FEDERAL COURT OF AUSTRALIA

Christou v Stantons International Pty Ltd (No 2) [2010] FCA 1437

THE COURT ORDERS THAT:

1.    The amended statement of claim be struck out.

2.    The applicant have leave to file and serve a re-amended statement of claim within 28 days.

3.    The applicant do pay the costs of the respondents of this motion, to be taxed if not agreed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

introduction

1    In Christou v Stantons International Pty Ltd [2010] FCA 1150 (Christou No 1) I gave reasons for striking out part of the statement of claim. In Christou No 1 I ordered that the footnotes 1-8, paras 27-28 inclusive, 41 and 51-54 of the original statement of claim be struck out with leave to re-plead. Those reasons should be read with these reasons for a complete understanding of the pleaded issues. The same abbreviations are adopted. The statement of claim has been amended. There is another application to strike it out.

2    The respondents (Stantons) contend that Mr Christou cannot formulate a claim and the pleading in its entirety should be struck out.

PRINCIPLES

3    It is unnecessary to repeat the relevant principles. They were set out in Christou No 1 (at [3]-[6]).

BACKGROUND

4    The causes of action relied upon are contraventions of the provision of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (WA) by misleading and deceptive conduct and breach of fiduciary duty.

5    In Christou No 1 the basic pleaded claims were set out (at [7]-[12] and [18]-[19] as follows:

7.    The claim arises from an apparent falling out between former partners of an accounting firm. Mr Christou was formerly in partnership with the third respondent (Mr Lingard) and the fourth respondent (Mr Joyce). Those persons from 1998 carried on a partnership as Stanton Partners and shared the goodwill in that partnership name (the Partnership).

8.    In an earlier period there had been a four person partnership but the present focus of events is primarily on the period from 1998 onwards.

9.    In the Supreme Court of Western Australia orders to wind up the Partnership were made on 28 March 2008. Although orders for winding up were made, it is asserted that there has not been a winding up of that Partnership. Instead, a Licence Agreement was entered into on 12 November 1998. It was entered into between the Partnership and Stanton Partners Australasia Pty Ltd (SPA). Pursuant to the Licence Agreement, the Partnership granted an exclusive licence to SPA to use the goodwill and to carry on the practice of the Partnership. All three members of the Partnership were also directors and shareholders of SPA. Under the Licence Agreement, SPA as licensee was to pay a fee of 3% of net fees excluding disbursements to the Partnership as licensor.

10.    The pleading continues that from the date of the Licence Agreement, SPA has continued to use the goodwill and carried on the practice of the Partnership under the Licence.

11.    On 24 January 2002, the three partners entered into a written agreement relating to the potential sale of the Practice and settlement of all the disputes and differences of opinion concerning practice entitlements. Under that agreement (the 2002 Agreement), they agreed that the value for which they were to sell the Practice (to whom is not identified), was $8 million. On 11 June 2004, Stantons International Pty Ltd ACN 103 022 697 (SI) registered the business name of Stantons International to carry on the business of an accounting and consulting firm. At about that time, SPA as vendor but acting by Messrs Lingard and Joyce, signed an agreement for the sale and purchase of the business assets of SPA to SI. The business was the business formerly carried on by the Partnership.

12.    An interim order was granted (to whom it is not said) but presumably to Mr Christou in the Supreme Court of Western Australia restraining the parties from settling on the sale of the business. The matter was resolved by an undertaking given by Messrs Lingard and Joyce not to proceed to settlement under the Sale Agreement.

…

18    The pleading then continues to refer to material published on the internet from July 2004 onwards by the respondents promoting the accountancy practice. It is also claimed that Stantons International has traded out of a premises on Havelock Street, West Perth, used certain telephone and facsimile numbers and engaged certain personnel including Mr Lingard and Mr Joyce. It is said that conduct was misleading and deceptive because it falsely represented that the respondents had the right and authority to ‘act as pleaded’. There is also a complaint that misleading representations were also made to the Tax Agents Board in relation to the authority of the respondents to use the name and goodwill of the Practice. Paragraph 40 of the statement of claim pleads that:

From or about 1 March 2007, SIS has carried on part of the Practice as carried on by SPA under the Licence from the Partnership and used the personal connection of Lingard and Joyce as partners of the Partnership and the name Stanton Partners using its registration as a tax agent.

19    There is then pleaded (at [41]) allegations that the respondents through Mr Lingard have prevented Mr Christou attending the SPA business premises and have installed locks and chains to preclude his entry.

CONSIDERATION

6    The contention on the misleading and deceptive conduct claim appears primarily to be that SI and the second respondent (SIS) (aided and abetted by Mr Lingard and Mr Joyce) represented to the world (via websites) and to ‘past and existing clients of the Partnership’ that they were legally authorised to conduct the business of the practice or the Partnership when, in fact, by reason of the Licence Agreement, the injunction, and the undertaking, they were not entitled to do so.

7    Mr Christou complains that by reason of the Conduct he ‘has not received, been paid or had accommodation for’ his one-third value of the practice of the Partnership and the goodwill and has ‘not received, been paid or had accommodation for’ his one-third of the fee payable pursuant to cl 6 of the Licence Agreement and did not receive any income from another company, Stantons Partners Australasia Pty Ltd (SPA) during the 2009 financial year.

