FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - Practice and procedure - misleading or deceptive conduct - whether judgment may be given on ground not precisely raised in the pleadings - distinction between misrepresentation at common law and conduct which breaches s 52 of the Trade Practices Act - whether the issue on which judgment was given was fully ventilated at trial - what is the role of pleadings - what is the role of a trial judge - whether appellants prejudiced by what occurred at the trial in relation to that issue - whether limitation period should have precluded judgment being given.

Fair Trading Act 1985 (Vic) ss 11, 37

Trade Practices Act 1974 (Cth) ss 52, 82

Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, appl

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

Butt v Tingey (1993) ATPR 46-110, refd

Campbell v Mihnyak (unreported, Davies J, 19 December 1996), refd

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, appl

Devries v Australian National Railways Commission (1993) 177 CLR 472, refd

Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liquidation) (1916) 22 CLR 490, refd

Harris v Western Australian Exim Corporation (1994) 56 FCR 1, refd

John C Glass Real Estate Pty Ltd v Karawi (1993) ATPR 41-249, refd

March v Stramere (E. & M.H.) Pty Ltd (1991) 171 CLR 506, appl

Qantas Airways Ltd v Cameron (1996) 68 FCR 367, refd

Water Board v Moustakas (1988) 180 CLR 491, appl

Yorke v Lucas (1985) 158 CLR 661, appl

NESCOR INDUSTRIES GROUP PTY LTD & ORS v MIBA PTY LTD & ORS

VG 101 of 1997

JUDGES:       DAVIES, TAMBERLIN & RD NICHOLSON JJ

DATE:            17 DECEMBER 1997

PLACE:          SYDNEY (HEARD IN MELBOURNE)

MINUTES OF ORDER

THE COURT ORDERS THAT:

            The appeal be dismissed with costs.

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

                                                On appeal from a judgment of a single judge

                                                of the Federal Court of Australia

REASONS FOR JUDGMENT

Davies J:   This is an appeal from the judgment of a judge of the Court, Merkel J, which upheld a claim by Miba Pty Ltd ("Miba") and its directors and shareholders, Mr & Mrs Vittouris, that, inter alia, Nescor Industries Group Pty Ltd ("Nescor") had engaged in conduct which was misleading or deceptive or likely to mislead or deceive in breach of s 52 of the Trade Practices Act  1974 (Cth) and s 11 of the Fair Trading Act 1985 (Vic) and that Robert Kenneth Nelson had been involved in the contravention.  His Honour gave judgment for Miba against Nescor and Mr Nelson in the sum of $225,000.

The issues in the appeal arise principally from the fact that the learned trial Judge founded his judgment on a finding of conduct in breach of s 52 which was not precisely the conduct alleged in the statement of claim.  In order to understand the issue, it is necessary to mention briefly some of the salient facts and to explain how the matter was pleaded.

Facts

The second respondent, Robert Kenneth Nelson, was the managing director and controller of Nescor.  Nescor conducted a business from 1989 of establishing franchises of owner-controlled "Muffin Break" food outlets in Australia.  By the time of the trial, 74 such outlets had been established.  At the time with which we are concerned, the middle of 1990, Nescor had established at least three of the food outlets, one at Coolangatta, one at the Chadstone Shopping Centre and one at the Knox City Shopping Centre and had acquired appropriate premises at the Northland Shopping Centre with a view to establishing another Muffin Break food outlet. 

In the course of his investigations of the potential of a site in the Northland Shopping Centre, Mr Nelson had spoken with the leasing executive of the Gandel Group which owned the Northland Shopping Centre, Mr Stuart Macrae.    He was informed by Mr Macrae that the average food court operator in the Northland Shopping Centre achieved sales in the order of $10,000 per week.  Mr Nelson then made further investigations by way of observing the number of patrons using the outlets in the Food Court at the shopping centre.  He made his own calculations of the likely expenditure of these customers.  From these observations and calculations, Mr Nelson concluded that the information he had received from Mr Macrae was correct.  Mr Nelson then had discussions with Mr & Mrs Vittouris, the directors and shareholders of Miba,  the potential franchisee.  In July 1990, understanding that Mr & Mrs Vittouris were approaching a bank for finance and would be assisted if financial information were provided by him as to the financial prospects of a Muffin Break outlet in the Northland Shopping Centre, Mr Nelson prepared the following letter on "Muffin Break" letterhead, which was addressed "To Whom it May Concern" and dated 3 July 1990:

“We understand that you have been approached by our prospective franchisees Michael and Bronwyn Vittouris for the financing of our store at Northland.

To assist you in the evaluation of a cash flow projection we are pleased to list the following weekly sales achieved at our Chadstone location that opened on April 30.

Note that we expect the sales to settle down between $14,000 and $16,000.00 per week then gradually increase with additional take-a-way, normal traffic, greater product acceptance and retail price increases.

It is our understanding that the average Food Court operator in Northland achieves sales in the order of $10,000.00/week.

The Franchisee at Chadstone have advised us that their food costs at Chadstone have ranged between 20% and 22%.

To compare Northland and Chadstone:

Overall Pedestrian Traffic: -              comparable

            Food Courts:

                        Chadstone has two food courts and Muffin Break is located in the new food court on the lower level.  There are 12 operators in the upper level food court and 12 operators in the main floor level food court.  The main pedestrian flows are not past or through the new lower level food court.

                        Northland has only one food court with 9 operators.  One of the main entrances from the undercover parking encourages pedestrian flow right through or directly adjacent to the only food court.  The centre is planning to add an additional 100 seats to cope with the busy trading periods.

Summary

Our Northland store has 60% fewer food court tenants to compete with and similar centre traffic.  This would lead us to believe that a well managed operation in Northland could achieve sales of between $8,000.00 and $12,000.00 per week after adjusting for competition and demographics.

