FEDERAL COURT OF AUSTRALIA Petrusevski v Bulldogs Rugby League Ltd [2003] FCA 61 PRACTICE & PROCEDURE – REPRESENTATIVE PROCEEDINGS – motion to strike out pleadings – whether case adequately pleaded – threshold requirements for representative proceedings in s 33H(1) of Federal Court of Australia Act 1976 – whether pleadings satisfied the requirement that they "describe or otherwise identify the group members to whom the proceeding relates". WORDS AND PHRASES – "describe or otherwise identify". Federal Court of Australia Act 1976 (Cth), Pt IVA, ss 33A, 33C, 33H, 33J, 33X, 33ZB, 33ZG(b) Wong v Silkfield Pty Ltd (1999) 199 CLR 255, cited. Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487, followed. Cook v Pasminco Ltd [2002] VSC 534, cited. Bray v F Hoffmann-La Roche Ltd [2002] FCA 1405, cited. King v GIO Australia Holdings Ltd [2000] FCA 1543, cited. ROBERT PETRUSEVSKI & ANOR v BULLDOGS RUGBY LEAGUE CLUB LTD N 962 of 2002 SACKVILLE J SYDNEY 14 FEBRUARY 2003 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N962 OF 2002 BETWEEN: ROBERT PETRUSEVSKI FIRST APPLICANT ROBERT SPIRKOVSKI SECOND APPLICANT AND: BULLDOGS RUGBY LEAGUE CLUB LTD RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 14 FEBRUARY 2003 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The further amended application filed 29 November 2002 and the further amended statement of claim filed 27 November 2002 be struck out. 2. The applicants have leave to replead their case. 3. The applicants file and serve any further amended application and any further amended statement of claim pursuant to order 2 on or before 14 March 2003. 4. Unless either party files written submissions as to costs within seven days from the date of these orders, the applicants pay the respondent's costs of the motion filed on 10 December 2002. 5. Stand over the proceedings until 4 April 2003. 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 N962 OF 2002 BETWEEN: ROBERT PETRUSEVSKI FIRST APPLICANT ROBERT SPIRKOVSKI SECOND APPLICANT AND: BULLDOGS RUGBY LEAGUE CLUB LTD RESPONDENT JUDGE: SACKVILLE J DATE: 14 FEBRUARY 2003 PLACE: SYDNEY REASONS FOR JUDGMENT the proceedings 1 These representative proceedings were commenced on 17 September 2002 pursuant to Part IVA of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). The proceedings arise out of a decision made on 23 August 2002 by the National Rugby League Ltd ("NRL") to strip the Bulldogs Rugby League Club Ltd ("the respondent") of all competition points it had earned in the competition for the 2002 Rugby League Premiership ("the Competition"). The NRL's decision, so it appears, was based on a breach or breaches by the respondent of the so-called "salary cap" for the Competition. The applicants say that they and the group members on whose behalf they commenced the proceedings were induced by the respondent's misleading conduct to place wagers on the outcome of the Competition and that they have suffered loss and damage as a result. 2 The pleadings at present consist of a further amended application ("FAA") and a further amended statement of claim ("FASC"). Each states that the applicants bring the proceedings on behalf of themselves and the following group members: "all other persons in Australia who, as at 19 August 2002, have suffered financial loss as a result of the conduct of [the respondent] as pleaded herein by placing lawful sums of money ("Wagers") on: 1.1 the [respondent] alone in the 2002 Rugby League Premiership ("the Competition") except for having the least points in the Competition ("the Wooden Spoon"); and/or 1.2 any team except the Bulldogs to win the Wooden Spoon in the Competition; and [who] 1.3 did not know of the breaches of the salary cap which endangered Competition points; and 1.4 expected the Bulldogs to comply with the requirements of the salary cap." 3 The respondent has filed a motion seeking to strike out the application and FASC. In the alternative, it seeks further and better particulars of certain paragraphs in the FASC. The respondent submits that neither the FAA nor the FASC adequately describes or otherwise identifies the group members to whom the proceeding relates as required by s 33H(1)(a) of the Federal Court Act. THE PLEADINGS 4 After describing the group members on whose behalf the proceedings are brought (par 1), the FASC alleges that the respondent, along with other participants in the Competition, was under a contractual obligation to the NRL not to breach a nominated "salary cap" for its players, limited to $3.25 million for the Competition (par 3). It is alleged that any such breach of the salary cap could result in the respondent being stripped of some or all of its points in the Competition (par 4) and that the respondent did in fact breach the salary cap (par 5). 5 The allegation of misleading conduct is made in the following terms: "6. The Bulldogs by their conduct conveyed to the public, including the Applicants and Group Members, a message that they were properly eligible to field a team in the Competition which would entitle them to the sporting and commercial benefits attached to the Competition points (the "Misleading Conduct"). 