FEDERAL COURT OF AUSTRALIA

Mobileworld Operating Pty Ltd v Telstra Corporation Limited [2006] FCA 743

PRACTICE AND PROCEDURE – Pleading – Application to strike out paragraphs of statement of claim – Whether no tenable claim – Application for a split trial – Whether in the interests of justice and the efficient management of the proceeding – Application to amend statement of claim – Whether particulars of loss and damage sufficient

TRADE PRACTICES – Causation – Whether allegations disclose cause of action

Trade Practices Act 1974 (Cth), ss 52, 82, 87

Federal Court of Australia Act 1976 (Cth), s 31A

Migration Litigation Reform Act 2005 (Cth), Item 44 of Pt 2 Sch 1

Federal Court Rules, O 13 r 2,O 20 r 2

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 referred to

Wardley Australia Ltd v Western Australia (1992) 175 CR 514 referred to

Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 referred to

HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 referred to

Henville v Walker (2001) 206 CLR 459 at 501 referred to

I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 referred to

Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 discussed

Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387 considered

Commonwealth v Verwayen (1990) 170 CLR 394 referred to

Giumelli v Giumelli (1998) 196 CLR 101 referred to

Dey v Victorian Railways Commissioners (1949) 78 CLR 62 applied

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

Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 applied

Webster v Lampard (1993) 177 CLR 598 referred to

Mobileworld Operating Pty Ltd v Telstra Corporation Ltd [2005] FCA 292 referred to

Murphy v Overton Investments Pty Ltd (2001) 112 FCR 183 referred to

Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 referred to

Olbers Co Ltd v Commonwealth (No 3) [2003] FCA 651 referred to

Tepko Pty Ltd v Water Board (2001) 206 CLR 1 referred to

Waterways Authority v Fitzgibbon (2005) 79 ALJR 1816 referred to

Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 applied

Goldsmith v Sandilands (2002) 76 ALJR 1024 referred to

MOBILEWORLD OPERATING PTY LTD (ACN 090 451 433) v TELSTRA CORPORATION LIMITED (ACN 051 775 556), DAVID KENNETH HUNTER MOFFATT and EDWARD NOEL PRETTY

VID 620 of 2004

KENNY J

15 JUNE 2006

MELBOURNE

THE COURT ORDERS THAT:

1.                  Leave be granted to the applicant to file and serve, on or before 31 July 2006, a Second Further Amended Statement of Claim in accordance with the exhibit NJA 20 to the affidavit of Mr Anderson sworn 8 June 2006 and in accordance with these reasons, including further and better particulars of paragraph 41.

2.                  Mustafa (John) Ilhan and Barry John Hamilton be permitted to inspect the documents, the subject of the first respondent’s Sixth List of Documents dated 7 April 2006 subject to them each executing an undertaking to keep the information obtained by them confidential and to use the information obtained by them solely for the purpose of this proceeding and for no other purpose.  Such undertakings are to be signed by them and filed with the Court.

3.                  The applicant file and serve by 4 pm on 31 July 2006 any further affidavits upon which it intends to rely at trial in relation to the issue of quantification of its loss, including but not limited to quantification of the loss alleged under paragraph 41 of the second further amended statement of claim.

4.                  To the extent the applicant considers that it has not had access to sufficient primary documents and/or other evidence to enable it to comply with order 3 hereof, the applicant file and serve by 4 pm on 31 July 2006 any affidavit identifying the specific evidence it is unable to file and serve in accordance with order 3, the steps it has taken to comply with order 3, and the further steps necessary for it to be able to comply with order 3.

5.                  The applicant file and serve any affidavit in answer to the affidavits of the respondents, upon which it intends to rely at trial, on or before 4 pm on 31 August 2006.

6.                  The respondents file and serve any affidavits in answer to any affidavit of the applicant served pursuant to order 3 hereof, upon which they intend to rely at trial, on or before 4 pm on 31 August 2006.

7.                  The parties attend a case management conference on 7 September 2006 for the making of such orders as may be required pursuant to O 10 r 1(2)(i) of the Federal Court Rules or otherwise.

8.                  Each party file and serve by 31 August 2006 any proposal (together with such written submissions in support thereof as it considers appropriate) which that party seeks to make for the conduct of the trial of the proceeding other than in the ordinary course.

9.                  The applicant’s motion, notice of which is dated 8 May 2006, be dismissed.

10.              The respondents’ motion, notice of which is dated 5 June 2006, be dismissed.

11.              The applicant pay the respondents’ costs of the applicant’s motion, notice of which is dated 8 May 2006.

12.              The respondents pay the applicant’s costs of the respondents’ motion, notice of which is dated 5 June 2006.

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

REASONS FOR JUDGMENT

1                     On 9 June 2006, the Court heard two motions.  The first filed was the applicant’s motion, notice of which was dated 8 May 2006, seeking, amongst other things, leave to amend its application and statement of claim and an order for what was referred to as a split trial.  The second was the respondents’ motion, notice of which was dated 5 June 2006, seeking, amongst other things, orders that parts of the current statement of claim be struck out.

