The scope of the pleaded case
62 As the analysis of the judgment above reveals, much of the relief granted against Mr Stefanovski, Ms Clark and ANT Printing was derivative upon breaches by TK Signs of its franchise agreement and statutory obligations. The difficulty is that no such claims were pleaded against TK Signs and nor were any derivative claims pleaded against the other appellants. TK Signs was joined as a respondent to the action only at the end of the case and no application was made to amend the Statement of Claim to articulate the substance of any claim against it. Critically, the causes of action on which judgment was given were substantially different from the claims alleged in the Statement of Claim.
63 It is a fundamental characteristic of the adversarial system that trials are conducted on the basis of the issues the parties agitate in the pleadings and, as a general rule, relief is confined to that claimed or available on those pleadings (see Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2008) 73 NSWLR 653, [424]-[428]). Ordinarily, an applicant is only entitled to obtain judgment on the case advanced before the Court. That is an emanation of the underlying principles of natural justice accorded to all litigants before the Courts. As was said by the majority of the High Court in Water Board v Moustakas (1988) 180 CLR 491, "a trial is not at large but is of the issues joined by the parties".
64 It can be readily acknowledged that where, in the course of a trial, the parties abandon the confines of the pleaded case and litigate other issues, they cannot be heard later to complain that orders are made which have no foundation in the pleading so long as they are within the bounds of the litigated dispute (Gould & Birbeck & Bacon v The Mount Oxide Mines Ltd (in Liq) (1916) 22 CLR 490; Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279). The relevant principles were accurately identified by Keane JA in Holdway v Arcuri Lawyers (a firm) [2009] 2 Qd R 18, [60]-[61], in the following manner:
[60] Discussion of the causation issue must commence with an appreciation of the purposes served by the system of pleadings in civil litigation, and the consequences of parties choosing to broaden the issues in dispute beyond the scope of the pleadings. In Gould v The Mount Oxide Mines Ltd (In Liq) & Ors, Isaacs and Rich JJ said:
"Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. There is abundant authority for this, even if the matter were required to rest on authority only. See, for instance, Nevill v Fine Art and General Insurance Co ((1897) AC, 68, at p 76); Browne v Dunn (6 R 67, at p 75), the relevant passage being quoted fully in Rowe v Australian United Steam Navigation Co (9 CLR, 1, at p 24). There are qualifications, no doubt, and each case must depend for the proper application of the principle upon its own facts. It has been laid down by the Privy Council that 'As a rule relief not founded on the pleadings should not be granted.' 'But in this case' (said their Lordships) 'the substantial matters which constitute the title of all the parties are touched, though obscurely, in the issues; they have been fully put in evidence, and they have formed the main subject of discussion and decision in all three Courts. The High Court are right in treating the case as not within the rule': Sri Mahant Govind Rao v Sita Ram Kesho (25 Ind App, 195, at p 207). Nocton v Lord Ashburton ((1914) AC, 932) is a decisive authority that even where fraud is charged and the charge fails, the plaintiff does not necessarily fail. He may still have a sufficient cause of action left. But in the present instance the defendants, whatever course might have been open to them at the hearing, unquestionably adopted that of fighting the claims as presented in argument upon the evidence as if the particular claims made had been specifically alleged, and as if there were no other evidence upon those claims which the defendants desired to adduce. There is no suggestion even now that other evidence would have been available; and it is perfectly obvious that any objection raised could have been instantly met by a formal amendment, and that no further evidence would have been offered. The case has been fully tried out, as far as the parties desired, on the three matters before us, and the only question is whether the judgment appealed from as to the challenged items should be affirmed, modified or reversed on the merits."
[61] More recently, in Banque Commerciale SA v Akhil Holdings Ltd, the High Court reiterated that observance of the rules of pleading is intended to facilitate the fair determination of the real issues in dispute between the parties, and is not an end in itself. Their Honours said:
"The function of pleadings is to state with sufficient clarity the case that must be met: Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In liq) ((1916) 22 CLR 490, at p 517), per Isaacs and Rich JJ. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities. See, eg, Browne v Dunn ((1893) 6 R, at p 76); Mount Oxide Mines ((1916) 22 CLR, at pp 517 - 518).
Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference …"
65 That is not to say that a judgment needs to be precisely within the scope of the "particulars" alleged in a pleading so long as judgment is given on the causes of action pleaded. A fair amount of tolerance can be justified so long as the circumstances are such that all parties to the action have had fair notice of what will be determined. Experience shows that it is not infrequently the case that the evidence adduced at trial diverges from the pleaded particulars to some degree. That is not unexpected given that pleadings are prepared well in advance of all of the relevant information becoming known. In this respect, in Water Board v Moustakas (1988) 180 CLR 491, 497, the majority of the High Court (Mason CJ, Wilson, Brennan and Dawson JJ) indicated that particulars are less confining than material facts. Their Honours said:
In deciding whether or not a point was raised at trial no narrow or technical view should be taken. Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet. In cases where the breach of a duty of care is alleged, the particulars should mark out the area of dispute. The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings. Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged: see Dare v Pulham (1982) 148 CLR 658; 44 ALR 117. In Leotta v Public Transport Commission (NSW) (1976) 50 ALJR 666 at 668; 9 ALR 437 at 446, a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence. The failure to apply for the amendment in that case was held not to be fatal. But in Maloney v Commissioner for Railways (NSW) (1978) 52 ALJR 292; 18 ALR 147 Jacobs J, with whom the other members of the court agreed, pointed out (ALJR at 294; ALR at 151-2) that the conclusion in Leotta was reached only upon the presupposition that the new issue or new way of particularising the existing issue had emerged at the trial and had been litigated.
66 It ought further to be acknowledged that experience also shows that, occasionally, little difficulty might arise where at, or shortly before, trial or even at the end of it, a party, which is effectively the alter ego of an existing party, is joined to litigation on the basis that it or the existing party alternatively had the rights or obligations which are the subject of dispute in the action. Such a joinder is unlikely to cause any prejudice and when it occurs the parties can assume that what had been alleged against the existing party in the pleadings and what was advanced during the hearing is taken to be alleged and advanced against the alter ego. In the present case, although the joinder of TK Signs was permitted over the objection of the appellants, it is not likely that in the circumstances of this case it would, of itself, have caused the company any prejudice. The breach of contract claims were fully defended by Mr Stefanovski as if he were the contracting party such that the substantive issues in that respect were fairly canvassed. It follows that to the extent to which the only question is whether, on the basis of the pleaded facts, Mr Stefanovski or TK Signs was liable to DCA, no sustainable complaint can be made of the latter's late joinder. To the extent that this issue is part of this appeal on the basis that the order was wrongly made, that ground cannot be sustained.
67 However, the essential concern of the appellants is not so much the joinder of TK Signs or, perhaps, the tacit assumption that it would be liable in the stead of Mr Stefanovski as the franchisee. Their real concern is that the substantive case agitated by DCA at the end of the trial was fundamentally different to that which was pleaded. This was seemingly discernible after the completion of DCA's opening. At that point the appellants' Counsel sought to object to any departure from the pleaded case and the learned trial judge indicated that the matter would be heard and determined according to the issues raised in the pleadings. There was no subsequent departure from that position by either DCA or the trial judge and DCA does not suggest otherwise. Despite that, DCA sought to join TK Signs after the close of the evidence and that joinder was allowed notwithstanding the appellants' objections. That joinder apparently gave some foundation to additional claims which had not been pleaded against the other appellants, in particular, that they were knowingly concerned in certain unpleaded conduct of TK Signs. In submissions at the end of the trial that conduct was identified as a subversion of the franchise agreement amounting to a breach of the franchisee's obligation of good faith. Ultimately, it was those unpleaded claims which founded judgment against those appellants.
