FEDERAL COURT OF AUSTRALIA

PROCEDURE - application to strike out part of statement of claim - relevant considerations - whether material facts pleaded

Trade Practices Act 1974 (Cth)  s 4D, s 45, s 45(2)(a)(i), s 45(2)(b)(i)

Federal Court Rules  O 11 r2, O 11 r16

Bruce v Odhams Press Limited [1936] 1 KB 697

Trade Practices Commission v David Jones (Aust) Pty Ltd (1985) 7 FCR 109

Trade Practices Commission v Australian Iron & Steele Pty Ltd (1990) 92 ALR 395

H1976 Nominees Pty Ltd v Galli (1979) 30 ALR 181

Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR ¶41‑522

The Bega Co‑operative Society Limited v The Milk Authority of the Australian Capital Territory (unreported, Neaves J, 12 May 1992)

Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218

Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279

ANGELO MITANIS AND HELEN MITANIS v PIONEER CONCRETE (VIC) PTY LTD & ORS

VG 343 of 1997

GOLDBERG J

MELBOURNE

10 OCTOBER 1997

THE COURT ORDERS THAT:

1.         Paragraphs 51, 52 and 53 of the amended statement of claim filed 27 August 1997 be struck out.

2.         The applicants be at liberty to apply to the Court within twenty‑one days for leave to amend further their statement of claim which application, if made, is to be supported by an affidavit exhibiting the proposed amended statement of claim.

3.         Any such application for leave to amend further the statement of claim shall be returnable at 9.30 am on Tuesday 18 November 1997.  If any of the respondents wish to oppose such leave they should file and serve their submissions by 4.00 pm on Thursday 6 November 1997 and the applicants should file and serve their submissions by 4.00 pm on Thursday 13 November 1997.

4.         The applicants pay the fiirst respondent’s costs of the motion to strike out paras 51, 52 and 53 of the amended statement of claim.

5.         The directions hearing be adjourned to 9.30 am on Tuesday 18 November 1997.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

The proceeding commenced by application filed on 9 July 1997 supported by a statement of claim filed on the same day.  As a result of a directions hearing on 9 August 1997 the applicants filed an amended statement of claim on 27 August 1997 and on 8 September 1997 the first respondent (“Pioneer”) filed a notice of motion seeking an order that paras 51, 52 and 53 of the amended statement of claim be struck out pursuant to O 11 r16 .  The second to eleventh respondents support Pioneer’s application.  Order 11 r16 enables the Court to strike out the whole or part of a statement of claim if it discloses no reasonable cause of action, has a tendency to cause prejudice, embarrassment or delay in the proceeding or is otherwise an abuse of the process of the Court.

The allegations in the amended statement of claim can be summarised as follows - prior to 1990 Pioneer engaged the first applicant and the third to eighth respondents as owner/drivers to transport materials from Pioneer’s quarries to its concrete plants.  It arranged these engagements by way of radio contact between its radio room and the owner/drivers.  In 1990 Pioneer announced that it would no longer engage owner/drivers directly and proposed that the applicants and the other owner/drivers form a company which Pioneer would engage to transport materials from its quarries to its concrete plants.  As a result of that proposal, Pioneer, the first applicant, and the other owner/drivers entered into an agreement (said to be partly oral and partly to be implied) whereby they formed a company to act as trustee of a unit trust in respect of which the first applicant and the other owner/drivers would become directors and shareholders and the owners of units in the unit trust.  By the agreement Pioneer was to engage the company to cart materials from its quarries to its concrete plants and other sites and the company was to engage the unit holders to perform the carting services.  By the agreement the parties were to endeavour to ensure a fair and equitable distribution of work between the unit holders and the company, would not, without due cause, fail or cease to engage any of the unit holders to perform any of the cartage services but if it did, then Pioneer would engage the unit holder directly to perform what would otherwise be the unit holder’s fair share of the cartage services.

It is alleged that pursuant to the agreement the second respondent (“Delta”) was incorporated as the trustee of the Wollert Contractors Unit Trust which was formed and the first applicant and the other owner/drivers became directors of Delta and took up units in the Trust.  Pioneer entered into an agreement with Delta on 27 June 1991 for the provision of the cartage services and Pioneer continued to contact relevant owner/drivers from its radio room, although the cartage services were provided through the medium of Delta. 

