FEDERAL COURT OF AUSTRALIA

Insurance Australia Limited v Motor Traders’ Association of New South Wales [2006] FCA 323

INSURANCE AUSTRALIA LIMITED v MOTOR TRADERS’ ASSOCIATION OF NEW SOUTH WALES, COUNTRY NORTH VEHICLE REPAIRERS INC, JAMES LAURENCE MCCALL, GARY MAMIC and GREG COLI

NSD 2397 OF 2005

EDMONDS J

31 MARCH 2006

SYDNEY

THE COURT ORDERS THAT:

1.         Leave be granted to the applicant to amend the Amended Application and to amend the Amended Statement of Claim in terms of the draft further amended application and draft further amended statement of claim (but with revised particulars to paragraphs 10, 12, 26 and 30) attached to its Notice of Motion filed on 1 March 2006 (Motion).

2.         The respondents pay the applicant’s costs of the Motion.  The applicant pay the respondents’ costs thrown away by reason of the grant of leave in Order 1.

3.         The applicant file and serve the Further Amended Application and Further Amended Statement of Claim on or before 3 April 2006.

4.         The respondents file and serve their Defences to the Further Amended Statement of Claim on or before 10 April 2006.

5.         The parties apply for leave to issue any subpoenas in sufficient time such that those subpoenas for which leave is be granted may be properly returnable before a Registrar on 21 April 2006.

6.         Pursuant to O 15 r 5 of the Federal Court Rules the parties give discovery in accordance with O 15 r 2 and r 6 of the Federal Court Rules by serving verified Lists of Documents on or before 21 April 2006.

7.         Inspection of discovered documents be completed by 28 April 2006.

8.         The applicant file and serve all affidavits (including the report of any expert) upon which it relies on or before 12 May 2006.

9.         The respondents file and serve all affidavits (including the report of any expert) upon which they rely on or before 9 June 2006.

10.       The applicant file and served all affidavits (including the report of any expert) in reply on or before 23 June 2006.

11.       Liberty be granted to restore the matter to the list on two working days’ notice.

12.       The orders made in:

            (a)        paragraph 1 of the Order dated 7 February 2006; and

            (b)        paragraphs 5, 6 and 7 of the Order made on 13 December 2005

be vacated.

13.       The matter be listed for further directions at 9:30 am on 27 June 2006.

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

REASONS FOR JUDGMENT

Edmonds J:

1                     These proceedings were listed for the hearing of two motions.  The first moved by the applicant for leave to amend its Amended Application and its Amended Statement of Claim in terms of a draft further amended application and draft further amended statement of claim attached to notice of its motion; the second moved by the first, third and fifth respondents (together ‘the MTA respondents’) for an order, pursuant to O 12 r 5 of the Federal Court Rules, that the applicant file and serve on the solicitors for the MTA respondents further and proper answers to the particulars of the applicant’s claim requested in the letter from Home Wilkinson Lowry Lawyers to Johnson Winter Slattery dated 16 December 2005.

2                     During the course of the hearing, counsel for the MTA respondents agreed that it would be preferable for the second motion to stand over until I rule on the applicant’s motion for leave to amend its pleading.  In his words: ‘We accept that in the resolution of [the applicant’s] motion that the majority, if not all of our motion may well go away’.

3                     The applicant’s motion for leave to amend its pleading is opposed by the MTA respondents, and by the second and fourth respondents.  The second and fourth respondents were together separately represented from the MTA respondents on the hearing of the motion.

4                     The common and sole basis upon which the respondents oppose the applicant’s motion for leave to amend its pleading is articulated in the following way: The applicant originally alleged falsity of a series of representations; in order to avoid having to give particulars of the alleged falsity, the applicant now pleads a series of representations with respect to future matters thereby enlivening s 51A of the Trade Practices Act 1974 (Cth) (‘the Act’) (par 79 of the draft further amended statement of claim) but, save in the case of the representations pleaded in sub-pars 36(c) and (d) of that draft, as to which see par 80 thereof, no longer makes any allegation of falsity.  This, the respondents say, is impermissible and that the applicant must ‘properly’ plead a complete cause of action under s 52 of the Act.

