FEDERAL COURT OF AUSTRALIA Christou v Stantons International Pty Ltd [2010] FCA 1150 Citation: Christou v Stantons International Pty Ltd [2010] FCA 1150 Parties: NICK CHRISTOU v STANTONS INTERNATIONAL PTY LTD ACN 103 088 697, STANTONS INTERNATIONAL SERVICES PTY LTD ACN 109 717 071, KEITH GRAEME LINGARD and NEIL KEVIN JOYCE File number: WAD 182 of 2010 Judge: MCKERRACHER J Date of judgment: 22 October 2010 Catchwords: PRACTICE AND PROCEDURE – application to strike out parts of the statement of claim – where vital links between alleged conduct and loss have not been made – where non-material facts have been pleaded Legislation: Federal Court Rules O 11 r 16 Cases cited: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 H 1976 Nominees Pty Ltd v Galli (1979) 40 FLR 242 Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 270 ALR 204 Sun Earth Homes Pty Ltd v Australian Broadcasting Corporation (1990) 98 ALR 101 Wright Rubber Products Pty Ltd v Bayer AG [2008] ATPR 42-258 Date of hearing: 19 October 2010 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant: PG Clifford Solicitor for the Applicant: Alan Rumsley Counsel for the Respondents: MA MacLennan Solicitor for the Respondents: Lavan Legal IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 182 of 2010 BETWEEN: NICK CHRISTOU Applicant AND: STANTONS INTERNATIONAL PTY LTD ACN 103 088 697 First Respondent STANTONS INTERNATIONAL SERVICES PTY LTD ACN 109 717 071 Second Respondent KEITH GRAEME LINGARD Third Respondent NEIL KEVIN JOYCE Fourth Respondent JUDGE: MCKERRACHER J DATE OF ORDER: 22 OCTOBER 2010 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. Footnotes 1-8, paragraphs 27-28, 41 and 51-54 of the statement of claim be struck out. 2. The applicant do have leave to re-plead the statement of claim. Any amended statement of claim be filed and served within 21 days. 3. The applicant do pay the respondents' costs of the motion to be taxed if not agreed. Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 182 of 2010 BETWEEN: NICK CHRISTOU Applicant AND: STANTONS INTERNATIONAL PTY LTD ACN 103 088 697 First Respondent STANTONS INTERNATIONAL SERVICES PTY LTD ACN 109 717 071 Second Respondent KEITH GRAEME LINGARD Third Respondent NEIL KEVIN JOYCE Fourth Respondent JUDGE: MCKERRACHER J DATE: 22 october 2010 PLACE: PERTH REASONS FOR JUDGMENT INTRODUCTION 1 The respondents move to strike out parts of the statement of claim filed and served by the applicant (Mr Christou). The strike out motion is made pursuant to O 11 r 16 of the Federal Court Rules (FCR) which provides as follows: 16 Embarrassment etc Where a pleading: (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay in the proceeding; or (c) is otherwise an abuse of the process of the Court; the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out. 2 The respondents seek to strike out footnotes 1-8, paras 27-28, 41 and 51-54. THE PRINCIPLES 3 In Wright Rubber Products Pty Ltd v Bayer AG [2008] ATPR 42-258, Tracey J (at [5]) said: 5 The principles governing the exercise of the Court's power summarily to dismiss a claim on the ground that it discloses no reasonable cause of action, the principles which govern pleadings in this Court and the relevant authorities are conveniently summarised by Weinberg J in McKellar v Container Terminal Management Services Ltd (1999) 165 ALR 409 at 415-421. It is not necessary to restate, at length, his Honour's exposition of the relevant rules and the statements of principle which emerge from the cases to which he refers. It is sufficient, for present purposes, to note that: • The power to dismiss a claim because it discloses no reasonable cause of action will not lightly be exercised: see Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128-130; Webster v Lampard (1993) 177 CLR 598 at 602-603. • The purpose of pleadings is to define the issues with sufficient clarity such that respondents understand, and have the opportunity to meet, the case made against them: see Dare v Pulham (1982) 148 CLR 658 at 664; Mitanis v Pioneer Concrete (Vic) Pty Ltd [1997] ATPR 41-591 at 44, 151ff. • A statement of claim must plead all the material facts necessary for the purpose of formulating a complete cause of action. If it does not it is liable to be struck out: Mitanis; Bruce v Odhams Press Ltd [1936] 1 KB 697 at 712-713. • It is not sufficient for the pleader to state conclusions drawn from unstated facts: see Trade Practices Commission v David Jones (Australia) Pty Ltd (1985) 7 FCR 109 at 114-5. • There will be cases in which the power to strike out pleadings will not be exercised notwithstanding a failure to plead all material facts. Such restraint