It is further alleged that from June 1991 Delta and the unit holders entered into a subcontracting agreement whereby unless there was insufficient capacity only the unit holders would be engaged by Delta to perform the cartage services and there was to be a fair and equitable distribution of the cartage services between the unit holders.  By that agreement Delta was not, without due cause, to fail or cease to engage any unit holders to perform cartage services or terminate the original agreement without reasonable notice.  It is said that subsequently the ninth, tenth and eleventh respondents became parties to and bound by the original agreement and the subcontract agreement.

It is alleged that in 1993 the first applicant suffered from health problems as a result of which the applicants were unable to perform any cartage services between September 1993 and February 1994 during which period Pioneer and Delta allocated work that would otherwise have been performed by the applicants to the remaining unit holders with the applicants’ consent.  In January 1994 the applicants became able to perform some of the cartage services on a part‑time basis and after two weeks they were allocated part‑time work.  Eight months thereafter they became able to perform full‑time cartage services but Delta failed to inform Pioneer of that fact, this constituting a breach of the subcontracting agreement by Delta.  It is then said that in October 1994 Delta told Pioneer that Delta was holding a letter of resignation on behalf of the applicants and that they would not be returning to full‑time cartage work and that the first applicant had resigned as a director of Delta.  As a result the applicants were allocated less of the cartage services than they otherwise would have been given as a result of which Delta breached the subcontracting agreement and alternatively, the third to eleventh respondents breached the original agreement.  It is alleged in the alternative that the representations or statements made by Delta to Pioneer were negligent and constitute misleading and deceptive conduct contrary to s 12 of the Fair Trading Act (Vic) and s 52 of the Trade Practices Act 1974 (Cth).

It is then alleged that in October 1994 the first applicant informed Pioneer directly that the applicants were available to perform the cartage services on a full‑time basis and that Pioneer requested Delta to give it a copy of the purported letter of resignation on behalf of the applicants which Delta failed to provide and that Delta requested the applicants to resign from performing any of the cartage services and terminate their involvement in the subcontracting agreement which they refused to do.  There was a short period of two months when Pioneer allocated cartage services to the applicants on a full‑time basis but thereafter Delta told Pioneer that the applicants had been sacked in relation to the performance of cartage services and thereafter Pioneer and Delta ceased engaging the applicants to perform any cartage services.  It is said that as a result Delta had breached the subcontracting agreement and Pioneer breached the original agreement and that the third to eleventh respondents caused or permitted Delta to breach its obligations under the subcontracting agreement in breach of their obligations under the original agreement.  It is also alleged that the first applicant was invalidly removed as a director of Delta.

None of these allegations are the subject of the application to strike out.  That application is directed at the following paragraphs in the amended statement of claim:

“Exclusionary Provisions

51.       At or around the time of the representation referred to in paragraph 43, the first and second respondents:

a)         made a contract or arrangement, or arrived at an understanding; and/or

b)         gave effect to a provision of a contract, arrangement or understanding -

that had the purpose of preventing, restricting or limiting the acquisition of cartage services by them from the applicants.

Particulars

The contract, arrangement or understanding made, arrived at and/or given effect to was to the effect that neither of them would from that time or shortly thereafter engage the applicants to perform any work related to the Cartage Services.

52.       The contracts, arrangements or understandings referred to in the previous paragraph were exclusionary provisions for the purposes of section 45 of the Trade Practices Act 1974 and were in breach of such section.

53.       The applicants have suffered and continue to suffer loss and damage as a result of the said contracts, arrangements or understandings made and/or given effect to.”

Paragraph 43 is in the following terms:

“43      In or around October 1994, the first respondent advised the first applicant that:

a)         the second respondent had failed to satisfy it that the applicants had resigned from performing any of the Cartage Services; and

b)         as a result thereof stated to the second respondent that it would resume allocating work to the applicants through the first respondent’s radio room.”

In their application the applicants seek declarations that Pioneer and Delta by their contract, arrangement or understanding and by their conduct referred to in para 51 have contravened s 45 of the Trade Practices Act and have given effect to a provision in a contract, arrangement or understanding in contravention of s 45 of the Trade Practices Act.  Restraining orders and damages are also sought.  By reason of the pleading in para 52 it is apparent that the applicants rely on s 45(2)(a)(i) and s 45(2)(b)(i) of the Trade Practices Act.  Section 45(2)(a)(i) is in the following form:

“A corporation shall not -

(a)       make a contract or arrangement, or arrive at an understanding, if -

(i)         the proposed contract, arrangement or understanding contains an exclusionary provision ...”.

Section 45(2)(b)(i) is in the following terms:

“A corporation shall not -

...

(b)       give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at before or after the commencement of this section, if that provision -

(i)         is an exclusionary provision ...”.