7. In so far as the Misleading Conduct implied the message, it was constituted by: (a) the Bulldogs entering a team in the Competition; (b) the Bulldogs conducting regular and frequent media relations on behalf of the team as a leading competitor in the Competition; (c) the Bulldogs encouraging fans and supporters and other persons interested in the Competition, including the Applicants and Group Members to regard as realistic the prospects of the Bulldogs winning the Competition; (d) the Bulldogs' failure to contradict frequently published opinions by commentators on the Competition to the effect that the Bulldogs' prospects of winning the Competition were realistic. 8. In so far as the Misleading Conduct conveyed the message expressly, the Bulldogs: (a) executed Statutory Declarations for submission to the NRL expressly stating that the Bulldogs had not engaged in any salary cap breaches; (b) made, from time to time, public statements during 2002 that the Bulldogs have not breached the salary cap; (c) made, from time to time, public statements during 2002 that rumours of salary cap breaches by the Bulldogs were false and that the Bulldogs were a victim of a smear campaign; (d) made, from time to time, denials during 2002 that certain documents of the Bulldogs contained express references to breaches of the salary cap." 6 The FASC pleads that in engaging in the Misleading Conduct the respondent failed to disclose the true position to the public, including the applicant and the group members (par 9). The applicants allege that on or about 19 August 2002 the respondent admitted that it had breached the salary cap and announced that it was ready and willing to participate fully in an investigation, but did so in misleading terms in that it failed to disclose the full extent of the breach and deliberately deleted information from its records and withheld information from the auditor (pars 10, 11). These representations are said to have exacerbated the Misleading Conduct and resulted in the determination of the NRL on 22 August 2002 to strip the respondent of all 37 points it had earned at that date (pars 12, 17). 7 Paragraph 14 of the FASC pleaded falsity of the representations as follows: "The representations in paragraphs 6, 10 and 11 were false, misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the Act as follows: (a) the Bulldogs caused Statutory Declarations to be submitted to the NRL stating that they had not engaged in any breaches of the salary cap when in fact they had; (b) the Bulldogs represented that they had not breached the salary cap when in fact they had; (c) the Bulldogs represented that they had not breached the salary cap for the 2002 Competition when in fact they had budgeted and intended to breach the salary cap by $889,496 and did in fact breach it by at least $400,000; (d) the Bulldogs' "admissions" pleaded in paragraph 10 were not in fact a correct statement of the full extent of the breaches; (e) the Bulldogs represented that they were ready and willing to participate fully in the NRL investigation to determine the nature and extent of the salary cap breaches at the same time as they deliberately deleted information as alleged in paragraph 11; (f) the Bulldogs represented that all information and documents had been made available to the NRL auditor when in fact they had not." 8 The applicants plead that prior to 23 August 2002, the respondent was leading the Competition and was not expected to win the Wooden Spoon (pars 15, 16). The effect of stripping the respondent of its Competition points was to relegate it to last place and to make it most likely to win the Wooden Spoon (par 18). 9 After pleading the various Wagers placed by the applicants and group members (pars 19-21), the FASC alleges that in doing so they relied on the Misleading Conduct referred to in par 6 (par 22). Paragraph 23 pleads loss and damage as follows: "As a result of this reliance on the Misleading Conduct and of the further conduct of the Bulldogs outlined in paragraphs 10 and 11 above the Applicants and each of the Group Members suffered loss and damage. PARTICULARS (a) loss of amount of Wager (b) loss of opportunity to secure any winnings on the Wager (c) interest." 10 The FASC then pleads a cause of action in negligence and claims exemplary damages by reason of what is said to be the respondent's "cheating" and "contumelious disregard of the interests" of the applicants and group members (pars 24-31). the submissions 11 Mr Leopold, who appeared for the respondent, submitted that the pleadings do not defined the group members to which the proceedings relate with sufficient precision to satisfy the requirements of s 33H(1)(a) of the Federal Court Act. He contended that it is essential that the FAA or FASC provide a reasonably certain description of the represented group, failing which the pleadings are liable to be struck out. 12 Mr Leopold accepted that it is open to the applicants to define the represented group by reference to persons who have relied on particular conduct of the respondent and who have suffered loss or damage as a result. The