THE RESPONDENTS’ STRIKE OUT MOTION

2                     I turn first to the respondents’ motion.  In substance, the respondents (referred to hereafter as “Telstra”) seek orders that what has been called the “no cap” representation claim be summarily dismissed pursuant to O 20 r 2 of the Federal Court Rules (“the Rules”).

3                     In paragraph 20 of the statement of claim, the applicant (referred to hereafter as “MWO”) alleged that Telstra made a representation to the effect that, provided MWO achieved certain conditions, Telstra would not enforce a part of the 2003 agreement that required MWO to refund to Telstra any amount that it received from Telstra exceeding 18% of Net Billings (hereafter referred to as “the cap”).  (At the hearing of this motion, the construction of the clause was not the subject of dispute.)  By paragraph 24 of the statement of claim, MWO alleged that, relying on the truth of the representation, MWO:

(a)    agreed to terminate the 2002 agreement;

(b)   discontinued the 2002 proceeding (being a proceeding instituted by MWO against Telstra in the Supreme Court of Victoria)

(c)    executed the 2003 agreement; and

(d)   “otherwise acted to its detriment”.

MWO claimed that, in seeking to enforce the cap, Telstra has engaged in conduct that was misleading and deceptive, or likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“TPA”). 

4                     The loss or damage that MWO claimed to have suffered “by” this conduct was identified in paragraph 29 of the statement of claim to be the fact that MWO was subjected to Telstra’s demands, in 2004 and 2005, to repay the sums that Telstra claimed constituted remuneration in excess of the “cap” and that MWO refunded these sums “involuntarily, under protest”. 

Submissions on the strike out application

5                     Telstra submitted that the detriment asserted by MWO cannot amount to “damage” sufficient to found a cause of action pursuant to ss 82 or 87 of the TPA.  That is, according to Telstra, the pleading failed to establish a causal connection between the alleged damage and the conduct of Telstra alleged in paragraph 20 of the statement of claim.  In support of this submission, Telstra referred to numerous authorities, including Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 (“Marks”) at 503-4, Wardley Australia Ltd v Western Australia (1992) 175 CR 514 (“Wardley”) at 525, Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 at 14; HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640; Henville v Walker (2001) 206 CLR 459 at 501 [130], and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 121 [31].  Telstra submitted that MWO failed to allege the “better” position that it would have been in “but for” its reliance on the representation, or otherwise to seek to connect the damage alleged in paragraph 29 of its statement of claim to any such “better” position. Telstra submitted that the authorities establish that MWO had thus failed to meet a fundamental pleading requirement if it is to make out its cause of action under ss 52 and 82 or 87 of the TPA in respect of the no cap representation.

6                     Further, Telstra submitted that the whole of MWO’s evidence in chief, as now filed, failed to establish an arguable case that “but for” reliance on the no cap representation, MWO could and would have achieved an agreement on all fours with the 2003 agreement, but without the cap.  Telstra submitted that, in the circumstances before the Court, there is no reasonable prospect of MWO establishing on the balance of probabilities that but for its reliance on the representation it would have achieved the 2003 agreement without the cap.

7                     In written submissions, Telstra also challenged MWO’s pleading of promissory estoppel.  In paragraphs 34A to 34F of the statement of claim, MWO alleged promissory estoppel against Telstra.  That is, MWO claimed that it would have acted to its detriment and suffered loss and damage if Telstra were allowed to rely on the capping.  As the pleadings stood at the relevant time, MWO said that it would provide particulars at a later date of its detriment and of loss and damage.  Telstra submitted that it was reasonable to anticipate that the only “detriment” would be that alleged in paragraph 29 of the statement of claim.  MWO’s proposed amendment to the statement of claim confirmed that this assumption was correct.  Telstra submitted that, for the reasons already stated, entry into the 2003 agreement with the 18% cap did not of itself establish relevant detriment. That is, according to Telstra, the promissory estoppel claim was but another iteration of the no cap misrepresentation claim and could not succeed at trial.

8                     MWO submitted that the impugned parts of its statement of claim were not so clearly untenable that they could not possibly succeed.  MWO said that Telstra misrepresented its pleading and that “no aspect of [MWO’s] case is that ‘but for’ the representation the 2002 Agreement would have continued”.  MWO affirmed that “[t]he status quo at the time of Telstra reneging on the representation not to enforce the cap, was the 2003 Agreement ‘uncapped’.  The loss to [MWO] flowing from the wrongful conduct was the consequence of the imposition of the cap”.  

9                     In response to Telstra’s strike out application, MWO relied chiefly on the High Court’s decision in Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 (“Murphy”). 

10                  In Murphy, the Court determined what, if any, relief under Pt VI of the TPA the appellants should have for a contravention of Pt V.  They had been induced to enter into a lease of a unit in a retirement village.  The lease provided that they should pay certain outgoings.  The trial judge found that, in entering into the lease, they had relied on a misrepresentation that the figure for likely outgoings had been calculated taking into account all relevant costs.  The figure had not been so calculated and turned out to be much higher than that nominated when the lessors entered the lease.  The trial judge found that, had the lessors known the true position, they would not have entered into the lease. The High Court held that the appellants’ undertaking of the obligation to pay the increased outgoings figure gave rise to the possibility that they could demonstrate that they had suffered loss and damage: Murphy at 415-6 [74].

