FEDERAL COURT OF AUSTRALIA Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd (No 2) [2004] FCA 1034 PRACTICE AND PROCEDURE – pleadings – statement of claim – causes of action – unconscionable conduct – misleading or deceptive conduct – secret commissions – negligence – breach of contract –adequacy of pleading – failure to identify particular applicants affected by relevant conduct – failure to show necessary steps between alleged negligence and loss or damage claimed – other minor defects – various paragraphs struck out – leave to replead. Trade Practices Act 1974 (Cth) Secret Commissions Act 1905 (Cth) Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2004] FCA 532 cited FUBILAN CATERING SERVICES LIMITED (INCORPORATED IN PAPUA NEW GUINEA), MINERAL RESOURCES STAR MOUNTAINS LIMITED (INCORPORATED IN PAPUA NEW GUINEA) v COMPASS GROUP (AUSTRALIA) PTY LTD (ACN 000 683 125), EUREST (SOUTH PACIFIC) LIMITED (INCORPORATED IN PAPUA NEW GUINEA) and COMPASS GROUP PLC (INCORPORATED IN THE UNITED KINGDOM) W252 OF 2003 FRENCH J 10 AUGUST 2004 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY W252 OF 2003 BETWEEN: FUBILAN CATERING SERVICES LIMITED (INCORPORATED IN PAPUA NEW GUINEA) FIRST APPLICANT MINERAL RESOURCES STAR MOUNTAINS LIMITED (INCORPORATED IN PAPUA NEW GUINEA) SECOND APPLICANT AND: COMPASS GROUP (AUSTRALIA) PTY LTD (ACN 000 683 125) FIRST RESPONDENT EUREST (SOUTH PACIFIC) LIMITED (INCORPORATED IN PAPUA NEW GUINEA) SECOND RESPONDENT COMPASS GROUP PLC (INCORPORATED IN THE UNITED KINGDOM) THIRD RESPONDENT JUDGE: FRENCH J DATE OF ORDER: 10 AUGUST 2004 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Paragraphs 54-57 (inclusive), 83, 154, 163, 189, 193 and 194 of the substituted statement of claim are struck out. 2. Liberty to the applicants to file and serve an amended substituted statement of claim on or before 24 August 2004. 3. Costs of the motion reserved. 4. The next directions hearing is set down for 31 August 2004 at 9am unless further programming directions are agreed between the parties and filed in Court as a proposed consent order prior to that date. 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 W252 OF 2003 BETWEEN: FUBILAN CATERING SERVICES LIMITED (INCORPORATED IN PAPUA NEW GUINEA) FIRST APPLICANT MINERAL RESOURCES STAR MOUNTAINS LIMITED (INCORPORATED IN PAPUA NEW GUINEA) SECOND APPLICANT AND: COMPASS GROUP (AUSTRALIA) PTY LTD (ACN 000 683 125) FIRST RESPONDENT EUREST (SOUTH PACIFIC) LIMITED (INCORPORATED IN PAPUA NEW GUINEA) SECOND RESPONDENT COMPASS GROUP PLC (INCORPORATED IN THE UNITED KINGDOM) THIRD RESPONDENT JUDGE: FRENCH J DATE: 10 AUGUST 2004 PLACE: PERTH REASONS FOR JUDGMENT Introduction 1 Fubilan Catering Services Limited ('Fubilan') and its sole shareholder, Mineral Resources Star Mountains Limited ('Mineral Resources') are companies incorporated in Papua New Guinea. The present proceedings arise out of the letting and operation of a catering contract for Ok Tedi Mines Pty Ltd ('OTML') under which catering and janitorial services were provided at the Ok Tedi mine site in Papua New Guinea. The claim is brought against three companies, one incorporated in Australia, another in Papua New Guinea and their parent company, incorporated in the United Kingdom. On 29 April 2004, an order was made that the applicants have leave to serve the application out of the jurisdiction on the parent company based in the United Kingdom. 2 On the same day, 29 April 2004, I made an order that the applicants have leave to file an amended application and statement of claim on or before 27 May 2004. By a further order on 8 June 2004, that time was extended to 11 June 2004. The respondents were directed to file and serve any motion to strike out the amended application or statement of claim on or before 6 July. An amended application and substituted statement of claim were filed on 4 June 2004. A motion to strike out parts of the substituted statement of claim was filed on 6 July 2004 and was heard on 13 July 2004. 3 The general outline of the facts giving rise to the present litigation, as pleaded in the original statement of claim, was set out in my earlier reasons for decision in relation to service out of the jurisdiction – Fubilan Catering Services Limited v Compass Group (Australia) Pty Ltd [2004] FCA 532. It is not necessary to repeat that outline here. It is sufficient to refer to those aspects of the substituted statement of claim which are the subject of attack by the respondent. 4 In the event I am satisfied that certain of the paragraphs in the substituted statement of claim should be struck out and the statement of claim repleaded. The Pleadings Attacked 5 The attack on the substituted statement of claim begins with pars 10 to 19 which appear under the heading 'Unconscionable Conduct of the Respondents'. In these paragraphs it is asserted that, in July 1998, Mineral Resources saw the renewal of OTML's catering services contract due in September 1999 as an opportunity to provide those services itself. Mineral Resources appointed a consultant in July 1998 to prepare a business plan covering the possibility of providing OTML's catering services. The business plan which was made in September 1998 identified a strategy for preparing a proposal for OTML in relation to the contract and identified related business opportunities including catering for existing mining operations and new developments in Papua New Guinea. Mineral Resources saw the OTML catering services contract as a means of securing the reputation and training in customer service and management skills necessary for providing services to other existing and developing mining operations in Papua New Guinea (pars 10-13). 