FEDERAL COURT OF AUSTRALIA

Rossetto v Meriton Apartments Pty Ltd [2006] FCA 1290

TRADE PRACTICES – application to strike out statement of claim – causal connection between conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) and damages claimed – first applicant knew representations untrue at time of affirming contract – evidence may establish affirmation was reasonable – evidence may establish damages suffered between entry and affirmation of contract – reasonable cause of action in part – second applicant knew representations untrue at time of entering lease – no loss or damage suffered by reason of representations

DAMAGES – nature of damages recoverable pursuant to ss 82 and 87 of the Trade Practices Act 1974 (Cth) for contravention of s 52 – applicant purchased premises for their value and is not entitled to diminution of value of premises – evidence may establish loss of opportunity to enter alternative contract

CONTRACT – collateral contract inconsistent with the terms of the primary agreement – no reasonable cause of action for breach of a collateral contract

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

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

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

Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 applied

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

Havyn Pty Ltd v Webster (2005) 12 BPR 22,837 cited

Henville v Walker (2001) 206 CLR 459 cited

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

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 cited

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

Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 cited

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

Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1 cited

Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 cited

Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd (2005) 224 ALR 134 cited

BRUNO ANGELO ROSSETTO AND BIMBEE PTY LTD v MERITON APARTMENTS PTY LTD (ACN 000 644 888)

NSD 1882 OF 2004

BENNETT J

28 SEPTEMBER 2006

SYDNEY

THE COURT ORDERS THAT:

1.                  The further amended statement of claim is struck out.

2.                  The matter is stood over to 17 October 2006 at 9:30 am to hear any application to replead, any application as to costs and further directions.

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

REASONS FOR JUDGMENT

1                     Meriton is a developer of residential and commercial real estate. Between 2002 and 2004 it constructed the World Tower development. In March 2002, Mr Rossetto contracted to purchase a strata unit in that development (‘the premises’). At that time the World Tower had not been constructed. The subject matter of these proceedings concerns the circumstances surrounding Mr Rossetto’s purchase of the premises.

2                     Mr Rossetto claims that prior to entering the contract for purchase of the premises (‘the contract’) he was misled by representations made to him by representatives of Meriton (‘the representations’), allegedly in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the Act’). He claims damages that he alleges he has suffered, or is likely to suffer, by reason of that alleged contravention. The representations are pleaded in the further amended statement of claim and are to the effect that the premises would be the only child care centre in the World Tower.

3                     In February 2003, after Mr Rossetto had entered the contract but prior to its completion, Mr Rossetto discovered that Meriton was proposing to advertise another of the strata units for sale as a child care centre. In June 2003 Mr Rossetto was informed that the other strata unit had been sold to a child care operator. He complained to Meriton. In response to those complaints, in October 2003, Meriton offered to permit Mr Rossetto to rescind the contract. That offer was not accepted.

4                     On 8 April 2004, the contract was completed and Mr Rossetto became the registered proprietor of the premises. Mr Rossetto leased the premises to Bimbee Pty Ltd who granted a sublease to Peppercorn Holdings No 5 Pty Ltd. In October 2004, Peppercorn commenced to operate a child care centre known as “World Tower Child Care” at the premises.

The further amended statement of claim

5                     Meriton seeks, by notice of motion, to strike out Mr Rossetto’s further amended statement of claim as disclosing no reasonable cause of action pursuant to O 11 r 16 of the Federal Court Rules (‘the Rules’) and that the application be dismissed summarily pursuant to O 20 r 2(1)(a).

6                     Mr Rossetto was the sole applicant in the original statement of claim, which alleged contraventions of the Act. In a proposed amended statement of claim, Bimbee was included as an applicant and the pleading amended accordingly but still alleging contraventions of the Act. By a further amended statement of claim, for which leave to file was granted without opposition, a pleading by Mr Rossetto of breach of collateral contract was added.