difficulty here, so he argued, is that the conduct is pleaded in such imprecise terms that it is impossible for an individual to determine, even with professional advice, whether he or she is a member of the represented group. Mr Leopold pointed out that it is enough for a person to be a group member that he or she has relied on some, but not all, of the pleaded conduct of the respondent. Because of the vagueness of the pleading in pars 7 and 8, it is likely that some persons who had placed Wagers would not be able to determine whether they had been induced to do so by the respondent's misleading conduct. Since a pleading must comply with the requirements of s 33H(1)(a) of the Federal Court Act, it followed that the applicants' pleadings are liable to be struck out. 13 Mr Walker, who appeared with Ms Culkoff for the applicants, contended that the FASC pleads the material facts and that there could be no doubt about the definition of the represented group. Paragraph 6 pleads the representation conveyed by the respondent's conduct, namely that the respondent was "properly eligible to field a team in the Competition". The relevant conduct which gave rise to the representation, either implicitly or expressly, is that pleaded in pars 7 and 8. It is not necessary for the pleading to identify, for example, the "regular and frequent media relations" (par 7(b)) or the means by which the respondent encouraged interested persons to regard the respondent's prospects of winning the Competition as realistic (par 7(c)). 14 Mr Walker submitted that it is necessary only to plead the effect of a representation and not each and every occasion on which the representation was made. The latter is at most a matter for particulars, although it might more properly be regarded as a matter of evidence. He also submitted that it would be unrealistic to require details in a pleading that few lay people would understand. He suggested that for persons wishing to consider whether to opt out of the proceeding, the critical document would be the opt out notice provided for in s 33X(1)(a) of the Federal Court Act. 15 Mr Walker accepted, however, that the respondent was entitled to particulars of each of the allegations in pars 7 and 8 and he acknowledged that, despite requests for such particulars having previously been made by the respondent, they had not been provided. He undertook on behalf of the applicants to provide the respondent with a bundle of documents constituting the documentary evidence on which the applicants intended to rely to support the allegations in pars 7 and 8. This, he said, would be more than sufficient to satisfy the respondent's entitlement to further and better particulars. reasoning 16 Section 33A of the Federal Court Act defines a "representative proceeding" to mean a proceeding commenced under s 33C. Section 33C specifies "threshold requirements" (Wong v Silkfield Pty Ltd (1999) 199 CLR 255, at 267) for such a proceeding. Section 33C(1) provides as follows: "33C(1) Subject to this Part, where: (a) 7 or more persons have claims against the same person; and (b) the claims of all those persons are in respect of, or arise out of, the same, similar or related circumstances; and (c) the claims of all those persons give rise to a substantial common issue of law or fact; a proceeding may be commenced by one or more of those persons as representing some or all of them." A proceeding is not properly commenced unless it satisfies each of the three threshold criteria specified in s 33C(1): Philip Morris (Australia) Ltd v Nixon (2000) 170 ALR 487, at 514, per Sackville J (with whom Spender and Hill JJ agreed). 17 Section 33H of the Federal Court Act is designed, at least in part, to ensure that the originating process shows that the criteria in s 33C have been met: Wong v Silkfield, at 260. Section 33H is as follows: "33H(1) An application commencing a representative proceeding, or a document filed in support of such an application, must, in addition to any other matters required to be included: (a) describe or otherwise identify the group members to whom the proceeding relates; and (b) specify the nature of the claims made on behalf of the group members and the relief claimed; and (c) specify the questions of law or fact common to the claims of the group members. (2) In describing or otherwise identifying group members for the purposes of subsection (1), it is not necessary to name, or specify the number of, the group members." 18 In Philip Morris v Nixon, at 514, this was said: "in order for representative proceedings to be properly constituted, the application (or a supporting document) must include the three categories of information specified in s 33H(1). If, for example, the application does not describe or otherwise identify the group members, as required by s 33H(1)(a), the application is liable to be struck out and the proceedings dismissed, pursuant to the court's powers under the [Federal Court Rules] specifically preserved by s 33ZG(b)." Section 33ZG(b) provides that nothing in Part IVA affects the Court's powers under any other provision, including its power to strike out or dismiss proceedings which disclose no reasonable course of action or are oppressive, vexatious or frivolous. 