6 In November 1998, the respondents, through their agent Jeff Hayes, offered their services to Mineral Resources, through its agent Bill Fenwick, in relation to the provision of catering and janitorial services at the Ok Tedi mine (par 14). The applicants were required by OTML to appoint an 'internationally reputable firm' as catering managers to manage and implement the contract before OTML would consider any proposal in relation to it (par 16). Paragraphs 17, 18 and 19 of the substituted statement of claim allege: '17. As a result of the International Management Requirement the Applicants were unable, or had a diminished ability, to protect and conserve their own interests. 18. On the basis of the matters pleaded in paragraphs 16 and 17 above the Applicants were at a special disadvantage as against the Respondents because of the International Management Requirement. 19. The First, Second and Third Respondents were, at all material times, aware of, or ought to have been aware of, the International Management Requirement.' In par 20 it is said that by virtue of the respondents being aware of the International Management Requirement they were aware, or ought to have been aware, that the applicants were at a special disadvantage as against them. 7 Paragraph 21 relates to the collection of the OTML catering services tender documents on 1 June 1999 by Michael Baitia of Mineral Resources. Then in par 22 it is said: 'In or about mid 1999 the First, Second and Third Respondents, through their agent Jeff Hayes, agreed to: 22.1 prepare a proposal for the Contract for and on behalf of the Applicants (the "First Retainer"); and 22.2 act as the Applicants' catering contract manager if the proposal the subject of the First Retainer was successful. This was on the basis that the Second Applicant intended to incorporate the First Applicant as a wholly owned subsidiary, to carry out the catering services and be the party to the Contract with OTML (the "Second Retainer").' The applicants then plead that Mineral Resources incorporated Fubilan as a wholly owned subsidiary to carry out the catering services and be a party to the contract (par 23). On or about 13 July 1999, Mineral Resources lodged its tender for the contract with OTML (par 24). The paragraphs that follow in the substituted statement of claim refer to the content of the Tender Proposal (pars 25-27). 8 The lodgment of a rival tender by another company, P & O (PNG) Ltd, on 13 July 1999 and the acquisition of that company by Compass Group (Australia) Pty Ltd ('Compass Group (Australia)') in November 1999 is pleaded in pars 28 to 31. The effect of the acquisition is said to have been that the respondents had the carriage of two competing tender proposals with OTML. The P & O Tender Proposal was allegedly more beneficial to the respondents and detrimental to the applicants than that which was submitted on behalf of the applicants (par 34). 9 The applicants allege that in November to December 1999 the respondents assured them that they would only proceed with their Tender Proposal (par 36). Because the applicants were not in a position to be able to appoint a company to replace the respondents for the purposes of meeting OTML's International Management Requirement they were unable or had a diminished ability to protect and conserve their own interests (pars 37, 38). For this reason they are said to have been at a 'special disadvantage' as against the respondents (par 39). Subsequently the respondents revised the applicants' Tender Proposal as the result of a request from OTML to reduce the tender price and bring it into line with the P & O Tender Proposal. The Varied Tender Proposal was lodged with OTML in or about January 2000 (pars 43-46). Then it is said at par 47: 'In maintaining the two tender proposals for the OTML catering services contract the Respondents took advantage of the special disadvantage of the Applicants in a manner that was, in all the circumstances, unconscionable and thereby in contravention of Section 51AA of the Trade Practices Act 1974.' In par 48 it is alleged that the respondents' conduct in contravention of s 51AA by maintaining the two tender proposals was a cause of OTML's request resulting in the Varied Tender Proposal and thereby loss or damage suffered by the applicants. Paragraph 48 concludes the pleading of unconscionable conduct, which commences at par 10 of the substituted statement of claim. 10 In an affidavit filed in support of the strike out motion, the respondents exhibited a certificate of incorporation of Fubilan. That indicated that it was incorporated in Papua New Guinea on 15 April 1999 under the name Yuwai No 80 Limited. Yuwai No 80 Limited changed its name to Fubilan on 4 November 1999. Other corporate records indicated that the two original directors of Fubilan ceased to be directors on 4 November 1999. On that date Mr Michael Baitia and Mr Madfu Andrew were appointed. 