FEDERAL COURT OF AUSTRALIA Basegrove Holdings Pty Ltd v Centaur Mining and Exploration Limited [2001] FCA 259 PROCEDURE – statement of claim – motion to strike out – whether federal cause of action pleaded – whether alleged misleading or deceptive character of alleged representations particularised Trade Practices Act 1974 (Cth) ss 51A, 52, 52(1), 82, 86, 87 Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, applied Fencott v Muller (1983) 152 CLR 570, applied Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261, cited Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216, followed SEG Irish Distillers Ltd v S Smith & Son Pty Ltd (1987) 9 ATPR 40–756, followed W G & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd [1999] FCA 1776, distinguished BASEGROVE HOLDINGS PTY LTD and ALESSANDRO LUIGI GUJ v CENTAUR MINING AND EXPLORATION LIMITED W 201 of 2000 RD NICHOLSON J 15 MARCH 2001 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W 201 of 2000 BETWEEN: BASEGROVE HOLDINGS PTY LTD (ACN 061 814 060) FIRST APPLICANT ALESSANDRO LUIGI GUJ SECOND APPLICANT AND: CENTAUR MINING AND EXPLORATION LIMITED (ACN 004 805 145) RESPONDENT JUDGE: R D NICHOLSON J DATE OF ORDER: 15 MARCH 2001 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The respondent's motion to strike out the statement of claim be held over. 2. The applicants have leave to amend their statement of claim within 21 days. 3. Costs are reserved. 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 W 201 of 2000 BETWEEN: BASEGROVE HOLDINGS PTY LTD (ACN 061 814 060) FIRST APPLICANT ALESSANDRO LUIGI GUJ SECOND APPLICANT AND: CENTAUR MINING AND EXPLORATION LIMITED (ACN 004 805 145) RESPONDENT JUDGE: R D NICHOLSON J DATE: 15 MARCH 2001 PLACE: PERTH REASONS FOR JUDGMENT 1 A motion is brought on behalf of the respondent seeking that the applicants' statement of claim be struck out for failure to disclose a cause of action within the jurisdiction of the Federal Court. The motion is brought pursuant to O 19 r 2 of the Federal Court Rules. 2 The applicants allege the respondent has engaged in misleading and deceptive conduct in contravention of s 52(1) of the Trade Practices Act 1974 (Cth) ("the Act"). Section 52(1) of the Act provides: "A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive". 3 The relief sought by the applicants is damages pursuant to ss 82 and 87 of the Act or for breach of contract. An action for damages or other relief in respect of a contravention of s 52(1) of the Act can be brought in the Federal Court: see s 86. When a federal cause of action is within the jurisdiction of the court then other causes of action that have been pleaded in the same suit, provided they are part of a single controversy, are also within jurisdiction. This is the result of decisions such as Philip Morris Inc v Adam P Brown Male Fashions Pty Ltd (1981) 148 CLR 457, Fencott v Muller (1983) 152 CLR 570, and Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261. 4 The statement of claim is in the following form. It asserts that the first and second applicants were the holders of certain exploration tenements which were contiguous and were located between the Kundana and Mount Pleasant mining centres approximately 25 kilometres North-West of Kalgoorlie. Those tenements comprised mining lease applications 24/613, 16/330, 24/533 together with exploration license application 24/64 and exploration license application 24/85. The package of tenements was put together as a consequence of the second applicant consenting to join the first applicant as a vendor of mining tenements. 5 It is claimed that on or about 4 August 1998 the first applicant on behalf of the first and second applicants sent correspondence to the respondent with an enclosed information memorandum offering the tenement package for sale. The statement of claim then proceeds to detail the course of negotiations between the applicants and the respondent. It refers to a response on behalf of the respondent by Mr Radonjic, Manager of Geology; to initial verbal negotiations; to the preparation and forwarding of a draft option agreement on or about 1 October 1998; to a telephone conversation between Mr Radonjic and the second applicant on 2 October 1998; and to correspondence of 5 October 1998. The claim then refers to correspondence of 9 October 1998 from Mr Radonjic to the applicants in which it is said, inter alia, that Mr Jadonjic represented that he was confident an agreement on purchasing the tenement package on acceptable terms could be reached. Particulars of this representation then follow in which it is asserted that as to future matters the applicants will rely on s 51A of the Act. In similar vein, the claim moves on to recount a telephone answering message on 23 October 1998 and 23 November 1998; a letter of offer dated 8 December 1998; a