CONFIDENTIAL

The above information is provided to the reader on a strictly confidential basis and is to be used only to evaluate the success of a Muffin Break Store in the Northland Shopping Centre.  This information is not to be copied or passed on to other parties without the written consent of the undersigned.” (emphasis added)

This letter was shown by Mr & Mrs Vittouris to their bank and finance was granted. Miba contracted to take the franchise of the Muffin Break food outlet at the Northland Shopping Centre and it  conducted that business from 2 August 1990 to 12 July 1992, when the business was abandoned.  At no time did the business earn income anywhere near the projected figures or anywhere near the figure of $10,000 per week.

The Pleadings

Legal proceedings were instituted on 16 November 1992.  The statement of claim which accompanied the application referred  in paragraph 5 to the negotiations which had occurred before the franchise was taken up and to the letter of 3 July 1990.  However, paragraph 6, which pleaded representations and warranties, did not refer to the representation as to average takings of $10,000 per week, although it did refer to the projection of sales between $8,000 and $10,000 per week.  The application referred, inter alia, to paragraph 6 of the statement of claim but not to paragraph 5.

An amended statement of claim filed on 19 December 1993 pleaded the following representa-tions, inter alia:

“(f)      that Nescor’s Northland store had fewer Food Court tenants than its Chadstone Store and similar centre traffic and as a result the Respondents believed that a well managed operation in Northland Shopping Centre Food Court could achieve sales of between $8,000.00 and $12,000.00 per week after adjusting for competition and demographics; ...

 (g)      that the Respondents understood that the average Food Court operator in the Northland Shopping Centre achieves sales in the order of $10,000.00 per week.”

                        A further amended statement of claim filed on 1 February 1994 was in similar form.  A second further amended statement of claim filed pursuant to leave granted on 19 March 1996, which was the operative pleading at the trial, pleaded representations and warranties in this way:

.

                   "6 (e)  (i)       that a well managed operation in Northland Shopping Centre Food Court would achieve sales of between $8,000.00 and $12,000.00 per week; and

                               (ii)     that the Respondents believed on reasonable and propergrounds that a well managed operation in Northland Shopping Centre Food Court could achieve sales of between $8,000.00 and $12,000.00 per week after adjusting for competition and demographics.

                          PARTICULARS

                   The said representation and warranty was partly in writing in a letter dated 3 July 1990 from the Respondents (CB 115).  Further, they refer to and rely upon the particulars sub-joined to paragraph 6(g) hereof.

                        (f)             that the Respondents believed on reasonable and proper grounds that the average Food Court operator in the Northland Shopping Centre then achieved sales in the order of $10,000.00 per week.”

                          PARTICULARS

                   The said representation and warranty was partly in writing in a letter dated 3 July 1990 from the Respondents (CB 115).  Further, they refer to and rely upon the particulars sub-joined to paragraph 6(g) hereof."

This second further amended statement of claim alleged that representation (f) was false in that:

                   "9(a)          as at 3 July 1990 the average Food Court operator in the Northland Shopping Centre did not achieve sales in the order of $10,000.00 per week, but achieved sales averaging approximately $7,000.00 per week;

                       (b)          the Respondents did ot believe on reasonable and proper grounds that the average Food Court operator in the Northland Shopping Centre then achieved saled in the order of $10,000.00 per week."

It will be noted that this pleading was unsatisfactory as a pleading of  the statutory counts for it did not plead the conduct, which was the sending of the letter containing, inter alia, the statement as to the average takings of the Food Court operation and the projection of future sales.  Ambiguity was further introduced into the matter by paragraph 9 of the pleading for, although paragraph 6 alleged a representation as to a belief, the first ground of falsity pleaded was that the average Food Court operator in the Northland Shopping Centre did not achieve sales in the order of $10,000 per week, but merely sales approximating $7,000 per week.

The Judgment

In his reasons for judgment given on 17 September 1996, the trial Judge found that the projection as to weekly sales of between $8,000 and $12,000 per week was not misleading or deceptive as the grounds of the sales projection had been expressly stipulated and an assessment of their reasonableness had been left to the representee.  His Honour also found that, because of the investigations which Mr Nelson had made, there were reasonable and proper grounds for the making of the projection.  His Honour held:

“Save for the issue relating to average takings at Northland, each statement of fact in the letter was true and each belief or understanding said to have been held by Nelson was held by him.”

The trial Judge found, however, that the statement in the letter of 3 July 1990 that it was Nescor’s understanding that the average food court operator in Northland achieved sales in the order of $10,000 per week was misleading or deceptive or was likely to mislead or deceive for the reality of the takings was otherwise.  His Honour found that, in order to induce Mr Nelson to take a lease, Mr Macrae had simply discarded several of the lower takings and that the reality should have approximated between $7,000 and $7,500 per week and, on any view, less than $8,000 per week.  His Honour held that Mr Macrae’s conduct had seriously misled Mr Nelson and Mr & Mrs Vittouris.  His Honour made the following findings in relation to the representation:

“I find the following facts in relation to the representation that:

            It is our understanding that the average Food Court operator in Northland achieves sales in the order of $10,000.00/week.

·              the “understanding” was accurately stated;

·                    the “understanding” was arrived at on the basis of the information provided by Macrae which Nelson, after his own observations and calculations, accepted and adopted as correct;

·                    the grounds for the “understanding” were both reasonable and proper;

·                    when reading the letter the Vittouris’ were aware that the information which led to Nelson’s “understanding” was provided on behalf of the landlord and that this information had been accepted and adopted by Nelson as correct;

·                    the information provided by Macrae was misleading and untrue;

·                    the representation and the sales projection figures derived, in part, from it, induced the Vittouris’ to acquire the Muffin Break franchise.”

His Honour accepted the submission put by the applicant’s counsel that the letter “conveyed as a fact that which was not the fact”. 

His Honour then went on to consider the circumstances in which the passing on of misleading information supplied by another person could constitute relevant misleading conduct.  His Honour referred to Yorke v Lucas (1985) 158 CLR 661 where the High Court said at 666:

“It is, of course, established that contravention of that section does not require an intent to mislead or deceive and even though a corporation acts honestly and reasonably, it may nonetheless engage in conduct that is misleading or deceptive or is likely to mislead or deceive:  Hornsby Building  Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 at 228;  Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 197.  That does not, however, mean that a corporation which purports to do no more than pass on information supplied by another must nevertheless be engaging in misleading or deceptive conduct if the information turns out to be false.  If the circumstances are such as to make it apparent that the corporation is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity, merely passing it on for what it is worth, we very much doubt that the corporation can properly be said to be itself engaging in conduct that is misleading or deceptive.”

