FEDERAL COURT OF AUSTRALIA

Blow Bar Co Pty Limited v McGann [2018] FCA 293

ORDERS

THE COURT ORDERS THAT:

1.    The following paragraphs of the statement of claim are struck out:

29-31, 34, 36, 38, 40, 42, 45, 47, 49, 51-53, 55-57, 60, 62-64, 66, 68-69, 71, 74, 76, 80, 83, 85, 90-92 and 95.

2.    The applicants have leave to replead by 6 April 2018.

3.    By 23 March 2018, the respondents file and serve short minutes in respect of the costs of their interlocutory application, together with short written submissions, limited to 2 pages, in support.

4.    By 3 April 2018, the applicants file and serve short minutes in respect of the costs of the respondents’ interlocutory application, together with short written submissions, limited to 2 pages, in support.

5.    By 4 May 2018, the respondents file and serve:

(a)    Their defence to the applicants’ amended statement of claim; and

(b)    Their cross-claim.

6.    By 25 May 2018, the applicants file and serve:

(a)    Their reply to the respondents’ defence; and

(b)    Their defence to the respondents’ cross-claim.

7.    By 15 June 2018, the respondents file and serve their reply to the applicants’ defence to their cross-claim.

8.    The matter be listed for Case Management Hearing at 9:30 am on 25 June 2018.

9.    Liberty to apply on 2 days’ notice.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

ROBERTSON J:

Introduction

1    These reasons concern an application by the respondents to strike out certain paragraphs of the applicants’ pleading on the ground that those paragraphs do not state the material facts on which the applicants rely.

2    By their statement of claim, the applicants claim that the first applicant, Blow Bar Co Pty Ltd (Blow Bar Co), carries on a business combining hair blow drying and styling, make up and beauty services with a cocktail and wine bar that also serves food. Blow Bar Co pleads that it opened its first salon in Bronte, New South Wales, in November 2015.

3    It is pleaded that Blow Bar Co was in the course of fitting out premises at Barangaroo, in circumstances where the first respondent, in breach of his obligations, had not provided further finance. As a consequence, Blow Bar Co Bangaroo (sic) Pty Ltd, the company incorporated for the purpose of owning and operating the Barangaroo salon, was placed into liquidation.

4    It is then pleaded that the first respondent Mr McGann, incorporated the third respondent, took over a lease for the same premises and has operated a business from those premises trading as Blown Lux. The applicants plead that the “fit out, branding and presentation” of the Barangaroo premises is the same or substantially the same as the fit out, branding and presentation of the salons operated by Blow Bar Co and the services being offered to customers by Blown Lux are the same, or substantially the same, as the services offered to customers by Blow Bar Co.

5    The applicants claim remedies for infringement of copyright, passing off, misleading and deceptive conduct, unconscionable conduct, breach of a confidentiality agreement, breach of a confidentiality provision in a shareholders agreement, rectification of the shareholders agreement, breach of the shareholders agreement, estoppel by convention and estoppel by representation.

6    The respondents have not yet filed a defence and say that specified paragraphs of the statement of claim do not plead the material facts on which the applicants rely and do not give them, the respondents, fair notice of the case to be made against them at trial with the consequence that this inevitably causes them prejudice by depriving them of the ability to properly defend the case.

The respondents’ interlocutory application

7    By an amended interlocutory application filed on 14 February 2018, the respondents seek an order that certain paragraphs in the applicants’ statement of claim, dated 25 October 2017, be struck out and that the applicants be granted leave to file an amended statement of claim within 14 days of the determination of the interlocutory application. The paragraphs in question are [29]-[40], [42], [45], [47]-[72], [74] and [76]-[99].

8    I note that the respondents’ application for security for costs has been resolved and consent orders made so that it is unnecessary to deal with that part of the interlocutory application.

The evidence

9    The respondents rely on the following three affidavits so far as they concern the application to strike out parts of the statement of claim.