11                  MWO submitted that, in Murphy, the High Court did not require the appellants to establish what agreement they would have entered into had the misrepresentation not been made.  MWO noted that the Court found that the Full Federal Court had erred in applying the “but for” test for which Telstra contended.  In written and oral submissions, MWO put their response to Telstra in this way:

“Thus in Murphy:

(a)               Overton represented that the outgoings would be calculated on a certain basis;

(b)               The Murphys’ relied upon it and were induced to enter into the lease;

(c)               No loss was suffered at the time of entering into the lease;

(d)               The loss arose when Overton charged outgoings on a higher basis than that represented;

(e)               The Murphys were entitled to recover the difference between the outgoings as represented and those charged.

By analogy here:

(a)  Telstra represented that if [MWO] entered into the 2003 Agreement, it would not enforce the cap …;

(b)  Telstra’s representation was relied upon by [MWO] and induced [MWO] to do the things alleged in sub paragraphs 24(a) to 24(e);

(c)  Telstra’s representation did not result in any loss to [MWO] at the time of entering into the 2003 Agreement;

(d)  the loss to [MWO] arose when Telstra … sought, contrary to the Representation, to enforce the cap;

(e)  once Telstra sought to enforce the cap, [MWO] suffered damage, namely the difference between the remuneration capped and uncapped.

(f)  Accordingly, [MWO is]  entitled to recover this difference as pleaded.”

12                  MWO contended that the loss that it alleged was the amount that it was required to pay Telstra “involuntarily and under protest”, namely, $21,283,642.61 and $12,640,377.17.  This was, so MWO said, “precisely that type” of loss that “was endorsed by the High Court in Murphy” and it could not, therefore, be said that its claims were hopeless, bound to fail or without any prospects of success.

13                  MWO also contended that Telstra misrepresented its estoppel claim, which was in fact as follows:

“(a)     by making the [no cap representation] and Warranty, Telstra induced [MWO] to assume or expect that Telstra would not enforce the [cap];

(b)       [MWO] relied upon the [no cap representation] and Warranty and did each of the acts and matters alleged;

(c)        at the time of making the [no cap representation] and Warranty, Telstra intended that [MWO] would act in reliance on [no cap representation] and Warranty;

(d)       [MWO] will have acted to its detriment and suffered loss and damage if the assumption or expectation induced in [MWO] by Telstra is not fulfilled;

(e)        it is now unconscionable for Telstra to resile from the [no cap representation] and Warranty and the assumption or expectation induced thereby;

(f)        Telstra by reason of the[se] matters ... is now estopped from denying the full force and effect of the [no cap representation] and Warranty and seeking to rely upon the [cap].”

14                  MWO contended that the causal connection between the no cap representation and warranty and the detriment was constituted by its entry into the 2003 agreement and doing the other acts as alleged in reliance on the representation and warranty.  The detriment was the non-fulfilment of the no cap representation and warranty.  MWO relied on Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387 at 428-9, Commonwealth v Verwayen (1990) 170 CLR 394 at 442-6 and Giumelli v Giumelli (1998) 196 CLR 101 at 112-4, as well as the reasons for judgment of Gyles J in the Full Court of this Court in Murphy (which MWO said met with the High Court’s approval) in support of the proposition that there was no deficiency in its pleading to support its estoppel claim.  MWO also referred to its proposed amendment to paragraph 34D, which, so it said, “makes plain that [it] relies upon the particulars subjoined to paragraph 24 as to the acts which it did to its detriment and relies upon the particulars subjoined to paragraph 29 as to the loss and damage occasioned by Telstra’s failure to fulfil the assumption or expectation induced in [it] by making the [no cap representation] and Warranty”.  MWO submitted that this claim was plainly arguable.

Consideration of the strike out application

15                  Order 20 rule 2 of the Rules provides as follows:

“(1)     Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding –

                        (a)        no reasonable cause of action is disclosed;

                        (b)        ...

                        (c)        …

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2)       The Court may receive evidence on the hearing of an application for an order under subrule (1).”

16                  Prior to the enactment of s 31A of the Federal Court of Australia Act 1976 (Cth), which came into force on 1 December 2005, the standard to be satisfied before any order would be made under this provision was settled law.  The Court would exercise its powers under this rule with great care and only make an order against an applicant in a very clear case that disclosed no tenable claim: see, e.g., Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 (“Fancourt”) at 99; and Webster v Lampard (1993) 177 CLR 598.  Whether or not the Court is satisfied that that there is no real question to be tried (see Fancourt at 99) will depend entirely on the circumstances of the case. 

17                  As MWO ultimately conceded, the new s 31A does not apply to this proceeding, because this proceeding was instituted before the commencement of the operation of the provision: see Item 44 of Part 2 of Schedule 1 of the Migration Litigation Reform Act 2005 (Cth).  Accordingly, the Court should apply the authorities to which I have just referred.