His Honour held that, because Mr Nelson had developed and had held himself out as having developed a special expertise in relation to food outlets, he was not regarded by the potential franchisees, Mr & Mrs Vittouris, as merely passing on information “for what it is worth and without any belief in its truth or falsity”.  The trial judge cited from John Glass Real Estate Pty Limited v Karawi (1993) ATPR 41-249 where, at 41,359, Davies, Heerey & Whitlam JJ said:

"In our opinion an estate agent which holds itself out as, amongst other things, “consultants to institutional investors and to developers of major properties” would not be regarded by potential purchasers of properties as merely passing on information about the property “for what it is worth and without any belief in its truth or falsity”.

Information of the kind in question, the net lettable area of a building, stands on a different footing from the puffery which often accompanies the sale of real property.  The figure is one of hard physical fact.  As the appellant’s own calculations indicate, it is an essential factor in determining the likely profitability of a commercial building and hence its value.  We think a purchaser like Karawi would ordinarily expect, to quote the terms of the appellant’s own disclaimer, that the agent had no reason to doubt the completeness or accuracy of the information provided.”

The trial Judge then dealt with the pleading issue in this way:

“It is fair to say that the respondents sought to confine the case to that pleaded by the applicants but I indicated to counsel for the respondents that although the pleadings identified the case that they were to meet it should not be assumed that it was not open to the trial Judge to find that a case of misleading conduct was made out which was different to that which was pleaded.

During the trial the issue of the takings of the other food outlets at Northland was fully ventilated and detailed submissions were put by both parties on the issues of fact and law arising in relation to that issue.  The applicability of Yorke v Lucas and the cases applying it was the subject of detailed submissions.”

Whether the approach was correct

In my opinion, the trial Judge correctly approached the issues before him and very properly made it clear to counsel during the course of the hearing that he would not necessarily be limited to the manner in which the case had been pleaded.  Issues under s 52 of the Trade Practices Act and s 11 of the Fair Trading Act cannot be determined by the application of common law principles developed with respect to the law of innocent or fraudulent misrepresentation.  The statutory provisions introduce a new concept in respect of which the common law approach may provide guidance, but will not be determinative.  Black CJ expressed the matter this way in Demagogue Pty Limited v Ramensky (1992) 39 FCR 31 where his Honour said at 32:

            "The primary question was whether there had been conduct that was misleading or deceptive or likely to mislead or deceive.  In this case, as in every case in which s 52 is relied upon, this was a question of fact that could only be determined - as the judge did determine it - having regard to all the relevant circumstances."

The trial Judge was bound to approach the matter in that way. 

An allegation, perhaps the most important allegation in the case, was that there had been conduct on the part of Nescor and Mr Nelson which had been in breach of s 52 of the Trade Practices Act and of s 11 of the Fair Trading Act.  The pleader had pleaded the case along the lines of the old common law pleadings for breach of warranty and for fraudulent misrepresentation.  The statutory breaches however turn their attention to conduct.

The trial Judge was correct in considering first, what was conveyed by the statement in the letter, just as in Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 at 131-2, Hill J considered what was represented by the attachment of a certificate under s 149 to a draft contract for the sale of land.  Hill J concluded that that step did not constitute a representation that the zoning was in accordance with the terms of the certificate but rather a representation that the certificate attached was a copy of the certificate issued by the Council and was the whole of that certificate.  Similarly, in the present case, the trial Judge was bound to consider what was the message conveyed by the subject statement in the letter, having regard to the whole of the letter and the context in which it was written.  The second task of the trial Judge was to determine whether the making of the statement in the letter was conduct which was in breach of the statutory provisions having regard to all the circumstances of the case.

I agree with the trial Judge that the letter of 3 July 1990 conveyed the fact that the average takings of operators in the Northland Food Court were $10,000 per week, notwithstanding that the statement was qualified by the words “It is our understanding”.  Those words merely qualified the communication by indicating that the information came from another source and not from the writer’s direct knowledge.  However, in the context of the letter, it was not the state of mind of the franchisor which was important.  The $10,000 was put forward as a fact which Mr & Mrs Vittouris and the financier could take into account in their calculations of the viability of the franchise.  The other figures, the projection of weekly sales of between $8,000 to $12,000 per week, fell into a different category for they were not a statement of present fact, except insofar as they implied the fact that the writer of the letter believed the projection to be true and based on rational grounds.

Because the trial Judge’s analysis of the issue was correct in law, his Honour was not obliged to consider the matter in the way that counsel on both sides at first sought to put the matter and, indeed, it would have been wrong for him to have done so.

The ordinary principle with respect to pleadings is that stated by Mason CJ and Gaudron J in Banque Commerciale SA (En Liquidation) v Akhil Holdings Ltd (1990) 169 CLR 279 where their Honours said at 286-7:

            "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.) (1916) 22 C.L.R. 490, at p.517, 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.  Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities.  See, e.g. Browne v. Dunn (1893); Mount Oxide Mines (1916) 22 C.L.R., at pp. 517-518."

However, pleadings are not always well-drafted and expressed with clarity and, however expressed, they cannot require a judge to decide a case otherwise than in accordance with the law.  If the pleadings proceed on a misapprehension of law, the judge should, as the trial Judge did in this case, make it clear to the parties what is the correct approach and should proceed accordingly.  When that happens, as it did in the present case, then the case must proceed otherwise than in accordance with a strict reading of the words of the pleading.