7                     Meriton asserts that Mr Rossetto and Bimbee’s claims for damages as pleaded disclose no reasonable cause of action because:

·                     No causal connection exists between the representations and the loss suffered by Mr Rossetto and Bimbee;

·                     No collateral contract existed between Mr Rossetto and Meriton; and

·                     Damages are not recoverable by the either party.

Causal connection

8                     Section 52 of the Act proscribes a corporation from engaging in trade or commerce in conduct that is misleading or deceptive or is likely to mislead or deceive. Mr Rossetto and Bimbee claim that they have suffered, or are likely to suffer, loss or damage ‘by conduct of’ Meriton in contravention of s 52 and may recover that loss or damage pursuant to s 82 or s 87 of the Act. The words ‘by conduct of’ in ss 82 and 87 impose a causal requirement that the loss or damage claimed must be sustained “by” the contravention of s 52 (Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 at [95]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at [50] and [54]).

Mr Rossetto

9                     Mr Rossetto alleges that the representations were made in contravention of s 52 of the Act and that he relied on them to purchase the premises. The representations can relevantly be summarised as follows:

·                     The purchase of the premises was the opportunity to have the exclusive right to own and operate a child care centre within the World Tower.

·                     The purchase was an opportunity to buy an exclusive property with a unique ready built in business.

·                     The premises would be the only child care centre in the World Tower and situated on level 14.

10                  Mr Rossetto asserts reliance on the representations in entering into the contract. He was aware that the representations were untrue prior to completion of the contract.

11                  As Meriton points out, Mr Rossetto completed the contract after he became aware that there was to be another child care centre in the World Tower and after he was offered rescission of the contract. The further amended statement of claim does not refer to these matters.

12                  Meriton submits that, in rejecting its offer to rescind the contract, Mr Rossetto severed any causal connection between any loss or damage he suffered and the representations. The cause of any loss, according to Meriton, is not the representations but the election by Mr Rossetto to affirm the contract in circumstances where he knew the representations were false.

13                  Mr Rossetto submits that affirmation of a contract entered into as a result of misleading or deceptive conduct does not affect his right to damages pursuant to ss 82 and 87.

14                  Accepting for the purposes of this application that Mr Rossetto entered into the contract in reliance on the misrepresentations and affirmed the contract after being told the true position, Mr Rossetto is not automatically precluded from a claim for damages pursuant to ss 82 and 87. The success of his claim may depend upon whether his decision to affirm the contract was reasonable (Warwick Entertainment Centre Pty Ltd v Alpine Holdings Pty Ltd (2005) 224 ALR 134 at [72]). The affirmation of the contract alone does not result in an absence of a reasonable cause of action for damages pursuant to ss 82 and 87. There may be loss or damage after entry into the contract and prior to the decision to affirm the contract or prior to the completion of the contract. The decision may have been reasonable in light of evidence Mr Rossetto proposes to adduce concerning the time, energy and money he had already invested in the premises although no such evidence has been forthcoming to date. These are factual matters that will need to be determined.

Bimbee

15                  It is not pleaded that the representations were made to Bimbee. Bimbee relies on the fact that Meriton’s conduct caused Mr Rossetto to act in a way that led to loss or damage to Bimbee. If so, the contravening conduct must still be a cause of the loss which must directly result from the conduct (Janssen-Cilag Pty Ltd v Pfizer Pty Ltd (1992) 37 FCR 526 at 529–31 per Lockhart J). Bimbee was incorporated in March 2004. By that time, Mr Rossetto had been informed that the representations were untrue and had been offered rescission of the contract. Mr Rossetto was the sole director of Bimbee. Despite knowledge that there was to be another child care centre in the World Tower, Bimbee elected to take a lease of the premises. Bimbee was not misled at the time it took an interest in the premises.

