequential damages; whether that was an oversight is not clear. Finally, the first named applicant has claimed from the respondent damages for breach of contract. Other consequential relief has also been claimed but it is not necessary to set that out in detail.

2. It has been alleged in the statement of claim that in about November 1985, the respondent agreed to lend to the first-named applicant, Landsal Pty. Ltd., (in liquidation) ("Landsal"), the sum of $1.6m to finance the building and development of a block of 14 apartments. It has been further alleged that the respondent knew that the second applicant, Reid Constructions Pty. Ltd. (in liquidation) ("Reid Constructions") "would be undertaking the development for Landsal": (para. 21). To secure the loan, Landsal executed a mortgage over the subject property and the third and fourth respondents, Andrew Thomas Abraham Reid and Franklyn Richard John White guaranteed to the respondent repayment of the loan. These gentlemen were said to be the only directors and shareholders of Landsal and Mr. Reid and his wife (who is not a party to these proceedings) were said to be the only directors and shareholders of Reid Constructions.

3. Paragraph 20 of the statement of claim has listed 12 dates from December 1985 to November 1986 on which the respondent advanced instalments of the loan to Landsal; they total $1.47m, $130,000 less than the agreed loan of $1.6m. However, it has been pleaded that interest accruing on the loan was to be capitalised and that as at 19 November 1986 "(t)he initial loan was fully drawn": (para. 20.2). I consider that it is a fair inference on the pleadings that the apparent discrepancy of $130,000 allegedly represents the capitalised interest. Mr. Bleby QC, counsel for the respondent, complained about this issue. However I find it difficult to accept his complaints when regard is had to the further plea in the statement of claim that the respondent has not provided Landsal (or any of the other applicants) with "statements of indebtedness": (para. 20.2). Assuming this allegation to be true, then the respondent would well know the full details of all advances made and of the interest computations that it might have made. I reject any suggestion that this apparent deficiency in the statement of claim adds weight to the respondent's submission that the statement of claim is so deficient that it should be struck out.

4. It would seem that Landsal must have realised at some unspecified time in 1986 that additional funds would be needed to complete the development for it has been pleaded that in August or September 1986 the respondent agreed to lend Landsal an additional $140,000.00 ("the additional loan").

5. The crux of the applicants' case is that notwithstanding an alleged commitment on the part of the respondent to make the additional loan to Landsal, and notwithstanding the subsequent conduct of the respondent, the respondent advised Mr. White on 18 November 1986 that it "did not intend to advance the additional loan to Landsal": (para. 26). In the same paragraph it was further claimed that this advice "was the first occasion on which the respondent informed any of the applicants of its intention to not advance the additional loan".

6. It has been pleaded that in reliance upon the agreement to make the additional loan and the subsequent conduct of the respondent, Landsal did not seek an alternative source of finance and that, having had its overdraft facility with the State Bank of South Australia extended from $20,000 to $60,000, it proceeded to utilise the whole of that facility. It was also pleaded that Landsal's obligations to the State Bank had earlier been secured by guarantees from Mr. Reid and from Mr. and Mrs. White (Mrs. White being the fifth named applicant).

7. The statement of claim concluded with a series of allegations, the effect of which may be summarised as follows:- if the respondent had not been guilty of the impugned conduct, an alternative source of finance would have been found which would have led to the completion and sale of the development at a profit - Messrs Reid and White would not now be facing a claim in the Supreme Court of South Australia at the suit of the respondent under their guarantee in respect of the short-fall consequential upon the respondent's forced sale of the property - and Mr. and Mrs. White would not have had to accept liability to the State Bank under their guarantee because of Landsal's inability to discharge its debt to the Bank.

8. The hearing of argument on the motion to strike out was unexpectedly extended because of the filing by the solicitor for the applicants of an amended statement of claim. This occurred on the day preceding the date of the adjourned hearing, long after counsel for the respondent had concluded his submissions. It was therefore necessary to afford Mr. Bleby the opportunity, on a later occasion, to make further submissions because of the numerous amendments that had been made.