In the present case, no amendment to the statement of claim was sought.  However, failure to amend is not necessarily decisive.  In Water Board v Moustakas (1988) 180 CLR 491, Mason CJ, Wilson, Brennan and Dawson JJ said at 497:

            "In deciding whether or not a point was raised at trial no narrow or technical view should be taken.  Ordinarily the pleadings will be of assistance for it is one of their functions to define the issues so that each party knows the case which he is to meet.  In cases where the breach of a duty of care is alleged, the particulars should mark out the area of  dispute.  The particulars may not be decisive if the evidence has been allowed to travel beyond them, although where this happens and fresh issues are raised, the particulars should be amended to reflect the actual conduct of the proceedings.  Nevertheless, failure to amend will not necessarily preclude a verdict upon the facts as they have emerged (See Dare v. Pulham (1982), 148 C.L.R. 658). In Leotta v. Public Transport Commission (N.S.W.) (1976) 50 A.L.J.R. 666, at p.668; 9 A.L.R. 437, at p.446, a case having been submitted to the jury which was factually different from that alleged in the pleadings and particulars, Stephen, Mason and Jacobs JJ. observed that the pleadings should have been amended in order to make the facts alleged and the particulars of negligence precisely conform to the evidence.  The failure to apply for the amendment in that case was held not to be fatal.  But in Maloney v. Commissioner for Railways (N.S.W.) (1978) 52 A.L.J.R. 291, at p.294; 18 A.L.R. 147, at pp.151-152,  Jacobs J., with whom the other members of the Court agreed, pointed out that the new issue or new way of particularizing the existing issue had emerged at the trial and had been litigated.

            It is necessary to look to the actual conduct of the proceedings to see whether a point was or was not taken at trial, especially where a particular is equivocal."

I am satisfied that the ground on which his Honour gave judgment was raised and that it was litigated.  I shall return to this point in more detail later.  Had this not occurred, the judgment would, of course, be set aside.  The Court must be satisfied that the parties were afforded a fair trial and that the principles of natural justice were complied with.  In this case that occurred, in part because the relevant statement was raised in the pleading as an element of what was said to be misleading and deceptive conduct, and in part because the trial Judge directed the attention of counsel to the correct issues.

Counsel for Nescor and Mr Nelson relied upon two matters in submitting in this appeal that it was plain to Mr & Mrs Vittouris that Nescor and Mr Nelson were merely passing on information for what it was worth.  The first is that Mr Nelson had, before 3 July 1990, informed Mr & Mrs Vittouris that he had been told by Mr Macrae that the average weekly takings were $10,000 per week.  The second was that, in a letter of 12 November 1990 which Mr Vittouris wrote to Mr Nelson seeking a reduction in the rental, Mr Vittouris said, inter alia:

            "The rent Muffin Break pays ($5,213.00 incl outgoings) is at least 30% over what any other food retailer in the food court is paying and (if Northland Centre Management is to believed) their income was in the vicinity of $10,000.00 per week.  Measure this against $3,255.75 for Muffin Break and you can see why I am at my wits end to make ends meet."  (emphasis added)

I agree with the trial Judge that, notwithstanding these two factors, the statement in the letter of 3 July 1990 conveyed a fact to be taken into account that the average takings of the food court operator at Northland was $10,000.  That appears from the face of  the letter itself and the context in which the statement was made.  In addition to this, neither Mr & Mrs Vittouris nor Mr Nelson considered the statement to convey no more than information which would be passed on.  Mrs Vittouris gave this evidence:

            "Mr Nelson certainly told you that the Gandel's Group had told him that the average sales were in the order of $10,000 per week at Northland?---I believe so.

            Mr Nelson did not say that he had conducted research on that occasion, did he?---Mr Nelson said he had, in effect, done his homework on that and that this was - to trust him."

Mr Vittouris gave this evidence:

            "He [Mr Nelson] said this was prepared from the information the Gandel Group had given him?---Best [Based] on his own research and the information gathered from Gandels.  That's what he told us.

            Well, did he talk about research before or after he talked about the information coming from the Gandels Group?---He talked about research, definitely.

            ...

            HIS HONOUR:  Did you have any idea of what research had been done?---He didn't elaborate on the research, your Honour, but we believe actually that he would have conduct the research."

Mr Nelson gave this evidence:

            "I was not talking about that.  I was talking about the $10,000 per week?---But the mathematics derive and work towards the 10,000.  And this is a qualification I'm putting in my letter so that people understand that I have - whoever is the reader, the bank, that we have put some thought into this."

Having analysed the communication as one of fact, the knowledge of which had come from another source, his Honour correctly analysed the issues in accordance with the principles laid down in Yorke v Lucas.  I see no error in his Honour’s application of that principle.  It is clear that the circumstances in which a statement is made are relevant and that innocence is no defence if the conduct be misleading. Thus, a solicitor who had annexed an incomplete copy of a s 149 certificate to a draft contract of sale was held to be guilty of misleading and deceptive conduct notwithstanding that the incorrect copy had been sent to the solicitor by fax by a real estate agent's office: Argy v Blunts & Lane Cove Real Estate Pty Ltd.  An innocent agent will, nevertheless, if there is nothing more in the circumstances of the case, be held not to be in breach of the statutory provision.  See, eg. Campbell v Mihnyak (unreported, Davies J, 19 December 1996).   Agents may be held to be in breach of the statutory provision either because they are directly responsible for the misleading information or because the fact that the information has come from them has added something to its weight and authority.  In Argy, an agent was held to be responsible for misleading material including a misleading advertisement.  An agent was also held to be responsible in John C Glass Real Estate Pty Ltd v Karami Constructions Pty Ltd.  In Butt v Tingey (1993) ATPR 46-110, Davies J dissenting, would have decided, in a case where a solicitor had written to say that there was no need for an injunction because certain funds were held, that the solicitor was knowingly concerned in or a party to the contravention for the conduct involved more than the mere passing on of information.  On the facts of that case, the majority of the Court, Neaves & Beazley JJ, held a contrary view.

In the present case, Mr Nelson did not merely pass on information.  Indeed, he was not an agent or conduit.  Mr Macrae had not given the information to Mr Nelson to pass on to Mr & Mrs Vittouris.  He had given the information to Mr Nelson with a view to encouraging Nescor to take a lease.  Mr Nelson was a person with expertise in establishing Muffin Break franchises and the letter of 3 July 1990 was written with a view to setting out financial information which would guide the prospective purchaser and the financier in estimating the viability of the franchise. It was Nescor’s use of the information which constituted the misleading and deceptive conduct.  Nescor was responsible for the letter of 3 July 1990 just as, in Argy, the real estate agent was responsible for the offending advertisement and the solicitor for the offending contract.