16                  Bimbee alleges that it relied on the representations. On the basis of this chronology and the pleadings, and in the absence of particularisation or explanation, Bimbee cannot establish that it entered the lease in reliance on the representations. To the contrary, Bimbee entered the lease with full knowledge there would be a second child care centre in the World Tower. The representations are not a cause of the loss or damage it is alleged to have suffered or is likely to suffer (I & L Securities at [57]). Bimbee does not have a reasonable cause of action against Meriton for past or future damages suffered by reason of a contravention of s 52 of the Act.

The collateral contract

Mr Rossetto

17                  Mr Rossetto alleges that the representations were made to induce him to enter into the contract. He alleges that the representations were a promise made in consideration of him entering into the main contract, which he did. He pleads a collateral contract, formed on or before exchange. The allegation in the further amended statement of claim at [29] is:

‘On or before 11 March 2002 [Mr Rossetto] and [Meriton] entered into an agreement (the collateral contract) pursuant to which in consideration of [Mr Rossetto] entering [the contract], [Meriton] agreed to sell to [Mr Rossetto] the only child care centre in the World Tower.’

18                  Mr Rossetto submits that, at the time the representations were made, Meriton intended to sell Mr Rossetto the only child care centre in the World Tower and Mr Rossetto was prepared to purchase the premises on the basis that it was the only child care centre. He says that the representations were warranties of the collateral contract, which were breached when the premises on level 11 of the World Tower were sold to a third party and approved as a child care centre. By reason of the breach of the collateral contract, Mr Rossetto alleges that he suffered damages, particularised as for the alleged contravention of s 52 of the Act and discussed at [24] to [36] below.

19                  Mr Rossetto submits that the principles in Shepperd v The Council of the Municipality of Ryde (1952) 85 CLR 1 apply. He relies upon a clear common intention of the parties that, first, Mr Rossetto would rely upon the representations and, on that basis, proceed to contract to buy the premises. Secondly, the representations were ‘presupposed as something antecedent upon which the purchaser might implicitly rely’ (Shepperd at 13). Mr Rossetto submits that, as enunciated in Gates v The City Mutual Life Assurance Society Ltd (1986) 160 CLR 1, a collateral contract arises where the intention of the parties is clear and the terms of the collateral contract are not inconsistent with the main written agreement (at 5).

20                  There are, however, inconsistencies with the main written agreement. The contract contains a number of clauses that address matters prior to entry into the contract. They include clause 56:

‘56.1 The vendor makes no warranty or representation in respect of the accuracy or completeness…AND the purchaser acknowledges and agrees that it has placed no reliance whatsoever on any brochure, advertisement or other document.

56.2 The purchaser acknowledges that:

…

56.2.2    it does not rely on any representation, letter, document or arrangement (whether oral or in writing) or other conduct as adding to or amending this contract;

56.2.4 it has satisfied itself in relation to the subject matter of this contract;

…

56.3 The purchaser warrants that it has fully satisfied itself in relation to the subject matter of this contract. The vendor will not be responsible to the purchaser or any third party under the laws of contract, tort or otherwise for any loss, damage, cost or expense which may arise from or in connection with this contract or any information supplied by the vendor and their officers, employees, agents and consultants.

56.4 The purchaser acknowledges and agrees that the conditions contained herein constitute the entire agreement between the vendor and the purchaser.’

21                  A collateral agreement inconsistent with the principal contract will not be enforced (Maybury v Atlantic Union Oil Co Ltd (1953) 89 CLR 507 at 517; Gates at 5 per Gibbs CJ and at 11 per Mason, Wilson and Dawson JJ). The collateral contract as pleaded is inconsistent with at least clauses 56.2 (especially 56.2.2), 56.3 and 56.4.

22                  No reasonable cause of action for breach of a collateral contract is disclosed by Mr Rossetto.

Bimbee

23                  No claim is made that Bimbee was a party to the alleged collateral contract. Bimbee was not in existence at the relevant time.

Damages claimed

24                  Meriton submits that the measure of damages available to Mr Rossetto and Bimbee for any contravention of s 52 is, in any event, limited to loss suffered in reliance on the misleading and deceptive conduct. Damages to place Mr Rossetto and Bimbee in the position they would have been in had the representations been true are not, in Meriton’s submission, available under ss 82 or s 87 of the Act for a breach of s 52.