10    The first affidavit is dated 15 December 2017, filed on 18 December 2017, and sworn by Ms Simone Mitchell, a partner at K&L Gates having the care and conduct of the matter on behalf of the respondents. That affidavit annexes correspondence between the solicitors for the parties relating to the adequacy of the pleading. This was raised by letter dated 4 December 2017 (annexure SM-1) and on the next day the solicitors for the respondents wrote to the solicitor for the applicants enclosing a request for further and better particulars (annexure SM-3).

11    The second affidavit, sworn by Ms Mitchell on 6 February 2018 and filed on 14 February 2018, annexes a letter dated 20 December 2017 from the solicitor for the applicants attaching a response to the request for further and better particulars (annexure SM-17). Then by letter dated 9 January 2018 from the solicitors for the respondents (annexure SM-20), it was said “we have not received a substantive response to our letters of 4 and 5 December 2017 which set out a number of deficiencies in your clients’ Statement of Claim. Our clients are not in a position to sensibly answer the allegations made in your clients’ Statement of Claim due to these deficiencies and to do so would put our clients in a position of substantial prejudice.”

12    That letter asked that by 5PM on 17 January 2017 (sic) the applicants should let the respondents know whether they intended to amend their statement of claim to address the issues raised in the letters of 4 and 5 December 2017 and foreshadowed an application to strike out the statement of claim. A “holding” response was given by letter dated 10 January 2018 (annexure SM-22). That letter was responded to by a letter from the respondents’ solicitors dated 16 January 2018 (annexure SM-24). That letter extended the “deadline” to amend or provide proper particulars to 23 January 2018. A further letter was dated 30 January 2018 (annexure SM-25).

13    The third affidavit, sworn by Ms Mitchell on 28 February 2018, annexes a letter from the respondents dated 9 February 2018 (annexure SM-38) dealing with the present question and a letter from the applicants dated 13 February 2018 (annexure SM-40) responding to that letter. That letter made the point that, without admission, the responses to the 25 subparagraphs of paragraph 21 of Ms Mitchell’s affidavit of 6 February 2018 were as set out. By letter dated 20 February 2018 (annexure SM-41), the solicitors for the respondents stated that those matters still failed to properly particularise the applicants’ claims. In any event, that letter said, paragraph 21 was not a request for further and better particulars but merely provided a high level summary, on information and belief, of the issues the respondents had in understanding the case alleged against them.

14    The applicants tendered the claimed literary work referred to in [41] of the statement of claim, being the booklet titled “BLOW DRY + BAR = BLOW BAR Co”.

The parties’ submissions

15    The respondents referred to Wride v Schulze [2004] FCAFC 216 at [25], Spiteri v Nine Network Australia Pty Ltd [2008] FCA 905, especially at [23] and to Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu (A Firm) [2017] FCA 1202; 123 ACSR 223, especially at [17]-[19].

16    The applicants, in their outline of submissions dated 5 March 2018, also referred to Sadie Ville, especially at [20]-[21] in support of the submission that the Court will take into account whether the defects in an impugned pleading are of substance. The applicants also referred to Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; 293 ALR 537 at [6]-[7] for the proposition that a pleading should be allowed to stand, and the proceeding should be allowed to go to trial, provided that the pleading fulfils its basic function of identifying the issues, disclosing an arguable cause of action and apprising the other party of the case that it has to meet at trial.

Consideration

17    Before turning to the particular paragraphs of the statement of claim of which complaint is made, I make three general observations.

18    First, although the correspondence between the solicitors referred to whether or not further and better particulars should be given, I have addressed this interlocutory application by reference to r 16.02(1)(d) of the Federal Court Rules 2011 (Cth), that is, whether the pleading states the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved. In my opinion the interlocutory application was not concerned with the provision of particulars but with whether or not the necessary material facts had been pleaded. Counsel for the applicants accepted that he did not need further time or further opportunity to make submissions on the basis so identified.

19    Secondly, although it is not a defect to plead a conclusion, it is not sufficient simply to plead a conclusion drawn from unstated facts. A pleading is defective if it asserts a conclusion to be drawn from facts not stated.

20    Thirdly, contrary to the submissions on behalf of the applicants, it is not an answer to a pleading that is defective for failing to state the material facts on which a party relies that: “it is difficult to understand how the Respondents could not know those matters”. The purpose of the pleading is to state the material facts on which the applicants rely to establish their case against the respondents.

