Felkro Nominees Pty Ltd & Anor v Commonwealth of Australia & Anor [1997] FCA 560

IN THE FEDERAL COURT OF AUSTRALIA) ) VICTORIA DISTRICT REGISTRY ) No. VG 341 of 1996 ) GENERAL DIVISION ) BETWEEN: FELKRO NOMINEES PTY LTD (ACN 005 574 514) (Firstnamed Applicant) AND: MOREPACK MERCHANDISING (NSW) PTY LTD (ACN 056 351 592) (Secondnamed Applicant) AND: COMMONWEALTH OF AUSTRALIA (Firstnamed Respondent) AND: JOHN SYDNEY DAWKINS (Secondnamed Respondent) CORAM: Ryan J DATE: 27 June 1997 PLACE: Melbourne MINUTES OF ORDER THE COURT ORDERS: 1. The amended statement of claim filed herein on 31 January 1997 be struck out. 2. The applicants have leave to file and serve by 25 July 1997 a further amended statement of claim properly raising the cause of action in estoppel referred to in the order of Sundberg J of 10 December 1996 and making it clear that the assumption or expectation relied on did not continue beyond November 1992.

3. The applicants pay the respondents' costs of the motion on notice dated 17 February 1997 including the costs of the hearing on 21 February 1997, such costs to be taxed in default of agreement. NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA) ) VICTORIA DISTRICT REGISTRY ) No. VG 341 of 1996 ) GENERAL DIVISION ) BETWEEN: FELKRO NOMINEES PTY LTD (ACN 005 574 514) (Firstnamed Applicant) AND: MOREPACK MERCHANDISING (NSW) PTY LTD (ACN 056 351 592) (Secondnamed Applicant) AND: COMMONWEALTH OF AUSTRALIA (Firstnamed Respondent) AND: JOHN SYDNEY DAWKINS (Secondnamed Respondent) CORAM: Ryan J DATE: 27 June 1997 PLACE: Melbourne REASONS FOR JUDGMENT RYAN J: This is an interlocutory application by way of motion on notice filed by both respondents seeking a dismissal or permanent stay of the proceedings. The firstnamed applicant, Felkro Nominees Pty Ltd ("Felkro") is a manufacturer of paper products made from raw recycled paper. Felkro purchased raw recycled paper from Austissue Pty Ltd. As from 26 June 1992 paper products made in Australia from raw recycled paper lost their exemption from sales tax. In September 1992, the firstnamed respondent ("the Commonwealth") established a bounty scheme to assist Australian producers of recycled paper adversely affected by the removal of the tax exemption. The scheme involved payments by the Commonwealth to State governments over a three year period for passing on to the producers, thereby allowing them to sell their products at the same prices which would have been charged had the goods remained exempt from sales tax. Felkro did not receive any payments under the bounty scheme, though its supplier, Austissue Pty Ltd did. In October 1995 the Commonwealth served on Felkro a statutory demand under s 459E of the Corporations Law for unpaid sales tax. On 6 November 1995 Felkro applied under s 459G to set aside the statutory demand (VG 3661 of 1995). The affidavits in support of the application were then used as the basis of a proceeding commenced by Felkro and Morepack Merchandising (NSW) Pty Ltd on 17 June 1996 against the Commonwealth and the former Treasurer, the secondnamed respondent ("Mr Dawkins"). The applicants alleged that, as manufacturers of paper products made from raw recycled paper, they were entitled to payments under the Commonwealth's bounty scheme, and also that they were entitled to set off such payments against the amount claimed in the statutory demand. In reasons for judgment published on 10 December 1996 in relation to an earlier motion by Mr Dawkins to strike out the original statement of claim and seeking dismissal of the whole proceeding as disclosing no cause of action or as being frivolous, vexatious or an abuse of process, Sundberg J summarised the relevant parts of the claim as follows: (i) The first is that the respondents represented to Felkro that it was entitled to bounty payments, and as a result of Felkro's reliance thereon the respondents are estopped from denying that Felkro is entitled to payments. (ii) The second alternative is that the respondents misrepresented the effect of the bounty scheme by stating that manufacturers of raw recycled paper products were entitled to bounty payments, and that the entities which were liable to pay sales tax in respect of the wholesale sale of the products were to be recipients of the bounty. The respondents owed Felkro a duty of care to state the effect of the scheme accurately. In breach of duty the respondents misstated its effect, which was that the producers of the paper, not the producers of the products, were to be recipients. As a result Felkro suffered loss. (iii)The third alternative is that Mr Dawkins, who administered the scheme, committed the tort of misfeasance in a public office. It was his duty under the scheme to authorise payments to Felkro. Contrary to the scheme, he authorised payments to Austissue of money that should have been paid to Felkro. Mr Dawkins knew that Felkro was entitled to the payments. He also knew that Austissue was not entitled to them, alternatively was reckless in authorising the payments to Austissue. The s 459G application was dismissed by Jenkinson J and Felkro has appealed to the Full Court against that dismissal. On 4 September 1996 an application for an injunction was refused by Sundberg J, who held that Felkro did not have an arguable case on any of the causes of action in its statement of claim. On 23 October 1996 Felkro was placed in liquidation. On 10 December Sundberg J struck out all those parts of the statement of claim pleading causes of action other than estoppel, and permitted the applicants to amend their statement of claim so as properly to raise the estoppel issue. In doing so, his Honour noted that in pleading its action against Austissue, Felkro claimed to have become aware in September 1992 that it would not receive any bounty payments and, consequently, it was not open to Felkro to claim in an action based on estoppel that it had relied, after that date, on an entitlement to payment from the Commonwealth as it knew by then that no such payment would be received. However, his Honour noted that, in a new affidavit sworn by Mr Felderbaum, a director of both applicants, it was claimed that Felkro had not become aware until the end of November 1992 that it would not receive the bounty, by which time it had engaged in activities in reliance on obtaining the payment. There was, therefore, his Honour held, an arguable case in estoppel in respect of the period to November 1992. By the present motion the respondents seek that the proceeding be dismissed or permanently stayed on the grounds that: (a) the amended statement of claim filed on 31 January 1997 does not comply with the orders made and the reasons for judgment delivered by his Honour Justice Sundberg on 10 December 1996; (b) no reasonable cause of action is disclosed; (c) the proceeding is frivolous or vexatious; and/or (d) the proceeding is an abuse of the process of the Court. The amended statement of claim, which was filed on 31 January 1997, alleges, under the heading "Representations": Between September 1992 and October 1995, the Respondents represented to the Applicants that they were or would become entitled to receive payments from the Firstnamed Respondent pursuant to the bounty scheme ("the representations"). After extensive particulars appended to that paragraph, the amended statement of claim continues under the heading "Estoppel":