Trade EFractices - Fractics and Frocedureé - Apolication to strike cut statement of claim - whether statement cf clazrm disclosed reasonable cause of action - whether pleading embarrassing - misleading or deceptive conduct - Federal Court Rules Order 11 Rule 16 - Trade Practices Act 1974 5.52. Trade Practices Act 1974 s.4(2): s.52 Federal Court Rules Order 11 Rule 16 Cases: Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 General Steel Industries Inc. v. Commissioner for Railways (NSW) and Others (1964) 112 CLR 125 Bruce v. Odhams Press Ltd (1936) 1KB 697 Metropolitan Coal Consumers Association: Karberg's Case £18921 3 Ch.l Brown and Another v. Jam Factory Pty Ltd and Another (1981) 35 ALR Knowles v. Roberts (1888) 38 Ch.D. 263 at 273 AUSTRASIN PTY LTD, IRY PTY LTD, JULIET POH PUAY CHAN, CHIN CHOO CHAN, CHEE WAY SIAH and RUTH LOCKE and PAUL and LEONTE KRISTENSEN v. STRATLOCK LIMITED and ATTEST PTY LTD and ROBERT STANLEY BROWN No. WA Gill of 1986 MUIRHEAD J. PERTH 23RD APRIL 1986 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WA Gll of 1986 BETWEEN: AUSTRASIN PTY LTD, IRY PTY LTD, JULIET POH PUAY CHAN, CHIN CHOO CHAN, CHEE WAY STAH and RUTH LOCKE First Applicants and PAUL and LEONIE KRISTENSEN Second Applicants and STRATLOCK LIMITED First Respondent and ATTEST PTY LTD Second Respondent and ROBERT STANLEY BROWN Third Respondent MINUTE OF ORDER JUDGE MAKING ORDER: MUIRHEAD J. DATE OF ORDER: 23rd April 1986 WHERE MADE: Perth THE COURT ORDERS THAT: 1. The application to strike out the statement of claim be dismissed. Paitin One atone et The first respondent pay the applicants' costs of incidental to this application. Liberty to the parties to apply. Note: Settlement and entry of orders is dealt with Order 36 of the Federal Court Rules. and in IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WA Gll of 1986 BETWEEN AUSTRASIN PTY LTD, IRY PLY LTD, JULIET POH PUAY CHAN, CHIN CHOO CHAN, CHEE WAY SIAH AND RUTH LOCKE and First Applicants PAUL and LEONIE KRISTENSEN and Second Applicants STRATLOCK LIMITED and First Respondent ATTEST PLY LTD and Second Respondent ROBERT STANLEY BROWN CORAM: MUIRHEAD J. 23rd April 1986 Third Respondent REASONS FOR DECISION By Notice Respondent (Stratiock) seeks in so far as it relates to Stratlock be of Motion filed on 25 March 1986 the First an order that the Statement of Claim struck out as disclosing no reasonable cause of action or as being embarrassing. The power of this court to make such an order is contained 1n Order 11 Rule 16. I am not asked to make an order under Order 20 Rule 2 which involves the use of discretionary power which will not be used sparingly. (See Dey v. Victorian Railways Commissioners (1949) 78 CLR 62 per Dixon J. at 91). Be that as it may, where the application is made on the ground that no reasonable cause of action is disclosed it follows that I must be well satisfied of that fact before striking out. At an interlocutory stage where no evidence is adduced the fact that the cause of action may appear unusual or novel does not in itself justify such an order unless, to use words adopted hy Barwick C.J. 1n General Steel Industries Inc. v. Commissioner for Railways (NSW) and Others (1964) 112 CLR 125, the plaintiff's claim is "manifestly groundless" or "so clearly untenable that it cannot possibly succeed". In order to disclose a reasonable cause of action a statement of claim must contain statements of material fact which support the claims made. (See Bruce v. Odhams Press Ltd (1936) 1KB 697 per Scott L.J. at 712 referred to by Northrop J. in H 1976 Nominees Pty Ltd v. Galli and Apex Quarries Ltd (1979) 30 ALR 181). The applicants seek relief against the respondents under the Trade Practices Act 1974. Very briefly the Statement of Claim alleges that in May and June 1985 the applicants had discussions with the third respondent Brown, a director of the second respondent (Attest). Para 10 alleges that Attest was the promoter of Stratlock a company shortly to be incorporated. Paras 11 and 12 set out certain continuing representations made by Brown to induce the applicants to take up shares in Stratlock when allotted. Para 13 alleges, with particulars. that certain statements of existing fact were implicit in the representations, that they were made in the course of trade or commerce with the intention, which was realised, of inducing the applicants to apply for pre float shares in Stratlock. Para 16 alleges that Stratiock, from its incorporation on 13 August 1985 knew "by its promoter Attest and by the director Brown" of the representations, statements of existing fact implicit therein and of the application for shares made in reliance upon these matters. The Statement of Claim goes on to plead the allotment of shares, (resulting in alleged loss to the applicants) by Stratlock soon after its incorporation. Paragraph 22 details the misleading and deceptive representations and statements of existing fact made in alleged breach of 5.52 of the Act. Para 23 basically claims that Stratlock "adopted and or repeated" the impugned matters and, in the alternative, by silence represented to the applicants that they could rely upon the representations. The statement of claim goes onto plead misrepresentation at common law and alleges Stratlock was in breach of a duty of care it owed to investors, not only in failing to keep them accurately informed, but by its failure "to correct or withdraw the representations or to ensure their continuing accuracy". The applicants thus cast a wide net, perhaps too wide, but that is a matter which would be better determined after further and better particulars are applied for, if indeed Stratlock wishes so to act. It 15 no discourtesy to counsel for Stratliock that I do not deal with all his arguments. He attacks the vagueness of some of the pleadings, the fact that the alleged conduct took place before his