Mr Rossetto

25                  For breach of contract, Mr Rossetto would ordinarily be entitled to damages that would place him in the same position as if the contract had been performed. That would extend to loss of rental income. However, Mr Rossetto has no reasonable cause of action for breach of the alleged collateral contract ([22] above).

26                  Loss or damage suffered by reason of a contravention of s 52 is not confined by reference to a form of claim under the general law and is not necessarily singular; it may be, for example, both loss of revenue and loss of capital and may be incurred at different times (Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388 at [44], [49] – [52]). However, the risk of loss is not itself a category of loss (Murphy at [46] discussing Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 526-7).

27                  Section 52 is directed at the making of the representation, not the failure to honour it. Where there is no obligation to honour the false representation, the measure of the loss is not determined by reference to what Mr Rossetto would have received if Meriton’s representations had been true (Henville v Walker (2001) 206 CLR 459 at [132] per McHugh J with whom Gummow J agreed). The representations were not warranties entitling Mr Rossetto to estimated rental or profits for the years in which the premises contained the only child care centre in the World Tower (Warwick Entertainment at [148]).

28                  The damages alleged to have been suffered by Mr Rossetto are particularised as:

‘(a) loss of income being the reduction in net income caused by [Mr Rossetto] not being the only child care centre in the World Tower as represented to him; and/or

(b) the diminution in the value of the premises which [Mr Rossetto] brought from the respondent.’

Loss of income

29                  In a response to a request for further particulars, Mr Rossetto confirmed that the loss was calculated by comparing the income that he would have earned had the only child care centre in the World Tower operated from the premises with the income he did earn with another child care centre in the World Tower. There are no particulars of this loss after the entry into and prior to affirmation or completion of the contract.

30                  By lease made on 16 August 2004, although commencing on 14 April 2004, Mr Rossetto leased the premises to Bimbee. On the same day Bimbee gave a sublease of the premises to Peppercorn. By agreement between Bimbee and Peppercorn, Peppercorn was appointed manager of the child care centre on behalf of Bimbee, in exchange for Bimbee paying to it a monthly administration fee calculated to include agreed percentages of the gross and net revenue of the centre. The rent on the sublease was the gross revenue of the child care centre, less the operating expenses and the administration fee.

31                  The child care centre opened in October 2004. The rent paid by Bimbee to Mr Rossetto was $200,000 p.a. This rent was agreed at a time when Mr Rossetto and Bimbee knew there would be another child care centre in the World Tower.

32                  Accordingly, the damages claimed by Mr Rossetto are not operating income from the child care centre but the difference in his income, being the difference between the rent that could have been obtained if the premises housed the only child care centre in the World Tower and the rent in fact paid by Bimbee under the lease. Meriton has not established that a claim to such damages is unavailable to Mr Rossetto.

33                  Mr Rossetto is not entitled to damages for the loss of an expectation of rental or profits unless reliance on the representations deprived him of the opportunity to enter into a different contract resulting in greater rental or profits (Havyn Pty Ltd v Webster (2005) 12 BPR 22,837 at [117(g)]; Gates at 13 to 15; Marks at [48]). There is no pleading or evidence that, had Mr Rossetto not relied on the representations, he would have entered into a different contract and thereby made a profit. However, Mr Rossetto asserts in his written submissions that the evidence will be adduced to establish an opportunity foregone by reason of reliance on the representation, for which he is entitled to damages.

Value of the premises

34                  Diminution in value of the premises is claimed on the basis that the property would have been more valuable had Meriton not permitted a second child care centre to open in the World Tower. The date at which that diminution is to be calculated is said to be 8 April 2004, the date of settlement of the contract. The value of the premises on completion is said to be the amount paid by Mr Rossetto.