5                     This is further articulated by the submission that on any reading of s 51A, it is an evidentiary provision and that reliance upon it does not obviate the need for a party asserting a cause of action under s 52 to plead out and particularise all the relevant elements of a cause of action under s 52.

6                     Paragraphs 79 and 80 of the draft further amended statement of claim read:

‘79.      Each of the representations pleaded in paragraphs 10 – 19, 21 – 23, 25 – 31, 34 and 36 above (except the representations pleaded in subparagraphs 36(c) and (d) above) was a representation with respect to a future matter or matters within the meaning of s 51A of the TPA and/or s 41 of the FTA [Fair Trading Act].

80.       Each of the representations pleaded in subparagraphs 36(c) and (d) above was misleading or deceptive or likely to mislead or deceive in contravention:

(a)        by the First Respondent of s 52 of the TPA and/or s 42 of the FTA; and

(b)        by the Second Respondent of s 42 of the FTA,

in that the Subaru vehicle referred to in subparagraph 36(c) above had not been purportedly repaired pursuant to the Applicant’s new web-based repair system which involved repairers quoting from online images, that is, the Applicant’s WRM system, but rather had been purportedly repaired pursuant to the Applicant’s direct allocation system, that is by direct allocation to a repairer without any usage of any web-based system.’

7                     Section 52 of the Act provides:

‘(1)      A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)       Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).’

8                     Section 51A of the Act provides:

(1)       For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2)       For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

(3)       Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead.’

9                     In support of the respondents opposition to the applicant’s proposed amended pleading, I was referred to a number of authorities.  First, reliance was placed upon the following extract from the judgment of French J in Adelaide Petroleum NL & Ors v Poseidon Limited & Ors (1988) 10 ATPR 40-901 at 49,700 where his Honour said:

‘In their written submissions in relation to para 12, as it stood prior to the amendment to the statement of claim, the respondents complained that it did not plead the falsity of the representations set out in para. 9.  No substance, it is said, is given to the bare allegation that the conduct as alleged in para. 9 was misleading or deceptive.  As has already been noted however, para. 12 now embodies the plea formerly included as a particular that “ … at the time of making those representations Poseidon did not have reasonable grounds for making them” and thus attracts the application of sec. 51A of the Trade Practices Act.

Prima facie the effect of that section is that every representation with respect to any future matter is misleading or deceptive unless there are reasonable grounds for making it at the time that it is made.  The burden of establishing the existence of reasonable grounds is on the party making the representation.  It was submitted by the respondents that the applicants should be obliged to plead as material facts the reasonable grounds said to be lacking.  In my opinion that is not a requirement of a viable plea in reliance upon sec. 51A.  It may be however, that to avoid the abuse of the section by persons making the bald assertion that promises or predictions lack reasonable grounds, particulars may be ordered.  But that consideration does not go to the viability of para 12.’  (Emphasis)

10                  With the greatest respect, I do not see how this extract from his Honour’s judgment supports the respondents’ opposition to the applicant’s proposed amended pleading.  The applicant is not making any bald assertion in par 79 of the draft further amended statement of claim that the respondents are lacking in reasonable grounds for the representations made.  It is merely enlivening s 51A of the Act so as to cast the burden that there were reasonable grounds onto the respondents.  Indeed, the extract seems to support the way in which the applicant has enlivened s 51A of the Act in relation to the representations pleaded in pars 10 – 19, 21 – 23, 25 – 31, 34 and 36 of the draft further amended statement of claim. 

11                  I was then referred to a decision of the Full Court of this Court in Cummings v Lewis & Ors (1993) 41 FCR 559, in particular the following extract from the joint judgment of Sheppard and Neaves JJ at 567:

‘The discussion into which we have entered has saved us the need to express a view in relation to the question whether s. 41 of the Fair Trading Act (or s. 51A of the Trade Practices Act) needs to be specifically pleaded or raised in order for it to be relied upon.  In State of Western Australia v. Bond Corporation Holdings Limited & Ors (1991) ATPR 41-081 French J. said (at 52,279) that a party invoking s. 51A should make it clear that it is doing so.  In that way a respondent will know that, if the representation was made, it will have the burden of showing and must plead, that it had reasonable grounds for making it.  His Honour said that the duty of an applicant to make it clear that s. 51A was invoked was discharged if it pleaded that the respondent did not have reasonable grounds for making the representation and that it was thereby misleading or deceptive.  We would wish to leave open, until the question more directly arises, the correctness of these views.  Our provisional view is that s. 51A of the Trade Practices Act and its counterparts such as s. 41 of the Fair Trading Act, are evidentiary provisions, not directed at what a party must plead.  The rules of the Court in relation to pleading require the pleading to contain, and only contain, a statement in a summary form of the material facts on which a party relies; see Order 11, r. 2.  The cause of action which is relied upon is a cause of action for breach of s. 52 (or s. 42).  Sections such as s. 51A are designed to facilitate proof.  They affect the onus of proof but they are not part of the law which provides for the cause of action for which sections such as s. 52 provide.  We think there is a real question whether there is any requirement that there needs to be specific reference to the section in a pleading or the adoption of words which it uses.   However, the matter does not in our opinion arise for consideration here and we express no concluded view about it.’  (Emphasis)

12                  Again, with respect, I do not see how this supports the respondents’ opposition to the applicant’s proposed amended pleading.

13                  I was then taken to the judgment of Foster J in Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Ltd (1998) 20 ATPR 41-633 and to an extract from his Honour’s reasons at 40,981:

‘If a pleader asserts positively the absence of reasonable grounds for the making of the prediction, it must of course plead the relevant factual matters specifically (although not, of course, the evidence upon which the factual assertions are based).  If s 51A is also relied upon, then the respondent in its defence must deal with the applicant’s factual allegations as to absence of reasonable grounds and also, in order to counter the deeming effect of s 51A, it must assert positively the facts relied upon as establishing reasonable grounds.’

14                  Here, the applicant does not seek to amend its pleading to positively assert absence of reasonable grounds for the making of the prediction.  It merely seeks to rely on and, in consequence, enliven s 51A of the Act.  Again, I do not see how this supports the respondents’ opposition to the applicant’s proposed amended pleading.

15                  Finally, I was taken to the decision of the Full Court of this Court in O’Neill v Medical Benefits Fund of Australia Limited (2002) 122 FCR 455, in particular to the following extract at [15] of the Court’s judgment:

‘15.      There is some diversity of view within the Federal Court about whether, and the way in which, a party seeking to derive the benefit of s 51A must inform the opposing parties that the section will be relied on.  One view is the tentative view of Sheppard and Neaves JJ in Cummings v Lewis (1993) ATPR (Digest) 46-103; 41 FCR 559 at 567 to 568 in the passage quoted by counsel for Mr O’Neill set out at [12] above.  The matter has been considered in several judgments since and the authorities are conveniently set out by Drummond J in Australian Competition & Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704 at pp 43,022-43,023; [1999] FCA 819. His Honour said:

“In my opinion, even if it be the position that an applicant is not required by O 11 r 2 to plead reliance on s 51A, as was suggested in Cummings v Lewis, that does not free it of the obligation to indicate, by way of particulars given in accordance with O 12 r 1, its intention to rely on that provision.  Notwithstanding what was said in Cummings v Lewis, a number of judges of this Court have been of the opinion that where a party wishes to rely upon s 51A, it must give a clear indication of that to its opponent.  See Bond Corporation per French J, Phoenix Court v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179  at 54,432 per Goldberg J and Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (1998) ATPR 41-633 at 40,980 per Foster J.  I agree with this approach.”’

16                  Here, the applicant has given a clear indication, in its amended pleading, that it wishes to rely upon s 51A.  Again, this extract would not appear to support the respondents’ opposition to the applicant’s proposed amended pleading.  Indeed, one discerns in the respondents’ opposition to the applicant’s proposed amended pleading that its only basis is that it should not be allowed to amend because the reason for the amendment is to avoid having to provide the particulars of falsity which were a substantial element in the current pleading; that it should not be allowed to avoid this obligation by shifting the evidentiary burden to the respondents.  That basis has no substance.

17                  Counsel for the applicant also referred me to a number of authorities.  I was first referred to what was said by Heerey J in the Full Court of this Court in Sykes & Ors v Reserve Bank of Australia (1998) 88 FCR 511 at 513, 514:

‘If there was a representation as to a future matter, s 51A requires the representor to show:

·                     some facts or circumstances

·                     existing at the time of the representation

·                    on which the representor in fact relied

·                    which are objectively reasonable and

·                    which support the representation made.

