CATCHWORDS
PRACTICE AND PROCEDURE - Joinder of parties after expiration of limitation period.
Trade Practices Act 1974 s82(2)
Western Australia v. Wardley Australia Ltd (1991) 30 FCR 245
Cockerill v. Westpac Banking Corporation (1991) 32 FCR 36
Wardley Australia Ltd v. Western Australia (1992) 175 CLR 514
JOHN EDWARD SAUNDERS, RUSSELL JOHN TAYLOR and CHRIS ZIENKIEWICZ v. GLEV FRANCHISES PTY LTD, GABRIEL CHRISTOU and LEO REYES VG 418 of 1992
COURT: Sundberg J
PLACE: Melbourne
DATE: 16 November 1995
IN THE FEDERAL COURT OF AUSTRALIA )
VICTORIA DISTRICT REGISTRY ) No VG 418 of 1992
GENERAL DIVISION )
BETWEEN: JOHN EDWARD SAUNDERS, RUSSELL JOHN TAYLOR and CHRIS ZIENKIEWICZ
Applicants
AND: GLEV FRANCHISES PTY LTD, GABRIEL CHRISTOU and LEO REYES
Respondents
COURT: Sundberg J
DATE: 16 November 1995
PLACE: Melbourne
MINUTES OF ORDER
The Court orders that:
1. The stay imposed by order made 30 June 1994 be lifted.
2. The applicants have leave on or before 30 November 1995 to bring in a further amended statement of claim in the form or to the effect of pars.1 to 3, 5 to 7, 9, 10, 13 to 16 and 18 to 34 of exhibit "NSB1" to the affidavit of Nicholas Styant-Browne sworn 26 September 1995.
3. The motion notice of which was filed 2 November 1995 is adjourned to 4 December 1995 at 4.30 p.m.
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 ) No VG 418 of 1992
GENERAL DIVISION )
BETWEEN: JOHN EDWARD SAUNDERS, RUSSELL JOHN TAYLOR and CHRIS ZIENKIEWICZ
Applicants
AND: GLEV FRANCHISES PTY LTD, GABRIEL CHRISTOU and LEO REYES
Respondents
COURT: Sundberg J
DATE: 16 November 1995
PLACE: Melbourne
REASONS FOR JUDGMENT
SUNDBERG J:
This proceeding began in November 1992 as a claim by the three applicants against the first respondent. Their complaint is that in order to induce them to enter into a Pizza Haven franchise agreement operating from premises in Ormond, the first respondent made representations and gave warranties as to the likely profitability of the enterprise. In reliance on the representations the applicants entered into the agreement and took a lease of the premises. The representations were false and the warranties were breached in that the outlet was not profitable. The conduct complained of is said to have been misleading and deceptive in contravention of s.52 of the Trade Practices Act. The applicants also claim that the first respondent engaged in the practice of exclusive dealing in breach of s.47(2) of the Act. They seek damages under s.82. In February 1993 the second and third respondents were added as parties, the allegation being that they aided and abetted the first respondent's contravention of s.52.
The respondents sought further and better particulars of the amended statement of claim, and complained that the particulars subsequently provided were inadequate. In May 1994 they applied for an order that the proceeding be dismissed or stayed pursuant to O.10 r.7 of the Rules. On 30 June 1994 the proceeding was by consent stayed pending further order. The order does not disclose the ground upon which it was made, but it is reasonable to assume that it was made because of the applicants' failure to provide proper particulars.
By amended notice of motion dated 2 November 1995 the applicants sought the lifting of the stay, leave to file a second further amended statement of claim, the addition of Malvern Bond Pty. Ltd. as an applicant, and the addition of Franchise Developments Pty. Ltd. as a respondent.
The case for lifting the stay was linked to the proposed second further amended statement of claim. This proposed pleading contains, in a number of schedules, particulars the absence of which lay behind the stay order. The respondents do not oppose the lifting of the stay, or the granting of leave to amend so as to provide the missing particulars, and indeed to add other matters. But they do oppose the addition of Malvern Bond and Franchise Developments and those parts of the proposed pleading that relate to those companies.