21    In light of those principles, I turn to the statement of claim. So that my conclusions may be better understood, I have set out the paragraphs of the statement of claim immediately before I consider them. This is not, of course, a substitute for reading the statement of claim as a whole and for considering the individual paragraphs against the whole, which I have done.

22    I find that the following paragraphs fail to state the material facts and should be struck out, with leave to replead.

29.    The fit out, branding and presentation of the Premises is the same, or substantially the same, as the fit out, branding and presentation of the salons operated by Blow Bar Co.

23    Paragraph 29 fails to state the material facts as to the fit out, branding and presentation of the two premises referred to, that is, the fit out, branding and presentation of the premises at shop 8, 100 Barangaroo Avenue, Barangaroo and the salons operated by Blow Bar Co. The paragraph needs to state the material facts as to what is the fit out, what is the branding and what is the presentation in respect of the premises referred to.

30.    The services being offered to customers by Blown Lux are the same, or substantially the same, as those services offered to customers by Blow Bar Co.

24    Paragraph 30 fails to state the material facts as to the services being offered. The claimed services need to be stated, as do the claimed services offered to customers by Blown Lux and the claimed services offered to customers by Blow Bar Co.

31.    The fit out, branding and presentation of the salons operated by Blow Bar Co is an original artistic work within the meaning of the Copyright Act 1968 (the Artistic Work).

25    Paragraph 31 fails to state the material facts relied on for the contention that “the fit out, branding and presentation of the salons operated by Blow Bar Co” is an artistic work as defined in s 10 of the Copyright Act 1968 (Cth). This deficiency carries through to paragraph 33 of the pleading which states no more than that: “By reason of the matters pleaded above, copyright subsists in the Artistic Work…”.

34.    The Artistic Work was created by Leigh for and on behalf of Blow Bar Co.

26    Paragraph 34 fails to state the material facts by which it is alleged that the “Artistic Work” was (a) created by Leigh and (b) for and on behalf of Blow Bar Co.

36.    The fit out, branding and presentation of Blown Lux is a substantial reproduction of the Artistic Work.

27    Paragraph 36 fails to state the material facts by which it is alleged that the fit out, branding and presentation of Blown Lux, referred to in [28] of the statement of claim as a business, is a substantial reproduction of the pleaded Artistic Work.

38.    By reason of the infringement set out in the previous paragraph, Blow Bar Co has suffered loss and damage and will, unless such acts and conduct are restrained, continue to suffer loss and damage.

28    Paragraph 38 fails to state the material facts relied on by way of causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated.

40.    Further, the infringement was committed deliberately by TNCD, well knowing Blow Bar Co’s rights, with the intention of appropriating for its own use and benefit the property of Blow Bar Co.

29    Paragraph 40 fails to state the material facts relied on for the claim that the infringement was committed deliberately by the third respondent. The actors need to be stated, as does their state of knowledge or state of mind. The same goes for the third respondent’s intention.

42.    The Literary Work sets out in print or writing the fit out, branding and presentation of the salons operated by Blow Bar Co, as well as the services offered by Blow Bar Co.

30    Paragraph 42 fails to state the material facts within the pleaded booklet: see [14] above.

45.    The Literary Work was created by Leigh for and on behalf of Blow Bar Co.

31    Paragraph 45 fails to state the material facts by which it is alleged that the “Literary Work” was (a) created by Leigh and (b) for and on behalf of Blow Bar Co.

47.    The fit out, branding and presentation of Blown Lux and the services offered by Blown Lux is a substantial reproduction or adaption of the Literary Work.

32    Paragraph 47 fails to state, as a form of expression, how (a) the pleaded fit out, branding and presentation of Blown Lux, referred to in [28] of the statement of claim as a business, and (b) the services offered by Blown Lux, is a substantial reproduction or adaptation of the pleaded Literary Work.

49.    By reason of the infringement set out in the previous paragraph, Blow Bar Co, has suffered loss and damage and will, unless such acts and conduct are restrained, continue to suffer loss and damage.

