FEDERAL COURT OF AUSTRALIA PFD Food Services Pty Ltd v NAFDA Pty Ltd [2003] FCA 1392 PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS v NAFDA PTY LTD (ACN 002 953 942) V 763 of 2002 RYAN J 9 DECEMBER 2003 MELBOURNE IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 763 of 2002 BETWEEN: PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS (in accordance with annexed Schedule) Applicants AND: NAFDA PTY LTD (ACN 002 953 942) Respondent JUDGE: RYAN J DATE OF ORDER: 9 DECEMBER 2003 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The applicants have leave by 9 February 2004 to amend their statement of claim in such manner as they may be advised in light of the reasons for judgment published this day. 2. The amended motion on notice dated 28 March 2003 be adjourned to 20 February 2004. 3. The applicants pay the respondent's costs thrown away as a result of the amendment pursuant to leave granted by paragraph 1 of this Order. 4. The costs of all parties of the hearing on 25 August 2003 be reserved. 5. Liberty be reserved to any party to apply on not less than 48 hours notice in writing to the other party. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V 763 of 2002 BETWEEN: PFD FOOD SERVICES PTY LTD (ACN 006 972 381) & ORS (in accordance with annexed Schedule) Applicants AND: NAFDA PTY LTD (ACN 002 953 942) Respondent JUDGE: RYAN J DATE: 9 DECEMBER 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT Background 1 On 6 November 2002, the applicants filed a statement of claim alleging, relevantly, that the respondent, NAFDA Pty Ltd ("NAFDA"), had engaged in misleading and deceptive conduct in contravention of the Trade Practices Act 1975 (Cth) ("the Act") and had been in breach of fiduciary duties owed to the applicants. The respondent by a notice of motion dated 11 December 2002 sought to dismiss or strike out the proceedings under O 20 r 2. 2 On 7 July 2003, I made an order that the applicants have leave "to amend their statement of claim in such manner as they may be advised in light of my reasons for judgment published on this day". Those reasons are to be found in PFD Food Services Pty Ltd v NAFDA Pty Ltd [2003] FCA 682 ("PFD"). On 23 July 2003, the applicants filed an amended statement of claim. The extent of the amendments, and their adequacy, will be discussed further below. 3 The respondent subsequently raised a number of objections to the statement of claim as amended pursuant to the leave granted on 7 July 2003. I shall deal separately and in order with each of those further objections. Misleading and deceptive conduct 4 The allegations pleaded in the original statement of claim to make out this part of the applicants' cause of action were, to a large extent, set out in PFD at [16]. At [20], I made these comments about the adequacy of that part of the pleading: 'In this case the respondent argues that the applicants have failed to plead what they would have done, or refrained from doing, had they not acted in reliance on the representations and how, as a result, they suffered loss or damage. The Court, where a breach of s 52 is made out, s 87 notwithstanding, will seldom hold a respondent to its representation as if it were a specifically enforceable contract. It is not an adequate statement of causation to plead in a case like this: "the respondent misled us about whether it would pay profits over to members of NAFDA (NSW) and NAFDA (VIC), and, if that misrepresentation had not been made, we would have received those profits." That does not follow as a matter of logic. The highest I think it can be put, on the present pleadings, is that, if NAFDA had not engaged in the alleged misleading conduct, the applicants would have had notice of its change in accounting policy and its policy on the payment of extraordinary dividends and would have had an opportunity to make alternative business arrangements. The loss which they would allege on that formulation would be the loss of the opportunity to enter better bargains or financial arrangements. That would require proof, either that there was some business arrangement available that would have delivered the same benefits which would have been achieved if NAFDA had continued trading according to the extraordinary profit resolution, or that a more profitable arrangement had been passed up due to NAFDA's representations.' 5 At [23], I concluded that; 'As far as I can see, the present respondent is not at present on clear notice of the alleged contravention of s 52 of the Trade Practices Act which it has to meet or how that caused the applicants to suffer damage measured in some generally accepted way.' 6 In response to this criticism, the applicants amended the relevant parts of their statement of claim, by including the following additional paragraphs: '20A. Acting in the faith and truth of, induced by and in reliance upon: (a) the matters alleged in paragraphs 12B, 12C and 14; (b) the extraordinary profit resolution alleged in paragraph 15; (c) the ongoing trading basis representation alleged in paragraph 16; (d) the matters alleged in paragraph 17; and not otherwise, the Applicants individually or collectively did not negotiate supplier discounts, supplier rebates or incentives or did not negotiate such discounts, rebates or incentives without regard to any such discounts, rebates or incentives obtained by NAFDA for the State members. 20B. By reason of the inducing and reliance alleged in paragraph 20A the Applicants were deprived of or lost the opportunity to obtain and the value of supplier discounts, supplier rebates or incentives.' 