FEDERAL COURT OF AUSTRALIA PRACTICE AND PROCEDURE - pleadings - strike out motion - pleadings points - no points of substance. Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (WA) NARDY PTY LTD v BIRCHWOOD HALL PTY LTD, CHERYLE DAWN McMURRAY AND JODI LEANNE McMURRAY AND KENNETH JAMES FERGUSON WAG 152 OF 1997 FRENCH J PERTH 18 MAY 1998 IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 152 of 1997 B E T W E E N: NARDY PTY LTD APPLICANT AND: BIRCHWOOD HALL PTY LTD FIRST RESPONDENT AND CHERYLE DAWN mcMURRAY AND JODI LEANNE MCMURRAY SECOND RESPONDENTS AND KENNETH JAMES FERGUSON THIRD RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 18 MAY 1998 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The first and second respondents' motion filed 16 February 1998 is dismissed. 2. The first and second respondents are to pay the applicant's costs of the motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY WAG 152 of 1997 BETWEEN: NARDY PTY LTD APPLICANT AND: BIRCHWOOD HALL PTY LTD FIRST RESPONDENT AND CHERYLE DAWN McMURRAY AND JODI LEANNE MCMURRAY SECOND RESPONDENTS AND KENNETH JAMES FERGUSON THIRD RESPONDENT JUDGE: FRENCH J DATE: 18 MAY 1998 PLACE: PERTH REASONS FOR JUDGMENT ON MOTION TO STRIKE OUT STATEMENT OF CLAIM This application was filed on 10 December 1997. By its amended statement of claim, Nardy Pty Ltd ("Nardy") says that on 2 July 1996 it entered into a contract to purchase the Bluff Point Newsagency and Post Office at Geraldton for a price of $650,000. The vendor of the business was Birchwood Hall Pty Ltd ("Birchwood") and its directors were Cheryle and Jodi McMurray who were said to be in day to day control of the business. The vendor's agent was Kenneth Ferguson, an accountant. Nardy says it was induced to enter into the contract by representations made to it on behalf of Birchwood by Mr Ferguson on 9 May 1996 (the first representations) and 5 June 1996 (the second representations). The representations are said to have been made by the delivery to Nardy's accountant and agent of profit and loss statements for the business for the years 1993 and 1994/95 in May and for the period July 1995 to April 1996 in June. The McMurrays, it is alleged, caused Mr Ferguson to deliver the statements. The statements are said to have materially overstated total sales, gross profit, gross profit percentage and net profit for the year ended 30 June 1995 and the period 1 July 1995 to 30 April 1996 respectively. According to the amended statement of claim the material overstatements are to be inferred from the actual figures for the year ended 30 June 1997 which was the year in which Nardy was operating the business after having acquired it. Nardy says that the overstatements complained of constituted misleading or deceptive conduct or conduct likely to mislead or deceive in contravention of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA). It says that the McMurrays caused Mr Ferguson to furnish the profit and loss statements and that Birchwood and they knew that the first and second representations were untrue, were misleading or were likely to mislead or deceive. It is also said they were recklessly indifferent to the truth of the representations. In addition there is a claim for negligence against Birchwood and the McMurrays on the basis that they failed to properly ascertain, calculate and report the true sales, gross profit, gross profit percentage and net profit of the business in the profit and loss statements delivered to Nardy. Nardy claims to have suffered loss and damage comprising the following elements: 1. The difference between the price paid for the business and the true value of the business. 2. Outgoings associated with the purchase. 3. Interest charges. 4. The loss suffered by the business since Nardy has taken it over. 5. The loss of opportunity to make profits in some other business had Nardy not proceeded to acquire the Bluff Point Newsagency. The first and second respondents' motion for dismissal makes a number of points in relation to paragraph 3 of the amended statement of claim which pleads the McMurrays directorships and their day to day control of the business. The McMurrays directorships are said to be irrelevant facts and the assertion of their day to day control of the business an unintelligible pleading. I reject these criticisms are without substance. Even if the fact of the directorships is strictly speaking unnecessary to be pleaded, it is plainly a matter of importance in the case. The kind of point taken in relation to paragraph 1 and the attacks on a number of the paragraphs in the amended statement of claim do not merit the expense and effort of a strike out motion. It is said that there is no plea of accessorial liability against the McMurrays in paragraph 3. Primary liability, of course, may be open under the Fair Trading Act 1987 (WA). There are also facts pleaded which arguably support