19 In determining what s 33H(1)(a) of the Federal Court Act requires, it is important to consider why it is necessary to describe or identify the group members in a representative proceeding. One reason, as the High Court observed in Wong v Silkfield, is to enable the Court to determine whether the requirements of s 33C have been satisfied. Unless the group member is adequately described or identified (although not necessarily named or counted: s 33H(2)), it may be difficult to ascertain, for example, whether the claims of all the group members give rise to a substantial common issue of law or fact. 20 Another reason for describing or identifying group members is to enable group members to decide whether or not to opt out of the representative proceeding pursuant to s 33J(2) of the Federal Court Act. If a person who is a group member does not opt out of the proceedings he or she will be bound by the judgment. (Section 33ZB requires the judgment in a representative proceeding to "describe or otherwise identify the group members who will be affected by it" and provides that the judgment binds any such persons other than any person who has opted out.) The failure by a group member to opt out of representative proceedings may therefore be attended by serious consequences, although of course the litigation might also produce advantages for that group member. 21 These factors suggest that it must be possible for persons who may be within the represented group to ascertain from the pleadings whether they are in fact group members. The point was made by Hedigan J in Cook v Pasminco Ltd [2000] VSC 534, at [59], in relation to similar State legislation: "It is beyond doubt that in a group proceeding the description of a group membership must be such so that it is at least possible to determine who falls within the group as described. Persons contemplated as being within the group would themselves not understand whether they were within it, unless the definition of the group is intelligible, although not necessarily exact. Members of the group are entitled to know what constitutes the essentials of the group. A decision concerning opt-out cannot be sensibly made unless it is known what it is that is being opted out from." It follows from his Honour's observations that a person must be able to ascertain from the description of the represented group whether he or she is a member of that group. 22 In Bray v F Hoffmann-La Roche Ltd [2002] FCA 1405, Merkel J criticised a pleading which defined the represented group to include, in effect, all persons who, over a seven year period, had purchased certain vitamins in Australia. His Honour expressed the view (at [29]) that the definition did not adequately describe or identify the group members. As he asked rhetorically, to whom was notice to be given under s 33X of the Federal Court Act (which requires group members to be given notice of certain matters)? Merkel J's approach supports the view that what constitutes an adequate description or an identification of the represented group for the purposes of s 33H(1)(a) of the Federal Court Act must be determined by reference to the other provisions of Part IVA, in particular those concerned with the rights and duties of group members. 23 Clearly enough, not every description or identification of the represented group will satisfy the requirements of s 33H(1)(a) of the Federal Court Act. A useful, although not necessarily exhaustive test, is whether the description is such as to enable a person, with the assistance of a legal adviser if necessary, to ascertain whether he or she is a group member. If the description incorporates a reference to conduct alleged in the pleadings, a person or his or her adviser ought to be able, by reading the description and the relevant portion of the pleadings, to determine whether he or she is a member of the represented group. If a person cannot reasonably be expected to do this, the definition is unlikely to satisfy the requirements of s 33H(1)(a). 24 In the present case, the applicants have chosen to describe or identify the represented group as those who have suffered financial loss as the result of the conduct of the respondent as pleaded in the FASC and who also satisfy other specified criteria. As Mr Leopold acknowledged, it is no objection to the definition that it requires reference to be made to the respondent's conduct as pleaded in FASC. In King v GIO Australia Holdings Ltd [2000] FCA 1543, the group members were described as shareholders of GIO who did not accept certain take-over offers "by reason of the conduct alleged in the [statement of claim] of all (or alternatively, any) of the Respondents and who suffered loss as a consequence". The respondents submitted that a represented group could not be defined by reference to "potential outcomes". The Full Court (at [11]) said that it was "incorrect to say that the group is defined by reference to potential outcomes. Rather, the group is defined by reference to matters that are capable of being ascertained objectively namely, GIO share ownership, non-acceptance of the AMP offer by reason of certain conduct and loss suffered as a consequence. If it should transpire that there was no such conduct, or that the conduct did not cause any loss, the group members' claim will fail, now and for the future." This reasoning applies to the present case. 25 While it is open to define the represented group by reference to conduct alleged in a pleading, a difficulty may arise if the pleading is so vague or uncertain that some potential group members cannot reasonably be expected to ascertain by reference to the pleading whether they are in fact members of the group. 