35                  Mr Rossetto asserts that the price he paid for the child care centre was too high. However, the report of Mr Verheyden, on which Mr Rossetto relies and to which he refers in his particulars, states that the value of the premises as at the date of settlement, with a second child care facility in the World Tower, is $100,000 more than the amount paid by Mr Rossetto. Mr Rossetto and Bimbee concede that, at the time of the purchase, the premises were worth what Mr Rossetto paid for them. The increase in value is said to arise upon approval of the premises for a child care facility.

36                  Mr Rossetto has suffered no loss with respect to the value of the premises because what he bought was worth what he paid for it (Marks at 514-5 per McHugh, Hayne and Callinan JJ). There was no loss as a result of altering his position under the inducement of the misleading conduct (Marks at 513-4).

Bimbee

37                  The damages alleged to have been suffered by Bimbee are particularised as:

‘The loss of income being the reduction in the net income caused by [Bimbee] not operating the only child care centre in the World Tower building as represented to [Mr Rossetto]’.

38                  Bimbee’s claim has been further particularised to include loss of income and goodwill. The former has been particularised as:

·                     past loss of income, calculated as profit expected less actual profit received; and

·                     future loss of income, as expected income assuming no competitor and a daily charge of $120 per child.

39                  Loss of goodwill is based on the assumption that a competitor does not exist and an assumed occupancy by 2007 of 100%.

40                  If the further amended statement of claim disclosed a reasonable cause of action by Bimbee for contravention of the Act, Bimbee would face the same difficulties in claiming damages discussed above. In any event, Bimbee has not established a causal link between the claimed loss or damage and the alleged contravention of s 52 (see [16] above). There is no need to consider its claim to loss or damage further.

Striking out the statement of claim

41                  It is well established that the power to strike out a pleading and to enter summary judgment must be exercised with great caution and only in very clear cases where the Court is satisfied that the cause of action cannot possibly succeed (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).

42                  Meriton sought to rely on s 31A of the Federal Court of Australia Act 1976 (Cth). The application of that section was not challenged at the hearing. The Court subsequently sought submissions from the parties concerning the application of s 31A to proceedings commenced before the commencement of the provision. Meriton now concedes that s 31A has no application to the proceedings commenced by Mr Rossetto before the commencement of the provision on 1 December 2005.

43                  Meriton maintains the submission that s 31A applies to proceedings in which Bimbee is joined as an applicant and that such proceedings commenced after the commencement date for s 31A.

44                  The further amended statement of claim is deemed to take effect as at the date of filing of the original statement of claim (O 13 r 3A(1)(b) of the Rules). The parties address their submissions to the application of s 31A to Bimbee’s application for joinder, an interlocutory proceeding and therefore said to be amenable to s 31A.

45                  Section 31A applies a test of no reasonable prospect of success rather than one of being hopeless or bound to fail. It provides a more flexible and arguably less stringent test than that of Dey and General Steel.

46                  By either measure, I am satisfied that the cause of action arising from a collateral contract as pleaded by Mr Rossetto and the cause of action pleaded by Bimbee cannot succeed and are liable to be struck out. It follows that, the more stringent test having been satisfied, there is no need to consider the application of s 31A to the cause of action pleaded by Bimbee.

CONCLUSION

47                  Meriton has failed to establish that the pleading in the further amended statement of claim of contravention of s 52 of the Act, so far as it relates to Mr Rossetto, discloses no reasonable cause of action. Mr Rossetto is entitled to establish damages suffered as a result of the alleged contravention. Losses may be claimed by reason of reliance on the representations. There is no evidence or particulars of any loss or damages between reliance on the representations and affirmation of the contract nor as to the reasonableness or otherwise for his choosing to affirm the contract but that may be the subject of further particulars and evidence.

48                  The further amended statement of claim, the subject of submissions in this application, should be struck out pursuant to O 11 r 16 of the Rules. I will hear from the parties as to the appropriate orders, including costs and any application to replead.

Associate:

Dated: 28 September 2006