Anema E Core Pty Ltd & Ors v Aromas Pty Ltd & Ors [1998] FCA 381

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG203 of 1996

BETWEEN: Anema E Core pty ltd

First Applicant

anne michele alroe

Second Applicant

damien john alroe

Third applicant

AND: Aromas Pty Ltd

(ACn 010 365 885)

First Respondent

aromas franchising pty ltd

(acn 054 024 010)

Second Respondent

christopher john bryant

Third Respondent

robyn lesley horley

fourth respondent

emma hossack

fifth respondent

marise mcGORRY

sixth respondent

JUDGE(S): Spender j

DATE OF ORDER: 18 march 1998

WHERE MADE: BRISBANE

THE COURT ORDERS THAT the respondents pay the applicants' costs of the motion, to be taxed if not agreed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG203 of 1996

BETWEEN: Anema E Core

Applicant

AND: Aromas Pty Ltd

Respondent

JUDGE(S): spender j

DATE: 18 march 1998

PLACE: BRISBANE

REASONS FOR JUDGMENT By amended notice of motion filed 16 March 1998 the applicants in the principal proceedings seek an order that paragraph 21 of the respondents' amended defence and cross-claim filed 28 November 199 be struck out on the basis it is embarrassing and fails to disclose a basis for defence. In essence, however, this application is the seeking of particulars of what are said to be, on the alternative case pleaded by the respondents, the reasonable basis for representations as to future matters. The position shortly is that the applicants plead in their statement of claim that the first applicant, Anema E Core Pty Ltd, was induced to purchase a business from the first respondent, to accept an assignment of lease, and to execute various documents by reason of a number of misrepresentations made on behalf of the first and second respondents. There is set out in paragraph 13 a number of representations, both oral and written. Some of those are representations as to then present matters, including the fact that the business was trading profitably; some of them are representations which are undoubtedly as to a future matter. For instance, one of the allegations is that by letter the fifth respondent represented to the second applicant that for an investment of $325,000 the business would show a return of capital of 19.8 per cent. Paragraph 13 reads: "The First Applicant was induced:- (a) to purchase the business; (b) to accept an assignment of the lease; (c) to execute the documents pleaded in paragraphs 7, 9 and 10; and the Second and Third Applicants were induced to:- (i) cause the First Applicant to act as alleged in paragraphs (a), (b) and (c); (ii) execute the guarantees pleaded in paragraphs 8 and 11; by reason of the following representations made on behalf of the First and Second Respondents:- (d) on 18 October 1995 the Third and Fifth Respondents orally represented to the second applicant that:- (i) the business was trading profitably; (ii) if the Applicants acquired the business and the franchise they would enjoy the full assistance and support of the Queensland market leader in the operation of licensed cafes and coffee houses which jealously guarded its commercial reputation; (iii) the business was trading with competent management; (iv) the planned opening of the Coffee Club would have little or no impact upon the profitability of the business as the two businesses operated differently, appealed to different consumer markets and hence were not in direct competition; (e) by a letter dated 25 October 1995 the Fifth Respondent represented to the Second Applicant that for an investment of $325,000.00 the business would show a return on capital of 19.8%. (f) by a letter dated 3 November 1995 the Fifth Respondent represented to the Second Applicant that the gross profit for the business for the month of October 1995 was $9,728.00; (g) by a letter dated 9 November 1995 the Fifth Respondent represented to the Second Applicant that:- (i) the business was sound notwithstanding the imminent opening of the Coffee Club; (ii) competition from the Coffee Club would only cause an overall 2% reduction in sales, although it might possibly be as much as 5% but only in the very short term after the opening of the Coffee Club; (h) by letters dated 27 October 1995, 3 November 1995, 9 November 1995 and 10 November 1995 the Fifth Respondent represented that a document described by her as a 1995/96 budget for the business was accurate and reliable; (i) on 15 November 1995 the Fourth Respondent represented to the Second Applicant:- (i) the business was trading profitably; (ii) the anticipated competition from the Coffee Club would have little or no effect upon the business; (iii) the business had minor management problems which had been addressed; (j) on about 20 November 1995 the Fifth Respondent informed the Second and Third Applicants that they then had all the information required by them to make an informed decision about the viability of the business and implicitly represented that there was no other information known to the Respondents which was relevant to the Second and Third Applicants in making an informed decision whether