11 The respondents submit that the applicants have pleaded conduct between July 1998 and November 1998 involving Mineral Resources and the respondents in the course of which certain statements are said to have been made by the respondents which induced the applicants to act in the various ways set out in the pleadings. It is pleaded that the alleged representations and the relevant conduct were directed to Mineral Resources. The respondents argue that what is not pleaded is that the alleged conduct was directed to Fubilan or was in any way made in circumstances in which the pending incorporation of Fubilan was known to them. 12 Counsel for the respondents says there is a missing link in the pleading in respect of each of the causes of action. That is, the way in which the alleged representations made to Mineral Resources became causally relevant to Fubilan. Particular criticism was directed to par 22 of the substituted statement of claim in this respect. It was said to represent an attempt to close the causal chain by reference to an agreement in or about mid 1999 that the respondents would act as the 'applicants' catering contract manager. This was on the basis that Mineral Resources intended to incorporate Fubilan as a wholly owned subsidiary. In my opinion the facts pleaded to this point and in support of the unconscionable conduct allegation are sufficient to lay at least an arguable foundation that the conduct was unconscionable in respect of both applicants. I have no doubt the pleading could be further improved and the case, as pleaded, does not seem particularly strong so far as s 51AA of the Trade Practices Act 1974 (Cth) is concerned. However, I am not prepared to strike out these paragraphs of the statement of claim on the basis of the respondents' complaint in respect of unconscionable conduct. For these reasons, pars 10 to 19, 22 to 24 and 38 can stand. 13 The next section of the pleading alleges misleading or deceptive conduct on the part of the respondents. This depends upon representations made on behalf of the respondents in November 1998 designated the 'Initial Representations' about various things that the respondents would do if they were appointed by Mineral Resources to manage the provision of catering and janitorial services at the Ok Tedi mine (par 49). The confirmation of those representations and the making of further representations in November 1998 is pleaded in par 51. Further representations were allegedly made between November 1998 and June 1999 (par 52). Then it is said, in par 54, that: 'In reliance on the Initial Representations, the Assurance Representations and the Further Representations the Applicants engaged the Respondents under the First Retainer.' It is said in par 55 that the applicants would not have engaged the respondents under the First Retainer if the Initial Representations, the Assurance Representations and the Further Representations variously pleaded had not been made. The First Retainer is said, in par 22, to have been made in or about mid 1999 whereby the respondents, through their agent Hayes, agreed to prepare a proposal for a contract for and on behalf of the applicants. At that time, of course, Fubilan had not been acquired by Mineral Resources. Paragraphs 54 and 55 therefore cannot stand in so far as they relate to Fubilan. 14 In par 56 it is said that Mineral Resources incorporated Fubilan as its wholly owned subsidiary to carry out the catering services and be a party to the Catering Contract. It is apparent from the official records that in fact Mineral Resources did not incorporate Fubilan but acquired it in November 1999 as a company already incorporated in April of that year. Having regard to the undisputed evidence from the public record, par 56 should not be allowed to stand. 15 Further representations allegedly made by the respondents are pleaded in par 57, although it makes no reference to their date. Nor is it apparent to whom the representations were made. In this respect, par 57 also requires repleading. 16 Paragraph 61 refers to the approval by Mineral Resources of the Varied Tender Proposal prepared by the respondents and says that approval was based solely on the respondents' advice. Relevant parts of the Varied Tender Proposal were included by OTML in the final contract (par 62). The respondents are said to have made representations in the Varied Tender Proposal which were consistent with their earlier representations (par 63). The applicants allege that the earlier representations were therefore continued in effect at all material times and 'on both applicants' (par 64). In reliance upon them the applicants say they entered into a Management Agreement with Compass Group (Australia) and Eurest on 6 January 2000 but would not have done so if the Continuing Representations had not been made (pars 65 and 66 read with par 5.7). Then it is alleged that the Continuing Representations had proved to be false in various respects (par 67) and that in making them the respondents had engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act including by operation of s 51A of the Trade Practices Act (par 68). At all material times from 1 February 2000 the respondents had managed and supervised the conduct of the applicants under the contract. 17 The management and supervision of the applicants by the respondents under the Catering Contract with OTML dated 11 January 2000 and pleaded in par 5.5 of the substituted statement of claim is alleged in par 69. OTML refused, on 29 November 2001, to allow the applicants to terminate the Management Agreement (par 70). In December 2001, OTML allegedly advised Fubilan that the relationship between it and Fubilan was an unsatisfactory basis for the continuing contractual relationship (par 71). 