18                  Although the pleadings have been amended from time to time, the nature of the claims made are, for present purposes, sufficiently described in the reasons for judgment of Crennan J in Mobileworld Operating Pty Ltd v Telstra Corporation Ltd [2005] FCA 292 (“Mobileworld (1)”) at [3] to [4].  Further, as reference to her Honour’s decision shows, this is not the first time that this aspect of MWO’s pleading has been challenged: see Mobileworld (1) at [25]-[30].

19                  The authorities establish that the relief that ss 82 or 87 of the TPA may afford is not confined to the remedies in tort, contract or equity: see, eg, Marks at 503-4.  Further, the causative element in a cause of action under ss 52 and 82 (or 87) of the TPA is to be “understood as taking up the common law practical or common-sense concept of causation”: Wardley at 525.  Causation is a question of fact.  As the Court said in Murphy, at 403, the difference between price and value is not the only kind of damage for which compensation can be given in such an action as this.  It is necessary to identify the detriment which is said to be the loss or damage which has occurred or, when considering the application of s 87, has occurred or is likely to occur:  see Murphy at 408.  In Wardley, as the Murphy Court noted, “the mere entry into obligations which might, but need not, have had detrimental consequences in the future was held not to have occasioned loss or damage to the party making the contract”: see Murphy at 408.  The Court went on to hold, at 409-10, that in the Murphys’ case:

“[T]he finding that [they] had been induced to enter the lease by a statement of estimated outgoings that was misleading, because it did not take account of all amounts that could properly be charged as outgoings, meant that [they] undertook an obligation which may, but need not, have proved to be larger or more costly than they had been led to believe.  There may be cases in which a person misled in this way suffers loss upon entering the agreement. …But that was not this case. …

What [they] did not know was that the estimate of outgoings they were given did not provide for all the outgoings that were then being incurred.  Here, therefore, [they] suffered no loss as a result of undertaking the obligations they did unless and until the contingency which the misrepresentation hid … was first realised. … It was only from the time when it in fact decided to depart from the 1992 position and charge for the wider categories that the adverse risk eventuated.  When it did, but only then, [the Murphys] suffered loss and damage.”

20                  MWO specifically relied on this passage and a further passage, at 413, that read:

“[The Murphys] had been induced by the respondent’s conduct to undertake an obligation which may, but need not, have been more onerous than the respondent’s representation led them to believe.  When the respondent started to charge all the outgoings it was entitled to charge, [they] suffered a loss.  The amount of that loss was not to be determined … only by comparing the financial position of the [Murphys] according to whether they entered this lease or took some other accommodation.  … The [Murphys] suffered loss because the continuing financial obligations they undertook when they took the lease proved to be larger than they had been led to believe.  The question then became: how much larger was that burden?”

21                  MWO’s pleading attempted to trace the reasoning of the Murphy Court.  MWO contended that it did not incur loss when it entered the 2003 agreement.  Rather, it incurred loss when Telstra departed from the no cap representation and sought to recover remuneration over the cap.  MWO’s case is that it suffered loss only when Telstra sought to enforce the cap for which the 2003 agreement provided, notwithstanding that Telstra had represented to MWO that it would not do so.  Accordingly, so MWO said, this loss was to be measured as the recoupment amounts that Telstra had claimed.

22                  Whatever the difficulties this analysis may ultimately present for MWO in terms of proving causation and detriment, it would not be a proper exercise of discretion to strike out this cause of action.  In light of ss 52 and 82 (or 87), as explained further in Murphy, MWO’s claim is arguable and not clearly so untenable that it must fail.

23                  For similar reasons, I would not strike out the pleadings in so far as they raise a claim of estoppel against Telstra.  Examination of the statement of claim shows that it sufficiently pleads the requisite elements of an estoppel as disclosed in the authorities mentioned in [14] above.  These authorities establish that a pre-contractual representation can form the basis for an estoppel. In the case as pleaded, the unconscionability, if any, is said to lie in the fact that Telstra unilaterally departed from the assumption it had created by the no cap representation after the 2003 agreement was made.  Having regard to the reasons for judgment of Gyles J in Murphy v Overton Investments Pty Ltd (2001) 112 FCR 183 at 225-228, it would not be a proper exercise of discretion to strike out this part of the pleading as clearly untenable.  Further, the decision of the High Court in Murphy does not support such a course.

24                  For the reasons stated, I would dismiss Telstra’s motion, notice of which was given on 5 June 2006.   No party suggested that there should be any departure from the ordinary provision as to the costs of an unsuccessful motion.

THE APPLICANT’S MOTION FOR A SPLIT TRIAL AND OTHER THINGS

Submissions on the split trial application

25                  MWO applied to have the quantification of any loss or damage suffered by MWO as alleged under paragraph 41 of the Second Further Amended Statement of Claim (“SFASC”) determined subsequently and separately to all other matters in the proceeding.  MWO also sought to be relieved of the obligation to file, prior to trial, evidence going to the quantification of this loss.

