Federal Court of Australia

Han Jing Pty Ltd v Nestle Australia Limited [2021] FCA 143

ORDERS

BY CONSENT, THE COURT ORDERS THAT:

1.    By 9 April 2021, the applicant is to file and serve:

(a)    any Reply; and

(b)    its evidence in chief (including any expert evidence).

2.    Pursuant to section 53A of the Federal Court of Australia Act 1976 (Cth) and rule 28.02 of the Federal Court Rules 2011 (Cth), the proceeding is referred to mediation on all issues before a Registrar of the Court, such mediation to take place by 30 April 2021.

3.    A representative of each party with full authority to settle this proceeding shall attend the mediation (either in person or by video-link).

4.    The Registrar shall, not later than 5 May 2021, report back to the Court whether the mediation is finished.

5.    Paragraph 1 of the respondent’s interlocutory application dated 21 September 2020 is adjourned to the date referred to in paragraph 6 below.

6.    The matter be listed for a further case management hearing at 9.30am on 12 May 2021.

7.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ORDERS

BY CONSENT, THE COURT ORDERS THAT:

1.    By 9 April 2021, the applicant is to file and serve:

(a)    any Reply; and

(b)    its evidence in chief (including any expert evidence).

2.    Pursuant to section 53A of the Federal Court of Australia Act 1976 (Cth) and rule 28.02 of the Federal Court Rules 2011 (Cth), the proceeding is referred to mediation on all issues before a Registrar of the Court, such mediation to take place by 30 April 2021.

3.    A representative of each party with full authority to settle this proceeding shall attend the mediation (either in person or by video-link).

4.    The Registrar shall, not later than 5 May 2021, report back to the Court whether the mediation is finished.

5.    Paragraph 1 of the respondent’s interlocutory application dated 21 September 2020 is adjourned to the date referred to in paragraph 6 below.

6.    The matter be listed for a further case management hearing at 9.30am on 12 May 2021.

7.    Costs reserved.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

(Revised from transcript)

THAWLEY J:

1    These reasons concern two related proceedings, which were both commenced on 30 June 2020. Proceeding numbered NSD 713 of 2020 was commenced by Han Jing Pty Limited (ACN 142 525 693). Proceeding numbered NSD 715 of 2020 was commenced by the A&A Company Pty Limited (ACN 160 843 881). The respondent in both proceedings, Nestle Australia Limited (ACN 000 011 316), asks the Court to determine as a preliminary question under rule 30.01 of the Federal Court Rules 2011 (Cth) whether the applicants are barred from obtaining any of the relief they seek by reason of ss 236(2) and 237(3) of the Australian Consumer Law (ACL).

2    The question whether the causes of action in each proceeding are statute barred revolves primarily around the terms of ss 236 and 237 of the ACL. Section 236 provides:

236 Actions for damages

(1)    If:

(a)    a person (the claimant) suffers loss or damage because of the conduct of another person; and

(b)    the conduct contravened a provision of Chapter 2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention.

(2)    An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

3    Section 237 of the ACL includes:

237 Compensation orders etc. on application by an injured person or the regulator

(1)    A court may:

(a)    on application of a person (the injured person) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that:

(i)    was engaged in a contravention of a provision of Chapter 2, 3 or 4; or

(ii)    constitutes applying or relying on, or purporting to apply or rely on, a term of a contract that has been declared under section 250 to be an unfair term; or …

make such order or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct.

(2)    The order must be an order that the court considers will:

(a)    compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or

(b)    prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons.

(3)    An application under subsection (1) may be made at any time within 6 years after the day on which:

(a)    if subsection (1)(a)(i) applies—the cause of action that relates to the conduct referred to in that subsection accrued; or

(b)    if subsection (1)(a)(ii) applies—the declaration referred to in that subsection is made.

4    Nestle contends that the causes of action that relate to the relevant conduct accrued more than 6 years before the proceedings were commenced and that, as a result, the applicants’ claims are statute barred by ss 236(2) and 237(3) of the ACL. The reason it says the causes of action accrued more than 6 years before the proceedings were commenced is that loss was first sustained more than 6 years before the proceedings were commenced and no loss or other event giving rise to a cause of action is pleaded to have occurred within the limitation period.

5    Nestle relies upon four affidavits of Nigel David Jones (two filed in each proceeding): two dated 21 September 2020 (First Jones Affidavits) and two dated 30 October 2020 (Second Jones Affidavits). Mr Jones is Nestle’s solicitor. He estimates the legal costs of defending the proceedings on all issues to be about $1.9 million. Mr Jones also deposes to Nestle’s concerns that, if Nestle is successful in defending the proceeding, the applicants would not be in a position to pay Nestle’s legal costs. Whilst these matters have some bearing on the question of whether a preliminary question should be ordered, the weight is significantly reduced by the fact that Nestle has made applications for security for costs. Nestle has appropriately refrained from pressing those applications, pending the result of the interlocutory applications so far as they concern the separate questions.