telephone conversation of 16 December 1998; a telephone answering message of 28 January 1999; an alleged confirmation of acceptance of an offer; an amended option agreement of 2 February 1999; a telephone conversation of 11 February 1999 and 23 February 1999; correspondence of 24 March 1999, 29 March 1999, 31 March 1999, and 12 and 13 April 1999, 21 April 1999 and a telephone conversation of the same date. Added to this is a pleading of the correspondence of 30 April 1999; facsimile correspondence of the respondent of 3 May 1999; correspondence of 5 May 1999 and 14 July 1999. In a number of these pleadings under the heading of "Particulars of representation" it is particularised in what document or in what form the representations appear; references made to the reliance on s 51A of the Act and that their representations contained implied representations that they could be relied upon and were not mere statements of opinion. There is not any particularisation of any means by which any of these alleged representations are misleading or deceptive. 6 The first such plea arises in relation to correspondence of 16 July 1999 where it is pleaded in the following terms: "73. On or about 16 July 1999, the Respondent through Martin Reed represented that: - a) due to the current downturn in the gold price and the economic conditions prevailing at the Respondent's Mount Pleasant operations, the Respondent was unable to proceed further with the Kundana-White Flag option agreement; and b) the Respondent trusted the First Applicant understood that the decision not proceed resulted from circumstances beyond the Respondent's control." Under the heading " Particulars of falsity" it is then pleaded as follows: "A. In so far as the representation pleaded in paragraph 73(b) above, is alleged by the Respondent to arise from circumstances beyond the control of the Respondent, the representation is false in that it was at all times within the power and control of the Respondent to execute either the amended option agreement or any subsequently amended version thereof but the Respondent elected to resile from the representations previously made to the First and Second Applicants and/or the agreements previously entered into with the First and Second Applicants." 7 Then follow pleadings of correspondence of 17 August 1999 and a telephone conversation of 24 August 1999 and an attempted telephone conversation with a Mr Joseph Gutnick of 14 September 1999. The pleading then proceeds: "82. The Respondent's conduct in making the representations hereinbefore referred to above was:- i) in trade or commerce within the meaning of that term in s 52 of the Trade Practices Act; ii) misleading or deceptive in contravention of the meaning of that term in s 52 of the Trade Practices Act. 83. The representations hereinbefore referred to were misleading and deceptive. PARTICULARS OF MISLEADING AND DECEPTIVE CONDUCT A. The Respondent failed, refused or neglected to enter into any option agreement to purchase the tenement package despite having represented to the First and Second Applicants that it was ready, willing and able to enter into an option agreement for the purchase of the tenement package. B. The First and Second Applicants will refer to the correspondence of the Respondent dated 16 July 1999. 84. By reason of the Respondent's misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act, the First and Second Applicants have suffered loss and damage." Then followed particulars of loss and damage and an alternative plea of breach of agreements by way of repudiation together with particulars of the alleged repudiation. The alternative plea is of non-federal causes. 8 In support of the respondent's motion it is contended that the applicants have failed to make out any claim under s 52 of the Act for misleading and deceptive conduct. It is said they have purported to chronicle the negotiations leading up to an alleged agreement for the purchase of an option over the mineral tenements much of which, it is contended for the respondent, is irrelevant. It is said that the matters relied on in pars 73 and 83 are really to be viewed as allegations of repudiatary conduct rather than allegations of misleading and deceptive conduct. It is contended that, the applicants having failed to make out a claim for misleading and deceptive conduct, the alternative claim for breach of contract is one which cannot come within the jurisdiction of the Court. 