7 However, the applicants' pleading of loss and damage, at par 21 of the statement of claim, was only amended as follows by including the words to which I have added emphasis; '21. By reason of the matters alleged in paragraphs 19 to 20B (inclusive) the Applicants have suffered loss and damage. PARTICULARS The Applicants loss and damage is to be measured their true share of profit of NAFDA for 2000-2001, particulars of which sums the Applicants will provide after discovery.' 8 Mr Collinson of Counsel for the respondent, submitted that the amended statement of claim still does not disclose a causative nexus between the alleged misrepresentation and the profits alleged to have been lost in the 2000-2001 financial year. The submission continued that the whole of the allegations relating to the misleading and deceptive conduct ought to be struck out on that basis. Mr Booth of Counsel for the applicants, responded by contending, in effect, that the loss and damage suffered by reason of the alleged misrepresentations of the respondent is quantified by the rebates that the applicants have not received from NAFDA. 9 The amended statement of claim alleges that by reason of the respondent's misrepresentations, the applicants refrained from certain conduct, such as negotiating their own supplier discounts or rebates, which resulted in their being deprived of an opportunity to obtain the value of supplier rebates and discounts available otherwise than through NAFDA. However, the loss and damage alleged in par 21 of the amended statement of claim to have been suffered by the applicants is measured by the applicants' "true share of profits of NAFDA for 2000-2001." The applicants are, for the purpose of establishing a causal link between the representation and the alleged loss have equated the detriment said to have been suffered by reason of the alleged misrepresentations with the share of the profit of which they claim they should have received from NAFDA for 2000-2001. That does not eliminate the logical error which I identified in the original statement of claim in PFD at [20]. By particularising the loss and damage by reference to NAFDA's profits for 2000-2001, the applicants have again erroneously sought to rely on a claim under s 52 in an attempt to recover damages for the loss of the bargain that they thought had been made with the respondent. As I said in PFD at [21], "the present statement of claim does not disclose a set of facts, which, if proved, would found an entitlement to damages on the measure applicable to a breach of contract." 10 In my view, the amended statement of claim still does not adequately plead the loss and damage sustained by the applicants as a result of the alleged misrepresentations of the respondent. Consequently, the respondent is still not on clear notice of the alleged contraventions of s 52 of the Act which it has to meet: BWK Elders (Australia) Pty Ltd v Westgate Wool Company Pty Ltd [2002] FCA 87 at [3] per Mansfield J. However, the defects in the pleadings with respect to the allegations of a breach of s 52 of the Act do not go to the existence of a cause of action and can be overcome by the giving of appropriate further and better particulars of damage. I shall therefore order that the applicants have leave to further amend their statement of claim. Fiduciary duties 11 The applicants' pleadings in the original statement of claim in respect of a breach of fiduciary duties were, to a large extent, as follows: '24. Further or in the alternative, by reason of the matters aforesaid NAFDA owed fiduciary duties to the applicants and each of them: (a) to act in good faith and for proper purposes; (b) not to put itself in a position of conflict between its own interests and the interests of those to whom it owed such duties. (c) to act in the interests of the applicants and each of them: (d) in the negotiation of rebates with suppliers; (ii) in the administration and payment of EDAs; (i) in the conduct of trading with members via NAFDA trading; (ii) in the conduct of the "Best of the Best"; (iii) in the distribution of profits from NAFDA trading and from the "Best of the Best"; (d) not to depart from the assumed basis of dealing between NAFDA and its members as described in paragraph 13 without informing and advising members of its intention to do so; (e) not to act in a manner inconsistent with its status as a co-operative and to take all steps necessary to ensure that income was distributed in each financial year so as to ensure distribution of all income and profit to members and maintain the status of NAFDA as a co-operative. 25. In breach of the duties referred to in paragraph 24 NAFDA has retained to itself as accumulated profit the income from NAFDA trading, from the "Best of the Best" campaign and from other activities which it ought to have distributed to the applicants on whose behalf it acted for the year ending 30 June 2001. PARTICULARS The particulars in par 18(b) are referred to and relied upon. 26. Further, by reason of the breaches referred to in the preceding paragraph and/or by reason of the wrongful departure by NAFDA from the assumed basis of dealing as alleged in paragraph 23, the applicants and each of them have suffered loss and damage. PARTICULARS The applicants have not been paid the share of profit from NAFDA trading and from "Best of the Best" and from other activities of NAFDA by way of extraordinary dividend and NAFDA has retained to itself such accumulated profit.' 