26                  In support of its application for a split trial, MWO relied on affidavits of Nicholas John Andersen sworn on 9 May 2006, 24 May 2006 and 8 June 2006, together with exhibits.  MWO also relied on three affidavits of Timothy John Rumbold sworn on 28 April 2006, 8 May 2006 and 8 June 2006, and an affidavit of Dennis Vincent McCluskey sworn on 23 May 2006, together with its exhibits.

27                  MWO submitted that, to calculate its loss under paragraph 41, it would need to calculate the trailing commissions and other remuneration due to it under its 2003 agreement with Telstra.  Put simply, trailing commissions are commissions paid in relation to Telstra accounts for mobile phones sold in MWO stores.  To calculate such commissions, it is said to be necessary to know what is referred to as the Service in Operation (or “SIO”) base.  Essentially, the SIO base is constituted by those services within Telstra’s database attributable to MWO. 

28                  In detailed written and oral submissions, MWO claimed that its evidence established that Telstra’s business and accounting records are inadequate in so far as they relate to calculating its SIO base and trailing commissions.  In this connection, MWO referred to Mr Rumbold’s affidavit of 28 April 2006 and 8 May 2006, as well as Mr Andersen’s affidavit of 9 May 2006 and 24 May 2006.  Further, MWO submitted that it would be an enormously complex task to unravel the flaws in Telstra’s record keeping so as properly to calculate the moneys owed to it.   MWO further submitted that it would “not be able to put on all relevant evidence … prior to the commencement of the Trial fixed for 2 October 2006 because of the magnitude of the task and the evidence that would be required”.  There was, so it said, the potential for an enormous waste of time and money in the event that it failed to establish liability against Telstra.  It further submitted that “quantification of loss and damage under paragraph 41 may ultimately be found … to be best performed by a Court appointed expert”. 

29                  MWO referred to an audit conducted by William Buck, Chartered Accountants (“William Buck”).  MWO claimed that this audit identified significant deficiencies in Telstra’s business systems and records.  According to MWO, the William Buck audit took two years to complete and cost over two million dollars even though it was narrower in scope than an audit required to determine the actual remuneration payable by Telstra to MWO.  The applicant argued that it would be an even greater task to determine its damages under paragraph 41 of the SFASC.  MWO submitted that Telstra’s discovered documents also disclosed that there were significant deficiencies in Telstra’s databases and business and accounting systems.

30                  MWO submitted a report by Dennis McCluskey of William Buck.  MWO’s solicitors had asked Mr McCluskey to inform them as to how long he believed it would take his firm to conduct a remuneration audit that calculated the sum owed by Telstra to MWO.  Mr McCluskey replied that such an audit would take between 5 and 18 months depending on the level of assurance required.

31                  MWO claimed that its evidence established that the preparation of evidence of the quantification of any loss and damage suffered by it under paragraph 41 of the SFASC would require many months of work by experienced professionals and would likely cost more than one million dollars.  In MWO’s submission, the complexity of calculating this loss and damage meant that it was not practical to have that issue determined at the same time as other issues.  Although MWO argued that the Court should defer determination of the loss or damage suffered under paragraph 41 of the SFASC, it submitted that “having been satisfied that some loss and damage has been occasioned, the principles upon which [its] claim for loss and damage under paragraph 41 should be determined.”  

32                  In response to the affidavit of Lisa Jane Parry sworn 6 June 2006 and filed by Telstra, MWO submitted that Ms Parry’s affidavit referred only to peripheral issues concerning loss and damage such as the administration fee under the 2003 agreement and advertising costs.  MWO argued that the calculation of trailing commissions was the key issue and noted that Ms Parry’s affidavit was silent on that topic.

33                  For reasons set out in detail in its written submissions and concisely in its oral submissions, Telstra opposed MWO’s application for a “split trial”.  In summary, Telstra said the proposed order offered no utility in terms of the efficient and timely disposition of the proceeding and a better solution might be found after Telstra had filed and served its evidence.   

34                  Telstra submitted that MWO was obliged to put on evidence as to quantification or explain what information it lacked that prevented it from so doing.  It said that the possible difficulty of the task did not relieve MWO of this obligation.  Telstra characterised McClusky’s statements as “vague and unparticularised”, noting that he did “not propose or identify a methodology and merely assumes a need for investigation of all Connections and Trailing Commissions”.  

35                  Telstra contended that, in the circumstances of the case, it would not be possible for the parties or the Court to know what evidence goes “solely to the quantification” of loss, as opposed to going to liability, breach, or the existence of any loss.  It relied on the affidavit of Ms Parry, and referred to the affidavit of Mr Rumbold and the William Buck reports as illustrative of this.  Telstra pointed out that it was far from clear whether the proposed orders contemplated that the Court consider all, or only some, of these reports and whether Telstra could file answering material.