26 In this case, according to the definition in par 1 of the FASC, a group member must have suffered financial loss as the result of the respondent's pleaded conduct by placing certain "Wagers". To determine whether a person who has suffered financial loss by reason of making Wagers is a member of the represented group it is necessary to form a judgment as to whether any such loss resulted from the respondent's pleaded conduct. The relevant conduct is that pleaded in pars 7 and 8 of the FASC: that is, the conduct conveying the representation (referred to in par 6 as "a message") that the respondent was "properly eligible to field a team in the Competition". 27 The pleaded conduct of the respondent conveying that representation includes: * conducting regular and frequent media relations on behalf of the team as a leading competitor in the Competition (par 7(b)); * encouraging fans and supporters and others, including group members, to regard as realistic the prospect of the respondent winning the Competition (par 7(c)); * failing to contradict frequently published opinions by commentators on the Competition to the effect that the respondent had realistic prospects of winning the Competition (par 7(d)); and * making, from time to time, public statements during 2002 that the respondents had not breached the salary cap and that the rumours of breaches were false (par 8(b), (c)). 28 The FASC does not specify what is meant by "conducting regular and frequent media relations" in par 7(b). Not only are no particulars provided in the pleading, but it is not clear what sorts of communications are intended to be embraced by the pleading. Are they press releases, media conferences, personal interviews, off the record briefings, "leaks" or some combination of these? Paragraph 7(c) of the FASC does not describe, even in the most general terms, the means by which the respondent is said to have encouraged group members and others to have regarded its prospects of winning the Competition as realistic. Was the encouragement provided by public statements of officials or players, performances on the field, information released to the media or in some other way? Similarly, the FASC does not identify, even in general terms, which published opinions of commentators the respondent allegedly failed to contradict (par 7(d)). Which commentators does the pleading have in mind? Are the relevant opinions confined to those expressed (in whatever form) during the Competition or do they include opinions expressed before the Competition began? When should the respondent have begun to contradict the opinions? 29 The difficulties presented by par 8 are perhaps less acute. Even so, the FASC does not identify any of the public statements or denials made by the respondent on which the applicants rely. Is the pleading intended to be confined to statements or denials in the form of press releases or interviews by club officials in the mass media or is the pleading intended to cover other statements? Which officials are said to have made the public statements or denials on which the applicants rely? Who is said to have had authority on behalf of the respondent in making public statements or denials? 30 In my view, a narrow or technical approach should not be taken in determining whether a pleading satisfies s 33H(1)(a) of the Federal Court Act. As was pointed out in Philip Morris v Nixon, at 515, some latitude may be allowed to an applicant in pleading a representative action to take account of the special characteristics of such actions. I do not think it is necessary for the definition of a represented group to be so precise as to eliminate all possible ambiguity or room for argument. 31 In this case, however, some persons who have suffered losses as the result of Wagers are likely to have great difficulty in determining whether they are within the represented group. A person may well be left uncertain as to whether he or she has been induced to place a Wager by conduct described in such vague and uncertain terms as sub-pars 7(b), (c) and (d). The person can be expected to know what factors induced him or her to place the Wager. But without greater specificity in the pleading, he or she may be uncertain as to whether any or all of these factors are intended to be embraced by pars 7 and 8 of the FASC. The difficulties are compounded by the lack of any temporal dimension to the pleading in par 7. 