Whether the issues fully ventilated

In this appeal, counsel for Nescor submitted that, despite the finding of the trial Judge that the issue of the takings of the food outlets at Northland had been fully ventilated, this had not occurred and that, had counsel at the trial been aware of how the trial Judge might look at the matter, other evidence would have been called. 

However, it was the duty of counsel for Nescor and Mr Nelson in the trial to analyse the issues correctly, in accordance with the law.  The question of what were the average takings of operators in the Northland Food Court was always an issue.  I have set out above the express pleading that the average Food Court operator did not achieve sales in the order of $10,000 per week but achieved sales averaging approximately $7,000 per week, a pleading which the trial Judge found to be correct.  Had the average takings of the operators in the Food Court been $10,000 per week, the statement in the letter would not have been relevantly misleading or deceptive whatever Mr Nelson had thought about the matter.

The issue as to the average takings of the Food Court operators did not play a significant part in the trial until after Mr Nelson had given his evidence, for Mr Nelson did not himself give evidence of the average takings of  Food Court operators except insofar as he gave evidence of the observations and calculations which he himself had made.  From his observations, the average takings of the operators in the Food Court appeared to be $10,000 per week.  The issue came into focus when counsel for Miba and Mr & Mrs Vittouris submitted that the evidence which Mr Macrae proposed to give as to the basis upon which he had calculated the $10,000 per week should not be received.  The learned trial Judge said: 

            "I was going to raise the matter with counsel ... It does seem to me that on either side's case how the figure of $10,000 was arrived at by Macrae may be relevant". 

Later, his Honour said:

            "The two areas are whether Mr Macrae had any reasonable or proper basis for making the statement that he did and, secondly, [whether] as a matter of fact the statement that he made was correct ... Now whether they are both ultimately relevant or not I do not know, but I see them as two separate topics."

His Honour directed the attention of counsel to the issue of what the statement in the letter of 3 July 1990 conveyed.  His Honour said, inter alia: 

            "another issue that seems to arise that I think both of you might need to give some consideration to ... is a statement that it is the understanding of Mr Nelson that the average food operator achieves $10,000 per week.  If the representation is that that was literally true you might get one understanding and one answer, but if the representation was that that was objectively true, you might get another.  In other words, was that in fact the average food operator's sales? ... that might be an important issue ... because it is more a question of how the Courts have approached that that I am looking for."

On the following day, his Honour went on to say:

            "there are two separate topics:  one is what was said and why it was said at the time, two, what was the fact at the time. ... And those two matters seem to me to be at least relevant."

It was a quirk of the trial that, during the reading of Mr Macrae's statement of evidence, counsel for Miba and for Mr & Mrs Vittouris objected to the statement by Mr Macrae which explained how he had calculated the $10,000 per week.  Counsel for Miba and Mr & Mrs Vittouris informed the trial Judge that, while Mr Macrae could give evidence as to what he said to Mr Nelson, “it would not matter whether it was accurate or not”.  When the matter was first mentioned, the trial Judge indicated that the landlord would have statistical material that established what the food hall shops were doing and how the $10,000 figure was arrived at and whether or not the figure was accurate.  Later on, his Honour rejected some of the objections to Mr Macrae’s statement and allowed the subject evidence to be given.  

In the result, counsel for Nescor and Mr Nelson led evidence from Mr Macrae as to the basis upon which he estimated the average takings of the operators in the Northland Food Court.  Mr Macrae gave this evidence.  As the result of further objection by counsel for Miba and Mr & Mrs Vittouris that the primary documents which Mr Macrae had taken into account were not in evidence, there was some further discussion as to whether such material would be relevant.  The trial Judge again said:

            "I do not think either of you should assume one way or the other that the reality is not going to be a relevant factor in the case." 

Subsequently, counsel for Miba and Mr & Mrs Vittouris said that the appropriate course was that inquiries be made about obtaining the documentation from the archives.  This was done and so much at least of the material as could be located was provided to his Honour.  A Mr Cross produced some of the figures on a subsequent day and some material was forwarded to his Honour's chambers at a later time.

In the result, there was tendered on behalf of Miba and Mr & Mrs Vittouris a document which showed calculations of the average weekly takings for May 1990 of  the Food Court operators of $6,937 per week or alternatively $7,352 per week.  There were also in evidence summaries of sales reported to the landlord by other Food Court tenants at the Northlands Shopping Centre for the months of May, June, July and August 1990.  There was a document tendered on behalf of Nescor and Mr Nelson which showed a calculation as it would have been done by Mr Macrae assuming that July 1990 was average.  This showed average weekly takings of $10,749 per month.  There was also other financial information in evidence before the trial Judge which his Honour took into account. 

In the course of his evidence, Mr Macrae conceded that, on its own, his statement to Mr Nelson as to the takings of the average food operators would have been misleading but, Mr Macrae said, he had had other discussions with Mr Nelson in which the actual performance of the Food Court and the competition in the Food Court had been discussed.  The trial Judge did not accept this evidence.

It is fair to mention that counsel for Nescor and Mr Nelson did not ever concede that the figure of actual weekly takings was relevant, having regard to the issues of the case.  However, Mr Macrae's statement of evidence had referred to the matters which he had taken into account when he had made the statement to Mr Nelson.  Counsel for Nescor and Mr Nelson sought to call this evidence and did call it, and indeed even more detailed evidence about this matter, notwithstanding that counsel for Miba and Mr & Mrs Vittouris had objected, at least originally, to its tender.  It was the calling of this evidence which led to the opening up and ventilation of the whole issue.

I am satisfied that the issue as to the actual takings was, as the trial Judge said, “fully ventilated”.  It was a relevant matter, as the trial Judge pointed out.

Whether Nescor and Mr Nelson were prejudiced

Counsel for Nescor and Mr Nelson submitted that they were prejudiced by what occurred at the trial for the issue as to what were the average takings of the operators in the Northland Food Court was never litigated, or at least not fully litigated.