36                  Telstra maintained that some quantification was relevant to determining issues of liability (see further amended statement of claim, paragraphs 59 to 72N, 38 and 40A, 37(a) and 35 to 41).  As to these claims, Telstra stated:

“On the invalid notification claim as alleged by MWO, Telstra is entitled to adduce evidence going to any alleged inaccuracy in the overpayment amounts notified for 2003 and 2004.  It would not be just and convenient for the orders sought to be made in circumstances where such quantification evidence could be subjected to an application for exclusion on the grounds of relevance.  Likewise, for MWO’s claims that Telstra has breached an implied obligation to keep an accurate and reliable account keeping system (denied).  As part of its evidence in defence of this claim, Telstra is entitled to adduce evidence dealing with a quantitative assessment of the level of dollar values of disputes/inaccuracy which MWO must establish to prove on the balance of probabilities that there has been a breach of the alleged implied term (itself denied).

MWO’s various breach of contract claims (both actual and implied terms), and invalid notification claims, raise squarely issues of quantification.  Telstra is entitled to adduce relevant quantification evidence which rebuts these allegations, albeit that it is not necessarily the case that such evidence must establish amounts to the last dollar.”

37                  As Telstra observed, the affidavits sworn by Mr Andersen on 9 May and 24 May 2006 indicate that, at trial, MWO will seek to rely on Telstra’s own documents to support an inference that Telstra’s dealer payment recording systems failed to record accurately the “SIO’s” in respect of which MWO obtained a trailing commission entitlement.  Telstra denied that the documents would support such an inference and Telstra submitted that it was entitled to adduce evidence that any impact was minor or, even possibly, cash flow positive for MWO.  On one view, so Telstra said, such evidence might be said to go solely to quantification.

38                  Further, as Telstra said, Ms Parry’s affidavit tended to throw doubt on whether MWO has received less than its claimed entitlements in respect of administration fees and program incentives.  If the proposed orders were sought, then MWO would not be required to put on any evidence concerning the individual, or total, amount of such fees and incentive payments it claims should have been and were not paid.  Moreover, according to Ms Parry, Telstra cannot investigate MWO’s claims for co-operative advertising until MWO provides further details of such claims.

39                  Telstra also stated that it was proposing to cross-examine MWO’s deponents on that part of its proposed evidence that included quantification (as, for example, the proposed evidence of Mr Rumbold).

40                  Telstra pointed out that there will be a need to make findings of fact (some of which may involve issues of credit) on liability and that the same or some of the same witnesses will be relevant at the “quantification” stage.  It submitted that there would be no savings in time and expense in adopting the “split trial” approach of MWO. 

41                  Telstra further submitted that it was not for the Court to initiate an investigation at large to see whether there were any amounts “unpaid” to MWO.  The Court was obliged to act only on the evidence adduced before it.  It was, so Telstra said, incumbent on MWO to satisfy the Court on the balance of probabilities that it was contractually entitled to an amount for trailing commissions in excess of what it had been paid.  It did not have to calculate its alleged loss down to the exact cent but it did have to indicate what it estimated its loss to be and the basis for that estimate.

Consideration of MWO’s application for a split trial

42                  Order 29 rule 2 of the Rules confers power on the Court to make orders for “… the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceeding”.   The principles that govern the circumstances in which an order of the kind presently sought may be made were set out in Reading Australia Pty Ltd v Australian Mutual Provident Society [1999] FCA 718 (“Reading”) at [7] and [8] per Branson J.  French J reiterated these principles in Olbers Co Ltd v Commonwealth (No 3) [2003] FCA 651 (“Olbers”) at [7].  In Reading at [8], Branson J summarised the relevant principles as follows:

“The principles that govern the circumstances in which an order will be made under O 29 r 2 are relatively well established. They may be summarised as follows:

(a)       the term “question” in O 29 r 1 includes any question or issue of fact or law in a proceeding. … ;

(b)       a question can be the subject of an order for a separate decision under O 29 r 2 even though a decision on such a question will not determine any of the parties’ rights …;

(c)        however, the judicial determination of a question under O 29 r 2 must involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties …;

(d)       where the preliminary question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the preliminary determination, or as agreed facts or as facts to be judicially determined …;

(e)        care must be taken in utilising the procedure provided for in O 29 r 1 to avoid the determination of issues not “ripe” for separate and preliminary determination.  …;

(f)        factors which tend to support the making of an order under O 29 r 2 include that the separate determination of the question may -

(i)         contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; or

(ii)        contribute to the settlement of the litigation ... .

(g)       factors which tell against the making of an order under O 29 r 2 include that the separate determination of the question may –

(i)                 give rise to significant contested factual issues both at the time of the hearing of the preliminary question and at the time of trial …;

(ii)               result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding … .  This factor will be of particular significance if the Court may be required to form a view as to the credibility of witnesses who may give evidence at both stages of the hearing of the proceeding; or

                                    (iii)       prolong rather than shorten the litigation ….”  (Citations omitted)

43                  As French observed in Olbers at [8]:

“The overarching consideration informing the discretion to make an order under O 29 r 2 is efficient case management.  It is subject to the limitation that the Court cannot give an advisory opinion on theoretical or hypothetical facts even if such an opinion were likely to lead to a settlement or resolution of the proceedings.”