9. The first argument advanced by Mr. Bleby was based upon the premise that the case against the respondent, as pleaded, disclosed no more than an allegation of a breach of a contract to lend moneys. If, so he argued, the pleadings adverted to a claim of misleading or deceptive conduct, then the relevant conduct was subsequent to the making of the contract for the grant of the additional loan. In support of his proposition that s.52 was not available to applicants who limit their claim for relief to a breach of contract, Mr. Bleby referred to the remarks of Gibbs C.J. in Gates v City Mutual Life Assurance Society Limited (1986) 160 CLR 1 at p 6:

"The acts referred to in ss.52 and 53 do not include

the breach of a contract..."

He also relied on similar observations by Toohey J. in Bell v Australasian Recyclers (W.A.) Pty. Ltd. (1986) ATPR 47212 at p 47218, who explained that a party to a contract does not engage in misleading or deceptive conduct for the purposes of s.52 "merely because it fails to meet its obligations".

10. Mr. Bleby's second argument was that the conduct of the respondent that has been challenged could only be classified as a promise to perform "a future act" - that is, to make a loan of money at some date in the future; he argued that the pleadings were deficient in that they failed to allege that his client falsely made the promise or was recklessly indifferent to its ability to perform its promise. In support of that argument, Mr. Bleby relied upon the decision in Bill Acceptance Corporation Ltd. v G.W.A. Ltd. [1983] FCA 269; (1983) 50 ALR 242. In that case contravention of s.52 had been pleaded and damages and other relief had been sought under ss.82 and 87. The claim was based upon an allegation that the respondent had failed to pay the applicant a procuration fee that had earlier been fixed by agreement. In deciding that it was appropriate to strike out the statement of claim, Lockhart J. commented:-

"So far as I am able to characterize the

allegations in the statement of claim as

representations or statements as to future conduct

of the respondent, they involve no element of

absence of belief by the respondent in the truth of

the statements and no element of reckless

indifference to their accuracy. They are simply

promises by the respondent that it will pay a

certain sum of money on a particular event. That

event occurred, but the money was not paid."(p 249)

11. Such strength as may have attached to these two arguments were, in my opinion, and contrary to Mr. Bleby's submissions, dissipated by the last-minute amendments that were made to the statement of claim. The applicants had originally pleaded in para. 22 the agreement to make the additional loan, supporting that allegation by particularising a letter from the respondent to Landsal dated 9 September 1986; that letter was said to evidence the agreement. In paras. 23-25 of the statement of claim, as originally filed, there were allegations of conduct on the part of the respondent between 9 September and 18 November which conduct was allegedly misleading or deceptive. It was upon the basis of those pleadings that Mr. Bleby argued, first, that the issue was, at the most, no more than an allegation of a breach of contract and secondly, that s.52 could not apply (notwithstanding the provisions of s.51A) unless it was pleaded, that the respondent either did not have reasonable grounds for making the representation, or that it did not believe in the truth of the representation, or that it was recklessly indifferent to what was stated.

12. However the amended statement of claim contained the following new allegation in para 25.1 -

"As at the 9th day of September, 1986 the respondent did

not intend to advance the additional loan to Landsal or

prepare updated mortgage documents."

13. To aver the absence of the relevant intention (at the time of writing to Landsal the letter which allegedly contained the agreement to make the additional loan) can only mean that the respondent is now faced with the accusation that it did not believe in the truth of the representation that it allegedly made. Whether or not the applicants can prove the lack of intention is not a matter that need be considered at this stage. The allegations that have been advanced by the applicants are to be assessed by assuming that the facts, as pleaded, are accurate.

14. The draftsman of the amended statement of claim also sought to overcome Mr. Bleby's first argument (and in my opinion successfully so) by inserting an alternative plea that subsequent to 9 September 1986 "the respondent changed its intention as reflected in its letter dated the 9th day of September 1986 and decided to not advance the additional loan to Landsal". This allegation identifies an alleged change of intention coupled with the failure to inform the applicants of the change until 18 November as the misleading and deceptive conduct; it amounts to an allegation of misrepresentation by silence: (Rhone-Poulenc Agrochimie S.A. and Another v U.I.M. Chemical Services Pty. Ltd. and Another (1986) 68 ALR 77 at p 84 per Bowen C.J.; Collins Marrickville Pty. Ltd. v Henjo Investments Pty. Ltd. and Others (1987) 72 ALR 601 at p 609 per Wilcox J.). As currently pleaded, it would not be accurate to classify the statement of claim as a mere allegation of a breach of contract.