I have already dealt with the principal submissions made.  However one reads the letter of 3 July 1990, the quantum of the average takings was always a relevant matter, as the trial Judge held.  If the average takings had been $10,000 per week, the subject statement in the letter would not have been relevantly misleading or deceptive or likely to mislead or deceive. The trial Judge permitted counsel for Nescor and Mr Nelson to lead evidence as to the basis on which Mr Macrae had calculated that figure and he permitted such additional material as was proffered on the subject to be tendered in evidence.  The parties were given a fair opportunity to adduce whatever evidence they wished to adduce on this point.

Counsel for Nescor and Mr Nelson further submitted that his clients were prejudiced as, in the light of the pleadings, they did not join the Gandel Group by way of cross-claim, and, having now sued the Gandel Group in separate proceedings, they find that the Gandel Group denies that the statement of $10,000 per week was inaccurate. Counsel for Nescor and Mr Nelson made the following submission in this appeal:

            "12.     The appellants are severely prejudiced by the trial Judge's decision to award judgment on the basis of conduct not pleaded or contested.  Had that issue been pleaded or contested, additional evidence would or may have been led in the following categories:

            (a)        Oral and written evidence from the actual food court tenants as to their takings.

            (b)        independent accounting evidence including income tax returns lodged;

            (c)        oral and written evidence from real estate agents and/or vendors of businesses concerning the actual takings in the food court;

            (d)        banking records;

            (e)        evidence to contest or verify the secondary documentation prepared by unidentified persons for the purpose of being used by Gandels to determine whether those unidentified persons should pay a higher amount of rent.  (Gandels raise these issues in their defence in No. VG322 of 1997);

            (f)        evidence to corroborate the evidence of Macrae (AB465, 485) and Nelson (AB396 line 7) that the takings figures given by the food court operators to Gandels were invariably understated."

Apparently, proceedings have now been instituted by Nescor and Mr Nelson against the Gandel Group alleging conduct in breach of s 52 of the Trade Practices Act. The submissions were not, however, supported by affidavit from the barrister who appeared at the trial for Nescor and Mr Nelson.

On this point, I can merely reiterate that the question of the average takings was always a relevant issue and that, at the trial, counsel for both parties adduced evidence as to the fact.  It was no doubt the finding by the trial Judge that the average takings were not as represented by Mr Macrae or in the letter of 3 July 1990 which prompted the claim against the Gandel Corporation.  The failure to cross-claim in these present proceedings if thought had ever been given to the matter, possibly resulted from the desire of Nescor and Mr Nelson to call Mr Macrae as their witness.

In my opinion, Nescor and Mr Nelson were not unfairly prejudiced by anything which occurred at the trial.

Damages

Counsel for Nescor and Mr Nelson submitted that it was not established that the statement in the letter of 3 July had caused damage to Miba and Mr & Mrs Vittouris.

Counsel submitted that Mr & Mrs Vittouris knew that the $10,000 figure came from Mr Macrae, that they did not rely upon it and that it was not sufficient that an officer of a bank may have been misled.  However, the evidence of Mr & Mrs Vittouris, which the Judge had accepted, was that they did rely upon the information which Mr Nelson gave them, including the letter of 3 July 1990.  Their evidence is supported by the fact that they did not engage a person such as an accountant to undertake a check.  The bank officer, Mr Noel Keating, who had been a senior loans officer at the Oakleigh branch of the Commonwealth Bank, gave evidence that, if he had realised that the figure of $10,000 was unverified, that would have affected his attitude to the transaction and that he considered that, had he understood that to be the fact, the loan would not have been granted.  This particular passage from the evidence was not the subject of cross-examination, or at least of direct cross-examination.  In the light of the evidence, I am satisfied, as was the trial Judge, that the letter of  3 July 1990 was a significant causative factor bringing about the entry by Miba into the franchise and that the statement as to the average sales was an important element in that letter.  The principle to be applied is the common law practical or common-sense concept of causation discussed in March v Stramere (E. & M.H.) Pty Ltd (1991) 171 CLR 506.

Limitation Period

The final issue raised in the appeal concerns the limitation period expressed in s 82 of the Trade Practices Act which provides:-

“(1)  A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or V may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention.

 (2)  An action under subsection (1) may be commenced at any time within 3 years after the date on which the cause of action accrued.”

A similar limitation appears in s 37 of  the Fair Trading Act.

The substance of the submission put by counsel for Nescor and Mr Nelson was that the precise matter on which the judgment was based was not identified until expressed in the reasons for judgment of 17 September 1996.  It was submitted, in substance, that the 3 year period had expired before 17 September 1996 and that, had the applicants sought leave to amend the statement of claim, leave ought to have been refused not only because, according to counsel, the case had been fought on another basis, but also because to permit the amendment to be made would effectively be to permit commencement of the action outside the limitation period.

There are three reasons why this submission should be rejected.  The first is that no application for amendment was made.  The second is that Order 13 of the Federal Court Rules provides, inter alia:-     

“2. ...

 (3)  Where an application to the Court for leave to make the amendment mentioned in subrules (4), (5), (6) or (7) is made after any relevant period of limitation current at the date of commencement of the proceeding has expired, the Court may, nevertheless, grant such leave in the circumstances mentioned in that subrule if it thinks it is just to do so.

...

(7)  An amendment may be made notwithstanding that the effect of the amendment will be to add or substitute a new claim for relief or another foundation in law for a claim for relief if the new claim for relief or foundation in law for that claim arises out of the same facts or substantially the same facts as those already pleaded to support existing claims for relief by the party applying for leave to make the amendment.”

If an amendment were made in accordance with these Rules, it would speak from the date upon which the statement of claim was filed.  See Harris v Western Australian Exim Corporation (1994) 56 FCR 1 at 5.