33    Paragraph 49 fails to state the material facts relied on by way of causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated: see [28] above.

51.    Further, the infringement was committed deliberately by TNCD, well knowing Blow Bar Co’s rights, with the intention of appropriating for its own use and benefit the property of Blow Bar Co.

34    Paragraph 51 fails to state the material facts relied on for the claim that the infringement was committed deliberately by the third respondent. The actors need to be stated, as does their state of mind or state of knowledge. The same goes for the third respondent’s intention: see [29] above.

52.    The fit out, branding and presentation of the salons operated by Blow Bar Co, in conjunction with the services supplied to customers by Blow Bar Co, are recognised by customers as exclusively and distinctively indicating and associated with Blow Bar Co and the business of Blow Bar Co, and no other.

35    Paragraph 52 has the same deficiencies as paragraph 29 which I have found, at [23] above, to be deficient. There are also no material facts stated in relation to the claimed recognition by customers of the basis of the exclusive and distinctive indications and associations with Blow Bar Co and the business of Blow Bar Co, and no other.

53.    By reason of matters pleaded above at paragraphs 26 to 30, since about (sic) on or about 13 February 2017 to the date of the issue of this Statement of Claim, TNCD has, without the licence or authority of Blow Bar Co, been engaged in the business of supplying, and advertising, promoting and offering for supply, services similar to the services supplied by Blow Bar Co from the Premises.

36    Paragraph 53 is a central paragraph insofar as it provides the basis for the later paragraphs 59-63. It in turn relies on paragraphs 29-30 which I have concluded are deficient. Paragraph 53 also fails to state the material facts as to the pleaded similarity between the services supplied by the third respondent and the services supplied by Blow Bar Co. The respondents’ services need to be stated, the services supplied by Blow Bar Co from the premises need to be stated and the claimed similarity needs to be stated. There may also be a misidentification of the premises from which Blow Bar Co supplies the pleaded services.

55.    McGann has caused TNCD to engage in the conduct pleaded in paragraphs 53 and 54 above and is a joint tortfeasor with it for the tort of passing off.

37    Paragraph 55 fails to state the material facts as to causation by McGann and by virtue of which he is said to be a joint tortfeasor.

56.    The conduct pleaded in paragraphs 54 and 55 above is likely to injure and has injured the business, reputation and goodwill of Blow Bar Co.

38    Paragraph 56 has the same deficiencies as paragraphs 38 and 49, that is, the material facts that are said to give rise to the claimed injury need to be stated: see [28] above.

57.    Blow Bar Co has suffered and is continuing to suffer loss and damage by reason of the wrongful acts and conduct of TNCD and McGann pleaded in paragraphs 54 and 55 above and will, unless such acts and conduct are restrained, continue to suffer loss and damage.

39    Paragraph 57 fails to state the facts said to make the causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated: see [28] above.

40    Once paragraph 53 is remedied, any defects in paragraph 59 would also be remedied.

60.    The conduct pleaded in paragraph 53 above was misleading or deceptive or likely to mislead or deceive within the meaning of section 18 of The Australian Consumer Law.

61.    …

62.    The conduct described in paragraph 53 above constituted a false or misleading misrepresentation by TNCD that its services had a sponsorship or approval from Blow Bar Co that they did not have in contravention of subsection 29(1)(g) of The Australian Consumer Law.

63.    The conduct described in paragraph 53 above constituted a false or misleading misrepresentation by TNCD that its services had a sponsorship or approval from Blow Bar Co or an affiliation with Blow Bar Co that they did not have in contravention of subsection 29(1)(h) of The Australian Consumer Law.

41    Paragraphs 60, 62 and 63 fail to state the material facts by reference to which it is said, respectively, that the conduct was misleading or deceptive or likely to mislead or deceive or constituted a false or misleading representation.

64.    At all material times, McGann:

a.    aided, abetted, counsel or procured;

b.    induced; and/or

c.    directly or indirectly, was knowingly concerned in, or party to:

the contraventions of The Australian Consumer Law by TNCD pleaded in paragraphs 60, 62 and 63 above.

