FEDERAL COURT OF AUSTRALIA PRACTICE and PROCEDURE - application to strike out part of amended defence and cross-claim Consolidated Trust v Naylor (1936) 55 CLR 423 Refd Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450 Refd International Leasing Corporation Ltd v Aiken (1967) 2 NSWR 427 Refd Dew & associates Pty limited and barry ernest dew v ANGUS & ROBERTSON BOOKWORLD Pty Ltd No QG77 of 1996 KIEFEL j BRISBANE 22 April 1998 IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QG77 of 1996 BETWEEN: DEW & ASSOCIATES PTY LIMITED First Applicant BARRY ERNEST DEW Second Applicant AND: ANGUS & ROBERTSON BOOKWORLD PTY LTD Respondent ANGUS & ROBERTSON BOOKWORLD PTY LTD cross-claimant DEW & ASSOCIATES PTY LIMITED first cross- Respondent BARRY ERNEST DEW second cross- Respondent JUDGE: KIEFEL J DATE OF ORDER: 22 APRIL 1998 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The applicants' application be dismissed. 2. The respondent have leave to amend par 4 in the respects mentioned in the reasons. 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 QG77 of 1996 BETWEEN: DEW & ASSOCIATES PTY LIMITED First Applicant BARRY ERNEST DEW Second Applicant AND: ANGUS & ROBERTSON BOOKWORLD PTY LTD Respondent ANGUS & ROBERTSON BOOKWORLD PTY LTD cross-claimant DEW & ASSOCIATES PTY LIMITED first cross- Respondent BARRY ERNEST DEW second cross- Respondent JUDGE: KIEFEL J DATE: 22 APRIL 1998 PLACE: BRISBANE REASONS FOR JUDGMENT The applicants seek to strike out par 4 of the respondent's further amended defence and cross claim filed on 22 October 1997, on the basis that it is embarrassing and fails to disclose a basis for defence. On the hearing of the application it was agreed that the motion was now to have regard to par 4 as it appears in a later pleading, that filed on 9 February 1998. Par 4 is pleaded in answer to an allegation in the statement of claim that the respondent falsely represented, from November 1993, that there was in existence a valid and binding franchise agreement between Dew & Associates Pty Limited ("Dews") and the respondent and an enforceable guarantee on the part of Mr Barry Dew, the second applicant. The statement of claim alleges that Dews commenced carrying on business as a retailer of books on about 6 June 1988 at a store in Alice Springs and at the same time entered into a franchise agreement with Gordon & Gotch Ltd with respect to an "Angus & Robertson Bookstore". The agreement was for a term of 13.5 years. Dews' claims are based upon representations made by the respondent, Angus & Robertson Bookworld Pty Ltd, to the effect that the benefit of that franchise agreement was assigned to it in about November 1993 and that Dews was, as a consequence, bound to perform its obligations under it for the remainder of the term. It is also alleged to have been "continually" represented that the second applicant, Mr Barry Dew, had executed a valid and binding guarantee in favour of the respondent with respect to Dews' obligations. The applicants now say that the representations were false in that no assignment had taken place and no guarantee had been executed. Dews alleges that, as a result of these representations, it lost the sum of $93,449.73 which it paid by way of franchise fees to the respondent when it had no obligation to do so. Dews' alternative claim is predicated upon a finding that there was an agreement between it and the respondent since November 1993. Any such agreement, it alleges, could only have arisen by reference to the conduct of the parties and would incorporate some terms of the prior written franchise agreement, but not those inconsistent with it being determinable at will or on notice. There is elsewhere an allegation that the agreement was determined by Dewsin 1996. The express terms pleaded are those relating to the grant of the franchise and promises by the respondent concerning training, administration and management, assistance, and marketing. Terms which are said to have been implied are that the agreement could be terminated in the event of the store ceasing to be viable and, in summary, that the respondent would promote and assist the business (and reimburse Dews with respect to monies it expended on advertisement, although this plea seems to require further elaboration). In the further alternative it is alleged that the respondent could be taken to have represented that it would perform the obligations referred to in the agreement and generally to promote and assist the business, since it took the benefits of the agreement. It is then alleged that the respondent has known, since November 1993, that through no fault of Dews, the bookstore was not viable and suffered a net loss totalling some $390,597.00 for the period between July 1993 and March 1996. The conduct complained of on the part of the respondent, pleaded in par 20 of the statement of claim, is that it did not promote or assist the business. (A further plea in par 21 to the effect that the respondent's employees agreed amongst themselves that the respondent would represent that Dews was bound by the franchise agreement until it became incapable of paying franchise fees is the subject of a further motion by the respondent to strike out, which is adjourned. It would not seem to be logically connected with the plea and is incomplete as a claim in its own right. Mr Cooper, for the applicants, undertook to consider the matter). The conduct is then relied upon as a breach of the agreement or alternatively as misleading and deceptive conduct, which refers to the representations that the respondent would perform its obligations when it had no reasonable grounds for saying so. In summary, the first part of Dews' case is that it paid sums as a result of misrepresentations concerning its legal obligations. This may import questions of the duty owed to Dews. It will certainly require consideration of reliance, which is pleaded generally and is to be taken to refer to each