Ty Trade Practices - misleading and deceptive conduct - statements made in course of sale of video business - allegations of fraudulent or negligent misrepresentation - breach of contractual terms and contractual warranties arising out of some statements Practice and Procedure - application to strike out parts of statement of claim - whether reasonable cause of action disclosed - special conditions precedent pleaded - whether strictly conditions orecedent - matters for trial judge to determine Trade Practices Act 1974 5.52 VICTOR MARKOU_ and LUBICA MARKOU v. HUGO INVESTMENTS PTY. LTD. , TERENCE TITMUSS and ANDRE ROGALA Wo. WAG 52 of 1983 Toohey J. Perth December 1983 IN THE FEDERAL COURT } OF AUSTRALIA ) WESTERN AUSTRALIA ) No. WA G52 of 1983 ) ) DISTRICT REGISTRY GENERAL DIVISION BETWEEN: VICTOR MARKOU and LUBICA MARKOU Applicants and HUGO INVESTMENTS PTY. LTD. First Respondent TERENCE TITMUSS Second Respondent ANDRE ROGALA Third Respondent JUDGE MAKING ORDER : Toohey Jd. DATE OF ORDER : 16 December 1983 WHERE MADE : Perth THE COURT ORDERS THAT: i. The third respondent's motion dated 11 November 1983 be dismissed. 2. The parties have liberty to apply as to the costs of the motion. IN THE FEDERAL COURT ) OF AUSTRALIA ) WESTERN AUSTRALIA ) No. WA G52 of 1983 DISTRICT REGISTRY ) GENERAL DIVISION } RETHWEEN : VICTOR MARKOU and LUBICA MARKOU Applicants and HUGO INVESTMENTS PTY. LTD. First Respondent TERENCE TITMUSS Second Respondent ANDRE ROGALA Third Respondent CORAM: TOOHEY J. 16 December 1983 REASONS FOR JUDGMENT This 1s a motion by the third respondent to strike out 16 paragraphs of a statement of claim comprising 37 paragraphs. The statement of claim is in some respects ambiguous and confusing. Some of its defects were remedied by amendments made to paras 7, 10, 11 and 23 during the hearing of the motion. Others are capable of being cured by a reconsideration of the Pleading or, in default, by a request for further and better particulars. However there still remain some objections of substance. The applicants aro the purchasers of a Ilibrary video bitsiness from che third respondent for whom the first and second respondents acted as agents. The sratement ar claim follows a pattern which has become familiar in this court since Fencott v. Muller «¢1982-83) 46 ALR 41 clarified the jurisdiction of the Federal Court where federal and non-federal claims are joined. The statement of claim pleads various statements, written and oral, made by or on behalf of the third respondent in the course of the sale of his business. The applicants rely upon those statements and their alleged falsity as constituting conduct which was misleading or deceptive, or likely to mislead or deceive in breach of 5.52 of the Trade Practices Act 1974. The same representations are said toa have been made falsely or with reckless indifference to their truth or without belief in their truth or negligently. Ex abundanti cautela, the same representations are said to have been incorporated into the contract of sale as contractual terms or to constitute collateral warranties. Because of a matter which was at the forefront of the third respondent's attack on the statement of claim, it is necessary to say something of the contract of sale under which the applicants purchased the third respondent's business, Although it is dated 19 July 1983, it is common ground that there was no binding contract until 21 July. The purchase price was $38,000, payable as to a deposit of $20 on the making of the offer, a further deposit of $1,000 on its acceptance and the balance on settlement, the date of whith was identif1red in the contract as 31 August 1983. The applicants, as purchasers, made those payments and entered into possession. The contract 18 on a printed form and one of its terms, completed as to the relevant period, reads: "(15) The vendor/s shall if required by the purchaser/s remain without remuneration in the business for a period of one weeks for the sole purpose of familiarising the purchaser/s with the nature and general running of the business". The document provides for the inclusion of special conditions which, in the present case, read: "Subject to purchaser inspecting and approving the leased documents within 7 days of acceptance of this offer. Subject to purchaser being satisfied with sales records and proof of turnover and expenses within 14 days of acceptance of this offer". Paragraph 12 of the statement of claim recites these three matters, pleading them as "special conditions precedent of sale". Later paragraphs allege that the applicants entered into possession of the business on or about 20 August 1983 and that on 23 August they requested the third respondent to attend to familiarise them with the nature and general running of the business but that the third respondent failed to do so (para. 16). They also allege that they requested the third respondent to provide sales records and proof of turnover and expenses but that the third respondent farled to produce them (para. 17). It is then said that by reason of "the matters aforesaid", the applicants did not approve the lease documents (para. 18). The statement of claim pleads further: "34, By reason of the non-fulfillment of the said special conditions precedent the contract has come to an end and the Applicants are entitled to repayment of all monies paid to the First Respondent on behalf of the Third Respondent thereunder". The statements upon which the applicants rely as penny Tt constituting wmwisleading ar eeprive conduct, fraudulent misrepresentation, negligent misstatement and breach of contract relate to the gross turnover and net profit of the business. The third respondent argued that those paragraphs of the statement of claim pleading conditions precedent and the failure thereof, with a consequential claim to repayment of all monies paid by the applicants, should be struck out as disclosing no Ss ig ou bid] onable cauge of action. The basis of this argument was that the contract was no longer executory, that it had been performed on the applicants' part by paying the purchase price and entering into possession of the business, hence that no claim could arise from the failure of a condition precedent even if one were