42    Paragraph 64 fails to state the material facts by which it is pleaded that the first respondent aided, abetted, counselled or procure or induced or was knowingly concerned in or party to the contraventions by the third respondent. Once paragraph 64 is remedied then paragraph 65 may stand.

66.    Blow Bar Co has suffered and is continuing to suffer loss and damage by reason of the contraventions of The Australian Consumer Law pleaded in paragraphs 60, 62 and 63 above and will, unless such contraventions are restrained, continue to suffer loss and damage.

43    Paragraph 66 fails to state the material facts said to make the causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated: see [28] above.

68.    By reason of the matters pleaded at paragraphs 6 to 30, TNCD:

a.    has engaged in conduct that is unconscionable, within the meaning of the unwritten law from time to time, in contravention of section 20 of The Australian Consumer Law; or

b.    has engaged in conduct that is, in all the circumstances, unconscionable, in contravention of section 21 of The Australian Consumer Law.

44    Paragraph 68 fails to state the material facts by reference to which it is pleaded that the conduct is unconscionable.

69.    At all material times, McGann:

a.    aided, abetted, counsel (sic) or procured;

b.    induced; and/or

c.    directly or indirectly, was knowingly concerned in, or party to:

the contraventions of The Australian Consumer Law by TNCD pleaded in paragraph 68 above.

45    Paragraph 69 has the same defects as paragraph 64. Once paragraph 69 is remedied paragraph 70 may stand.

71.    Blow Bar Co has suffered and is continuing to suffer loss and damage by reason of the contraventions of The Australian Consumer Law pleaded in paragraph 68 above and will, unless such contraventions are restrained, continue to suffer loss and damage.

46    Paragraph 71 fails to state the material facts said to make the causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated: see [28] above.

74.    Some or all of the information referred to in the preceding paragraph was confidential information within the meaning of clause 1 of the Confidentiality Agreement (the Confidential Information).

47    Paragraph 74 fails to state the material facts relied on in the bundle of documents produced on 13 February 2018 and said to be the confidential information within the meaning of cl 1 of the Confidentiality Agreement.

76.    In breach of clause 2.1 of the Confidentiality Agreement, McGann has used, and is continuing to use, the Confidential Information for purposes other than that pleaded in the preceding paragraph.

48    Paragraph 76 fails to state the material facts relied on for the claim that the first respondent has (a) used the claimed confidential information and (b) used the claimed confidential information for the purposes there pleaded.

80.    In breach of clause 4.1 of the Confidentiality Agreement, McGann has provided the Confidential Information to TNCD for the purposes of operating Blown Lux.

49    Paragraph 80 fails to identify the confidential information said to have been provided by the first respondent to the third respondent.

83.    In breach of clause T of the Shareholders Agreement, the McGann Family Trust has disclosed, divulged or otherwise placed at the disposal of TNCD the Confidential Information.

50    Paragraph 83 fails to state the material facts for the claim that the pleaded confidential information was disclosed, developed or otherwise placed at the disposal of the third respondent.

85.    At the time of entering into the Shareholders Agreement, it was the agreement or common intention of the Company, the Dole Family Trust and the McGann Family Trust that it be an express term of the Shareholders Agreement that the McGann Family Trust invest a minimum of $550,000 in the Company, being:

a.    $350,000 for 45% of the issued share capital in the Company;

b.    a loan of $200,000 for the rental bond for the Premises and the fit out of the Barangaroo Blow Bar, which loan would be repaid upon payment by Lendlease of the fit out contribution; and

c.    a loan for any further funds required to complete the fit out of the Barangaroo Blow Bar and enable it to commence trading, which loan would be repaid after the Barangaroo Blow Bar commenced trading and in priority to the payment of any dividends.

51    Paragraph 85 fails to state the material facts relied on for the pleaded common intention.

90.    By reason of the breach of the Shareholder Agreement by the McGann Family Trust pleaded in paragraph 89 above, the Dole Family Trust suffered loss and damage.

