FEDERAL COURT OF AUSTRALIA Bryer Merchandisers v Nike Australia [2001] FCA 154 BRYER MERCHANDISERS PTY LIMITED & ORS V NIKE AUSTRALIA PTY LIMITED N 1402 OF 1999 WHITLAM J 28 FEBRUARY 2001 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1402 OF 1999 BETWEEN: BRYER MERCHANDISERS PTY LIMITED FIRST APPLICANT COBRA HOLDINGS PTY LIMITED SECOND APPLICANT MHP PTY LIMITED THIRD APPLICANT ST GEORGE WHOLESALERS PTY LIMITED FOURTH APPLICANT AND: NIKE AUSTRALIA PTY LIMITED RESPONDENT JUDGE: WHITLAM J DATE OF ORDER: 28 FEBRUARY 2001 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The amended statement of claim be struck out. 2. The applicants have liberty to file and serve an amended application and a further amended statement of claim within 28 days. 3. The applicants pay the respondent's costs of its motion. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 1402 OF 1999 BETWEEN: BRYER MERCHANDISERS PTY LIMITED FIRST APPLICANT COBRA HOLDINGS PTY LIMITED SECOND APPLICANT MHP PTY LIMITED THIRD APPLICANT ST GEORGE WHOLESALERS PTY LIMITED FOURTH APPLICANT AND: NIKE AUSTRALIA PTY LIMITED RESPONDENT JUDGE: WHITLAM J DATE: 28 FEBRUARY 2001 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The applicants commenced this proceeding by filing with their application an affidavit instead of a statement of claim. The application sought relief under the Trade Practices Act 1974 (Cth) ("the Act") and for breach of contract. The affidavit was made by one Paul Dwyer. He is a director of each of the applicants. They operate five retail stores in the Sydney metropolitan area. The first, third and fourth applicants trade under the name Paul's Warehouse at Kogarah, Campbelltown and Homebush. The second applicant trades under the name Cobra in Sydney and at Parramatta. All the stores sold Nike-branded footwear and sportswear purchased from the respondent ("Nike"). In 1999 Nike declined to accept further orders from the applicants and closed their trading accounts. 2 Mr Dwyer's affidavit comprises 160 pages. He deposes to aspects of the applicants' business and also chronicles, in a stream-of-consciousness style, his dealings with Nike since the early 1990s. The effect of conversations is stated in direct speech with frequent use of scatological and blasphemous expressions. No doubt this is designed to lend a sense of authenticity to Mr Dwyer's recollection of events. 3 However, on the day before the first directions hearing, the applicants filed a statement of claim. (I shall refer to this original statement of claim hereafter as the "OSC".) At that hearing counsel for Nike immediately objected to the pleading as embarrassing. The matter was adjourned. At the next directions hearing I directed that, if Nike wished to seek an order under rule 16 of Order 11, it should file notice of a motion to that effect. This was done. When that motion was listed for directions, the applicants undertook to file an amended statement of claim and the motion was adjourned to permit that course. An amended statement of claim ("ASC") was subsequently filed, but Nike maintained its objection. The motion was, by leave, amended so that it addressed the specific provisions of the ASC. So amended, that is the motion presently before the Court. 4 At the outset, I am bound to say that the pleading in the ASC is extremely awkward. Its drafting builds on the framework of the OSC which, quite unfortunately in my view, attempted to compress into the form of a pleading the rambling story in Mr Dwyer's affidavit. The narrative form of modern pleading is well suited to allegations being made chronologically, but there is a good reason why only material facts are pleaded. It permits a clear view of whether a reasonable cause of action is disclosed. The requirements of a statement of claim were usefully explained in Bega Co-operative Society Limited v Milk Authority of the Australian Capital Territory (Neaves J, 12 May 1992, unreported at 15 - 16): "The purpose of a statement of claim is to set the parameters of the dispute as a first step to defining the issues for determination between the parties and thus to inform the opposite party of the case that party will have to meet and enable that party to consider whether the claim should be conceded or defended. The statement of claim must show the nature of the applicant's claim and the material facts on which the claim is based: Federal Court Rules, Order 4, r.6. It is to contain, and contain only, a statement in a summary form of the material facts on which the applicant relies: ibid., Order 11, r.2. If it discloses no reasonable cause of action or has a tendency to cause prejudice, embarrassment or delay, the whole or part of it may be struck