will be appropriate where the deficiency causes no confusion and does not raise issues of substantive principle (HECEC Australia Pty Ltd v Hydro-Electric Corp [1999] FCA 822 at [59]), and where deficiencies can be overcome by ordering the provision of particulars or the furnishing of affidavits (State of Queensland v Pioneer Concrete (Qld) Pty Ltd [1999] ATPR 41-691 at 42,828-9). • Not all conclusionary pleadings will be struck-out as being deficient: see Charlie Carter Pty Ltd v The Shop, Distributive and Allied Employees' Association (WA) (1987) 13 FCR 413 at 417. Whether or not such a pleading should be struck out will depend on whether or not the facts are pleaded at too great a level of generality: see Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd [1991] FCA 557. 4 In Sun Earth Homes Pty Ltd v Australian Broadcasting Corporation (1990) 98 ALR 101, Burchett J pointed out that courts have repeatedly emphasised that the power under the rule should be exercised with caution and only where clearly appropriate. That is a principle which has been evident for many years from authorities such as General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (at 130). 5 In order to disclose a reasonable cause of action, the statement of claim must contain all the relevant facts to support any allegation made: H 1976 Nominees Pty Ltd v Galli (1979) 40 FLR 242. As will be seen, the analysis below reveals that the pleading misses crucial links. Without that linkage, all of the necessary elements to found a cause of action under s 52 TPA cannot be sustained and the statement of claim should be struck out and re‑pleaded. 6 In the present pleading, if all of the facts asserted by Mr Christou are true (and any strike out application based on O 11 r 16 FCR must so assume) then it may well be that the Mr Christou can fashion a clear case in which there is breach which leads to loss and damage which is recoverable. At present, however, the pleading does not establish with sufficient clarity the linkage between the alleged contraventions and the consequences sustained. Additionally, it does not show how certain events discussed below are 'relevant circumstances' for the purpose of determining whether conduct was misleading and deceptive conduct in trade and commerce. THE NATURE of the CLAIM 7 The claim arises from an apparent falling out between former partners of an accounting firm. Mr Christou was formerly in partnership with the third respondent (Mr Lingard) and the fourth respondent (Mr Joyce). Those persons from 1998 carried on a partnership as Stanton Partners and shared the goodwill in that partnership name (the Partnership). 8 In an earlier period there had been a four person partnership but the present focus of events is primarily on the period from 1998 onwards. 9 In the Supreme Court of Western Australia orders to wind up the Partnership were made on 28 March 2008. Although orders for winding up were made, it is asserted that there has not been a winding up of that Partnership. Instead, a Licence Agreement was entered into on 12 November 1998. It was entered into between the Partnership and Stanton Partners Australasia Pty Ltd (SPA). Pursuant to the Licence Agreement, the Partnership granted an exclusive licence to SPA to use the goodwill and to carry on the practice of the Partnership. All three members of the Partnership were also directors and shareholders of SPA. Under the Licence Agreement, SPA as licensee was to pay a fee of 3% of net fees excluding disbursements to the Partnership as licensor. 10 The pleading continues that from the date of the Licence Agreement, SPA has continued to use the goodwill and carried on the practice of the Partnership under the Licence. 11 On 24 January 2002, the three partners entered into a written agreement relating to the potential sale of the Practice and settlement of all the disputes and differences of opinion concerning practice entitlements. Under that agreement (the 2002 Agreement), they agreed that the value for which they were to sell the Practice (to whom is not identified), was $8 million. On 11 June 2004, Stantons International Pty Ltd ACN 103 022 697 (SI) registered the business name of Stantons International to carry on the business of an accounting and consulting firm. At about that time, SPA as vendor but acting by Messrs Lingard and Joyce, signed an agreement for the sale and purchase of the business assets of SPA to SI. The business was the business formerly carried on by the Partnership. 