sum paid. The representations in question extend to the existence of a guarantee, although no damage is pleaded to flow from it. As will shortly appear, it is any guarantee from Mr Barry Dew to the respondent which is the focus of this application. The second part of the claim by Dews accepts, and indeed asserts, that there was a contractual relationship between the parties. This would appear to be common ground, although the respondent seeks to trace its terms to the original franchise agreement which, it also contends, includes the guarantee in question as part of it. It is convenient at this point to state my conclusion that the pleas, in par 4 of the Amended Defence, of assignments of the original franchise agreement, or that Dews ought to be held to its terms by reason of novations or operative estoppels, is fairly arguable. I shall shortly refer to particular documents signed by Dews and Mr Barry Dew. In addition Dews continued to carry on business as a franchisee. Whether it was mistaken, and the effect of any such mistake, is another question. As I have said, however, the aspects of par 4 which have attracted this application are the attempts to extend the operation of those documents to the guarantee given by Mr Barry Dew, originally to Gordon & Gotch. Other aspects of the claim require brief mention, although they are not directly relevant to the respondent's application, to which I shall shortly refer. It is alleged that Dews suffered loss by reason of the conduct but no particulars are given. This may be a case where questions of causation will arise relating to the nature and extent of the conduct relied upon and the damage said to be caused by it, and this will need to be clarified in the very near future. This is so particularly if it is alleged that the respondent is liable for the whole of Dews' loss, on the basis that it required it to continue in the business. In this respect there seems to be some missing elements. Additionally Dews alleges that it had the opportunity, in early 1994, to purchase a freehold interest in buildings and was unable to take advantage of that opportunity. This plea also requires clarification, not the least because it also alleges, in the alternative, that the franchise agreement was frustrated and had been since November 1993. How that conclusion is reached and what is said to flow from it, is not however explained. So far as concerns the written guarantee given by Mr Barry Dew, on or after 5 September 1987, to Gordon & Gotch with respect to Dews' obligations under the franchise agreement, it is alleged that it is void and unenforceable for want of consideration. As will be seen, the respondent's pleadings, by par 4, seek to trace the history of the original franchise agreement and guarantee. Why it is necessary to do so, with respect to the guarantee, is not presently clear to me. A new guarantee was executed by Mr Barry Dew in 1994 and I take it to be that guarantee which founds the cross-claim. The allegations by Dews, of misrepresentations as to the existence of a guarantee, relate only to the period after November 1993. I will however deal with the matter as pleaded and upon the assumption that it is necessary to part of the respondent's case. In this process I do not intend to set out par 4, which is lengthy, nor do I intend to dissect it and deal with Dews' submissions as to each subparagraph. The first sale involving the franchise agreement was from Gordon & Gotch to Brashs. So far as Mr Barry Dew's guarantee was concerned, the respondent alleges, in the first place, that it was transferred or assigned to Brashs with the assets and business the subject of the sale. The next sale was from Brashs to the respondent. Dews' threshhold contention is that the original guarantee to Gordon & Gotch was invalid in any event, having been executed at a time later than the franchise agreement. I do not consider this determines the question whether it was given for past consideration, as is alleged. The contention however has other relevance. The respondent alleges, by its defence, that the guarantee was effectively assigned with the franchise agreement. In this respect the respondent in the first place relies upon the incorporation of the original guarantee, by reference and annexure, as part of the original franchise agreement, and the reference in the franchise agreement to Gordon & Gotch as extending to its successors and assigns. By this process it will seek to argue that the intention of the parties to the original agreement and guarantee were that the two were to go together, even on assignment. Similar conclusions have been reached in some cases, for example, in Consolidated Trust v Naylor (1936) 55 CLR 423 and Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450. A key element in these cases was that the guarantee formed part of the mortgages, (see International Leasing Corporation Ltd v Aiken (1967) 2 NSWR 427,451), although the conduct of the parties was also highlighted in Farrows' case. To this Dews submits that the guarantee here was executed later and that there are other indicia that it was not to form part of the principal agreement. The agreement does however refer to the guarantee as an annexure to it. Whilst the construction outlined by the respondent is perhaps not as clear as the other cases, it is arguable even if the document was executed later. This may not conclude intention. And, if the guarantee be taken as part of the agreement, the definition of Gordon & Gotch assumes some importance. This aspect of the respondent's case lies at the heart of the application for there are later documents which might carry the guarantee forward if it was taken to be a necessary part of the agreement for franchise. The respondent's case, as pleaded, does not depend upon conduct in connexion with the giving of the guarantee itself. Nevertheless the respondent's case upon the construction of the agreements cannot