68 In the course of his submissions, in this Court, Mr Crawford, for DCA, sought to justify the judgment based upon misleading or deceptive conduct or unconscionable conduct to the extent it was founded on allegations of a breach of the duty of good faith. First, he submitted that the appellants were given notice of reliance on the breach of that duty by reason of submissions made in the course of an application for an interlocutory injunction. Whilst it appears that a submission of that nature might have been formulated in that application, it did not find any place in the pleading on which DCA proceeded to trial. Its absence from the pleading tends to suggest that DCA no longer relied upon it and does not suggest it wished to use it as a foundation for its action at trial. In addition, it does not appear that the foundation of that early allegation of a breach of the duty of good faith was that ultimately relied upon by the trial judge which is identified at [25] of the second set of reasons:
But the course of conduct found, at [125] of the principal judgment, to have been embarked upon between January 2016 and August 2016 had as its overall aim the facilitation of the progressive subversion of the franchise "joint venture" with DCA by a new business, the ARES business, operated by a company controlled by Ms Clark, ANT Printing, in which Mr Stefanovski had a financial interest. The establishment and operation of the new business were part of the overall conduct which I found both to be not in good faith as well as to be unconscionable, each contrary to statute. Insofar as this entailed corporate conduct, Mr Stefanovski and Ms Clark were each knowingly concerned in it.
69 Second, Mr Crawford submitted that Counsel for DCA cross-examined on the point during the course of the trial and therefore made it a live issue. However, the alleged cross-examination on that topic comes nowhere near to raising the question of a breach of the duty of good faith, let alone knowledge on the part of Ms Clark as to TK Sign's obligations of good faith and whether or not the conduct in which it was involved was in contravention of that obligation. Additionally, if the cross-examination referred to was intended to raise the issue of a breach of the duty of good faith by TK Signs or the appellants, it necessarily implies that DCA was improperly seeking to agitate a case which it was aware it had not raised in the pleadings and which it was not intending to reveal until the end of the trial. In fact, the reality is that the claim of a breach of the duty of good faith was never fairly put to the appellants nor was the suggestion of their involvement in it. The submissions made by DCA on appeal on this topic are an ex post facto attempt to support the judgment which is founded upon a case which was neither pleaded nor squarely put.
70 In this case, where much of the liability of the appellants is founded upon them being "knowingly concerned" in TK Signs' statutory contraventions, there are no pleaded allegations of the knowledge which is a necessary prerequisite to such a claim. It is well established that accessorial liability rests upon the intentional participation by a party in the contravention and such knowledge must be expressly pleaded against the party from whom relief is sought. The allegation that a person was "knowingly involved" in a contravention is a serious one and is akin to dishonesty. A party against whom such a claim is made is entitled to have the allegation clearly pleaded such that they might defend it. In Wyzenbeek v Australasian Marine Imports Pty Ltd [2017] FCA 1460 Derrington J referred to the relevant principles in the following discussion:
[96] In relation to the second matter, there is substantial weight in the submissions of the respondents that the pleading in paragraph 56 does not plead a reasonable cause of action against Mr Gay based on him being "knowingly concerned" in the alleged breaches of the TPA and ACL. An essential requirement of any plea of this nature is that the person against whom the claim is made knew of the matters which make up the essential elements constituting the contravention in question. Such allegations are necessary to establish that the person intentionally participated in that contravention. Where accessorial liability is alleged in relation to misleading or deceptive conduct, the party alleging the same must assert that at least the respondent knew of the making of the representation, that it was made in trade or commerce and that it was misleading or deceptive (see Yorke v Lucas (1985) 158 CLR 661 at 667). In Australian Competition and Consumer Commission v Online Dealz Pty Ltd [2016] FCA 732 Markovic J identified the now well accepted positon which flows from Yorke v Lucas. Her Honour said:
[163] It is necessary to show an intentional participation in and actual knowledge of the essential elements of the contravention. However, it is not necessary to show that the person appreciated that the conduct constituted a contravention. In Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [48] a majority of the High Court confirmed that the trial judge had rightly held that it was necessary to find that the relevant individuals participated in, or assented to, the companies' contraventions with "actual knowledge of the essential elements constituting the contraventions" and that in order to "know the essential facts, and thus satisfy s 75B(1) of the Act and like provisions, it is not necessary to know that those facts are capable of characterisation in the language of the statute".