established. In the third respondent's submission, the conduct of the applicants in paying the purchase price and entering into possession must constitute a waiver of any right to regard the contract as at an end, alternatively they are estopped from so regarding the contract. There is some force in this submission but it largely derives from the pleader's description of the matters in question as "conditions precedent of sale". In its strict sense, a condition precedent relates to an event, the occurrence or non-occurrence of which determines whether there 1s a contract at all. But it need not be so confined. The event in question may be "precedent to the agreement being operative as a contract" or "precedent to the performance of a particular term of the contract" (Isaacs J. in Maynard v. Goode (1925-1926) 37 CLR 529 at p. 540). It is difficult to see how any of the so called special conditions precedent operated or were intended to operate so that until their fulfilment there was no contract between the parties. Indeed the provision that the vendor would, if required, remain in the business for one week can hardly be a condition either in the sense of preventing the contract from coming into existence or bringing it to an end. No doubt a breach would sound in damages. As to the other "special conditions", each relates to an event to take place after "acceptance of the offer". In these circumstances I do not see how either could operate as a condition precedent to the coming into existence of the contract. Each assumes the existence of a contract between the parties. But each is capable of being treated as a condition precedent in the wider sense of "a condition which, pending its fulfillment, leaves the contract subsisting and effective, although its non-fulfillment will subsequently prevent the contract as a whole, or prevent a particular part of the contract, as the case may be, from coming fully into operation" (Cheshire and Fifoot: Law of Contract 4th Aust. Ed. para 417. In truth these provisions are more in the nature of conditions subsequent or resolutive. The events in question are not beyond the control of the parties so as to be self-executing. They depend upon the applicants "inspecting and approving the lease documents" and "being satisfied with sales records and proof of turnover and expenses", each within the time prescribed. It may well be that the applicants must act reasonably in these matters but equally it is incumbent upon the third respondent to produce the relevant documents. The statement of claim (para. 17) alleges a failure on the part of the third respondent to provide sales records and proof of turnover and expenses and para. 18 pleads that by reason "of the matters aforesaid" (which appears to embrace not only the failure of the third respondent to provide the necessary documents but also his failure to attend at the premises for the week in question), "the applicants did not approve the lease documents in respect of the business premises within seven days of acceptance of the offer or at all". It may be that in the circumstances pleaded the applicants were entitled to treat the contract as atan end notwithstanding that they had paid the purchase price and entered into possession. I express no view on that matter which will be for the trial judge to determine in the light of the evidence and a closer examination of the law. For the purposes of the present application, 1t is enough to say that I am not persuaded that by ~I attaching to the matters in question the label of "conditions precedent", the applicants are precluded from obtaining the relief which they claim. However 1t would be better if the label were not used. The third respondent also attacks paras 13 and 35 of the statement of claim. Paragraph 13 pleads that the written offer contained "a further condition that the business, plant, stock and other chattels were free of all encumbrances". Paragraph 35 alleges that the third respondent was in breach of that condition "in that a large number of tapes forming the stock-in-trade of the business were those in respect of which the Third Respondent had no right title, estate or interest". Presumably para. 13 is intended to allege a condition that all property sold was not only free of encumbrances but was the property of the third respondent. Such a term would be readily implied. In that event a relevant connection between the two paragraphs would exist. It seems to me that, read broadly, a pleading that assets were free of encumbrances carries the implication of ownership. The matter can and should be readily clarified but I am not prepared to strike out the paragraphs in question. Paragraph 29 of the statement of claim refers to the representations mentioned earlier in these reasons and, by way of further or alternative claim, asserts that the representations "were incorporated into the said contract as contractual terms as conditions or warranties". The third respondent attacks this pleading on the ground that an examination of the contract of sale reveals it to be an entire contract with no room for the incorporation of the matters pleaded as representations. The question is not one of collateral warranties; that is the subject of a later plea. It may well be that the applicants will have great difficulty in sustaining an argument that the representations were incorporated into the contract. But the question involves the intention of the parties and I do not think I should shut out the applicants from attempting to make good such a case. The other matters complained of by the third respondent have, I think, been clarified by the amendments made during the hearing. While I am not persuaded that any of the paragraphs of the statement of claim should be struck out as disclosing no reasonable cause of action, it will be apparent from these reasons that, in my view, the statement of claim could be pleaded with more precision. Counsel asked for an opportunity to be heard as to the costs of the motion so my order is that the motion be dismissed - with liberty to apply on the question of costs. I certify that this and the seven preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey feanen ) f& associate Dated: 16 December 1983