44                  It is almost goes without saying that care is needed in determining whether the separate question procedure ought be used: compare Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 per Kirby and Callinan JJ.  It is common enough to find that the separate determination of questions in a proceeding does not result in the expeditious resolution of the proceeding, although all parties thought it would at the time the separate determination was ordered.  Indeed, such orders can have the opposite effect and the resulting fragmentation can add to the expense and time involved in the proceeding.  As Kirby and Heydon JJ noted in Waterways Authority v Fitzgibbon (2005) 79 ALJR 1816 at [37]:

“It is notorious that the course of ordering that a preliminary separate question be tried, and deciding the case on that question, rather than deciding the case on all issues, is a course which can create graver difficulties than those which it is intended to solve.”

45                  At this stage of the proceeding, I am not satisfied that the order that MWO proposes for separating the trial of the loss and damage alleged under paragraph 41 of the SFASC from the balance of the proceeding would properly provide for the efficient and timely disposition of the proceeding.  In part, this is because Telstra has not completed the filing of the affidavit evidence that it intends to rely on by way of defence.  This fact alone makes it difficult to assess Telstra’s claim that it is necessary for its defence that there is some quantification in determining issues of liability.  Moreover, until the scope of Telstra’s evidence is ascertained, I cannot properly assess the likelihood that some witnesses will be required at both stages of the trial that MWO’s proposal contemplates and whether it may be necessary to make credit findings concerning those witnesses at the first stage.  For these reasons too, it is difficult now to evaluate Telstra’s claim that it desires to cross examine some of MWO’s “first stage” witnesses on matters relating to quantification.  These matters plainly bear on the question whether orders of the kind MWO proposed by its motion should be made.

46                  Assuming MWO succeeded on its ultimate contractual claims, I am not, moreover, satisfied that, so far as the Court is concerned, the task of quantification need be as daunting as MWO would have it, although I accept that it may well be difficult.  The fact that the task is difficult does not, however, relieve MWO from its obligation as applicant to prove its case on the balance of probabilities.  As Telstra said, the Court can proceed only as such on the evidence before it.  It seemed at times that MWO had in mind a very free ranging inquiry indeed, being one that the Court was unlikely to be able to undertake. 

47                  For these reasons, I would refuse MWO’s application for orders to the effect sought in paragraphs 3 and 4 of its motion, notice of which is dated 8 May 2006.  It is open to MWO and Telstra to make another application under O 29 r 2 of the Rules or some similar application to assist in the expeditious trial and resolution of this matter once Telstra has filed its evidence.  The matter of the costs of the applicant’s motion is considered below.

Submissions on application to amend MWO’s statement of claim

48                  MWO sought leave to amend its statement of claim to limit the number of causes of action that it pursues at trial.   The proposed SFASC and amended application was exhibit “NJA 20” to the 8 June 2006 affidavit of Nicholas John Andersen.  In particular, it sought leave to delete paragraphs 8 to 12, 15 to 17 (“the pre-2003 agreement claim”), 57 and 58 (“the rolling stones agreement”) and 73 to 90 (“the business services claim”).  It also sought leave to make partial deletions to paragraphs 55 and 56 (reflecting the deletion of the rolling stones agreement claim).   MWO also sought to amend the particulars to paragraphs 29, 32, 34, 34D, with the effect that the relevant loss and damage was said to be Telstra’s demands for the repayment of remuneration in excess of the cap and MWO’s payment in response under protest.  MWO also sought to amend its particulars to paragraphs 40A and 41.  Finally, MWO sought to delete Annexures 1, 5 and 11 and to make further consequential amendments to the initiating application by deleting paragraphs 1(a), 1(h), 1(s), 1(t), 1(u), 4(b), 5(a), 5(b), 5(e), 5(f) and 6(c).

49                  I note that, at the hearing of MWO’s motion, counsel for MWO stated that the information contained in letters dated 13 and 20 April 2006 from its solicitors to Telstra’s solicitors were also intended to stand as additional particulars to MWO’s claim.  The letters formed part of exhibit MLD1 to the affidavit of Melissa Lee Daly sworn on 8 June 2006, which was filed by the respondents.

50                  In submissions and in Mr Andersen’s 9 May 2006 affidavit, MWO denied that its case was weak with regard to any of the claims that it sought to abandon and stated that it proposed these amendments in the spirit of cooperation and in order that the trial proceed in October this year.  On the material before the Court, it is, of course, impossible to assess these inherently self-serving statements. 

51                  MWO submitted that leave should be granted on the basis that any costs of Telstra occasioned by the amendment be costs in the proceeding.  MWO recognized that this was not the costs order usually made upon a grant of leave to amend pleadings, but it contended that the usual “costs thrown away” order would be inappropriate because of what it termed the “unusual” circumstances of the application.  These circumstances were stated to be:

“(a)     the amendments have come about so as to ensure that the trial which is fixed for 2 October 2006 can be completed in the time available;

(b)       [MWO] should not be penalised by the payment of Telstra’s costs thrown away by reason of the amendment as [MWO] is already foregoing what it contends are otherwise causes of action in which [MWO] has a strong case;

(c)        [MWO] is acting responsible in the spirit of co-operation which [the Court] urged on the parties;

(d)       [MWO] should not be punished by an award of costs against it in circumstances where it is responding to issues of case management including the time available to hear and determine the proceeding.”

