Vesuvius Australia Pty Limited v V&M Davidovic Pty Limited Obnova Concrete Pty Limited v Vesuvius Australia Pty Limited

Judgment (ex tempore) 1HIS HONOUR: I am concerned today with notices of motion filed in two proceedings which it is convenient to call the 2010 proceedings and the 2011 proceedings. In the 2010 proceedings, the plaintiff is Vesuvius Australia Pty Ltd (Vesuvius) and the defendant is V & M Davidovic Pty Ltd (V & M). There is a cross-claim in which V & M is the cross-claimant and Vesuvius is the cross-defendant. 2In the 2011 proceedings, the plaintiff is Obnova Concrete Pty Ltd (Obnova) and the defendant is Vesuvius. 3The only relief pursued by V & M in its notice of motion in the 2010 proceedings is an order that those proceedings be heard together with the 2011 proceedings. If the 2011 proceedings continue, that order is not opposed. There is a question of costs in relation to the notice of motion. 4In the 2011 proceedings, Vesuvius moves for an order that the proceedings be dismissed pursuant to UCPR r 13.4 or alternatively that the proceedings or the amended statement of claim "be dismissed or struck out as the case may be". 5In relation to the 2011 proceedings, the debate has focused on a draft further amended statement of claim (draft FASC) that Obnova wishes to propound. That document is propounded on the basis that "all prior filed pleadings are replaced" by it. Vesuvius says that Obnova should not have leave to amend, in terms of the draft FASC, because it discloses no cause of action. 6By the draft FASC, Obnova would claim compensation or damages for unconscionable conduct pursuant to s 51AA or s 51AC of the former Trade Practices Act 1974 (Cth), or for misleading or deceptive conduct contrary to s 52; or alternatively restitution. It appears to be accepted that the conduct complained of occurred before the Trade Practices Act was repealed by the Trade Practices Amendment (Australian Consumer Law ) Act (No.2) 2010 (Cth). On that basis, it is convenient to continue to refer to the provisions by their familiar designation (See cls 6 and 7 of sch 7 to the Trade Practices Amendment (Australian Consumer Law) Act (No2)). 7The factual background is somewhat complex. However, I think, its essential features can be stated relatively briefly. Each of V & M and Obnova is a company controlled by father and son, Messrs Velibor and Miroslav Davidovic. V & M owns two parcels of land at Unanderra which may be called the "Doyle land" and the "Sylvester land". Factory buildings are constructed on the Doyle land. At times relevant to the 2011 proceedings, the Sylvester land was undeveloped. Further, at those times, Obnova occupied the Doyle land, and carried on therefrom its concreting business. 8At one stage, Vesuvius wished to take a lease of the Doyle land. Obviously enough, if it did so, Obnova would have to move out. Vesuvius negotiated with V & M, and ultimately those parties entered into a deed of option which, as I understand it, contained put and call options in respect of the Doyle land. Vesuvius exercised the option given to it, and on that basis an agreement for lease came into existence between it and V & M. 9Vesuvius says that it terminated the agreement for lease pursuant to an express contractual right to do so in the events that happened prior to that termination. V & M says that Vesuvius was not entitled to terminate the agreement for lease and that its purported termination was a repudiation. 10V & M says that it has accepted that repudiation, and treated the agreement for lease as at an end. On either basis, therefore, the agreement for lease has come to an end. 11In the 2010 proceedings, Vesuvius sued for the return of a deposit paid by it and V & M cross-claimed for damages incurred by it in relation to, or arising out of, what it characterises as the breach of contract and repudiation to which I have referred on the part of Vesuvius. 12In the 2011 proceedings, Obnova wishes to claim in substance for the same items of loss or damage. The case that Obnova wishes to make out is that it incurred expense, and suffered loss, both in preparing to vacate the Doyle land and in paying for some work to be done in respect of the proposed development of the Sylvester land so as to meet the requirements of Vesuvius. In the draft FASC, Obnova relies, among other things, on the fact of its common control with V & M, and its asserted incurring of expense and suffering of loss from the activities of which it makes complaint on behalf of Vesuvius. 13It is convenient to look separately at the ways in which the case is put. I will start with s 51AA. That section picks up the general law concept of unconscionability. For a dealing to be unconscionable under the unwritten law (ie, in accordance with the principles developed by equity over the centuries), the plaintiff (in this case, Obnova) must be suffering from some special disadvantage or disability; the defendant (in this case, Vesuvius) must know of that; and the defendant must take unconscionable advantage of that special disadvantage or disability by entering into a catching bargain, or some other unconscientious dealing, with the plaintiff. 