Moreover, there is no necessary connection between the reasonable grounds and the subsequent circumstances which resulted in the predicted state of affairs not occurring.  The Bank’s case was directed to showing that the long delay in the release of the $5 notes was due to problems which it could not have reasonably anticipated.  It may be doubted that this was in fact the case, given the failure of the Bank to carry out test production runs prior to the time

the representations were made.  But the question posed by s 51A is whether the representor had reasonable grounds for making the representation.  If it did not, the representation “shall be taken to be misleading”. The ordinary s 52 misrepresentation is treated as misleading or deceptive even if the representor be innocent of fraud or negligence.

Section 51A, a subset of s 52, applies that strict liability to representations as to future matters.  The only difference is a concession in favour of representors.  Liability is avoided -- in contrast to the ordinary s 52 case -- if the representor had reasonable grounds for making the representation.  Subject only to that, a representor as to a future matter cannot be heard to say that the occurrence or non-occurrence of the future event was unpredictable, any more than the s 52 representor can say that the untruth of his or her representation was not reasonably to be expected.’

18                  I was then taken to the judgment of Goldberg J in Phoenix Court Pty Ltd & Ors v Melbourne Central Pty Ltd (1997) ATPR 46-179, in particular the following extracts from his Honour’s judgment at 54,431 and 54,432:

‘The respondent’s submission does not pay sufficient regard to para 14 which alleges that the representations were as to a future matter and that reliance is placed on s 51A.  However the respondent says that asserting reliance on s 51A is not pleading a material fact and that reliance upon an evidentiary provision cannot take the place of pleading material facts.  The pleading in relation to future events and reliance of s 51A of the Act raises the issue as to precisely what has to be pleaded in order to raise a cause of action under s 52 of the Act which depends upon the provisions of s 51A of the Act for its success.

Prior to the enactment of s 51A it was well settled that an applicant could not adequately plead misleading and deceptive conduct invoking s 52 simply by asserting a representation as to future conduct or as to a future event and then asserting that the subject-matter had not come to pass: Bill Acceptance Corporation Ltd v GWA Ltd (ATPR 44,761; ALR 250); Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (ATPR 45,344; FCR, 88).

…

However, as a result of the enactment of s 51A the situation has altered because that section makes it clear that a representation with respect to a future matter is misleading unless the representor had reasonable grounds for making it.  Section 51A(2) makes it clear that an applicant does not have to establish as an ingredient of its cause of action that the representor did not have reasonable grounds for making the representation.  That sub-section rather throws the evidentiary burden on a respondent to establish that reasonable grounds for making the representation existed and in the absence of such evidence the deeming provision has the consequence that the representation is taken to be misleading.  Section 51A does not create an independent cause of action separate from s 52 and other sections in Pt V of the Act but rather casts the burden of proof on the respondent and if that burden is not discharged then a breach of s 52 is established by the applicant proving the representation as to the future matter and the fact that it did not come to pass (cf Ting v Blanche (1993) ATPR 41-282, 41,763; (1993) 118 ALR 543, 552).’  (Emphasis)

19                  At 54,434, his Honour continued:

‘If the applicants do not wish to rely on such matters as implied statements as to present or past facts, present intention or present state of mind but rather rely upon the evidentiary provisions of s 51A they must, in my view, make it clear that they are so relying.  An example of a case where representations were made, only to some of which s 51A applied, is found in Jacques v Cut Price Deli Pty Ltd (1993) ATPR (Digest) 46-102, discussed by Hill J in Ting v Blanche (ATPR 41,763-41,764; ALR 552-553).

In my opinion the applicants’ pleading in relation to future matters is adequate as a matter of pleading in that it does disclose a cause of action, albeit one where an evidentiary burden is cast upon the respondent.  This conclusion is supported, in my opinion, by the cases to which I have referred and the observations of Ormiston J in Futuretronics International Pty Ltd v Gadzhis(supra, 240) …

I have therefore reached the conclusion that the pleading invoking s 51A should be allowed to stand and that leave should be granted to allow the applicants to raise it in the proposed form.  So long as the applicants’ reliance on the evidentiary burden on the respondent to establish reasonable grounds for making the representation is articulated, the applicants are not required to plead affirmatively absence of reasonable grounds.