The third and most important point is that these proceedings were commenced within the 3 year period and, although the precise matter in which the judgment was founded was not expressed in the application and statement of claim filed on 16 November 1992, nevertheless, the substance of the claim, that there had been misleading or deceptive conduct on the part of Nescor to which Mr Nelson was a party in the negotiations leading to the taking up of the franchise, which included the letter of 3 July 1990, was then made.  Ultimately, the trial Judge found that allegation to be correct.  The ground on which his Honour based the judgment was simply a particular of the substantive allegation. 

Notice of Contention

Miba and Mr & Mrs Vittouris filed a notice of contention alleging that they were entitled to judgment under the allegation made in paragraph 6(f) of the second further amended statement of claim, namely that Nescor and Mr Nelson represented and warranted to Mr & Mrs Vittouris and to Miba that they believed on reasonable and proper grounds that the average food court operator in the Northland Shopping Centre achieved sales in the order of $10,000 per week.  It was submitted that his Honour's finding that there were reasonable and proper grounds for Mr Nelson's belief was wrong.

I do not need to into the details of the evidence.  I am satisfied that his Honour was entitled to accept Mr Nelson's evidence that, in addition to receiving information from Mr Macrae, he himself looked at the Food Court at different times to obtain an idea of customer traffic and of average sales and that, from his observations, Mr Nelson made calculations which verified the figure of  $10,000 per week.  I am satisfied that his Honour was entitled to conclude that Nescor and Mr Nelson had reasonable grounds for making the representation as alleged.  The findings of the trial Judge relied significantly on his Honour's assessment of the witnesses and of their credibility.  An appellate court should not intervene in such an area: see Devries v Australian National Railways Commission (1993) 177 CLR 472.

ORDER

For the reasons given, I would dismiss the appeal with costs.

Associate:

Date:    17 December 1997     

ON APPEAL FROM A JUDGMENT OF A SINGLE JUDGE

OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

TAMBERLIN J:

I agree with the reasons for judgment and orders proposed by Davies J.

Associate:

Dated:              17 December 1997

GENERAL DISTRIBUTION

REASONS FOR JUDGMENT

R D NICHOLSON J:   The findings and judgment from which this appeal is brought are set out in the reasons of Davies J, a copy of which I have had the opportunity to read in draft.  I wish to add my observations on the ground of appeal relating to the pleading issue.

The relevant ground of appeal was to the effect the case was decided by the trial Judge on an issue which had not been pleaded and to which the appellants had neither agreed nor consented, so that the appellants were denied a fair trial and suffered prejudice.  The relevant issue was whether a statement made to the respondents by Nelson by way of adoption of a statement made by Macrae to the effect that the average Food Court operator at Northland had takings of $10,000 per week, was misleading or deceptive (“the issue”).

On the question of whether the issue was pleaded or emerged at trial the trial Judge said:

“The issue of whether the statement made by Macrae on behalf of the landlord, and adopted by Nelson, that the average Food Court operator at Northland had takings of $10,000 per week was misleading emerged and was litigated at the trial.

The respondents called Mr Macrae and tendered evidence from him explaining how he arrived at the figure of $10,000 for the average takings for Food Court operators at Northland.  As a consequence the accuracy of Macrae’s calculations and his methodology became an issue at trial.  In any event it was raised in paragraph 9(b) of the Statement of Claim.  The issue was the subject of examination, cross examination, exhibits and submissions.”

The trial Judge therefore concluded the issue of the accuracy of Nelson’s statement based on the statement by Macrae was “in the ring”.

In reaching this view the trial Judge relied upon Banque Commercial S.A., En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287, 288 and 293; Water Board v Moustakas (1988) 180 CLR 491 at 497 and Qantas Airways Limited v Cameron (1996) 68 FCR 367.  Additionally, he referred to Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in liquidation) & Ors (1916) 22 CLR 490 at 517 per Isaacs and Rich JJ.  It is not contended for the appellant that his Honour misapprehended the relevant principles of law.  To decide the question whether the parties had chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities required his Honour to consider whether by inference from the way in which the trial was conducted, they had done so.  In a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference:  Banque Commerciale at 287 per Mason CJ and Gaudron J.  The trial judge was not to take a  narrow or technical view and it was necessary for him to look at the actual conduct of the proceedings to see whether the point was or was not taken at trial especially where a particular is equivocal:  Water Board v Moustakas at 497 per Mason CJ, Wilson, Brennan and Dawson JJ.

In regard to whether the trial judge’s finding that the issue was raised in par 9(b) of the statement of claim was correct, it is the case that par 9(b) can be read in the context of par 9(a).  In this latter paragraph the actual failure to achieve sales in the order of $10,000 per week was pleaded.

The more important question is whether the trial judge was correct in concluding the issue was live at trial.

For the appellant it is contended no choice was made to acquiesce in the litigation of the issue and that a review of the course of evidence and submissions supports this.  Principally it is submitted the issue was not raised in submissions and was in fact raised by the trial Judge.  It is submitted the evidence of Macrae was called only to address the issue of whether there were reasonable and proper grounds for the belief and not as to the accuracy or truth of that belief.  It is submitted, therefore, this is not a case where the parties chose or acquiesced in the litigation of the issue.

As to the prejudice which the appellants claim to have suffered as a consequence, the submission for them is had the issue been pleaded or contested, additional evidence would or may have been led in the following categories:  (a)  oral and written evidence from the actual food court tenants as to their takings; (b)  independent accounting evidence including income tax returns lodged; (c)  oral and written evidence from real estate agents and/or vendors of businesses concerning the actual takings in the food court; (d)  banking recordings; (e)  evidence to contest or verify the secondary documentation prepared by unidentified persons for the purpose of being used by Gandels to determine whether those unidentified persons should pay a higher amount of rent; and (f)  evidence to corroborate the evidence given by Macrae and Nelson that the takings figures given by food court operators to Gandels were invariably understated.  It is also submitted further prejudice is likely to arise as a consequence of the appellants having commenced proceedings against Macrae and another claiming damages for misleading and deceptive conduct in relation to the representation referred to in the issue.  The defence to that pleads estoppel on the basis it was unreasonable for the appellants not to have joined the defendants in that action as cross‑respondents in the proceeding before the trial Judge.  This new proceeding was commenced on 2 July 1997, that is some months after the trial Judge in this proceeding had delivered final judgment.