clients' incorporation and the novelty of the duty of care pleaded. He submits that the Statement of Claim discloses no 'conduct' on the part of Stratlock which can be brought within the ambit of s.52 and he queries the concept of representations by silence. There may prove to be substance in his arguments, but they are not sufficient to persuade me that no cause of action is demonstrated and it cannot I think be said that the pleading is bad, as not being supported by sufficient material facts. Section 4(2) of the Act in reference to 'engaging in conduct' and 'refusing to do an act' justifies liberal interpretation which could conceivably refer to a party, who cognizant of an earlier misrepresentation which involves subsequent steps on his part, takes such steps without as it were putting the record straight. Section 4(2)(c) classifies "refusing to do an act" (referred to in 4(2)(a)) as "refraining from doing that act". It is too early for me to find as a matter of law that Stratlock is in law immune from the consequences of misrepresentation on the part of the promotor, especially as the pleadings allege that the respondent Brown was a director of each. The authors of Gower's "The Principles of Modern Company Law" (4th Edition) deal with rescission resulting from a false prospectus at p.377 et seq. The passage commences: Case "Where the company issues securities and publishes a false prospectus, the position 1s usually straightforward. But difficulties could arise in two situations. The first 1S where the prospectus is issued by the promoter prior to the formation of the company. The company cannot have any agents prior to 1ts formation and. equally. cannot afterwards ratify acts purporting to be done on its behalf. It is clear, however. that companies cannot be allowed to take advantage of misleading prospectuses previously published, so as to off-load their shares onto a public deceived thereby. Hence the courts have held that if the officers of the company know that applications are made on the basis of a prospectus, the contract with the company is vitiated by any misrepresentations contained in it, even though the company was not initially responsible for the prospectus". In re Metropolitan Coal Consumers Association; Karberg's £18921 3 Ch.l is still cited as authority for proposition. Lindley J. there stated at p.13 : "Speaking generally, there is no doubt that a misrepresentation in order to vitiate a contract must be made by a party to it, or by his agent. But this rule is not without exception. Stewart's Case, Law Rep. 1 Ch. 574 and Downes v. Ship, Law Rep. 3 H.L. 343 warrant the proposition that an application to a company when formed for shares, based upon a prospectus issued by the promoters of the company before its formation, cannot be dissevered by the company from such prospectus. The offer to take shares is an offer to take them on the terms of the prospectus, and on no other terms; and the acceptance of the application by the allotment of the shares is the acceptance of the offer on those terms, and not on other terms. Applying this principle to the present case, it follows that the misrepresentation proved to have been made in the prospectus, although not made by the company or by its agents, vitiated the only contract into which Karberg and the company entered, and entitled Karberg to repudiate it, provided it was material to the contract and the repudiation was made in time. The company, not having made the representation by itself or by its agents, is not liable in damages; but as regards rescission of contract, the company is in the same position as if it had made the representation itself, without knowing 1t to be untrue. But in an action for rescission of contract on the ground of misrepresentation, it is not necessary to prove knowledge by the Defendant of its untruth: see Redgrave v. Hurd 20 Ch. D.12." this fen It 1s now well settled that a representation relating to a future event may constitute 'conduct' for the purpose of s.52(1) (Brown and another v. Jam Factory Pty Ltd and another (1981) 35 ALR 79) and as I have said I am of the view that there may be circumstances when silence may be held to amount to misleading or deceptive conduct. I am not persuaded that the Statement of Claim relating to Stratlock should be struck out on the first ground. I have also considered the second ground, that is to say that the pleading should be struck out as being embarrassing. I am not sure whether in seeking this amendment from the bar Mr O'Connor intended to embrace all the matters referred to in Order 11 Rule 16(b) namely, "has a tendency to cause prejudice, embarrassment or delay in the proceedings" so that it becomes a pleading which is "beyond his right" (Knowles v. Roberts (1888) 38 Ch.D. 263 at 273). I will assume this was his intention. I have of course practically no evidentiary background. Considering the Statement of Claim on its face I can see no apparent difficulties facing the pieader in preparation of the defence. If some of the allegations are too broad further particulars can be requested and if appropriate ordered. In saying that I am aware that particulars do not of necessity cure a bad statement of claim but essentially the Statement of Claim is so framed as to enable Stratlock to assess the claim it has to meet. Some of the matters may be beyond Stratlock's knowledge, a consideration which in itself is no obstacle to pleadings. Tor the above reasons tne cresent. avriication must be dismissed. It may be appropriate that further directions should be made but I will leave this for the parties to consider. The respondent Stratlock must pay the applicants' costs of and uncidental to the Notice of Motion. I certify that this and the preceding six pages are a true copy of the reasons for decision herein of his Honour Mr. Justice Muirhead Associate Dated: 23 April 1986 al