12 An interim order was granted (to whom it is not said) but presumably to Mr Christou in the Supreme Court of Western Australia restraining the parties from settling on the sale of the business. The matter was resolved by an undertaking given by Messrs Lingard and Joyce not to proceed to settlement under the Sale Agreement. RELEVANCE OF ASPECTS OF THE PLEADING 13 The pleaded injunction and the undertaking are two paragraphs ([27]-[28]) which it is sought to strike out of the statement of claim as they go nowhere, it is said, in the subsequent pleading of misleading and deceptive conduct. 14 In the way that the pleading is drawn, I agree with this submission. I cannot see, in the present pleading any relevance at all of the previous litigation. Counsel for Mr Christou says that the previous litigation goes to the state of mind of the respondents and is also relevant to the general background. While I have difficulty in understanding how this could be so, that nexus must, in any event, be articulated on the pleading. The contents of these paragraphs are not in any sense picked up in subsequent paragraphs of the pleading. 15 Counsel for Mr Christou relied on what was said in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 270 ALR 204. In that case, less than a month ago, the High Court reviewed the law concerning 'non-disclosure as a species or element of misleading or deceptive conduct in contravention of s 52' TPA. Counsel relied upon the passage from the joint judgment of French CJ and Kiefel J where there Honours cited Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 (at [14]-[18]). In particular, counsel relied on the necessity to determine 'whether in the light of all relevant circumstances constituted by acts, omissions, statements of silence, there has been conduct which is or is likely to be misleading or deceptive'. 16 The High Court noted that Black CJ, in his Honour's concurring judgment, had said (at [32]), that the question is simply whether having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive. Counsel relied on the words 'in all the relevant circumstances'. 17 The only issue in the present pleading, however, is how it can be that the pleading of the earlier injunction and undertaking and the subsequent pleading of the locking out of Mr Christou from the business premises, to which I will come, are said to be or can be relevant circumstances. For something to be relevant in a pleading, it needs to be linked to ongoing matters. Although the locking out of Mr Christou is purportedly picked up under the rubric of misleading and deceptive conduct, clearly, without more, it cannot be so. Neither of these two areas of activity appear to be linked in any relevant sense to the impugned misleading and deceptive conduct. 18 The pleading then continues to refer to material published on the internet from July 2004 onwards by the respondents promoting the accountancy practice. It is also claimed that Stantons International has traded out of a premises on Havelock Street, West Perth, used certain telephone and facsimile numbers and engaged certain personnel including Mr Lingard and Mr Joyce. It is said that conduct was misleading and deceptive because it falsely represented that the respondents had the right and authority to 'act as pleaded'. There is also a complaint that misleading representations were also made to the Tax Agents Board in relation to the authority of the respondents to use the name and goodwill of the Practice. Paragraph 40 of the statement of claim pleads that: From or about 1 March 2007, SIS has carried on part of the Practice as carried on by SPA under the Licence from the Partnership and used the personal connection of Lingard and Joyce as partners of the Partnership and the name Stanton Partners using its registration as a tax agent. 19 There is then pleaded (at [41]) allegations that the respondents through Mr Lingard have prevented Mr Christou attending the SPA business premises and have installed locks and chains to preclude his entry. 20 Complaint is made in respect of that paragraph. In my view, it has no logical bearing on the misleading and deceptive conduct case. There is reference to it in the subsequent complaint of misleading and deceptive conduct and loss but it is not said how shutting Mr Christou out of the business premises was conduct which was misleading or deceptive. In answer to this, counsel for Mr Christou says that the locking out is part of the circumstances against which other misleading and deceptive conduct is to be measured. That is not how the pleading reads and on that basis alone, in my view, the pleading in its current form cannot stand. Further, even if the locking out is somehow relevant to the representations made to the world as to the authority the respondents