18 The substituted statement of claim then moves forward to July 2003 when it is said the applicants agreed to take an interest in Pacific Catering Services Ltd to provide catering services at existing mining operations and new developments in Papua New Guinea instead of doing so in their own right (par 72). The complaint is made that the respondents' conduct which prevented the applicants from obtaining the reputation and training to provide the customer service and management skills necessary for servicing other existing and developing mining operations in Papua New Guinea in their own right was a cause of the applicants' decision to take an interest in Pacific Catering Services Ltd (par 73). 19 On 8 December 2003, OTML is said to have given notice to the applicants that the term of the Catering Contract would expire on 31 January 2004, that OTML would not be renewing the contract term, and that the catering services would not be tendered out (par 74). It followed, so it is alleged, that the applicants would not be able to provide catering services to OTML and thereby suffered loss and damage. The respondents' conduct in contravention of s 52 of the Trade Practices Act is said to have been a cause of that loss or damage (par 76). 20 The principal submission made by the respondents in respect of the pleading of misleading or deceptive conduct is that there is no plea which establishes the necessary nexus between the various representations as alleged and Fubilan. In those circumstances, it is submitted, that there is no basis by which it can be established that Fubilan suffered any actionable loss as a result of the alleged conduct. I do not accept that submission. In my opinion, even if Fubilan were not formed or under the control of Mineral Resources at the time that certain of the relevant representations were made, it does not mean that the causal connexion between those representations and loss or damage suffered by Fubilan could not be established. 21 In relation to the Secret Commission Act 1905, which is relied upon in pars 77 to 105 of the substituted statement of claim, the respondents say that the Act was repealed with effect from 24 November 2001. On that basis it is alleged the pleading needs clearly to identify losses said to flow from breach of that Act and not from conduct post-dating the repeal date. 22 The conduct relied upon is set out in pars 83 to 88 of the substituted statement of claim. It is said to cover a period defined in par 83 as: 'At all material times from 1 February 2000...' The applicants say they are covered by transitional provisions in respect of continuing conduct. In my opinion, it is necessary to define with precision the period over which the conduct complained of occurred. To that extent the applicants should replead par 83. 23 The applicants plead breach of fiduciary duty by the respondents (pars 106-151) but these paragraphs are not attacked in the strike out motion. 24 Negligence is pleaded (pars 152-194). The heads of negligence relate to advice in respect of the Varied Tender Proposal (pars 152-163), failure to take advantage of and pass on available supplier rebates (par 164-172) and poor management of the Catering Contract (173-194). 25 There is a general duty of care pleaded at par 154 which is in the following terms: 'The First, Second and Third Respondents in acting under the First Retainer and the Second Retainer each owed a duty to the Applicants to exercise the standard of care and skill normally exercised by the world's leading catering and services management company, including in relation to preparing the Tender Proposal and the Varied Tender Proposal, supervising and managing the First Applicant's operations under the Contract and providing sufficient training and support to the First Applicant's employees and nominees to enable them to acquire adequate knowledge and experience during the term of the Contract to be a legitimate bidder for the Contract in their own right when it was next renewed.' 26 The complaint in respect of the Varied Tender Proposal is that Compass Group (Australia) and Eurest ought to have known of the potentially detrimental effect on the applicants' Original Tender Proposal caused by the P & O Tender Proposal. They provided no advice in this respect and secured the applicants' approval of the Varied Tender Proposal without any such advice (par 160-162). In so doing it is said that they breached the duty of care said to attach to all of the respondents. 27 The loss and damage claimed under this head is said to include the difference between the rates contained in the Original Tender Proposal and the contract rates finally agreed (par 163). However there seems to be a necessary step or steps left out of the pleading. Such steps would establish a causal connexion between the alleged breach of the pleaded duty of care and the loss or damage said to have been suffered. It does not appear from the substituted statement of claim how, had Compass Group (Australia) and Eurest not been negligent, the applicants would have secured a contract at higher rates than those ultimately agreed. Although this is not the subject of any specific attack by the respondents pursuant to the strike out motion, it is a matter which will have to be addressed if this cause of action is to be pursued. 