The new material in the proposed pleading can be summarized as follows:
(a) the first respondent was the employer or principal of Franchise Developments;
(b) Franchise Developments carried on the business of marketing the Pizza Haven chain;
(c) by an agreement made between August and September 1990 the first respondent agreed to grant the first three applicants or their nominee a Pizza Haven franchise at Springvale;
(d) by an agreement made between August and November 1990 the first respondent agreed to grant Malvern Bond a Pizza Haven franchise at Albury-Wodonga;
(e) by an agreement made in or about July 1991 the first respondent agreed to grant Malvern Bond a Pizza Haven franchise at Noble Park;
(f) in order to induce the relevant applicants to enter into the agreements in (c), (d) and (e), the respondents made representations and gave warranties as to the likely profitability of the enterprises;
(g) the respondents represented that they had reasonable grounds for making the representations in (f) within the meaning of s.51A of the Act;
(h) in reliance on the representations
(i) the first three applicants executed the Springvale agreement, procured their appointment as directors of Malvern Bond, took shares in the company and caused it to accept nomination as franchisee of the Ormond business;
(ii) the first and third applicants borrowed money which they lent to Malvern Bond to enable it to conduct the Ormond franchise;
(iii) the second applicant committed his managerial skill to the conduct of the Ormond franchise;
(iv) Malvern Bond executed the Albury-Wodonga and Noble Park agreements, conducted the Ormond business and borrowed the money referred to in (ii);
(j) the Ormond franchise was unprofitable, Malvern Bond lost the profit it should have earned and became liable for payment of interest and repayment of capital to the first three applicants, which payments it would have been able to make out of the profits of the franchise;
(k) in consideration of the representations the applicants entered into the franchise agreements and suffered loss as a result of the breach of the warranties referred to in (f);
(l) the respondents owed a duty of care to the applicants, and the representations referred to in (f) were made in breach of that duty causing loss to the applicants;
(m) the first respondent breached various terms of each franchise agreement thereby causing loss to the applicants;
(n) the first respondent engaged in the practice of exclusive dealing contrary to s.47(1). (This allegation replaces the s.47(2) exclusive dealing allegation in the existing pleading.)
The foregoing is not a complete rendering of the amendments the applicants wish to make, but is sufficient for present purposes.
The ground on which it is sought to add Malvern Bond as an applicant is that the existing applicants intended to use a company as the vehicle for any franchise agreement they entered into, and this was known to the respondents. Malvern Bond was incorporated for this purpose after the alleged representations were made, and it is said to have relied on them even though it was not in existence when they were made. The substance of Malvern Bond's claim is that the representations were made in order, inter alia, to induce it to accept nomination as franchisee under the Ormond franchise and to enter into franchise agreements at two other locations, that acting on the faith of the representations and warranties it executed the agreements, borrowed money and conducted the Ormond franchise, that because the franchise was unprofitable it lost the profit it should have earned, and had to repay borrowed money. Malvern Bond also alleges breach of warranty, negligence, breach of the franchise agreements and contravention of s.47(1) of the Act. No damages are claimed in relation to that contravention, but I was told that is an oversight. The paragraphs of the proposed pleading especially relevant to the claim by Malvern Bond are 11, 12, 16(e), 17 and 35 to 37.
The ground on which it is sought to add Franchise Developments is that the third respondent, who made the representations complained of, did so in the course of his employment by that company. The substance of the claim against Franchise Developments is that it carried on the business of marketing the franchises, employed the third respondent, was the servant or agent of the first respondent, and made the relevant representations and gave the relevant warranties. The paragraphs of the proposed pleading especially relevant to a claim against Franchise Developments are 8, 13 and 14.
Most of the argument before me related to Malvern Bond. Its addition as a party is governed by O.6 r.8. It was incorporated on 17 September 1990. The representations upon which it is said to have relied were made between August and November 1990. The agreements it claims to have entered into in reliance on the representations were made between August and November 1990. Its claim is thus prima facie barred by s.82(2) of the Act. Counsel for the applicants argued that I should not decide whether the claim was barred, and relied on Wardley Australia Ltd. v. Western Australia (1992) 175 C.L.R. 514, at p.533 where Mason C.J., Dawson, Gaudron and McHugh JJ. said that it was undesirable that limitation questions of the kind under consideration in that case should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Counsel also contended that Malvern Bond's cause of action was not statute barred. That submission somewhat surprised me until authority was produced which supported it: Cockerill v. Westpac Banking Corporation (1991) 32 F.C.R. 36. In that case Cockerill was allowed to add an applicant to a s.52 action after the expiration of the limitation period. Pincus J. said that it appeared to follow from observations of the Full Court in Western Australia v. Wardley Australia Ltd. (1991) 30 F.C.R. 245, at p.267 that the rule in Weldon v. Neal and the cognate rule relating to joinder of parties were inapplicable to a case such as that before him. He said
once it is accepted that limitation provisions are complied with by the timely institution of a suit relating to an identifiable matter, it would seem to follow that elaboration of the matter by the making of additional claims, or claims by or against additional parties, within its scope, are unaffected by time limitation provisions.
Pincus J. appears to have been startled by this result, and applied what the Full Court had said with obvious reluctance. What the Full Court said in Wardley (which was an amendment and not a joinder case) was this:
In stipulating in s.82(2) that the action under s.82 may be commenced at any time within three years after the date on which the cause of action accrued, the legislature does not purport to limit the nature of the matter in respect of which jurisdiction is conferred by s.86. In our view, it is sufficient to meet the limitation provision of s.82(2) of the Act for a proceeding to be instituted in respect of a matter arising under the Act, the substance of which is defined by a factual base which would encompass conduct said to be in contravention of the provisions of Pt IV or V of the Act.