14I accept that this is an outline of the principles on which equity acted, and acts, to relieve against unconscientious dealings, and that the kinds of case which may be found to involve unconscientious dealings are not closed. But there is nothing suggested in the draft FASC to support the proposition that Obnova suffered from some special disadvantage or disability. Nor is there anything suggested to support the conclusion that Vesuvius knew of, let alone that it took advantage (unconscientiously or otherwise) of, any such special disadvantage or disability. 15In my view, the pleaded case, in so far as it seeks to rely on s 51AA, is hopeless and there is no point in granting leave to amend to allege it. 16I turn to the pleaded case based on s 51AC. In case it is not clear from what I have said already, I should state that the dealings in question took place between Vesuvius on the one hand and V & M on the other. V & M was the proprietor of both parcels of land. It was the lessor, or proposed lessor, of each parcel. The option agreement and agreement for lease were made between V & M and Vesuvius. Had negotiations in respect of the Sylvester land proceeded to finality, the same position would apply; the contracting parties would have been V & M and Vesuvius. 17In those circumstances, Mr P T Russell of counsel, who appeared for Vesuvius, submitted that s 51AC had no application. He relied on the decision of the Full Court of the Federal Court of Australia in Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110. The applicant in that case sold training materials to candidates seeking membership of the respondent. The respondent commenced to sell such materials itself, and then began to provide them free of charge. The appellant claimed that this involved contravention of, among other things, s 51AC. 18At first instance ([2001] FCA 1056), Lindgren J held (at [250] and following), that s 51AC had no application: ...to a case such as the present one in which there is no relevant transaction between the respondent corporation and a person .... against whom its allegedly unconscionable conduct is directed; and ... who does not suffer from any 'special disadvantage' or 'special disability' for the purposes of the general law concept of unconscionable dealing. 19As to s 51AC, his Honour explained (at [251] and following) why that section had no potential application where the parties to the suit were not "the supplier" and "the business consumer", or "the small business supplier" and "the acquirer", contemplated by s 51AC. His Honour reached that conclusion based on both the language of the section itself and on consideration of its legislative history and second reading speech. 20Mr N Allan of counsel, who appeared for Obnova, submitted that the relevant legislative purpose was to be found not only in s 51AC itself, but also in s 2 of the Trade Practices Act. It is of course correct to say that s 2 sets out the object of the Act as being "to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection". However, the way in which the Act sought to do that was spelled out in the succeeding sections, and for present purposes we are considering s 51AC. If I may say so with respect, I think that Lindgren J was correct to confine his search for statutory intention to s 51AC, although I have no doubt that in ascertaining that statutory intention, it is legitimate to look to the wider underlying intention supporting the whole of the Act. 21The Full Court (Black CJ, Heerey and Tamberlin JJ) dismissed the appeal from Lindgren J. The Court's reasons on s 51AC were given by Heerey J (see Black CJ at [2] and Tamberlin J at [162]). Heerey J summarised his reasons at [74]: As to unconscionable dealing, s 51AC only applied to transactions between a "supplier" and a "business consumer". The expression "in connection with" in s 51AC requires that the conduct impugned "accompany, go with or be involved in" the supply of goods or services and it was not sufficient that, as alleged in the present case, such supply be the occasion of unconscionable conduct of the supplier to an unrelated third party with whom the supplier has no dealings at all. 22Heerey J amplified those reasons at [114] to [117]. His Honour said that s 51AC was directed "not to conduct in trade or commerce generally, but... to conduct in trade or commerce in connection with" specified transactions. Thus, his Honour concluded, it was concerned "only with conduct in relation to dealings between the corporation in question and a particular kind of person". His Honour had referred, among other things, to the factors specified in subs (3) and (4), all of which focused on dealings between either the supplier and business consumer (subs (3)) or between the acquirer and small business supplier (subs (4)). 