FEDERAL COURT OF AUSTRALIA

Stoelwinder v Southern Health Care Network [2000] FCA 444

TRADE PRACTICES – misleading conduct – representations made by employer to employee during negotiations for contract of employment – whether capable of giving rise to action under Trade Practices Act 1974 (Cth) s 52

Trade Practices Act 1974 (Cth) s 52

Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389 cited

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 considered

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 cited

Martin v Tasmanian Development and Resources (1999) 163 ALR 79 cited

Mulcahy v Hydro-Electric Commission (1998) 85 FCR 170 referred to

Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 referred to

JOHANNES STOELWINDER v SOUTHERN HEALTH CARE NETWORK

V 263 of 1999

JUDGE:          FINKELSTEIN J

DATE:            7 APRIL 2000

PLACE:          MELBOURNE

THE COURT ORDERS THAT:

1.         The applicant will have leave to amend paragraph 38 of his further amended statement of claim by substituting for the words “around 23 October 1995, the applicant relied upon the 3 (misleading) Representations and did not” the words “since 23 October 1995 the applicant, in reliance upon the 3 (misleading) Representations, did not”.

2.         The applicant to pay the respondent’s costs thrown away by reason of the amendment.

3.         The respondent’s oral application to strike out paragraphs 4 to 17 of the further amended statement of claim be dismissed.

4.         The respondent to pay the applicant’s costs of the application.

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

RULING

1                     It is by no means clear precisely when an employee can bring a claim based upon a contravention of s 52 of the Trade Practices Act 1974 (Cth) in respect of false and misleading conduct that led to the making of his or her contract of employment.  The uncertainty arises because of the need to show that the conduct complained of was “in trade or commerce” for the provision is only contravened by conduct that meets that description.

2                     In their joint judgment in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, Mason CJ, Deane, Dawson and Gaudron JJ drew a distinction between conduct in the course of an activity that was not itself of a trading character, but was undertaken in the course of or as an incident to trade and conduct which was an aspect or element of an activity that bore a trading character.  Their Honours held that a cause of action under s 52 could only arise if the false and misleading conduct related to the latter type of activity. 

3                     It is not easy to apply this principle to the case of an employment contract made by a trading corporation.  In Concrete Constructions the distinction was drawn, because the point at issue was whether an employee who had been given incorrect information about certain pieces of equipment on a worksite was able to sue for personal injuries suffered when acting in reliance on that information.  The information passed between employees.  The question to be determined was whether “trade or commerce” extends to the internal affairs of a corporation or, to be precise, to internal communications between employees of a corporation in the course of their employment.

4                     Since Concrete Constructions, different views have been expressed regarding the application of that case to contracts of employment.  In Barto v GPR Management Services Pty Ltd (1991) 33 FCR 389, Wilcox J said of information provided to an employee in the course of negotiating a variation of his contract of employment (at 393-4):

“[T]he information was ‘internal’, in the sense that the recipient was a person already employed by the informer.  And, although the context was ‘commercial’ in nature, the relevant conduct was not the sale of goods or services by virtue of which the corporation endeavoured to make profits, but something related to its capacity to effect such sales.”

Nevertheless, Wilcox J held that negotiations for the making of a contract of employment, and presumably also negotiations for its variation, were made “in trade or commerce”.  This was so, according to his Honour, because the negotiations are “commercial in nature and undertaken for the purpose of the company’s overall trading activities”:  FCR at 395. 

5                     On the other hand, Heerey J in Martin v Tasmanian Development and Resources (1999) 163 ALR 79 and Mulcahy v Hydro-Electric Commission (1998) 85 FCR 170 was of a different opinion.  In Martin Heerey J said (at 98):

“The majority [in Concrete Constructions] clearly rejected the wider construction of ‘in trade or commerce’, which would extend to virtually any activity of a corporation.  It is true that a building company could not earn income unless it had workers who received instructions from foremen.  But that was not enough to bring the alleged misrepresentation within the concept of ‘trade or commerce’.  … Nevertheless such engagements [ie contracts of employment] and the necessary associated incidental negotiations, however necessary, are not in themselves of a trading or commercial nature.”