out: ibid., Order 11, r.16. The material facts are all those facts necessary for the purpose of formulating a complete cause of action: Bruce v Odhams Press Ltd [1936] 1 K.B. 697 at p. 712; Pinson v. Lloyds and national Provincial Foreign Bank Ltd [1941] 2 K.B. 72 at p. 75. It is not sufficient that the statement of claim simply express a conclusion drawn from facts which are not stated: Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 F.C.R. 109 at p.114; though in some circumstances to plead a conclusion may be to plead a material fact: Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd (Federal Court of Australia – French J. – 3 September 1991 – unreported). Not only must all material facts be pleaded but they must be pleaded with a sufficient degree of specificity, having regard to the general subject-matter, to convey to the opposite party the case that party has to meet: Ratcliffe v Evans [1892] 2 Q.B. 524 at p.532; Charlie Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association of Western Australia (1987) 13 F.C.R. 413 at p. 417. It must be apparent on the face of the document that the facts pleaded, if proved, would establish the cause of action relied upon: H 1976 Nominees Pty Ltd v Galli (1979) 40 F.L.R. 242 at p.246. It is not a function of particulars to take the place of the necessary averments in the statement of claim: ibid. at p.247; Trade Practices Commission v David Jones (Australia) Pty Ltd (supra) at p.114." 5 The deficiencies in the instant pleading can be demonstrated by considering first the claims other than those arising under the Act. The OSC claimed damages for "breach of the agreements". The ASC added a claim for damages "for economic duress and for the torts of intimidation and unlawful interference with the business of the applicant". The relevant paragraphs of the OSC were divided up by headings commencing with "The Kogarah warehouse and the Nike account" (paragraphs 7 - 15) and concluding with "Breach of contract by Nike" (paragraphs 186 - 198). The intervening paragraphs dealt, inter alia, with the opening of new stores and various marketing initiatives. The contract claims were, however, pleaded in a rolled-up way. For example, the breaches were pleaded as follows: "195. The action by Nike, of refusing to supply the applicants with merchandise that had been ordered by the applicants, is a breach of each of the agreements between Nike and each of the applicants. 196. The applicants have suffered damage as a consequence of the said breach by Nike. 197. Further, Nike was in breach of its agreements with the applicants in that Nike: (a) delayed supplying, or only partly supplied, written orders that had been made by the applicants; (b) restricted the range of merchandise offered to the applicants; (c) limited the quantity of merchandise that was ordered by the applicants; (d) restricted the manner in which the applicants promoted the sale of Nike merchandise; (e) restricted the manner in which the applicants sold Nike merchandise." 6 Faced with an objection that those agreements had not been properly identified, the ASC added an allegation of a specific agreement between each applicant and Nike in respect of each store. For example, in respect of the fourth applicant the ASC stated: "70. As and from approximately April 1994, Nike agreed to supply Nike products to the fourth applicant. Particulars of Agreement between the Fourth Applicant and Nike The Agreement was partly written, partly oral and contained implied terms. (i) Insofar as the Agreement was written, it comprised: (a) the written account application submitted by the fourth applicant; (b) the written orders submitted from time to time by the fourth applicant to Nike; (c) the contents of the document headed "Trading Terms" printed on the reverse side of the Nike Invoices which accompanied the Nike merchandise supplied by Nike to the fourth applicant; (d) the contents of the document headed "Trading Terms" printed on the reverse side of the Nike Credit Notes forwarded by Nike to the fourth applicant from time to time. (ii) Insofar as the Agreement was oral, it comprised the discussions, from time to time, between Dwyer on behalf of the fourth applicant, and Thompson and Carney on behalf of Nike. The discussions between Dwyer and Thompson were in relation to: (a) the nature of, extent of and manner in which, the fourth applicant would be shown the range of available Nike merchandise prior to the placement of written orders by the fourth applicant; (b) the dates upon which Nike would supply the fourth applicant with Nike merchandise the subject of written orders placed by the fourth applicant; (c) the manner in which the settlement