Section 4D of the Trade Practices Act is in the following terms:

“(1)     A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if -

(a)        the contract or arrangement was made, or the understanding war arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any two or more of whom are competitive with each other; and

(b)        the provision has the purpose of preventing, restricting or limiting -

(i)         the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or

(ii)        the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions,

by all or any of the parties to the contract, arrangement or understanding of the proposed parties to the proposed contract, arrangement or understanding or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate.

 (2)      ...”

It is trite to repeat but, necessary in the circumstances of this application, that O 11 r2 of the Federal Court Rules provides that:

“A pleading of a party shall contain, and contain only, a statement in a summary form of material facts on which he relies, but not the evidence by which those facts are to be proved”.

Pleadings occupy an important role in present day litigation notwithstanding the flexibility of case management principles.  They are not to be treated as pedantry or mere formalism:  Esso Petroleum Co Ltd v Southport Corporation [1956] AC 218, 241.  In Banque Commerciale SA En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 Mason CJ and Gaudron J said at 286:

“The function of pleadings is to state with sufficient clarity the case that must be met:  Gould and Birbeck and Bacon v. Mount Oxide Mines Ltd. (In Liq.) per Isaacs and Rich JJ.  In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision.  The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness.”

It has been established for many years that the most fundamental rule of pleading is the rule found in O 11 r 2:  Bruce v Odhams Press Limited [1936] 1 KB 697, 712, Trade Practices Commission v David Jones (Aust) Pty Ltd (1985) 7 FCR 109, 112 ‑ 114; Trade Practices Commission v Australian Iron & Steel Pty Ltd (1990) 92 ALR 395.  It is also important to recognise and accept that there is a clear distinction between pleadings and particulars.  In Bruce v Odhams Press Limited (supra) Scott J in the Court of Appeal said at 711 ‑ 713:

“... but it is beyond question that there is a radical distinction (between a statement of material facts and particulars) and nonetheless so that in cases near the dividing line there is a penumbra where the two may and often do overlap, just as between night and day there is a zone of doubt which we call dusk ...

The cardinal provision in r.4 is that the statement of claim must state the material facts.  The word ‘material’ means necessary for the purpose of formulating a complete cause of action; and if any one ‘material’ fact is omitted; the statement of claim is bad; it is ‘demurrable’ in the old phraseology, and in the new is liable to be ‘struck out’ ...

The function of ‘particulars’ under r.6 is quite different.  They are not to be used in order to fill material gaps in a demurrable statement of claim - gaps which ought to have been filled by appropriate statements of the various material facts which together constitute the plaintiff’s cause of action.  The use of particulars is intended to meet a further and quite separate requirement of pleading, imposed in fairness and justice to the defendant.  Their function is to fill in the picture of the plaintiff’s cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial.  Consequently in strictness particulars cannot cure a bad statement of claim.  But in practice it is often difficult to distinguish between a ‘material fact’ and a ‘particular’ piece of information which it is reasonable to give the defendant in order to tell him the case he has to meet; hence in the nature of things there is often overlapping.”

In H1976 Nominees Pty Ltd v Galli (1979) 30 ALR 181 Northrop J held that particulars could not be used to bolster a defective pleading and said at 186 ‑ 187:

“In order to disclose a reasonable cause of action, a statement of claim must contain statements of material facts which support the claims made.  Particulars are not statements of material facts; particulars perform a different purpose.

...

Paragraph 17 contains a conclusion drawn from facts which are not contained in the statement of claim.  In order to disclose a reasonable cause of action, a statement of claim must contain statements of material facts which support the claims made.”

(See also Trade Practices Commission v David Jones (Aust) Pty Ltd (supra, 114).

These principles were restated more recently by Burchett J in Multigroup Distribution Services Pty Ltd v TNT Australia Pty Ltd (1996) ATPR ¶41‑522.  At 42,679 his Honour said:

“The primary function (of a statement of claim) is to tell the defending party what the claim is that he has to meet.  That is a matter of elementary and natural justice; the claim cannot be answered until it is known.  When a sufficient defence has been filed to a sufficient statement of claim, a further function will generally have been performed - that of defining the question or questions for decision.  This definition is required, of course, from an early stage, or else discovery and other interlocutory procedures are likely to prove misdirected, wasteful and unproductive.  In order to achieve these fundamentals, a statement of claim must set out clearly, not just the bare claim that is made, but also ‘the material facts on which it is based’, including facts that, if not specifically pleaded, might take the other party by surprise:  Federal Court Rules, Order 4, r. 6; Order 11, rr. 2, 10.”