32 A person may have been induced to place a Wager by something that he or she read in a newspaper or magazine that could be understood as implying that the respondent was eligible to field a team in the Competition. How is the person (or his or her adviser) to know whether that particular item was the product of the respondent's "regular and frequent media relations" without knowing what is meant by that phrase? Alternatively, how is the person to know whether the item was the product of the respondent "encouraging" interested persons to regard as realistic its prospects of winning the Competition unless the applicants specify what kind of encouragement they have in mind? What if the person placed a Wager some time in advance of the 2002 Competition, on the faith of a commentator's prediction that the respondent would do well? In the absence of a pleading specifying a date from which the respondent should have contradicted such opinions, how is the person to know whether par 7(d) of the FASC applies to his or her situation? 33 As I have said, the difficulties created by par 8 of the FASC seem to me to be less acute. Nonetheless they are not trivial. The statements and denials referred to are confined to those made during 2002, but no indications given in the pleading as to when the relevant statements and denials were made and by whom. What if a Wager was made in reliance on a denial by a player contracted to the respondent that the club had breached the salary cap? How is the person making the Wager to ascertain whether this is one of the denials encompassed by par 8(d) of the FASC? 34 I do not think the difficulties to which I have adverted can be overcome by the applicants' belated offer to provide particulars. That may make the case alleged against the respondent clearer, although it does not necessarily overcome the pleading deficiencies, in particular, those affecting pars 7(b), (c) and (d). But the provision of bundles of documents to the respondents will be of little assistance to persons seeking to ascertain from the pleadings themselves whether they are members of the represented group. 35 As may be apparent from what I have said, I think that Mr Walker's submissions tended to merge two different, albeit related issues. The first is whether the applicants' case against the respondent is adequately pleaded. The second is whether the pleading sufficiently defines or otherwise identifies the represented group for the purposes of s 33H(1)(a) of the Federal Court Act. 36 The applicants did not necessarily have to define the represented group by reference to persons who placed Wagers in reliance on the respondent's conduct as pleaded in the FASC. They chose to take that course. Having done so, they must ensure that the conduct is pleaded in sufficiently clear and precise terms to enable a potential group member to ascertain whether he or she is a member of the represented group. That does not require, as Mr Walker perhaps suggested, a comprehensive list of every public statement or contact between the respondent and the media that might form part of the evidence in the case. In my view, however, it does require, for example, a more precise statement of what is meant by "regular and frequent media relations" that are alleged to have presented the respondent as a leading competitor in the Competition. Similarly, it requires a clearer indication of what measures the respondent allegedly took to encourage interested persons to regard its chances of winning the Competition as realistic. 37 I do not think it is an answer to say that potential group members are likely to get their information as to the definition of the represented group from the opt-out notice. That notice can be no more precise than the definition the applicants have chosen to adopt in the pleadings. In any event, s 33H(1) of the Federal Court Act imposes threshold requirements that must be satisfied by the applicant's pleadings. 38 In my opinion, the FAA and FASC are deficient because they fail sufficiently to describe or otherwise identify the group members to whom the proceedings relate. It follows that they should be struck out. 39 The respondent did not suggest that the applicants should be denied leave to replead. It would seem to be a relatively simple task, especially in view of Mr Walker's offer relating to particulars, to amend the pleadings to overcome the problems I have identified. The repleading should ensure that potential group members will not encounter undue difficulty in determining whether they are members of the represented group as defined. 40 The parties wished me to provide an opportunity to make submissions on costs. Unless either party files written submissions on costs within seven days, I propose to order that the applicants pay the respondents' costs of the motion. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 14 February 2003 Counsel for the Applicant: Mr B W Walker SC Ms V Culkoff Solicitor for the Applicant: Clinch Neville Long Lawyers Counsel for the Respondent: Mr A Leopold Solicitor for the Respondent: Phillips Fox Date of Hearing: 5 February 2003 Date of Judgment: 14 February 2003