discount, volume discount and co-operative advertising allowance would be calculated and paid by Nike to the fourth applicant. The discussions between Dwyer and Carney were in relation to the requirement that the fourth applicant must submit its proposed advertising to Nike for censorship or vetting and approval by Nike in relation to the price at which the fourth applicant proposed advertising for sale current Nike merchandise as deposed to in paragraph 68 of the affidavit. (iii) Insofar as the Agreement contained implied terms, those terms arose from: (a) the custom and usage, associated with and arising from, the acquisition of Nike merchandise by the first applicant since late 1988 or early 1989; (b) the nature of the express written and express oral terms referred to above; (c) business efficacy; and included implied terms to the following effect: (1) Nike would not unlawfully restrict, nor seek to unlawfully restrict, the nature and content of the fourth applicant's advertisements of Nike merchandise for sale to the public; (2) Nike would not unlawfully restrict nor seek to unlawfully restrict the manner in which the fourth applicant sold, or offered for sale, Nike merchandise to the public; (3) Nike would satisfy orders placed with and accepted by it within a reasonable time of such merchandise being available in Australia for supply to retailers; (4) Nike would not threaten to withhold supply of Nike merchandise from the fourth applicant; (5) Nike would not restrict the range of Nike merchandise offered to the fourth applicant; (6) Nike would not limit the quantities of Nike merchandise that the fourth applicant could order from Nike; (7) Nike would not restrict, or seek to restrict, the sale, or manner of promotion or sale by the fourth applicant of Nike merchandise held as stock-on-hand by and paid for by the first applicant if at any time the fourth applicant's agreement with Nike was terminated lawfully by Nike. (8) The parties owed to each other a duty of good faith and reasonableness, both in performing obligations and exercising rights. (9) The parties would co-operate with each other in achieving the contractual object of maximizing sales of Nike products." 7 This language is used throughout the ASC. The implied terms alleged in items (1) – (9) are said to rise from "the custom and usage, associated with and arising from, the acceptance of Nike merchandise by the first applicant since late 1988 or early 1989". Counsel for Nike submits, correctly, that the ASC is replete with allegations against his client which are completely inconsistent with the alleged implied terms. This inconsistent pleading, it is submitted, is especially confusing when it offends against the requirement to plead the terms of a contract in the pleading itself. I accept that submission. 8 In several paragraphs the applicants allege, at its highest, that Nike threatened to cease supply to one or other of the applicants. This was followed by the standard allegation that: "The conduct of Nike, referred to in [the previous] paragraphs . . . : (a) was a breach of contract; (b) was conduct that was unconscionable; (c) was conduct which amounted to economic duress and the commission of the torts of intimidation and of unlawful interference with the business of the first applicant." 9 Dealing just for the moment with the alleged breach of contract, counsel for Nike submits that the alleged breaches amount at most to no more than anticipatory breaches and that, unless the relevant applicant has terminated the contract, it may not sue for damages in contract: Ogle v Comboyuro Investments Pty Ltd (1976) 136 CLR 444 at 450 - 451. I accept that submission. 10 Counsel for Nike also raised limitation problems in the context of the contract claims by the applicants. I shall defer consideration of this question until dealing with claims under the Act, where similar problems arise. At this stage it is only necessary to say that the flaws in the pleading of the contract claims would require Nike to plead any limitation defences in a general way that would not help to elucidate issues in dispute. 11 This brings me to the other standard allegations. The allegation of unlawful interference with the business of the applicants is confusing since in several places the ASC alleges that Nike was under a duty not to so interfere by virtue of a "duty" arising out of a contractual relationship. In any event, such a tort requires "the existence in the mind of the wrongdoer of a purpose or intention of inflicting injury on the plaintiff": Copyright Agency Ltd v Haines [1982] 1 NSWLR 182 at 194. No material facts are pleaded in support of such an allegation. I do not accept the submission by senior counsel for the applicants that such an essential element may be spelt out by reasonable inference from the facts and circumstances alleged. 