12 In PFD at [12], I stated that: 'The applicants' case on fiduciary duties does not appear to me, in theory, unarguable. However, as already indicated, the present pleadings do not adequately disclose how the respondent undertook or agreed to act on behalf of, or for the benefit of, the applicants. I consider that the formula used in of the applicants' pleadings, "by reason of the matters aforesaid", lacks the precision necessary to make clear how the relationship is said to have arisen. The closest the pleadings come to identifying the assumption of an obligation towards the applicants is the contention in paragraph 12(d)(iii) that: "In 1989 the shareholding of NAFDA was altered with the intention: … that NAFDA would otherwise seek to derive income for the benefit of 'State' members". The factual basis for this apparent intention that NAFDA would represent the applicants' interests is not pleaded. In my opinion, the material facts giving rise to the alleged fiduciary relationship should be fully and specifically alleged.' 13 In response to this criticism, the applicants made substantial amendments to the statement of claim. I shall not set out those amendments in full as they lend themselves to the following summary. The applicants now allege that, in or about 1988, the members of two associations, the Independent Food Service Distributors ("IFSD") and IFFDA Pty Ltd ("IFFDA"), entered into a joint venture. The joint venture was to be operated through a corporation, NAFDA, the respondent to these proceedings. NAFDA had two shareholders, NAFDA (Vic) Pty Ltd ("VIC") and NAFDA (NSW) Pty Ltd ("NSW"). The shareholders in each of VIC and NSW were the members of IFSD and IFFDA. Under the joint venture, NAFDA was to undertake various activities in order to derive income, as, for example, by obtaining rebates in respect of goods purchased by the shareholders of VIC and NSW. NAFDA was then to distribute this income. The manner in which the income was to be distributed at that stage has not expressly been pleaded in the amended statement of claim. However, the joint venture agreement was amended in 1989 and 1996. The amendments in 1996 are of most relevance and, amongst other things, provided that NAFDA would pay to VIC and NSW certain amounts to be calculated by reference to various formulae. 14 These amendments to the statement of claim significantly alter the framework of the commercial relationship between NAFDA and the applicants from that presented by the original statement of claim. In the original statement of claim, it was pleaded that NAFDA had distributed its income directly to the members of VIC and NSW (such members including the applicants in these proceedings). The cause of action based on a breach of fiduciary duty was premised on the failure of NAFDA to continue to do so in 2001. However, the amended statement of claim now pleads that NAFDA was under an obligation to distribute moneys to VIC and NSW. 15 In respect of this pleading of breach of fiduciary duty, Mr Collinson submitted that, while the amended statement of claim alleges an obligation on NAFDA to distribute profits to VIC and NSW, the applicants do not plead whether NAFDA has failed to make any payments to VIC and NSW, or whether either of VIC and NSW made any payments to the applicants. 16 I agree with this submission. The applicants claim, by way of loss and damage arising out of a breach of fiduciary duties owed to them by NAFDA, moneys which, on the present state of the amended statement of claim, NAFDA was only obliged to pay to VIC and NSW. Although the applicants may have been shareholders of VIC and NSW, the amended statement of claim does not specify how NAFDA has actually breached whatever fiduciary obligation it owed to the applicants. The facts relied on as constituting that breach by NAFDA should be fully and specifically alleged. I note that the applicants simply may not know, through a lack of documentary or other information, what payments, if any, were made by NAFDA to VIC and NSW for the financial year 2000-2001. If this surmise be correct, I would be prepared to entertain an application from the applicants pursuant to O 15 r 5 for discovery of documents relating to that issue. 17 Like those going to the damages allegedly flowing from the breach of s 52, I regard the defects in the amended statement of claim with respect to the breach of fiduciary duty as curable by a further amendment of the amended statement of claim to allege the additional facts which I have identified. I shall therefore order that the applicants have leave further to amend their amended statement of claim. 18 The applicants will have to pay the respondent's costs thrown away as a result of the further amendment. I shall reserve the respondent's costs of the hearing on 25 August 2003 and shall reserve liberty to all parties to apply. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan. Associate: Dated: 9 December 2003 Counsel for the Applicants: Mr P J Booth Solicitor for the Applicants: Aitken Walker & Strachan Counsel for the Respondent: Mr P W Collinson Solicitor for the Respondent: Hall & Wilcox Date of Hearing: 25 August 2003 Date of Judgment: 9 December 2003 SCHEDULE OF APPLICANTS Chippys Food Distributors Pty Ltd 2 Lilian Fowler Place Marrickville NSW 2204 Sealanes (1985) Pty Ltd 178 Marine Terrace South Fremantle WA 6162 Epic Wright Heaton Pty Ltd 119 Vanessa Street Kingsgrove NSW 1480 PB Foods Pty Ltd 22 Geddes Street Balcatta WA 6025 Trans Territory Foods Pty Ltd 38 Bishop Street Winnellie NT 0821 Red Funnel Fisheries (Newcastle) Pty Ltd 8 Seale Street Kotara Fair NSW 2289 Kailis Bros Pty Ltd 23 Catalano Road Canning Vale WA 6155 Foodcorp (Vic) Pty Ltd 31-41 Sandown Road Springvale Vic 3171 Goulas Nominees Pty Ltd 11 - 17 Wingfield Street Footscray Vic 3011