a claim of accessorial liability (see paragraph 10 as to the McMurrays causing Mr Ferguson to supply statements they knew to be untrue). Paragraph 4 of the amended statement of claim alleges that Mr Ferguson, an accountant and agent for Birchwood, was appointed in respect of the sale of the business. This is attacked on the basis that it is founded upon inferred but not pleaded allegations. There is nothing of substance on this point. Paragraphs 5 and 6, which relate to the delivery of the relevant accounts to Nardy's agent in May and June 1996 respectively, are also said to be defective because there is no allegation that the alleged delivery or representations were made with any particular purpose. But no purpose is necessary for the cause of action which arises under ss 52 and 82 of the Trade Practices Act and the corresponding provisions of the Fair Trading Act. In any event, it is clear enough from the context that the accounts are said to have been delivered as part of the pre-sale negotiations. There is no substance in the attack made on these paragraphs. Paragraph 8 is also criticised on the ground that no credible cause of action is pleaded, the alleged inferences cannot possibly be drawn on the facts as pleaded and paragraph 8.4 is unintelligible as pleaded. That paragraph alleges that the statements of total sales, gross profit, gross profit percentage and net profit were materially overstated in the vendors' accounts provided in May and June 1996. As facts from which this may be inferred reference is made to actual trading figures for Nardy after it took over its operation of the business for the period to 30 June 1997. Here there is a point of some interest. The sales figures said to have been represented for the year 30 June 1995 and the period July 1995 to April 1996 were $1,528,022 and $1,254,874 respectively. The gross profits for these two periods were $329,082 (21.5%) and $334,427 (26.7%) with net profits of $84,871 and $160,020 respectively. The full year sales figure alleged for Nardy's first year of trading to 30 June 1997 were $1,260,768, yielding a gross profit of $159,996 (11.26%) and a net loss of $8,058. The reliance of Nardy's case upon the 1997 figures suggests its merit is questionable since the sales figures are comparable to those achieved in previous years. So to conclude on the basis of facts which, strictly speaking, did not need to be pleaded, is not to say that the cause of action is so manifestly untenable that it ought to be struck out. In my opinion the attack on paragraph 8 of the statement of claim does not succeed. Paragraph 9 is said not to properly plead loss and damage for the purposes of s 82. However I do not accept that the heads of damage asserted in para 9 are not arguably recoverable under s 82. In so saying, I do not comment upon the merit of the claims. The reference to the business trading at a loss is said to be irrelevant. However in theory, at least, this could be a component of damages recoverable under the Trade Practices Act. The reference to the loss of opportunity for Nardy to purchase another profitable business will no doubt require particularisation, but that does not make the claim untenable. Paragraph 10 as against the McMurrays is said not to properly plead accessorial liability. I do not accept that. The attack on paragraph 8 is revisited in another guise in paragraph 10. Paragraph 11 which seeks to lay a basis, in terms of "proximity", for a duty of care as between Birchwood, the McMurrays and Nardy alleges that this arose as a consequence of Nardy's known reliance on the profit and loss statements. Here it is said that the paragraph does not identify which of the respondents had the alleged knowledge. I have no doubt that this is a reference to both the McMurrays and through them to the state of mind of the company, Birchwood. In any event if the respondents are in doubt about it, they can seek particulars. In the event, I am satisfied that the statement of claim, notwithstanding that it is not a particularly tightly drawn document and that it raises on the face of it questions about the merit of the action, is not so defective that it ought to be struck out. Generally speaking it should be said that where a pleading makes the case clearly enough in substance, the time of the court ought not to be taken up in strike out motions which simply take time and incur expenditure on the part of the parties. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice French Associate: Dated: 18 May 1998 Counsel for the Applicant: Mr P. Redding Solicitor for the Applicant: Williams & Hughes Counsel for the First and Second Respondent: Mr K. Staffa Solicitor for the First and Second Respondent: Preuss Feinauer & Associates Counsel for the Third Respondent: Mr N. Pratt Solicitor for the Third Respondent: Srdarov Richards Date of Hearing: 15 April 1998 Date of Judgment: 18 May 1998