to purchase the business and enter into the franchise; (k) on about 22 November 1995 the Sixth Respondent informed the Second Applicant that certain road works to be undertaken by the Toowoomba City Council in Margaret Street immediately outside the business would only effect (sic) the business for two months and there was no need to worry about this matter; (l) on 29 November 1995 the Sixth Respondent orally represented to the Third Applicant that:- (i) the amount of $5,000.00 referred to in a draft purchase contract was a sufficient sum to acquire the stock of the business and the items referred to in special condition 45(d) of the said draft contract; (ii) any management problems in the business had been resolved; (iii) the Sixth Respondent would provide any assistance required by the Second Applicant to operate the business; (iv) the business was trading profitably; (v) its profitability would increase with the benefit of local operators; (vi) the business enjoyed the patronage of at least 200 regular customers; (vii) competition from the Coffee Club would have no effect on the profitability of the business; (m) on 29 November 1995 the First and Second Respondents represented to the Applicants that the franchise fee of $75,000.00 to be paid to the Second Respondent would secure all necessary support of the Second Respondent as franchisor to enable the First Applicant to operate the business successfully; (n) on 10 December 1995 the Fourth Respondent orally represented to the Second Applicant that the opening of the Coffee Club would not affect the business; (o) on 10 December 1995 the Sixth Respondent represented to the Second Applicant that the current trading level of the business was unexceptional; (p) prior to settlement the First Respondent represented that it was unable to provide to the Applicants prior to settlement the trading figures of the business for the month of November to demonstrate what effect the Coffee Club had upon the profitability of the business." Paragraph 22 then provides: "Further or alternatively, the representations pleaded in paragraphs 13(d)(iv), 13(e), 13(g)(ii), 13(h), 13(i)(ii), 13(k), 13(1)(v), 13(1)(vii) and 13(n):- (a) were representations with respect to future matters when made; and (b) the Respondent making each of those representations had no reasonable grounds for doing so at the time the representation was made; and (c) in the premises constituted misleading and deceptive conduct by reason of S.51A Trade Practices Act. Paragraph 21 of the amended defence says: "... (a) if any of the representations pleaded in paragraph 13 of the statement of claim were made and were representations with respect to future matters, the respondents had reasonable grounds for making such representations." ..." It should be said that the representations referred to there have been denied. The making of the representations the subject of that pleading are elsewhere denied in the amended defence but it seems to me plain that the respondents are here asserting that, if contrary to their contention, representations as to future matters were, in fact, made, the respondents assert that they had reasonable grounds for making those representations. That is to say, the alternative allegation is the proposing of an affirmative allegation to the effect that there was a reasonable ground or reasonable grounds for the making of such representations as to future matters as may be established by the evidence by the applicants and that as a consequence the respondents' conduct will be found to be justified or excusable. I should say that I am not here concerned with the interesting question of whether s 51A needs to be specifically pleaded or raised in order for it to be relied upon. Here the fact is that it has been specifically pleaded by the applicants and responded to by the pleading which I have earlier set out in paragraph 21 of the amended defence. I should note, however, the observations of Sheppard and Neaves JJ in Cummings v Lewis (1993) 41 FCR 559 at 567 where their Honours said: "The discussion into which we have entered has saved us the need to express a view in relation to the question whether s 41 of the Fair Trading Act (or s 51A of the Trade Practices Act) needs to be specifically pleaded or raised in order for it to be relied upon. In Western Australia v Bond Corporation Holdings Ltd [1991] ATPR 52,276 French J said (at 52,279) that a party invoking s 51A should make it clear that it is doing so. In that way a respondent will know that, if the representation was made, it will have the burden of showing and must plead, that it had reasonable grounds for making it. His Honour said that the duty of an applicant to make it clear that s 51A was invoked was discharged if it pleaded that the respondent did not have reasonable grounds for making the representation and that it was thereby misleading or deceptive. We would wish to leave open, until the question more directly arises, the correctness of these views. Our provisional view is that s 51A of the Trade Practices Act and its