held or other conduct, it has to be clearly articulated. It is not apparent at all how shutting Mr Christou out can be relevant to the misleading and deceptive representations or other conduct of which complaint is made. 21 The pleading continues under the hearing: 'CONSEQUENCES OF CONDUCT OF RESPONDENTS'. The consequences, it is said, are that Mr Christou has not received his entitlements being for one third of the value of the Practice of the Partnership and the goodwill or one third of the fee payable pursuant to the Licence Agreement. It is also pleaded that SPA received no income from any activities conducted under the Licence or otherwise. Although complaint is not made expressly about these matters, it is not evident to me how conduct under s 52 of the Trade Practices Act 1974 (Cth) (TPA) has brought about these 'consequences'. How they are linked to the claim under s 52 TPA is certainly not clearly made out on the pleading. 22 The next block of matters pleaded are the falsity of the representations made on the internet and also to the Tax Agents Board. Paragraph 51 of the statement of claim pleads that these misrepresentations to which I have referred and the locking out of Mr Christou was conduct misleading and deceptive in trade and commerce and causative of the loss and damage suffered by Mr Christou. The particulars of loss and damage are the loss of the value of the Practice and the loss of opportunity to receive one third of the fee payable under the Licence. The same matters are pleaded under the Fair Trading Act 1987 (WA). 23 Complaints are made in respect of these paragraphs on the basis that there is no link between the conduct of which complaint is made and the loss and damage suffered as particularised. Again, I agree with this submission. The conduct collected in the respective paragraphs relate to representations to the world at large as to what SI is, who its employees are, the services it provides, where it has locations, what its achievements are and what some of its clients are. The pleading sets out no discernable connection at all between those representations and any loss that could have been suffered by Mr Christou. It may be intended to mean that by reason of making those representations, damage has been caused to the value of the Practice in which Mr Christou has an interest but that is not the way the pleading is expressed and the respondents were left to guess at the case that is sought to be made against them. 24 The pleading does not articulate any satisfactory link between the alleged misleading and deceptive conduct (the misrepresentations) and the loss sustained. The statement of claim must explain why, for the purposes of s 82 TPA, the contravening conduct caused loss and damage. There may be, if the facts are proven, an arguable case in this regard but the respondents should not be left to guess at how the case is to be formulated. FOOTNOTES 25 The respondents have also sought to strike out eight footnotes which appear in the pleading. Generally speaking, they appear in the context of previous judgments given in the Supreme Court of Western Australia concerning the former disputes which are pleaded in the statement of claim which is under attack. I agree that these footnotes create false issues and are unnecessary to the pleading of material facts on which Mr Christou is entitled to rely. The footnotes appear to correlate to certain pleaded facts from which the respondents not unreasonably form the concern that Mr Christou seeks to rely upon findings reached in other litigation in order to prove the facts pleaded in this pleading. While at the hearing of the action, counsel for Mr Christou stressed that this was not so and it would be necessary to prove the pleaded facts, there was ample opportunity prior to hearing of the application for that point to be made by the solicitors for Mr Christou. Letters and emails forwarded to Mr Christou's solicitor raising the concerns and seeking clarification, met with apparently no response. The footnotes are superfluous, will not be permitted in the pleading and will be struck out. 26 The respondents also initially raised but, correctly, abandoned (at this point) a limitation argument. CONCLUSION 27 The orders will be: 1. Footnotes 1-8, paragraphs 27-28, 41 and 51-54 of the statement of claim be struck out. 2. The applicant do have leave to re-plead the statement of claim. Any amended statement of claim be filed and served within 21 days. 3. The applicant do pay the respondents' costs of the motion to be taxed if not agreed. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher. Associate: Dated: 22 October 2010