[164] In Australian Competition & Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 a Full Court of this Court held at [133] that for a person to be involved in a contravention pursuant to s 75B(1)(c) of the Trade Practices Act, the person must be an "intentional participant in the contravention, the necessary intent being based upon knowledge of the essential elements of the contravention" relying on Yorke v Lucas. The Court went on to say that while it was not necessary to establish that the individual respondents had "knowledge that there was such a contravention … of the Act, it is necessary to demonstrate that each individual respondent had knowledge of each of the essential elements of the contravention". …
71 It should be added that where a claim is pursued that a person was "knowingly concerned" in unconscionable conduct in contravention of a legislative prohibition of that activity, particular difficulties arise. The existence of unconscionable conduct is often divined from all of the circumstances of a particular case and, especially, from the relationship between the entities involved. For a person to be liable as being "knowingly concerned" in such it would have to be pleaded and proved that they were aware of, at least, all of those circumstances. In a trial where the claim of unconscionability is based upon a breach of a duty of good faith the applicant would have to put to the respondents that they were aware of the obligation of good faith and that the conduct on which they relied was in breach of that obligation. None of that occurred in this matter.
72 Here, there was no pleading that Mr Stefanovski, Ms Clark or ANT Printing were knowingly concerned in the conduct of TK Signs which amounted to a breach of its obligation of good faith towards DCA. The only relevant allegation is in [59] which refers to Mr Stefanovski and Ms Clark being knowingly concerned in ANT Printing's alleged conduct of establishing a competing business, or other conduct which was actually alleged to be conduct of the individuals and not of the company. In this respect it was a hopelessly confused pleading. That occurred, in part, because it was founded upon a mistaken view of the identity of the contracting party to the franchise agreement and the liability of the individuals arising out of it. For present purposes all that is relevant is that there was no pleading to the effect that a breach of the duty of good faith had occurred and that was a fact acknowledged by the learned trial judge (at [125] of the first set of reasons).
73 At the hearing of this appeal Mr Crawford for DCA readily acknowledged that the causes of action upon which the judgment was founded were not pleaded and that the pleading proceeded upon a false premise as to the identity of the franchisee. He submitted, however, that this did not matter because the thrust of the case was that Mr Stefanovski and Ms Clark operated together and in concert in order to disadvantage DCA (see in particular [62] of the submissions). In this respect DCA relied upon the observations of the Full Court in NRM Corp Pty Ltd v ACCC [2016] FCAFC 98 to the effect that if a party is given adequate notice of the case which has to be met by one means or another then it will not matter that findings are made and judgment is given on claims not within the pleading. However, reliance on that decision in the present circumstances is misplaced.
74 First, here it was made pellucidly clear by the trial judge to the parties and, in particular, to the then respondents that the case to be determined at trial was that identified in the Statement of Claim. The then respondents raised an objection shortly after the opening that DCA's case as identified went beyond the scope of the pleadings. They received an assurance from the trial judge that the case to be tried would be what appeared on the pleading. Neither DCA nor the trial judge thereafter alerted them to any change to that position. That being so they were entitled to tailor their evidence to the case as alleged and their Counsel was entitled to examine and cross-examine accordingly. The authorities at [63]-[65] above identify that, save in those cases where the parties have abandoned the pleaded claims and defences, the decision of the Court ought to be in accordance with the pleaded case. In this matter, the appellants were entitled to assume that they were only required to meet the pleaded case and the Court was required to determine that case.
75 The decision in Water Board v Moustakas provides some insurmountable hurdles for DCA in maintaining the whole of the judgment below. The appellants were entitled to know and to respond to the claims which were raised on the pleadings. They did not agree, either expressly or implicitly, to expand the scope of the dispute beyond those pleaded claims. Indeed, they took appropriate steps through their Counsel to confine the case to the pleaded dispute. It would appear that once the objection was raised, DCA took the forensic decision not to seek to amend its pleading yet agitate a different case at the end of the trial. The learned trial judge was led into error by DCA in giving judgment on causes of action which were not pleaded.