Cockerill was decided before Wardley reached the High Court. In the High Court Deane and Toohey JJ. disagreed with the observations of the Full Court upon which Cockerill depended. Toohey J., with whom Deane J. agreed, said that s.86 and the conferral of jurisdiction to hear any "matter" arising under the Act threw no light on the interpretation of s.82(2) or the amendment power in O.13 r.2. (I note in passing that Wardley was decided before O.13 r.2 was amended consequent upon the insertion of s.59(2B) into the Federal Court of Australia Act so as to permit amendments made after the expiration of applicable limitation periods). Toohey J., at p.562, said:
Any debate as to the "matter" before the Federal Court is a diversion from the issues truly raised by the question of the Court's powers to amend the statement of claim. "Matter" is relevant to jurisdiction. It bears upon the extent of the Court's jurisdiction when faced with several causes of action, some federal and some non-federal. But "matter" is not relevant to the operation of s.82(2) of the Act. "Matter" may serve to confer jurisdiction upon the Federal Court but jurisdiction brings with it no mandate to ignore a clear statutory prohibition on the bringing of an action after a period of years.
Mason C.J., Dawson, Gaudron and McHugh JJ. said, at p.534, that the concept of "matter" in Ch.III of the Constitution, as reflected in s.86 of the Act, did not provide any assistance in a consideration of whether the court can allow an amendment which adds a cause of action which is otherwise statute barred.
The observations of these six members of the High Court were obiter. But had Pincus J. had the benefit of them, it is most unlikely, given his own reservations, that he would have decided as he did. As his Honour said, but for the Full Court's observations, "one might have experienced some difficulty in accepting the view that the terms of s.77(i) of the Constitution (Cth) or those of s.86(1) ... were ... intended to say anything about time limitations". Had the matter been res integra he would "have had difficulty in accepting that the presence of s.86(1) was truly intended to qualify the operation of s.82(2)". Six members of the High Court have confirmed his Honour's doubts. Cockerill should no longer be followed.
I have mentioned that in Wardley four members of the High Court
said that except in clear cases limitation questions of the kind in question
there should not be decided in interlocutory proceedings. In that case the State sued Wardley, claiming
damages for loss alleged to have been suffered as a result of misleading and
deceptive conduct which led it to grant an indemnity to a bank. The statement of claim alleged that the
representations were made at a meeting on 24 October 1987, and that on 26
October, in reliance on them, the State executed the indemnity. In due course the bank called on the
indemnity, the State disputed its liability, and the dispute was later settled
by the State paying the bank $10.5 million.
In January 1991 the State amended its statement of claim so as to rely
on an additional representation made on 25 October 1987. French J. struck out the amendment on the
ground that it pleaded a cause of action that was outside the time limit
prescribed by s.82(2).
His Honour held that the State suffered loss the moment it executed the
indemnity, so that time ran from 26 October 1987, and had expired before the
amendment. His Honour was of the view
that the assumption by the State of a risk of loss was itself a loss that had
been suffered. The Full Court and the
High Court disagreed, holding that an indemnifier suffers no loss until the
indemnity is called upon. At the time of
French J.'s decision different views were held as to the time at which loss is
suffered in indemnity cases. See Jobbins
v. Capital Court Corporation Ltd. (1989) 25 F.C.R. 226, S.W.F. Hoists
& Industrial Equipment Pty. Ltd. v. State Government Insurance
Commission (1990) 6 A.N.Z. Insurance Cases 76,688; [1990] A.T.P.R. 51,599
and Magman International Pty. Ltd. v. Westpac Banking Corporation
(1991) 32 F.C.R. 1. What the High Court
in Wardley was cautioning against was deciding an uncertain limitation
question in an interlocutory context.
Subject to the Cockerill point, it was common ground before me
that loss was suffered in the present case as soon as the franchise agreement
was entered into. So the limitation
question here is not of the "kind under consideration" in Wardley. In any event, it is in my view a very clear
case.
Accordingly I decline to make an order under O.6 r.8 adding Malvern Bond as an applicant. What I have said about Malvern Bond applies to the addition of Franchise Developments as a respondent. Cf. Phillip Morris Ltd. v. Bridge Shipping Pty. Ltd. [1994] 2 V.R. 1, at pp.7-9.
The collateral warranty, negligence and breach of agreement claims so far as they relate to Malvern Bond and Franchise Developments are not subject to the three year limitation period. But once the jurisdictional prop afforded by the s.52 claim is removed, they cannot stand alone.
The result is that I will lift the stay imposed by the order of 30 June 1994, and will give the applicants leave to bring in a second further amended statement of claim in the form or to the effect of pars.1 to 3, 5 to 7, 9, 10, 13 to 16, 18 to 34 of exhibit "NSB1" to the affidavit of Nicholas Styant-Browne sworn 26 September 1995. Some of those paragraphs (e.g. pars.13, 14, 16 and 17) and the Particulars in the various schedules will require modification so as to reflect the fact that Malvern Bond and Franchise Developments are not parties. I will adjourn the motion notice of which was filed on 2 November 1995 to a date to be fixed.
I certify that this and the preceding 9 pages are a true copy of the reasons for judgment of the Honourable Justice Sundberg
............................................
Associate
16 November 1995
Counsel for the Applicants: Mr C Maxwell
Solicitors for the Applicants: Slater & Gordon
Counsel for the Respondents: Dr P Buchanan QC
Solicitors for the Respondents: Messrs Coltmans
Date of Hearing: 6 November 1995
Place of Hearing: Melbourne
Date of Judgment: 14 November 1995