9 Each of the applicants is unrepresented. The second applicant, with the concurrence of the director of the first applicant to whom leave had been granted to represent it, sought to explain to the Court the nature of the case which the pleading is intended to make. In his submissions the second applicant placed considerable reliance upon the terms of s 51A of the Act and to the reverse onus which that section would place on to the respondent to adduce evidence to negate the statutory deeming that it did not have reasonable grounds for making the representations. It was apparent from the submissions by the second applicant that he considered that when the case is heard and the witnesses called to give evidence the intent of the respondent to mislead and/or deceive the applicants would be made apparent. It became apparent that the applicants will seek to contend that the entire course of conduct by the respondent was misleading or deceptive in that each of the representations was not intended to bring about a concluded negotiation. 10 For the respondent it was submitted that in truth what the applicants' pleading brings is a claim for breach of contract because the applicants are unable to particularise the misleading or deceptive character of the alleged representations. It is further submitted for the respondent that the claim should be struck out so that the applicants can re-bring the claim in the jurisdiction of the Supreme Court as a breach of claim of contract. This is a course which the applicants do not wish to pursue. 11 Although the submissions made by the second applicant refer to the cases intended to bring evidence as to the mental state of the person engaging in the alleged misleading or deceptive conduct, it is the law that an action alleging contravention of s 52 requires the conduct to be judged objectively, not subjectively: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216. The position is that even where there is an intention to mislead or deceive, no breach can be made out under s 52 of the Act unless the conduct actually misleads or deceives or is likely to do so: SEG Irish Distillers Ltd v S Smith & Son Pty Ltd (1987) 9 ATPR 40–756. 12 However, it is possible to understand the submissions made for the applicants in the light of that requirement of the law. I take it as being asserted by them that when the case is heard and the witnesses are called to give evidence it will be shown that the conduct in which the respondent engaged in making the pleaded representations actually mislead or deceived them or was likely to do so. On the case which the applicants wish to have heard, this would arguably be because the respondent carried on the negotiations to engage them but not to lead to a concluded agreement. The allegation the applicants appear to seek to make is that the cause of negotiations was a facade which mislead or deceived them or was likely to do so. That is an allegation of a federal cause which it appears to me could be properly pleaded. 13 I do not consider that this is a case in which the federal claim which is said to enliven the accrued jurisdiction of the Court to dispose of non-federal claims is trivial or insubstantial. Properly pleaded, the federal claim is not one which could be said to be bound to fail and be unarguable. It is only when a federal claim is colourable in that way that the Federal Court would lack jurisdiction to deal with the non-federal matters. As a matter of impression and practical judgement I consider that if opportunity is given to properly plead the federal claim and it is properly pleaded, the whole controversy could appropriately be determined by the exercise of federal judicial power: Fencott at 609 – 610. I distinguish the decision of W G & B Manufacturing Pty Ltd v Tesla Farad Pty Ltd [1999] FCA 1776 on that point as referring to a federal claim which, unlike the federal claim potentially here, was one bound to fail and unarguable. 14 It is the pleading of the manner in which each of the representations is misleading or deceptive which is presently absent from the statement of claim. In the absence of particularisation of the manner in which it is to be alleged the respondent's conduct was misleading or deceptive or was likely to be so, the pleading is defective. However, it is not beyond possibility that the applicants could put the claim in to a form which particularises the misleading or deceptive aspect of the conduct. For that reason the pleading should not be struck out and the applicants should have the opportunity to amend it. 15 For these reasons I consider that the respondent's motion should be held over and leave given to the applicants pursuant to O 13 r 2 of the Federal Court Rules to amend their statement of claim to particularise the misleading and deceptive conduct. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice R D Nicholson. Associate: Dated: 15 March 2001 Mr I Darragh, a director and shareholder of the first applicant, appeared with leave on its behalf The second applicant appeared in person Counsel for the Respondent: Mr MN Solomon Solicitor for the Respondent: Gadens Lawyers Date of Hearing: 9 March 2001 Date of Judgment: 15 March 2001