76 The second matter in relation to this topic is the lack of correspondence between the pleaded causes of action and those on which judgment was given. The Statement of Claim inadequately pleaded the gravamen of the DCA's case. It identified that Mr Stefanovski was the franchisee and proceeded upon that basis. Although the trial judge accepted in the first set of reasons that Mr Stefanovski was bound by the agreement, he corrected that view in the second set of reasons. The Statement of Claim also proceeded upon the basis that Ms Clark was a "Key Person" and bound by the agreement, but that too was incorrect. The misleading or deceptive conduct claim in [47] to [53] is almost unintelligible, although ultimately it seemed to rest on the failure of Mr Stefanovski and Ms Clark to inform DCA of the establishment of the ARES business contrary to its reasonable expectation that it would be so informed. That allegation was based upon both Mr Stefanovski and Ms Clark having obligations under the franchise agreement to the franchisor which they did not. A second limb to the misleading conduct claim appears to relate to Mr Stefanovski seeking and obtaining an increase in the price of the products sold by DCA through TK Signs although the pleading of that matter as misleading conduct is also impossible to follow. That conduct, along with other conduct which was apparently not established, was also relied upon in the pleading as amounting to unconscionable conduct by Mr Stefanovski and Ms Clark. Somewhat curiously, the conduct is also relied upon as conduct by which those persons aided, abetted, counselled or procured ANT Printing to engage in unconscionable conduct and to be a party to it. That, of course, has an element of the bizarre about it and not only because it was not alleged that ANT Printing owed duties to DCA. It seems that at the conclusion of the trial the unconscionable conduct was alleged to include the misleading conduct of TK Signs failing to inform DCA of the establishment of the new business.
77 The pleaded claim in relation to the accessorial liability of Mr Stefanovski and Ms Clark for the conduct of ANT Printing is contained in [59] of the pleading and is founded upon the establishment of the ARES business and the seeking of an increase in prices of the DCA products. This part of the pleading observes none of the requirements of a plea of this nature. In particular, there is an absence of any allegation of knowledge of the relevant matters by the individuals concerned. Other allegations are made about the misuse of confidential information and the making of representations relating to the intended activities of Mr Stefanovski. The Statement of Claim fails to make any valid allegation of causation, particularly in relation to the causes of action under the ACL. At trial it appears it was alleged that if the conduct was not engaged in, DCA would have become aware of the competing business and would have quickly caused it to be shut down.
78 In the result, a number of the causes of action on which judgment was given were substantially different to those that can be discerned in the pleaded case. The judgment concerning the breach of duty of good faith was founded upon the identification of a progressive subversion of the franchise agreement which was, apparently, colluded in by all of the then respondents and included the misuse of confidential information. All of these circumstances were said to amount to a breach of the good faith obligations under the franchise agreement by TK Signs and Mr Stefanovski (although no such claims were pleaded against them on that basis) which, derivatively, also amounted to breaches of the ACL. These claims were also not pleaded. Ms Clark's liability arose in this respect by reason of her (and Mr Stefanovski) being knowingly concerned in the contravention. The same general finding of an attempt to undermine the franchise agreement was said to found a cause of action of unconscionable conduct.
79 To a small degree the pleaded complaints were relevant to the causes of action on which judgment was given, however, for the most part judgment was given on claims and causes of action which were not pleaded, of which the then respondents did not have notice and to which they did not have an opportunity to respond. They were not, and not close to, the causes of action on which the parties had joined issue.
80 It follows that to the extent the judgment of the Court was founded upon unpleaded causes of action which depart substantially from those in the Statement of Claim it cannot stand. We observe that, even now, no attempt has been made to amend the Statement of Claim.
81 For these reasons the judgment against the appellants for unconscionable conduct (pursuant to s 21 of the ACL or in Equity) and breach of s 51ACB of the Competition and Consumer Act 2010 (Cth) (CCA) (arising by reason of the alleged breach of s 6 of the Franchising Code of Conduct) cannot be sustained. Neither can the judgments of accessorial liability against Ms Clark and Mr Stefanovski which is founded upon the same conduct. That necessarily means that the judgments for damages or injunctions founded upon these causes of action also cannot be sustained.
82 We observe that additional arguments were advanced that DCA was not entitled to pursue the appellants under s 21 of the ACL on the basis that that section was limited to unconscionable conduct by a supplier to a consumer. In the light of the above it is not necessary to consider the correctness of that submission.