6                     For my own part, I would not regard negotiations for a contract of employment as an “internal” matter in the sense discussed by the High Court in Concrete Constructions.  Before a contract of employment is made the prospective employee is not a part of the corporate enterprise and communications between the corporation and the prospective employee are not an aspect of the internal affairs of the corporation.  Nor would I regard in any different way discussions concerning the variation of a contract of employment.  Negotiations for the variation of a contract are not properly characterised as communications with an employee in the course of his or her employment.  I would regard all such communications, that is communications relating to the making or variation of a contract of employment to be prima facie “in trade or commerce” because in most cases a contract of employment “is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character”, to adopt the language of the High Court. 

7                     The applicant has delivered a further amended statement of claim in which the principal cause of action relied upon is the allegation that the respondent, a corporation, engaged in misleading and deceptive conduct while negotiating the terms of a new contract for the employment of the applicant as its Chief Executive Officer (CEO). 

8                     In paragraphs 4 to 7 of the further amended statement of claim the applicant describes the range of activities undertaken by the respondent.  Those activities might broadly be characterised as the provision of health care services at various hospitals and clinics.  The respondent also provides non-clinical support services which are described in paragraphs 8 and 8A.  Paragraph 9 alleges that the respondent has thousands of employees and an annual turnover of approximately $425 million.  Paragraph 10 describes the sources of income of the respondent.  Paragraph 11 asserts that the respondent at times enquires into the feasibility of providing services.  It is alleged in paragraphs 12 to 17 that the Board of Directors of the respondent has responsibility for ensuring that the respondent carries out the described activities.  In connection with this, paragraph 16 alleges that one of the functions of the Board is to appoint a CEO.  The applicant then contends in paragraph 31 that by reason of the matters pleaded in paragraphs 4 to 17, the misleading conduct about which a complaint is made in paragraph 28 was “in trade or commerce”, as it involved “the negotiation of the terms of a new contract between the CEO and the employer or the variation of a contract between the CEO and the employer”. 

9                     The respondent asks that paragraphs 4 to 17 be struck out as being an abuse of process.  It contends that these paragraphs fail to disclose any material facts supporting the allegation of conduct in trade or commerce.  In this regard reliance is placed upon Concrete Constructions, it being argued that the claim as pleaded falls within the broad meaning of s 52 which was expressly rejected by the Court. 

10                  It is accepted that before the relevant paragraphs can be struck out the respondent must demonstrate that the allegations are “so clearly untenable that [they] cannot possibly succeed”:  General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130. 

11                  This being the test, it is clear that the impugned paragraphs cannot be struck out.  There is a reasonable argument that can be put in favour of the proposition that the engagement of a CEO is an aspect of the general trading activities of the respondent, those trading activities being described in the paragraphs that are sought to be struck out.

12                  The respondent also contends that the claim based upon the contravention of s 52 is statute barred and, on that account, it should be struck out.  Section 82 of the Trade Practices Act provides that an action for loss or damage in consequence of conduct done in contravention of a provision of Part V of the Act (where s 52 is to be found) may be commenced at any time within three years after the date on which the cause of action accrued.  In Wardley Australia Ltd v State of Western Australia (1992) 175 CLR 514 the High Court held that the statutory cause of action arises when the plaintiff suffers loss or damage as a result of the contravening conduct of another person.

13                  The respondent points out that the applicant’s case, as presently pleaded, is that he suffered loss and damage around 23 October 1995 when he relied upon the alleged misleading conduct and did not seek to renegotiate his agreement with the respondent to obtain better terms or did not seek employment with another employer:  see paragraph 38 of the further amended statement of claim.

14                  If this is the way the applicant intends to prosecute his case then it is plainly statute barred and ought be struck out.  However, during the course of argument counsel for the applicant indicated that the further amended statement of claim would be amended to contend that the acts of reliance did not only occur around 23 October 1995, but continued for some considerable time thereafter.  The applicant wishes to argue that his loss and damage was suffered not only “around 23 October 1995”, but on a continuing basis.

15                  Once the foreshadowed amendment is made, the objection based upon s 82 of the Act will be removed. 

16                  In the result the orders that I propose to make are as follows: 

            (1)        The applicant will have leave to amend paragraph 38 of his further amended statement of claim by substituting for the words “around 23 October 1995, the applicant relied upon the 3 (misleading) Representations and did not” the words “since 23 October 1995 the applicant, in reliance upon the 3 (misleading) Representations, did not”.

            (2)        The applicant to pay the respondent’s costs thrown away by reason of the amendment.

            (3)        The respondent’s oral application to strike out paragraphs 4 to 17 of the further amended statement of claim be dismissed.

            (4)        The respondent to pay the applicant’s costs of the application.

Associate:

Dated:              7 April 2000