52    Paragraph 90 fails to state the material facts making the causal link, that is, the material facts that are said to give rise to the claimed loss and damage need to be stated: see [28] above. Further, the paragraph fails to state the material facts which identify, if it be the case, the obligation said to be owed by the second respondent to the second applicant.

91.    From about July 2016 onwards the Dole Family Trust and the McGann Family Trust proceeded on the common assumption that the McGann Family Trust invest a minimum of $550,000 in the Company, being:

a.    $350,000 for 45% of the issued share capital in the Company;

b.    a loan of $200,000 for the rental bond for the Premises and the fit out of the Barangaroo Blow Bar, which loan would be repaid upon payment by Lendlease of the fit out contribution; and

c.    a loan for any further funds required to complete the fit out of the Barangaroo Blow Bar and enable it to commence trading, which loan would be repaid after the Barangaroo Blow Bar commenced trading and in priority to the payment of any dividends.

53    Paragraph 91 fails to state the material facts relied on for the claim that the named entities, the Dole Family Trust and the McGann Family Trust, proceeded on the pleaded common assumption.

92.    The Dole Family Trust and the McGann Family Trust knew or intended that each other would act on the basis of the common assumption pleaded in paragraph 91 above.

54    Paragraph 92 fails to state the material facts relied on for the claim of knowledge or intention.

95.     Prior to the Company being incorporated, or alternatively prior to the execution of the Shareholders Agreement by the Dole Family Trust, or both, the McGann Family Trust represented to the Dole Family Trust that the McGann Family Trust would invest a minimum of $550,000 in the Company, being:

a.    $350,000 for 45% of the issued share capital in the Company;

b.    a loan of $200,000 for the rental bond for the Premises and the fit out of the Barangaroo Blow Bar, which loan would be repaid upon payment by Lendlease of the fit out contribution; and

c.    a loan for any further funds required to complete the fit out of the Barangaroo Blow Bar and enable it to commence trading, which loan would be repaid after the Barangaroo Blow Bar commenced trading and in priority to the payment of any dividends.

55    Paragraph 95 fails to state the material facts relied on for the representation said to be made by the McGann Family Trust.

Another issue

56    An issue arose as to whether the company in liquidation, Blow Bar Co Bangaroo (sic) Pty Ltd should be joined as a party for the purposes of the claimed rectification of the shareholders agreement. Short written submissions were also filed, by leave, after the hearing. While I accept, as put by the respondents, that the applicants have been on notice of this issue since early December 2017, I do not see it as encompassed by the respondents’ amended interlocutory application and I do not consider it further.

Costs

57    As to costs, I indicated that I would give the parties an opportunity to be heard. My tentative view is that costs should follow the event and that the respondents should have their costs of and incidental to their amended interlocutory application (excluding costs in relation to that part of the application which concerned security for costs).

58    There is also a question as to whether one or more of the case management hearings should attract a costs order in favour of the respondents.

59    The first case management hearing took place on 6 December 2017 and, having re-read the transcript, I consider that the costs of and incidental to that occasion should be reserved.

60    The next case management hearing was on 7 February 2018, the matter having been relisted at the respondents’ request. The interlocutory application in its original form had by then been filed and counsel for the applicants then stated that the application to strike out paragraphs of the statement of claim would be opposed. On 7 February 2018 the interlocutory application was set down for hearing in March 2018. In my assessment 80% of the costs of that case management hearing are referable to, in the sense of incidental to, the interlocutory application to strike out the pleading. The balance was referable to the security for costs application upon which the parties ultimately agreed both as to its substance and as to the costs of that application.

61    The next case management hearing was on 14 February 2018. The amended interlocutory application was filed on that day. Again, in my assessment, 80% of the costs of that case management hearing are referable to the interlocutory application to strike out the pleading.

62    In summary therefore 80% of the costs of the case management hearings on 7 February 2018 and 14 February 2018 should be treated as “of and incidental” to the costs of the interlocutory application to strike out certain paragraphs of the statement of claim.

Orders

63    There will be an order striking out the paragraphs of the statement of claim which I have found to be defective. I will hear the applicants on how long they need to replead. I will also hear the parties on costs, as referred to in [57] above.

Associate:    

Dated:    16 March 2018