be said to be wholly untenable. If I were satisfied that resolution of this issue would determine the question relating to guarantees given by Mr Barry Dew I would be inclined to determine it as a separate question, particularly since it may be that its outcome would affect the continuance of the proceedings, but I am not satisfied that it would. The respondent is able to point to a document executed by Dews, with Mr Barry Dew signing, at least in his capacity as director, and entitled "Novation of Franchise Agreement". It is undated but refers to the assignment by Gordon & Gotch to Brashs. Importantly, for present purposes, it contains a term that the guarantor named in the Schedule acknowledges and confirms the continuance of the prior guarantee as if it were addressed to Brashs. Mr Barry Dew is not named in the Schedule but has signed the document. If, as the applicantscontend, the document cannot take effect as a novation by reason of its omissions and the signature of the other party, it may have relevance as part of the conduct relied upon, although this aspect of the respondent's plea, and its plea generally of estoppel, I consider requires clarification. In that latter respect the respondent pleads the cumulative effect of all of the agreements to this point and also the conduct of Brashs and Dews thereafter in connexion with the franchise agreement as evidencing the assignment or novation. The alternative plea of estoppel in par 4(m) relies on Dews conduct, and does not refer to Mr Barry Dew, although the preceding allegation refers to him as a party to the novation agreement. This aspect, and in particular the allegation as to unconscionability, ought to be clarified. It is not apparent whether it is said that it would be unconscionable because of effects upon the respondent, but these representations and the conduct in question are not alleged to have been addressed to it, although there may be other representations which may be inferred. This may highlight the need for the respondent to consider the true relevance of the guarantee at this point. The agreement for sale between Brashs and the respondent was dated 29 November 1993. Arguably enough the terms of it were effective to transfer Dews' franchise agreement. They also predicted Brashs obtaining, for the respondent, written assignments or novations of all franchise agreements, and any guarantees. So far as concerns the relationship of franchisor and franchisee between the respondent and Dews, under the terms of the original agreement, the respondent is assisted by a deed, executed by Dews on 4 May 1994, by which a transfer may be taken to have been agreed to, even if, as seems to have been the case, Brashs and the respondent did not sign it. The respondent also alleges following conduct of the parties as consistent with its terms. It is also alleged that on the same day, 4 May 1994, Mr Barry Dew and Mr Mark Dew executed another guarantee and indemnity in favour of the respondent. A document to that effect is produced. It recites the agreement of the respondent to enter into an assignment of the franchise agreement between Brashs and Dews and provides that the Messrs Dew would guarantee all monies to be paid by Dews pursuant to the franchise agreement dated 5 September 1988. Dews' submissions, in answer to this allegation and the document to which it refers, were that any such guarantee would be ineffective unless the respondent could establish all assignments of the franchise agreements to this point. I put to one side whether that be correct. I have already found the respondent's case in those respects to be arguable. The respondent's lengthy plea, by par 4, is to be taken as the answer to Dews' allegation of a false representation concerning extant agreements. If proved they might establish a continuous relationship of franchisee, on the part of Dews, under the terms of the original agreement. They may also be relevant to the questions of reliance and causation. The respondent founds a cross-claim under the terms of the agreement and seeks to make Mr Barry Dew liable for those sums under a guarantee, which I take to be that of 1994, but again this should be clarified. Although requiring some reconsideration and clarification the respondent's claims, by par 4, are not untenable and the facts as pleaded are relevant to them. The applicants' application will be dismissed. This application has also made plain that the question of what damages are said to have been suffered by each of the first applicant and the respondent requires some immediate attention. It may be that this dispute, seemingly complex and the subject of a number of interlocutory applications to date, does not involve large sums of money. I propose therefore to give directions requiring the giving of particulars of damage, including such facts as are necessary to show the relationship between losses alleged and any breach of agreement or other conduct. I think that should be a preliminary to mediation, which I propose to order in this matter given that, essentially, the parties appear to have conducted a business relationship for some time and the real complaints they have about each other should fall within a narrower focus than is the extent of the dispute pleaded as between them. As a further preliminary to mediation I also have in mind directing that the legal representatives provide to their clients an estimate of the costs of concluding a trial in this matter in this Court; and filing an affidavit deposing to that notice having been given. I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel Associate: Dated: 22 April 1998 Counsel for the Applicants (Cross-Respondents): D Cooper Solicitor for the Applicants (Cross-Respondents): Lees Marshall Warnick Counsel for the Respondent (Cross-Claimant): D Logan Solicitor for the Respondent (Cross-Claimant): Rigby Cooke Date of Hearing: 9 April 1998 Date of Judgment: 22 April 1998