counterparts such as s 41 of the Fair Trading Act, are evidentiary provisions, not directed at what a party must plead. The rules of the court in relation to pleading require the pleading to contain, and only contain, a statement in a summary form of the material facts on which a party relies: see O 11, r 2. The cause of action which is relied upon is a cause of action for breach of s 52 (or s 42). Sections such as s 51A are designed to facilitate proof. They affect the onus of proof but they are not part of the law which provides for the cause of action for which sections such as s 52 provide. We think there is a real question whether there is any requirement that there needs to be specific reference to the section in a pleading or the adoption of words which it uses. However, the matter does not in our opinion arise for consideration here and we express no concluded view about it." Now, Mr Davies for the respondents seeks to draw comfort from the observation that s 51 of the Trade Practices Act and s 51A of the Trade Practices Act is said to be an evidentiary provision, not directed at what a party must plead and that it is therefore really a question of evidence as to what reasonable grounds are relied upon by the respondents and not a matter for particularisation. Order 11 Rule 10 provides: "In a pleading subsequent to a statement of claim a party shall plead specifically any matter of fact or point of law, for example, performance, release, any relevant statute of limitation, fraud or any facts showing illegality that (a) he alleges makes a claim or defence of the opposite party not maintainable; (b) if not specifically pleaded might take the other party by surprise; or (c) raises issue of fact not arising out of the preceding pleading." This rule is relied on by Mr Cooper for the applicants as requiring particularisation of the reasonable grounds asserted in paragraph 21 of the defence as providing an excuse or justification for the making of the relevant future matter representations. It seems to me that this submission is good. In the absence of some particularisation of what reasonable grounds are asserted as justifying the making of such representations as to future matters as might be established at the trial, one can readily appreciate that matter might take the other party by surprise. Some assistance in reaching that conclusion is to be found in observations in some of the cases. In Inland Revenue Commissioners v Jackson (1960) 3 All ER 31, the defendant had, in his defence, denied: "...that he had failed to furnish any such particulars without reasonable excuse or that he was liable to any penalty, as alleged or at all." This was a defence to a plea by the Crown where they pleaded: "The defendant without reasonable excuse has failed to furnish the particulars required...within the time prescribed." It was held by Sellers J that: "Further and better particulars of the defence must be ordered, since the defendant's denial was a negative pregnant indicating that he intended to set up an affirmative case of which the Crown were entitled to have particulars." At 32, his Lordship said: "The form of the pleading is of the usual kind and normal so far as particulars are required of the averments in the pleading. I support the learned judge entirely in thinking that, when the defendant pleads in the way which I have read in paragraph 2 of the defence, he is of necessity and by clear implication setting up an implied affirmative. It does not go to establish the plaintiffs' case, but operates substantially for the benefit of the defendant, who is thereby setting up an affirmative case. The plaintiffs' claim stands on its own feet and needs no support from the defendant. On these pleadings as they stand, the defendant proposes to set up that there was reasonable excuse for not giving the information required. Unless the particulars of a defence which have been asked for are given before the trial there may well be surprise, delay and undue expense." Pearce LJ said: "The only object of the defendant in seeking to avoid giving these particulars is admittedly to prevent the plaintiffs' knowing before the trial what the defendant's case is and thus to give the defendant the advantage of surprise. That is an unmeritorious object and would probably lead to an inconvenient adjournment in the middle of the hearing." For the reasons that my Lord has given, I think that this is a case where particulars should be ordered, and that the learned judge was right. In Dwyer v The National Trustees Executors & Agency Co of Australasia Ltd (1939) VLR 96, beneficiaries under a will by action had charged the executors with breach of duty in failing to enforce a contract of sale entered into by the testator. The defendants pleaded that they had acted reasonably and in good faith in respect of the matters in which breach of duty was alleged. It was held by Martin J that: "Inasmuch as such a plea raised affirmative allegations, particulars should be ordered of the facts and circumstances upon which the defendants acted." The point is