His Honour then referred with approval to the observations of Neaves J in The Bega Co‑operative Society Limited v The Milk Authority of the Australian Capital Territory (unreported, 12 May 1992) where his Honour referred to a number of authorities which supported the propositions that a statement of claim is to contain material facts being the facts necessary for the purpose of formulating a complete cause of action and that it is not sufficient simply to plead a conclusion drawn from unstated facts.  What is important for present purposes is that in Bega (supra) as Burchett J noted at 42,679:

“... his Honour struck out paragraphs of a statement of claim which simply repeated the language of s. 45(2)(a)(ii) and (b)(ii) and s. 46(1)(c) of the Trade Practices Act, and then baldly asserted contraventions of these provisions.”

Burchett J then cited the following passage in Bega:

“For the purpose of s. 45(2)(a)(ii), facts must also be pleaded sufficient to establish that the provisions so identified had the purpose, or would have or were likely to have the effect, of substantially lessening competition.  For the purposes of s. 45(2)(b)(ii), the further facts must establish that the Authority and Co‑operative Foods gave effect to those provisions of the contract or arrangement.  Finally, facts must be pleaded to warrant the conclusion that Bega or Capitol or both suffered loss or damage and that such loss or damage was causally related to the contravention by the Authority and Co‑operative Foods of the provisions of ss. 45(2)(a)(ii) and 45(2)(b)(ii).’

...

As with pars. 24 and 25 to which I have already referred, par. 23 of the amended statement of claim simply transcribes the language of s. 46(1)(c) of the Trade Practices Act.  It thus states a conclusion and not the material facts on which that conclusion is based.”

Burchett J then noted at 42,680:

“When a claim is made under s. 82 of the Trade Practices Act, the gist of the cause of action being damage, the Statement of Claim must allege the damage suffered, and that it was suffered by the contravention of the Act:  Elna Australia Pty Ltd v. International Computers (Aust) Pty Ltd (No 2) (1987) ATPR ¶40‑795 at 48,676‑48,677; (1987) 16 FCR 410 at 418; Bond Corporation Pty Ltd v. Thiess Contractors Pty Ltd (1987) ATPR ¶40‑771 at 48,387‑48,388; (1987) 14 FCR 193 at 222.”

Burchett J returned to this latter issue later in his judgment where at 42,684 he referred again to the lack of any material facts to show the required causal link between any alleged contravention of the Trade Practices Act 1974 (Cth) and any damage to the applicant (referring to Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 193).  He referred to an assumption of the pleader that anti‑competitive conduct between the respondents would have strengthened their competitive capacity against the applicant but said that this could not “simply be assumed”.  His Honour then continued at 42,685:

“But where the facts do not inevitably support the pleader, and various interpretations are possible, the onus is on him to define the path he wishes to take to his goal, so that his opponent will know where to meet him, and the Court just what it must decide.”

The paragraphs attacked by the respondents (paras 51, 52 and 53) repeat the vices and deficiencies which caused Neaves J to strike out the paragraphs in the statement of claim in Bega (supra).  Not only do they not plead material facts, they do not even plead conclusions but rather utter the litany of the relevant statutory provisions.  The particulars under para 51 do not save it.  They do not save it as a matter of principle because a deficient pleading, namely one that does not plead any material facts cannot be saved by particulars:  Trade Practices Commission v David Jones (Aust) Pty Ltd (1985) 7 FCR 109, 111 ‑ 113.  In any event, the particulars confuse the making of a contract or arrangement or the arriving at an understanding with giving effect to a provision of such contract or arrangement or understanding.

The matter can be approached in a different way by identifying the essential elements in the causes of action based on s 45(2)(a)(i) and s 45(2)(b)(i).  So far as a cause of action under s 45(2)(a)(i) is concerned it is necessary to identify and plead material facts in relation to:

(a)        the making of a contract or arrangement or the arriving at an understanding

(b)        the identification of a provision in that contract, arrangement or understanding;

(c)        an allegation that the contract, arrangement or understanding was made or arrived at between persons, any two or more of whom are competitive with each other and an allegation that those two persons are, or are likely to be, or, but for the provision, would be or would be likely to be in competition with each other in relation to the acquisition of services to which the provision relates;

(d)        an allegation that the provision has the purpose of preventing, restricting or limiting the acquisition of services (as defined in the Trade Practices Act) from particular persons or classes of persons.