23His Honour reinforced that view by reference to the legislative history, and thus, at [117], expressed agreement with the conclusion reached by Lindgren J at first instance. 24Mr Russell submitted, in my view correctly, that the ratio of the decision of the Full Court is to be found in the paragraphs in the reasons of Heerey J to which I have referred. 25Mr Allan focused on the fact that Heerey J had referred to the exclusion, from the operation of s 51AC, of unrelated parties. In this case, he submitted, Obnova could not be so described. First, it was related to V & M. Secondly, the facts were pleaded which showed that its involvement was known to Vesuvius. I do not think that this makes any relevant difference. 26The whole object of s 51AC, as explained by the Full Court, is to protect those described in subs (3) and (4), who are respectively business consumers and small business suppliers, from unconscionable conduct at the suit of others who are, respectively, suppliers or acquirers. That this is so is made plain by the kinds of non-exclusive factors to which the Court may have regard, in determining whether there has been unconscionable conduct, as set out in those subsections. 27I accept of course that in any particular case, there may be factors other than those listed in the applicable subsection which demonstrate unconscionability. But that is not the point. The point is that each of the listed factors is limited to factors pertaining between the two "sides" described in the relevant subsection. In my view, that confirms that s 51AC was not intended to operate beyond those categories. 28It is clear that I should follow the decision of the Full Court unless I were persuaded that it was plainly wrong. I do not think that Mr Allan went so far as to submit that it was plainly wrong; but if he did, I do not agree. On the contrary, if I may say so with respect, I think that the decisions of Lindgren J and of the Full Court were each correct, for the reasons that their Honours gave. 29It follows that the claim that is sought to be pressed based on s 51AC cannot succeed. 30Mr Russell submitted, further, that in any event the pleaded conduct did not come anywhere near showing conduct that, as French J put it in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 at [13], is conduct "showing no regard for conscience". I think that there is much to be said for this submission, but in view of the conclusion that I have reached on the inapplicability, as a matter of principle, of s 51AC, it is not necessary to give detailed consideration to this submission. 31I turn to s 52. The difficulty with that aspect of the draft FASC is that it is not alleged that there was conduct of Vesuvius that was misleading or deceptive, let alone that there was conduct of Vesuvius by which Obnova was mislead or deceived. That must be fatal to any claim based on s 52. 32Finally, I turn to the claim based on restitution. Mr Allan rested that claim on the decision of Sheppard J in Sabemo Pty Ltd v North Sydney Municipal Council [1977] 2 NSWLR 880. In that case, there had been negotiations between Sabemo and the Council for the development of a Civic Centre from which both the Council and Sabemo would benefit. Sabemo carried out a great deal of work, much of it at the express request of the Council. The Council ultimately did not proceed. Sabemo sought compensation. Sheppard J held that it was entitled to receive compensation. His Honour stated the governing principle at 902-903: ...where two parties proceed upon the joint assumption that a contract will be entered into between them, and one does work beneficial for the project, and thus in the interests of the two parties, which work he would not be expected, in other circumstances, to do gratuitously, he will be entitled to compensation or restitution, if the other party unilaterally decides to abandon the project, not for any reason associated with bona fide disagreement concerning the terms of the contract to be entered into, but for reasons which, however valid, pertain only to his own position and do not relate at all to that of the other party... 33The decision in Sabemo has been considered in detail in many decided cases since 1977. I dealt with those, at somewhat excessive length perhaps, in BBB Constructions v Aldi Foods [2010] NSWSC 1352 at [331] and following. I will not repeat what I there said. It is sufficient to say that, even if the decision in Sabemo should be accepted as correct on the facts of that case, it does not provide any principle of general application. So much, I think, was recognised by Bryson J in Fensom v Cootamundra Racecourse Reserve Trust [2000] NSWSC 1072 at [88] and by Bergin J in Leading Edge Events Australia Pty Ltd v Kiri Te Kanawa (2007) Aust Contract Reports, 90-250 at [260]. 