Examination of the conduct of the proceedings in relation to the issue shows the following as the manner in which the proceedings were actually conducted.

In the written outline of submissions for the present appellants before the trial Judge dated 24 May 1996, that is the final date of the hearing before the trial Judge leading to his first judgment, it was asserted in par 16 that the representation (as pleaded) was true and in par 17 the substance of the belief was also true, ie:  average food court operators at Northland were achieving sales in the order of $10,000 per week.

The issue of correctness of Macrae’s statement to Nelson first arose during examination‑in‑chief of the second‑named present respondent (Michael Vittouris).  Evidence was led by his counsel directed to the identification of the operators taken into account in determination of the average.  The trial Judge immediately identified it as a likely new issue going beyond the pleadings, which was denied by counsel for the present respondents.

After the conclusion of the evidence of the second-named present respondent, and prior to the evidence of the second-named present appellant (Nelson), the trial Judge raised with counsel the question of the situation with the other shops in the food court:  were they averaging $10,000?  Counsel for the appellants directed his Honour’s attention to par 6 of Macrae’s witness statement which contained a statement of the method by which Macrae had arrived at the opinion which he had expressed to Nelson.  Counsel for the present respondents immediately objected to that evidence, stating the most which could be led is evidence that Macrae had held the conversation in which he gave Nelson the information and the justification of it was irrelevant.  After further submissions to the trial Judge as to whether evidence would be led as to the accuracy of the estimate of $10,000, counsel for the present respondents again objected to any evidence going to the issue of accuracy.  That was on the basis Nelson had not sought verification.  The trial Judge then left the matter on the basis it was to be addressed in the context of how the evidence arose.

In the course of his cross‑examination Nelson testified he had verified the figure for himself by having a look at centres and doing a mathematical calculation analysis.  He was cross‑examined in detail concerning his methodology.

At the end of the third day of the trial, counsel for the present respondents renewed his objection to evidence being called from Macrae directed to the issue of accuracy as previously canvassed in relation to par 6 of Macrae’s witness statement.  He did so on the ground the evidence appeared to be after the event justification.  The trial Judge again stated the question of how the figure of $10,000 was arrived at by Macrae may be relevant.  Counsel for the appellants pressed for the evidence to be heard on the basis it explained Macrae’s reasoning.  The trial Judge said there were two potential issues of relevance to this evidence, namely, whether Macrae had any reasonable or proper basis for making the statement and also whether as a matter of fact the statement was correct.  He declined to rule on the objection and proceeded on the basis that if par 6 of Macrae’s witness statement dealt with both those issues, counsel for the present respondents would be likely to cross‑examine.  That was accepted by counsel.

Upon Macrae being called to give evidence and his statement being tended, counsel for the present respondents renewed the objection to par 6.  Amendments were made to the statement to accommodate the objections and the statement admitted on that amended basis.  In the course of exchange between counsel for the present respondents and the trial Judge his Honour repeated he regarded the accuracy of what was said as being at least relevant.  Counsel for the respondent replied “Yes, I see”.

During the evidence-in-chief of Macrae the trial Judge pressed questions directed to the process by which Macrae had arrived at the figure in his statement.  Counsel for the appellants asserted the evidence was not required.  The trial Judge then said no assumption should be made as the accuracy of the figures was not going to be a relevant factor in the case.  Counsel for the appellants responded that was a matter which he proposed to deal with in closing address as a matter of submissions.  Shortly afterwards the trial Judge emphasised he did not want either side to be under a misapprehension in making a decision as to whether the figures for the previous 12 months to May 1990 were to be before him or not.  He accepted “in everyone’s favour” that day was the first time anyone had thought those 12 monthly figures might be relevant.  He then said:

“All I am saying is that I will afford an opportunity to have them [the figures] adduced in evidence, if anyone wants to and if no‑one wants to then I will have to decide the case on the basis of the evidence I have, including the admissibility of his [Macrae’s] evidence that he arrived at that bottom line figure.  I am not worried about it either way, but I do not want misunderstandings, I do not think I can be clearer than that.”

Counsel for the present respondents accepted the appropriate course was that documentation be made available and the position was accepted by both counsel.

In the course of submissions the trial Judge again stated to counsel he did not want any misapprehension that by dealing with the pleading and nothing else that was the end of the matter.  Counsel for the appellants said in that case if such an issue emerged which was not quite plain it would run into the pleading problem because the appellants would not have met that case and led evidence in relation to it.  Later he asserted no evidence had been led that the figure was wrong.

In my opinion an examination of the conduct of the trial discloses counsel for both parties were on notice from an early time of the trial Judge’s view that the accuracy of the Macrae statement to Nelson was in issue.  Counsel for the appellants took the view the matter could be addressed in submissions.  He chose not to pursue any of the courses of action now listed for the appellants as matters in relation to which they have been severely prejudiced by the lack of an opportunity to call evidence although he was on notice from the trial judge the issue was a  live one in the trial.  Counsel for the appellants, being on notice the issue was alive in the proceedings, had the opportunity to pursue further evidence when put on notice by the trial Judge he considered the issue was before the Court.

This was not a case where each party expressly agreed to the issue becoming a live one in the trial.  It was not a case where it can be said there was implied acquiescence.  Rather it was a case where the trial judge asserted the issue was a live one and the present appellants conducted their case on the basis they could meet that in closing submissions.  They failed to call the evidence which they may have wished to call in the event their closing submission did not answer the repeated view of the trial judge the issue was a live one.  This is a case where the way the case proceeded and the notice given to the parties that the issue was live, would make it narrow or technical to say the trial proceeded unfairly or with prejudice.  In my view, the case for the respondents is correct in its submission that the way the case was conducted was determinative.

There is nothing I can usefully add to the way in which Davies J has addressed the grounds of appeal relating to the finding of acceptance and adoption by Nelson of Macrae’s statement as correct or the limitation point.  I otherwise agree with those reasons and concur in the result that the appeal should be dismissed.

Associate:

Dated:              17 December 1997