The essential elements in the cause of action based on s 45(2)(b)(i) include each of the elements to which I have referred in relation to a cause of action based on s 45(2)(a)(i) but there is an additional element of an allegation of material facts that the respondents gave effect to the provision.  In other words, conduct has to be alleged and pleaded.

It is also not sufficient simply to allege loss and damage as a result of the alleged contraventions; it is necessary to identify a causal connection between the impugned contract, arrangement or understanding and conduct and such loss as is said to have been suffered by the applicants:  Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (supra).

An examination of paras 51 ‑ 53 demonstrates that none of these elements have been pleaded.  There are no material allegations of fact raised in relation to the contract, arrangement, understanding, conduct or relevant “provision”.  I ask rhetorically whether is it pleaded, for example, that Pioneer and Delta were competitive with each other?  Mr Lacy who appeared for the applicants relied upon the allegations in para 12(i) of the amended statement of claim.  It is difficult to see how this paragraph pleads that Pioneer and Delta were competitive with each other, but even if the applicants seek to rely upon other paragraphs in the amended statement of claim to support the cause or causes of action said to be raised by paras 51 ‑ 53 such a reliance must be explicit and not left to a matter of inference or supposition.

The applicants submit that the characterisation of the agreement relied upon, if proved to exist, is a question of law.  I take this to be a reference to the fact that it is a question of law whether the relevant agreement is one which contravenes s 45.  However the vice complained of is that no agreement as such is pleaded in the sense that no material facts relied upon as constituting the agreement are pleaded.  The contract, arrangement or understanding is said to have been made or arrived at around October 1994 but otherwise there are no material facts set out in relation to the contract, arrangement and understanding.  The applicants then submit that they have pleaded the contract, arrangement or understanding in the alternative.  Rather they have repeated the litany of s 45 in the alternative; they have not alleged any material facts in the alternative.  None of the authorities referred to by the applicants in their written submissions are relevant to the issues raised by Neaves J in Bega (supra) and Burchett J in Multigroup (supra).

In response to the criticism of the pleading of an exclusionary provision the applicants submitted:

“Para. 51 sets out the substance of the understanding and para. 52 characterises the understanding as one which was in itself an exclusionary provision.”

This submission ignores or disregards the fact that the amended statement of claim does not set out any material facts in relation to, or the substance of, the understanding and the fact that the characterisation of the understanding as being one which in itself was an exclusionary provision does not set out the material facts by virtue of which, according to s 45D, one can conclude that it is an exclusionary provision.  It may be that elsewhere in the amended statement of claim facts are pleaded from which one can accept that it is alleged that the unitholders in the Wollert Contractors Unit Trust would be competitive with each other but for the agreement between them and the agreement with Pioneer.  However, the relevant contract, arrangement or understanding referred to in para 51 is between Pioneer and Delta, entered into or arrived at in October 1994, not between the unitholders in the Wollert Contractors Unit Trust.

In my opinion paras 51, 52 and 53 are wholly deficient for the reasons and in accordance with the authorities to which I have referred and therefore must be struck out.  It is submitted by the respondents that I should not exercise my discretion and allow the applicants leave to amend the allegations contained in paras 51, 52 and 53 as the defects have been specifically brought to their attention and they have not sought to amend those defects.  The respondents submit that Pioneer and Delta were not or never likely to be in competition with each other and certainly not in relation to the acquisition of cartage services from the applicants.  That may well be but I consider it more appropriate, as an exercise of discretion at this early stage, to give the applicants the opportunity to reconsider their pleading in the light of the cogent submissions advanced by the respondents and these reasons for judgment. 

Mr Comans, who appeared for Pioneer, submitted that the correspondence between the parties showed that the applicants had been given every opportunity to rectify the deficiencies in the pleading and that they had refused to do so.  He also submitted that the contents of the applicants’ written submissions made it clear that the applicants could never properly raise a cause of action against Pioneer under s 45 in reliance upon an exclusionary provision.  There is much force in Mr Comans’ submissions but Mr Lacy said that there was further material available which was relevant to the cause or causes of action which the applicants wished to plead in reliance on s 45.  I consider that the applicants should be given that opportunity but having regard to the nature of the causes of action they wish to raise and the contents of their written submissions they should not at this stage have general leave to amend but rather should be given the opportunity to apply for that leave in relation to the amendments they wish to make.

Accordingly, I will order that paras 51, 52 and 53 of the amended statement of claim be struck out, that the applicants have liberty to apply for leave to file a further amended statement of claim within twenty‑one days of this date and that the applicants pay the respondents’ costs of the motion.

Associate:

Dated:              10 October 1997