12 The allegations of economic duress and intimidation are also embarrassing. A tort of economic duress cannot be erected upon an alleged contractual "duty". Indeed, no authority indicates that such a tort exists. Further, intention to cause economic loss is the gist of the tort of intimidation: Northern Territory of Australia v Mengel (1995) 185 CLR 307 at 350. As counsel for Nike correctly submits, absent such an allegation, no cause of action is disclosed. However, the tort also requires the threat of an illegal act. Again, this must be something more than a threatened breach of contract. 13 The allegation of "unconscionable" conduct that has been employed in subparagraph (b) of the standard formula used throughout the ASC is nowhere properly framed as a cause of action. There is in paragraph 251 of the ASC a sweeping allegation that "[b]y reason of the aforesaid conduct, Nike has engaged in unconscionable conduct within the meaning of the unwritten law, contrary to s 51AA of [the Act]". In his address, senior counsel for the applicants submitted that each of the pleaded instances referred to as "unconscionable" conduct relied on "equitable entitlements and/or at common law subject to the interplay of s 51AA". The difficulty confronting this explanation is that the expression "aforesaid conduct" is earlier defined in paragraph 246 of the ASC in an extremely convoluted and indirect way. Moreover, some specification of the content of "the unwritten law" providing the relevant causes of action is required. In addition, the relief sought in the ASC (at least in part) is under s 51AC of the Act. The 1998 amendments to that Act make it essential that the applicants plead any case relying on Pt IVA of the Act with some precision so that Nike is able to give proper consideration to any limitation defences available to it. 14 This brings me to the other counts under the Act. In paragraph 147(d) of the ASC there is an allegation that certain conduct of Nike (including saying that it was "disgruntled" by a promotion of the second applicant) constituted "retail price maintenance". Both sides accepted that this was a typing error and that the pleader meant "resale price maintenance". So much is clear from the declaratory relief sought in the ASC, which refers to s 48 of the Act. The acts which may constitute resale price maintenance are set out in s 96(3) of the Act. There are no relevant allegations of material facts in the ASC: Sammy Russo Supplies Pty Ltd v Australian Safeway Stores Pty Ltd (1998) ATPR ¶41-641 at 41,096. 15 The first explicit reference in the ASC to the Act occurs in paragraph 209, which alleges that a clause in Nike's trading terms was void as being contrary to s 45(2)(a)(i) and (ii) of the Act. That allegation does not seem to ground any claim for relief, but to have been pleaded in anticipation of a defence by Nike to certain of the applicants' claims. Be that as it may, more importantly, no attempt is made to plead any material facts on which to base a conclusion that such provision was exclusionary or had the purpose or effect of substantially lessening competition. 16 There is also a confusing allegation of "misleading and deceptive conduct" in paragraph 218 of the ASC. This seems to relate to a letter sent by Nike's solicitors, but the conduct (which, it is said, contravened s 52 of the Act) is not clearly stated. 17 However, it is when one moves to that part of the ASC which relates discretely to Pt IV of the Act that the pleading becomes, I regret to say, utterly and completely indefensible. Senior counsel for the applicants made no such concession, but the submissions of counsel for Nike on this aspect of the pleading are, in my view, compelling and correct. It is, of course, notorious that causes of action based on Pt IV survive as one of the areas of litigation in the Court where strike-out applications are still encountered frequently. This case illustrates why that is so. 18 Paragraphs 223 - 231 commence by pleading a number of markets for Nike products, sports shoes and "Athleisure products" in various geographical areas (including one by reference to a non-existent local government area). There is no attempt to plead any facts in support of the existence of the alleged markets. The pleading merely states a conclusion. The identification of the market or markets in which Nike is said to have a substantial degree of power requires an allegation of material facts that may establish a contravention of s 46: Chan Cuong Su v Direct Flights International Pty Ltd (1998) ATPR ¶41-662 at 41,378. An allegation of substantial market power is made in paragraph 232 of the ASC, but that rests on mere conclusions stated in sub-paragraphs (a) - (e). (I do not suggest in this context that the applicants are required to do anything more than allege material facts. Of course, they do not have to set out their evidence. But it is worth remarking at this point that reference to Mr Dwyer's affidavit would not permit even a guess as to what the material facts might be.) 19 Paragraphs 235 - 245 of the ASC label in various ways conduct alleged in earlier paragraphs, and paragraphs 246 and 247 then allege that such conduct was engaged in "for the purpose" proscribed in paras (a) and (c) of s 46(1) of the Act. No facts are pleaded to show such purpose: Bega Co-operative Society (supra) at 22. 20 Paragraphs 248 and 249 contain allegations of exclusive dealing contrary to s 47 of the Act. However, they fail to plead any effect on competition. The applicants must plead material facts to establish this ingredient of liability under s 47: Sodastream Ltd v Electronics (Broken Hill) Pty Ltd (1985) 60 ALR 427. 21 I revert now to the question of limitation periods. Counsel for Nike mounted a powerful argument that many of the causes of action, particularly the contract claims, were statute-barred when this proceeding was commenced. He was also concerned that, notwithstanding the acceptance for filing in the Registry of the ASC with the addition of a number of new claims, leave was required to make such of those claims which might otherwise be barred at the time of its filing. As I have determined that the whole of the ASC must be struck out, it is not now necessary to decide the effect of the ASC being accepted for filing. What counsel for Nike said about limitation periods is something to which I would expect the applicants' legal advisers to give careful consideration in re-pleading. At the same time they should also consider whether any causes of action to be pursued were not claimed in the OSC. If so, it may be prudent to seek leave in that respect: Rodgers v Commissioner of Taxation (1998) 88 FCR 61. 22 The existence of the limitation periods does not, by itself, provide a reason for striking out a statement of claim. However, in the present case the deficiencies in the pleading, especially the prolixity, were embarrassing in a way that would have made it exceedingly difficult, if not impossible, for Nike to give proper consideration to any limitation defences. If the applicants persist with claims that are obviously out of time, then once Nike has filed its defence it would be open to it to move for summary dismissal in respect of such a claim: Cubillo v Commonwealth (1999) 89 FCR 528 at 535. 23 I am conscious of the strictures about the restraint to be exhibited in acceding to arguments that a pleading is fatally flawed. Of course, perfection is not expected. But, in my opinion, this pleading is beyond redemption. I have not referred to all its flaws or to mere infelicities of expression. Time and effort expended now in a thoughtful re-pleading will reduce the burden of preparing the case for trial and the duration of the trial itself. Nike is entitled to a statement of claim that is not embarrassing and discloses complete causes of action. 24 Counsel for Nike identified with some particularity in paragraph 2 of the amended notice of motion those paragraphs of the ASC which offended rule 16 of Order 11. He urged, however, that, instead of striking out the ASC and giving leave to re-plead, Nike's strike-out motion should be adjourned and the applicants merely given an opportunity to apply to amend their pleading: see Sammy Russo Supplies Pty Ltd (supra) at 41,098. I do not think this is a case where such an order is justified. I propose to strike out the ASC with leave to file and serve a fresh pleading. In doing so, I echo what was said in Australian Competition & Consumer Commission v Paul's Limited (2000) ATPR ¶41-747 by O'Loughlin J (at 40,656): "In composing that fresh pleading, I would counsel the pleader to have regard, not only to these reasons, but also to the other complaints of the respondent. Not all were justified but recognition of some of them will enhance the quality of the next version of the statement of claim." 25 The applicants must pay Nike's costs of its motion. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Whitlam. Associate: Dated: 28 February 2001 Counsel for the applicants: C J Stevens QC Solicitors for the applicants: Bowring Stone Counsel for the respondent: A I Tonking Solicitors for the respondent: Arthur Robinson & Hedderwicks Date of hearing: 18 May 2000 Date of judgment: 28 February 2001