28 The respondents argue that the duty pleaded in par 154 does not relate to the alleged breach of duty set up in pars 156 and 157. I am not prepared to strike out pars 152 to 163 on the basis argued by the respondents. However, in my opinion, there is the difficulty which I have mentioned in respect of the loss and damage asserted and par 163 should be struck out and repleaded to include the causal connexion between the breach of duty alleged and the loss and damage claimed. 29 The second head of negligence relates to available rebates. It is said that Compass Group (Australia) and Eurest, in providing catering and catering management services, were responsible for negotiations with suppliers in relation to terms and conditions including payment terms, credit periods and rebates or discounts on supplies. It is alleged that there are Primary Rebates provided by suppliers with international supply networks available in three ways: 1. Locally, based on the volume purchased in any one invoice or time period such as a calendar month. 2. Nationally, based on all of the purchases by a customer from a supplier in a particular country. 3. Internationally, where the customer purchases from a supplier in a number of nations based on total purchases internationally. Other rebates, known as Secondary Rebates, are said to be available from a manufacturer directly in addition to Primary Rebates. These are said to be available at the local, national and international levels (pars 167-168). Compass Group (Australia) and Eurest, it is said, were aware, or ought to have been aware, of these matters. In breach of their duty of care in par 154 they are said to have failed to obtain or to pass on the benefits of the rebates available to their purchasing networks in Papua New Guinea, Australia and worldwide (par 171). The respondents argue that the alleged breach is said to be a breach of the duty of care in par 154. They assert that the failure to pass on certain rebates does not flow from the duty pleaded in par 154 unless it is to be construed with almost unlimited generality. In that respect I am inclined to agree and consider that par 154 should be repleaded to allege specifically a duty of care relevant to the securing and passing on of available rebates. 30 The remaining head of negligence relates to the management of the contract by Eurest. This is covered in pars 173 to 194. Eurest is said to have breached the duty of care owed to the applicants by various pleaded failures in the management of the contract (par 189). 31 OTML is said to have been aware of the various management problems pleaded in pars 176 to 187 as it was provided with copies of relevant correspondence and three audit reports that had been provided. It had also attended and convened meetings between the parties to resolve issues between them (par 191). Then it is said that on 8 December 2003 it gave notice to the applicants of the non-renewal of their contract (par 192). Paragraphs 193 and 194 are in the following terms: '193. It follows that the Applicants will not be able to provide catering services to OTML and have thereby suffered loss or damage. 194. As a result of the Second Respondent's breaches of duty pleaded in paragraphs 178, 180, 182 and 184 to 187 above the Applicants have suffered loss and damage and continue to suffer loss and damage.' 32 The respondents submit that there is no basis pleaded to demonstrate that Mineral Resources has suffered loss and damage and relates the duty of care to the matters pleaded in pars 192-194. The proposition that any claim for loss or damage is Fubilan's is said to be supported by par 225. I agree that it does not appear that there is any basis upon which Mineral Resources can claim loss or damage by reason of the non-renewal of the contract. Moreover the loss and damage referred to in par 194 is left unspecified. In my opinion, pars 189, 193 and 194 should be struck out and repleaded, along with any incidental repleading of other relevant paragraphs, to make clear the parties who are said to have suffered as a result of the alleged negligence in the management of the contract and the particular heads of loss and damage said to have been suffered as a result of that negligence. 33 Paragraphs 225 and 228 are also attacked. The function of par 225 is not particularly clear, stating as it does a common intention of the applicants, respondents and OTML. This relates to the contractual breaches alleged. At the moment, however, I am not persuaded that it should be struck out. Paragraph 228 contains an evident typographical error in that it refers to the second applicant when it is intended to refer to the second respondent. This can be picked up on the repleading. Conclusion 34 The substituted statement of claim is still a complex and somewhat unwieldy document. The cause of action in unconscionable conduct does not look particularly strong in the light of established case law with respect to s 51AA of the Trade Practices Act. That, however, is not sufficient to justify striking it out. There are a number of problems which have been identified in the course of these reasons which relate to particular paragraphs of the statement of claim and they will be struck out with leave to replead. I will reserve the question of costs. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 10 August 2004 Counsel for the Applicants: Mr AP Rumsley Solicitor for the Applicants: McKie & Associates Counsel for the Respondents: Mr IR Freeman Solicitor for the Respondents: Phillips Fox Date of Hearing: 13 July 2004 Date of Judgment: 10 August 2004