The issue can also be approached by reference to O 11 r 5 of the Federal Court Rules which provides that:

“A party need not plead a fact if —

(a)        …

(b)       the burden of disproving the fact lies on the other party, except so far as may be necessary to meet a specific denial of the fact by the other party in his pleadings or failure to plead such fact is likely to cause the other party to be taken by surprise.”

In my view this rule is certainly satisfied if the applicants allege the respondent did not have reasonable grounds for making the representations, but I do not consider that that is the only manner in which the rule can be satisfied.  I also consider that it is satisfied if reliance on s 51A is pleaded.  Such a pleading can only mean that the applicants are asserting that the respondent did not have reasonable grounds for making the representations; it cannot sensibly have any other meaning.  On one view para 14 (p 4 above) does not precisely raise the relevant issue when it concludes “by reason of which the representations are misleading”.  The words “by reason of which” refer back to the fact that the representations were made with respect to a future matter and the fact that the applicants rely on s 51A. But those facts alone do not make the representations misleading; they only achieve that status if the respondent does not have reasonable grounds for making the representations.  Nevertheless the reference to the applicants’ reliance on s 51A makes it clear what case the respondent has to meet and the respondent cannot be heard, in my view, to say it is taken by surprise if at trial it finds that it has cast upon it the evidentiary burden of leading evidence to establish that it had reasonable grounds for making the representations.’  (Emphasis)

20                  On the basis that the respondents’ sole opposition to the applicant’s proposed amended pleading was confined to the enlivening of s 51A of the Act by par 79 of the draft further amended statement of claim, that opposition, in the face of these authorities, must fail.  But counsel for the second and fourth respondents pointed to the fifth prayer for relief in the draft further amended application, which is in the following terms:

‘5.        An order under section 87 of the TPA and section 72 of the FTA that, within ten days of the making of this Order, the Respondents, at their own expense, caused to be published an advertisement in each of the Sydney Morning Herald, the Hills Shire Times, the Australian BodyShop News, the Manly Daily, the Illawarra Mercury, the Motor Traders’ Association of NSW newsletter, the Muswellbrook Chronicle, the Wentworth Courier and the Herald in the form annexed to this Further Amended Application and marked “A” and further that such advertisement be:

(a)       of a size not less than 280 mm by four columns;

(b)       in a text which is in type not less than 9 point;

(c)        published within the first half of the newspaper;

(d)       published twice, once in a week day edition of each publication and once on a weekend edition, where the publication publishes a weekend edition; and

(e)        contain each of the MTA NSW and CNVRA logos.”

21                  Counsel for the second and fourth respondents then pointed to s 87 of the Act and submitted that a pre-condition to the making of an order pursuant to s 87 is that a court must find that a person who is party to the proceeding has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of a provision of Part IV, IVA, IVB, V or VC of the Act.  He further submitted that these pre-conditions are repeated in subs 87(1A) and that subs 87(2) sets out the orders referred to in subss 87(1) and (1A) that the Court may make.  The significance of this, in the submission of counsel for the second and fourth respondents, is that it is impossible to understand with respect to the applicant’s case how it is that the applicant can make out that it has suffered or is likely to suffer loss or damage by the conduct of the second and fourth respondents unless the applicant identifies the qualities of falsity that it says are inherent in his clients’ conduct.  In his words, the content of s 87 places a secondary, but equally important obligation on the applicant to particularise the qualities of falsity that it contends was inherent in the conduct of the second and fourth respondents.  I do not agree.  Apart from the fact that, as counsel for the applicant points out, par 80 of the further amended statement of claim would be sufficient to found relief in terms of prayer five, if the applicant is unable to make out its case sufficient to sustain relief in terms of prayer five, then it will not get that relief.  One does not work backwards from the relief sought to determine the sufficiency or otherwise of the pleadings.

22                  I propose to order that the applicant have leave to amend its Amended Application and its Amended Statement of Claim in terms of the draft further amended application and draft further amended statement of claim attached to its notice of motion.  I also propose to make orders dealing with various interlocutory matters going to the preparation of this case for hearing.

Associate:

Dated:              31 March 2006