15. I do not intend, by virtue of the conclusions that I have so far reached, to assert that the amendments that have been made to the original statement of claim amount to a new cause of action. Neither counsel alluded to such a possibility and questions of time limits were not addressed. The three year limitation period referred to in sub.s 82(2) of the Act may or may not have to be considered at a later date. In any event, it is appropriate to refer to authorities that suggest that it is not the practise to strike out a statement of claim on the ground that the claim is statute barred: Keen Mar Corporation Pty. Ltd. v Labrador Park Shopping Centre Pty. Ltd. (1985) 61 ALR 504 per Pincus J. at 507; Potts and Prosser v Mobil Oil Australia Limited: (unreported decision of Morling J., delivered 12 April 1990).

16. Mr. Bleby's next argument was that the allegation that the respondent was guilty of fraudulent misrepresentation was not supported by the pleadings in their original or amended form. Once again, I believe that certain of the amendments made to the statement of claim have taken the sting out of this complaint. The representation of fact that the respondent had allegedly made can be arguably identified as that contained in the letter of 9 September. Although it related to the making of the additional loan at some stage in the future that does not, of itself, automatically mean that it was only a representation of a future intention or a promise or a prediction. The evidence might ultimately show this to be the case but, at this stage, it can be argued that the making of an agreement amounts to a representation of a present fact (that is, the present contractual commitment) that another fact will occur in the future (that is, the making of a loan). Paragraph 25 (as amended) covers the issues of the alleged falsity of the representation and the respondent's alleged knowledge of the falsity and para. 24 as originally pleaded, appropriately alleged that the applicants had relied on the false representation.

17. The next ground of attack was based upon the failure of the applicants to particularise the loss or damage that they respectively suffered as a consequence of the respondent's conduct. I agree with Mr. Bleby that there are deficiencies in this area but, contrary to his arguments, I believe that they are capable of remedy by the supply of further and better particulars. I will address this subject later in these reasons.

18. Mr. Bleby next addressed separate arguments with respect to the claims of individual applicants. I will likewise deal with them separately.

19. An argument was advanced to the effect that the statement of claim shows that this applicant has no cause of action whatsoever against the respondent. It was said that the respondent (in relation to Reid Constructions) was not engaged in trade or commerce. I can find no merit in this argument. If authority is needed, the decision in Menhaden Pty. Ltd. v Citibank N.A. [1984] FCA 183; (1984) 1 FCR 542 makes it clear that a corporation can still be classified as engaging in trade or commerce notwithstanding that advice given by it is given gratuitously and notwithstanding that information given by it is given to one person only or a limited number of people. If, as is now pleaded, the respondent knew, prior to 9 September 1986 that Reid Constructions was the intended builder of the development, then conduct on the part of the respondent that is misleading or deceptive can, in appropriate circumstances, entitle the party in the position of Reid Constructions to claim damages as a consequence of the contravention of s.52. Prudential Finance Ltd. v S.M.A. Motors Ltd: (unreported decision of Wilcox J., delivered 19 April 1990) is an example of the proposition that it is no defence to a claim by a party such as Reid Constructions to say that the respondent did not know of its identity. If the respondent was guilty of the conduct attributed to it in the statement of claim and that conduct caused loss to the party who had been engaged by the developer to build the apartments, that could be a sufficient connection to ground a cause of action against the respondent at the suit of the builder.

20. Mr. Bleby claimed that nowhere was it pleaded that either Mr. Reid or Mr. White acted in any way to his detriment as a result of the impugned conduct of the respondent. He further pointed out that it is not claimed that the respondent's conduct was the cause of them executing guarantees in favour of the respondent or the State Bank. I do not regard the first issue as a fair reading of the pleadings and the second point is irrelevant. (The issue is not whether they executed the guarantees as a result of the respondent's conduct but whether they sustained a detriment under the guarantees by virtue of that conduct). Paragraph 39 of the statement of claim (which was not the subject of amendment) stated the nature of the complaints made by the various applicants in a form which, while not conventional, was nevertheless sufficient to identify the detriment allegedly suffered by the various parties. Specifically, it was pleaded that if the respondent had not engaged in the conduct that is now the subject of complaint:-

"39.7 Andrew Reid and Frank White would have been

discharged from their liability under the REI guarantee."