8    Although the claim is based on misleading and deceptive conduct, the essence of the claim appears to be that Stantons have, in essence, appropriated the business and goodwill of the practice and the Partnership of which Mr Christou was a member.

9    It is still not evident on the pleading how the various representations to the public in themselves have caused damage. The representations are, in reality, evidence of the claimed appropriation of the business.

10    Once gain, therefore, it appears as with Christou No 1 that there is no link between the conduct, that is, the pleaded misrepresentations to the world and the damage sustained.

11    This is a more substantive complaint than some of the matters which follow but it would be desirable that they all be addressed.

12    In Christou No 1, I struck out various footnotes which referred to findings reached by Beech J of the Supreme Court of Western Australia in Corporate Systems Publishing Pty Ltd v Lingard (No 4) [2008] WASC 21 (the WA Proceedings). Although the footnotes have been removed in the current version, the findings made by his Honour have been repeated in the form of particulars. I accept the submission of Stantons that the same objection remains. The findings of the Supreme Court in the WA Proceedings do not constitute material facts as pleaded nor are they particulars. Their inclusion may give rise to false issues such as whether in the trial of this proceeding the Court will be asked to consider and interpret the words of another judge in another decision. It should be possible to plead or particularise the material facts or particulars as to the persons comprising the Partnership, without resort to findings made by another judge in another proceeding.

13    There is an attack again on para 27 and para 28 of the amended pleading which is in these terms:

27.    On 30 June 2004, Pullin J, in the Supreme Court Action Civ 1788 of 2003, made an interim order restraining the parties to the Sale Agreement from proceeding to settlement on the sale of the business (“Injunction”).

28.    By an undertaking dated 1 July, SPA, Lingard and Joyce undertook not to proceed to settlement under the Sale Agreement.

28.1    A copy of the undertaking can be inspected at the offices of Christou’s solicitor; and

28.2    Christou will rely upon the undertaking at the trial of this action for its full terms, meaning and effect (“Undertaking”)

14    I concluded (in Christou No 1) (at [23]-[28]) that these paragraphs were not linked in any way to any other aspect of the matter. They are now linked in a fashion by a pleading in para 35 of the amended statement of claim. In essence, it is pleaded that by reason of the injunction and the undertaking, the representations that Stantons had the right and authority to act as pleaded in paras 29-34 were false. The complaint raised against para 27 and para 28 is that they still go nowhere in the sense that there is no suggestion that there was a breach of the injunction or the undertaking.

15    I would not strike out these paragraphs in light of the amendment to para 35. It is now apparent that the content of para 27 and para 28 is relied upon not to illustrate breach of the injunction or the undertaking but, rather, to show that knowledge of the detail of the injunction and the undertaking necessarily gave rise to the representations being false. It will still be necessary to particularise why this is so.

16    That still leaves, however, the more fundamental question alluded to at the outset, namely, whether damage was caused by the making of the representations or by what was effectively as one might infer from the pleading an appropriation by Stantons of the business of the Partnership.

17    Complaint is also made about para 41 of the amended pleading in which it is alleged that Mr Lingard prevented Mr Christou from attending businesses of SPA. Previously the allegation was struck out because it was irrelevant to any claim and had no meaningful link with any of the subsequent paragraphs of the statement of claim. There has been an amendment to para 41 to insert words which make it clear that Mr Lingard has prevented Mr Christou from carrying on work in the practice of the Partnership and from attending it. However, two additional paragraphs have also been pleaded in the following terms:

41A.    The Respondents have not, in the published material pleaded in paragraphs 29, 31 and 34 above, disclosed or otherwise qualified the publications to say:

(a)    Christou has been prevented from carrying on work in the Practice of the Partnership; and

(b)    Christou has not consented to SI and SIS carrying on a business that includes the Practice of the Partnership (“the non-disclosure conduct”).

41B.    From about 2 July 2004 to 30 June 2008, the clients of SPA became clients of SI and SIS and by July 2008, at the latest, all clients of SPA had become clients of SI and SIS.

Particulars

Particulars of all clients of SPA will be provided after discovery and inspection.

18    Paragraph 41A and para 41B taken in context rather than in isolation, appear to me to provide support for the allegation that Stantons have taken the clients of the SPA business, have prevented Mr Christou gaining access to the business premises, have prevented him from working there, have represented to others that Mr Christou is not entitled to be involved in the business and that they, Stantons, in contrast are so entitled. All of this is said to be false for reasons as to which evidence will no doubt be adduced.

19    There is, on it face, a further difficulty in that if the locking out of Mr Christou took place in 2008, it cannot have been causative in any sense of the loss of clients for the preceding period commencing in 2004 nor the loss of fees under the Licence Agreement as pleaded in paras 43, 51.2 and 54.2.

20    Stantons make a number of additional objections to the remaining paragraphs of the pleading. Most of the objections, in my view, are sustainable. As it is evident from the foregoing that the pleading will have to be redrawn in any event, Mr Christou should take into account those submissions. The structure of the statement of claim is still short of that which is necessary to plead a cause of action.

21    The amended statement of claim will be struck out in its entirety but leave to re-plead will be given. The following orders are made:

1.    The amended statement of claim be struck out.

2.    The applicant do have leave to file and serve a re-amended statement of claim within 28 days.

3.    The applicant do pay the costs of the respondents of this motion, to be taxed if not agreed.

Associate:

Dated:    17 December 2010