34One of the things that I said emerged from the post- Sabemo authorities (see BBB Constructions at [341]) was that if there were to be a restitutionary entitlement on the basis of Sabemo or principled development from it, at least three things must be considered: (1) whether the benefit was provided to the alleged recipient; (2) whether that benefit was provided on the basis that it should be paid for directly; and (3) whether, in the circumstances, it would be unconscionable for the recipient to take the benefits without paying the price. 35If that is the correct analysis of Sabemo , it shows of itself why the principles stated by Sheppard J has no application on the facts alleged, as between Obnova and Vesuvius, in the draft FASC. 36The same conclusion can be reached simply by looking at the governing principle that I have set out above and comparing it with the facts of this case. As between Obnova and Vesuvius, there was no joint assumption that the contract would be entered into between them. There was no doing of work beneficial for that contractual project. Further, as between Obnova and Vesuvius, it was never suggested that Vesuvius would make any payment to Obnova. On the contrary, as is plain both from the affidavits and from the submissions of Mr Allan, the whole idea was that V & M would make the profit and that Obnova would in some way be remunerated through V & M. 37For those reasons, it is plain that the concept of restitution has no application. I would add that the matters to which I have just referred would also go a long way towards explaining why it must be doubtful, on the facts of this case, that there was any relevant unconscionability for the purposes of s 51AC if that section were capable of application. 38It follows that Obnova should not be given leave to amend in terms of the draft FASC. It seems to follow from that, that Vesuvius is entitled to the relief that it seeks by its notice of motion in the 2011 proceedings, and that there is no point in making any order for those proceedings to be heard together with the 2010 proceedings. That in turn suggests that Vesuvius should have its costs not only of the 2011 proceedings, so far as they have travelled, but also of the notice of motion in the 2010 proceedings. I will, however, hear counsel on the precise relief to be granted consequent upon these reasons. (Counsel addressed.) 39Vesuvius seeks its costs of both notices of motion. As to the notice of motion in the 2010 proceedings, it seeks in addition an order that those costs be assessed forthwith. As to the notice of motion in the 2011 proceedings, it seeks an order that Mr Miroslav Davidovic be personally liable for those costs, together with the company, because he commenced them as director in a manner not authorised by UCPR r 7.1(3) (because he was not also a plaintiff) and without an affidavit of authority (r 7.2(1)). 40Mr Allan submitted that there should be no further order for costs in respect of the notice of motion in the 2010 proceedings because previous costs had been dealt with by an order of Slattery J and, except for the issue of "hearing together", there was no contest. As to the notice of motion in the 2011 proceedings, Mr Allan submitted that there should be no personal order against Mr Davidovic because as a lay person he would not have been aware of the relevant provisions of the rules, and because there was no evidence that Obnova could not pay. 41I start with V& M's notice of motion filed 22 July 2011 in the 2010 proceedings. There has now been a discrete event in respect of that notice of motion. One way or another, it has failed completely. Even accepting that the only extant prayer for relief was the prayer for consolidation, which turned into a prayer for hearing together, nonetheless that has failed because there is nothing for those proceedings to be heard together with. 42In my view, costs should follow the event and there is no reason why they should not be assessed forthwith. 43As to Vesuvius' notice of motion filed 25 July 2011 in the 2011 proceedings. Mr Miroslav Davidovic should have been a plaintiff and I do not see why he should escape a costs liability because, even if through ignorance, he disobeyed the requirements of r 7.1(3). 44There did not seem to be any dispute that, in consequence of my reasons, the 2011 proceedings should be dismissed generally, as sought in prayer 1 of the relevant notice of motion. 45Accordingly, I make the following orders: (1) In matter 2010/84991, I order that the plaintiff's notice of motion filed on 22 July 2011 be dismissed with costs and that those costs be assessed forthwith. (2) In matter 2011/210525, I make orders in accordance with prayers 1 and 3 of the defendant's notice of motion filed on 25 July 2011.

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