21. It is not unduly generous to classify that allegation as the identification of the detriment that was allegedly suffered by the two men.

22. Paragraph 38 of the statement of claim, so far as it is relevant, is as follows:-

"In or about the month of July, 1987, the State

Bank sought to enforce the State Bank guarantee

referred to in paragraph 37 herein but Andrew Reid,

Frank White and Kathleen White were unable to pay

the sum of approximately $62,000.00 demanded.

Frank White and Kathleen White thereupon executed a

Memorandum of Mortgage over their home ("the White

Mortgage") in favour of the State Bank and the

State Bank agreed to accept repayment of the sum of

$64,500.00 (inclusive of all further interest,

costs and fees) over a period of 240 months."

"If the conduct referred to in paragraphs 22 and 23

herein had not taken place:

...

39.8 Andrew Reid, Frank White and Kathleen

White would have been discharged from their

liability under the State Bank guarantee."

24. Mr. Bleby argued that it was both material and significant that nowhere in para. 39 (and in particular, nowhere in sub-para. 39.8) was reference made to the allegations contained in para. 38. As I understood his submissions, Mr. Bleby argued that the conduct of Mr. and Mrs. White in July 1987, in executing the White mortgage, could not be connected with or related back to the respondent's conduct in the period September-November 1986. As a factual exercise, the evidence at trial might justify this submission but it can not prevail at the interlocutory stage. At this stage, the pleadings can be fairly construed as alleging the series of successive connecting steps that I have already summarised. It need hardly be said that the applicants have substantial evidentiary hurdles in front of them but that can not be weighed in the balance in an application to strike out a statement of claim.

25. The last issue raised by Mr. Bleby was limited to Mrs. White. Her husband was her sole source of information with respect to the conduct of the respondent. She apparently had no direct contact with the respondent. In such circumstances, Mr. Bleby argued that the respondent could not be held liable under the Trade Practices Act or otherwise as a consequence of what Mr. White may have told his wife. I do not believe that such a broad proposition could be enshrined in a principle of law. Putting to one side the evidentiary burden, it would remain open to Mrs. White to allege that she, by virtue of her association with her husband as a part owner of their home, suffered, with him, loss or damage as a result of the alleged misleading and deceptive conduct of the respondent. As I have earlier noted, it is not always necessary that the identity of an applicant be known to a party who contravenes the provisions of s.52.

26. There remains to be considered the lack of particularity in the statement of claim. Bearing in mind that the conduct complained of occurred over three and a half years ago, Landsal has not yet particularised the loss or damage that it allegedly suffered as a result of the claimed breach of contract. Furthermore, neither it nor the other applicants have yet quantified their claims as a result of the alleged breach of s.52 and the alleged fraudulent misrepresentation. At first I was minded to order forthwith the supply of those particulars but it occurred to me that Mr. Bleby had alluded to the respondent's need for further and better particulars of other areas of the statement of claim that had not been the subject of the striking out motion. In those circumstances, I will refrain from making any orders on the question of particulars at this stage; however the applicants should regard themselves as being on notice to prosecute their claims with dispatch and clarity.

27. I have concluded that the respondent's motion to strike out the statement of claim should be dismissed. However, that conclusion has been arrived at principally because of the filing of an amended statement of claim after argument on the motion on behalf of the respondent had concluded. When I adjourned the application (because of the late filing of the amended statement of claim) I ordered that the applicants in the substantive proceedings pay the costs of attendances in court on 1 February and 21 March 1990. I reserved for further consideration the question of other costs and the question of whether the matter was fit for senior counsel. Those questions and the question of subsequent costs can be argued after the parties have had the opportunity to consider these reasons. There will be liberty to any party to list the matter on seven days notice.