succinctly stated by Martin J at 103 where he said: "As it is a necessary part of the defendants' case to show that they acted reasonably some particulars must be given." In Davie v New Merton Board Mills Ltd (1956) 1 WLR 233, during the opening of the plaintiff's case, counsel for the defendant indicated that the defendants would call evidence to show that the drift which injured the plaintiff, when a splinter flew off from the drift and entered his left eye, had been bought by the defendants from a firm of reputable manufacturers and that therefore the defendants were not negligent. Counsel for the plaintiff contended that he was taken by surprise because no indication had been given on discovery that the drifts had been manufactured by persons other than the defendants. Havers J said at 235: "The general rule is thus stated by Cotton LJ in Philipps v Philipps. In my opinion it is absolutely essential that the pleading, not to be embarrassing to the defendants, should state those facts which will put the defendants on their guard, and tell them what they have to meet when the case comes on for trial." Havers J at 236, having referred to the provisions of O 19 r 15, which is quite similar to our O 11 r 10 said: "The notes to O 19 r 15 say: The office of a traverse is to contradict, not to excuse or justify, the act complained of; its object is to compel the plaintiff to prove the truth of the allegation traversed, not to dispute its sufficiency in point of law. All matters justifying or excusing the act complained of must be specially and separately pleaded...And no evidence of such matters can, as a rule, be given at the trial if they be not expressly pleaded." Finally, on this matter, there is the judgment of Stable J in Johnston v Sewell [1962] QWN 36. This was an application by the plaintiff for an order of further and better particulars of an allegation in the defendant's defence. The plaintiff alleged that he was injured in connection with a ladder from the floor of the dock to the side of a ship. His statement of claim pleaded: "The said ladder was the only means of egress from the said ship provided by the defendant for the plaintiff." Paragraph 2 of the defence was in these terms: "The defendant admits that the plaintiff was leaving the ship 'Trochus' by a ladder as alleged in paragraph 5 of the Statement of Claim, but denies that the said ladder was the only means of egress from the said ship provided for the plaintiff." The plaintiff, by his solicitors' letter, had asked for further and better particulars of the other means of egress referred to. The defendant refused the request, asserting that paragraph 2 of the defence contained a denial of a specific allegation in the statement of claim. Stable J, in the course of his judgment, said: "In the present case the plaintiff's allegation, as I understand it, is that there was no means of egress for him other than the ladder about which he complains. What is the meaning of the defendant's quoted denial? Of course, a mere denial of a positive allegation in a statement of claim does not bring down an order for particulars, for in such a case there is nothing which the defendant can particularise. As is pointed out by Stable J in Pinson's case, 644 of the LJR: Such a traverse, that is, one involving a double negative, may fall under one of three heads: (1) it may be a mere traverse involving no affirmative allegation; (2) it may be a negative pregnant which contains within the double negative an affirmative allegation; or, (3) it may leave in doubt the question of its true nature." His conclusion he expressed as follows: "If the defendant intends to rely upon other alleged means of egress available to the plaintiff then the plaintiff should know about them so that he can prepare his case as to their availability to him and such matters as he may be advised. If the defendant does not intend to rely upon any such thing then he can say so quite simply and shortly as, indeed, I would have expected him to do when given the opportunity before me." He then ordered the defendant to give further and better particulars of any affirmative case contained in the denial and averred in paragraph 2 of his defence. It seems to me that as a matter of principle and on the consideration of those authorities, I ought to order the respondents to identify with precision which representations for which it is said that, if they are found to have been made, that reasonable grounds existed, and to order the respondents to give particulars of the reasonable grounds relied on in respect of each of those representations. It is only thus that the applicant can know what case he has to meet at trial and it seems to me that it is in the interests of justice that surprise be avoided as to the content of what are said to be the reasonable grounds justifying the making of the relevant representation. As I say, the applicants are to have their costs of the motion, to be taxed if not agreed. I certify that this and the preceding nine (9) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.