As already stated, the material before me does not permit a proper assessment of these matters.

52                  Telstra did not consent to MWO having leave to file and serve the SFASC generally, although it did consent to the deletion of paragraphs 8-12, 15-17, and 73-90.  Telstra’s opposition to the proposed amendments flowed from its contention that MWO had failed to provide proper particulars of its allegations that: (1) Telstra has failed to remunerate MWO in accordance with the 2003 agreement (paragraph 37(a)); and (2) Telstra has failed to ensure that MWO received payment in full of the remuneration payable under the 2003 agreement (paragraph 40A).  Telstra specifically referred to the statement in the particulars to paragraph 37(a) that “further particulars will be provided after discovery and inspection and prior to the trial of the proceeding herein” and to the statement in the particulars to paragraph 40A that MWO “will not be able to calculate the remuneration due to it under the 2003 Agreement until after the taking of all proper accounts and enquiries”.  Telstra also referred to the statements in the particulars under paragraph 41, which concerned the loss arising from these alleged breaches, that MWO “has been unable to verify the quantum of the remuneration to which it is entitled under the 2003 Agreement.  [MWO] will provide such further particulars after the taking of all proper accounts and enquiries”.

53                  Telstra argued that MWO should not be given leave to file its proposed pleading without providing particulars that identify:

(a)        whether MWO alleges that the total amount of remuneration it has been paid under the 2003 agreement is less than what it was entitled to receive, and if so, the best estimate of the amount of such underpayment and how that amount is calculated;

(b)        whether MWO alleges that it is entitled to be paid more for administration fees, program incentives and cooperative advertising under the 2003 Agreement than it was paid, and, if so, its best estimate of the additional amount of each type of remuneration to which it is entitled and how that amount is calculated; and

(c)        whether MWO alleges that it is entitled to receive additional payments of trailing commissions under the 2003 agreement, and, if so, its best estimate of the amount of such additional trailing commissions and how that amount is calculated.

Telstra noted that by its solicitor’s letter of 13 April 2006 that MWO had gone some way to providing the information referred to in (b) above, although it said that this information was deficient in a number of respects. 

Consideration of MWO’s application to amend its statement of claim

54                  An application to amend a pleading should be permitted where the justice of the case so demands: see Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146 at 155 per Dawson, Gaudron and McHugh JJ and 167-172 per Kirby J.  In the circumstances of this case, save for the matters raised by Telstra, I would have little hesitation in permitting MWO to abandon claims that it no longer wishes to pursue, whether out of a spirit of cooperation or for purely forensic reasons. 

55                  Whilst paragraph 37(a) is not the subject of MWO’s application to amend, paragraphs 40A and 41 are.  It is, as Telstra submitted, unclear from the proposed pleading whether MWO is alleging that it has received a total of remuneration that is less than that to which it is entitled under the 2003 agreement, or whether it is alleging that there are specific unpaid items and it does not know if the total amount of remuneration that it was paid was less than its entitlement.  The proposed particularisation of the alleged loss and damage by reference to the taking of a proper account and enquiry at a later date fails to state with sufficient clarity the case that Telstra must meet at trial.  As Gleeson CJ said in Goldsmith v Sandilands (2002) 76 ALJR 1024 at 1025 [2]:

“The facts in issue in a civil action case emerge from the pleadings, which, in turn, are framed in the light of the legal principles governing the case.  Facts relevant to the facts in issue emerge from the particulars and the evidence.  The function of particulars is not to expand the issues defined by the pleadings, but ‘to fill in the picture of the plaintiff’s cause of action with information sufficiently detailed to put the defendant on his guard as to the case he has to meet and to enable him to prepare for trial’.” (Citation omitted)

MWO’s particulars under paragraph 41 fail in this regard.  Telstra is entitled to have, by way of particulars to MWO’s pleading, the details referred to in [53] above as best MWO can provide them and, if it cannot provide such details as fully as it would wish, then Telstra is entitled to have MWO state what MWO requires to complete this task.   This obligation cannot be discharged simply by providing some information to Telstra through letters from MWO’s solicitors.

56                  Accordingly, pursuant to O 13 r 2 of the Rules, I would grant leave to MWO to amend its application and statement of claim in accordance with the SFASC, which is exhibit NJA 20 to the affidavit of Mr Anderson sworn 8 June 2006 and in accordance with these reasons, including further and better particulars of paragraph 41. 

57                  MWO and Telstra disagreed as to the disposition of the applicant’s motion if the applicant were unsuccessful.  In all the circumstances, and in particular having regard to the outcome of the principal applications made on the motion, I would dismiss the applicant’s motion.  I would order that the applicant pay the respondents’ costs of the motion.

58                  Finally, I would make the order sought in paragraph 2 of the applicant’s motion that Mr Ilhan and Mr Hamilton be permitted to inspect the documents that are the subject of the first respondent’s Sixth List of Documents dated 7 April 2006 upon the terms proposed.  Telstra did not oppose the making of this order.

Associate:

Dated:              15 June 2006