Background

Han Jing proceeding

6    By its statement of claim, Han Jing brings the following case against Nestle. In and after September 2013, Han Jing discussed the acquisition of a Mövenpick franchise business with representatives of Nestle. Han Jing claims that Nestle employees made various misleading or deceptive representations during these discussions, including that:

(1)    all Mövenpick outlets were profitable;

(2)    the Mövenpick franchise located in Carindale, Queensland was achieving a turnover of $14,000 to $15,000 per week and an annual turnover of over $600,000 and this was an indicator of profitability;

(3)    Han Jing’s business “would be better than the Carindale Store”;

(4)    a suitable benchmark of the cost of goods sold would be 30% to 35%, labour costs would be 20% to 25% of sales;

(5)    Han Jing’s business would be the only ice cream store in the Indooroopilly shopping centre;

(6)    the initial costs to Han Jing of establishing the franchise would be $300,000, plus GST.

7    By an undated agreement between Nestle and Han Jing varied on 27 November 2013, Nestle granted the “Franchise” to Han Jing and a licence to use the “Mövenpick Ice Cream” franchise system. Han Jing claims that in entering this agreement it relied upon the representations made by the Nestle employees. Han Jing incurred approximately $318,048.56 to establish the franchise. On 9 December 2013, Han Jing entered into a lease of Shop K003 in the Indooroopilly Shopping Centre and commenced operating a “Mövenpick Ice Cream” franchise. Han Jing continued to trade until 28 February 2020. Han Jing pleads at [13] of its statement of claim that its franchise “traded at a loss from its opening and was unprofitable throughout its operation… [making] the following losses”:

a.    in FY2014, $151,273.20;

b.    in FY2015, $19,087.74;

c.    in FY2016, $20,804.12;

d.    in FY2017, ($1,582.82), being a profit;

e.    in FY2018, ($751.90), being a profit;

f.    in FY2019, ($845.93), being a profit;

g.    in FY2020, $41,148.49.

8    Han Jing’s pleading as to loss is as follows:

By reason of the matters pleaded in paragraphs 8 to 22 above, the Plaintiff has suffered loss and damage.

Particulars

a.    The Plaintiff paid $318,048.56 for equipment, stock and fit-out of the Franchise.

b.    Incurred the losses set out in 13 above.

c.    Losses are presently estimated to exceed $2,400,851.63.

d.    Further particulars will be provided prior to trial.

9    By its originating application, Han Jing seeks various declarations about Nestle’s conduct, including that it engaged in conduct which was unconscionable and that it contravened cll 6(1) and 9(1) of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth). In its originating application and statement of claim, Han Jing claims damages under s 236(1) of the ACL and orders for compensation under s 237(1) of the ACL.

10    Han Jing noted that the claim under the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (primarily for breach of cl 6(1) of the Code and thereby s 51ACB of the Competition and Consumer Act 2010 (Cth)) finds its remedy in s 82 of the ACL. The applicant accepted that this was not pleaded and would require an amendment to the pleadings. The applicant noted that the limitation period for that claim was the same as a claim under s 236(1), being six years, and did not contend that any different result would flow so far as this application is concerned if that amendment had been made.

The A&A proceeding

11    By its statement of claim, A&A brings the following case against Nestle. In late 2013, A&A discussed the acquisition of a Mövenpick franchise business with representatives of Nestle. A&A claims that Nestle employees made various misleading and deceptive representations during these discussions, including that:

(1)    the franchise “would not fail”;

(2)    the Mövenpick Carindale and Mövenpick QV franchises were “very profitable” and that A&A’s business would be similarly profitable;

(3)    the franchise located in Carindale operated on cost of goods of 29% of sales, labour costs of 24%, a profit margin on 18% and a return on investment of at least 15%;

(4)    the cost of goods sold would be 30% of net sales, labour costs would be 30% of sales; and

(5)    the initial costs to A&A of establishing the franchise would not exceed $200,000, plus GST.

12    A&A borrowed $390,000 and paid $308,000 excluding GST to establish the Franchise. On 21 December 2013, A&A entered into a lease of Shop No L01 1149 at Highpoint Maribyrnong in Victoria. By an undated agreement varied by an agreement dated 28 January 2014 between Nestle and A&A, Nestle granted a franchise to A&A and a licence to use the “Mövenpick Ice Cream” franchise system. A&A claims that in entering this agreement it relied upon the representations made by the Nestle employees. A&A commenced operating a “Mövenpick Ice Cream” franchise from about March 2014. A&A continued to trade until at least September 2017. A&A pleads at [12] of its statement of claim that its franchise “traded at a loss from its opening and was unprofitable throughout its operation… [making] the following losses”. The particulars to [12] are:

a.     In FY2013, $21,958.00;

b.     in FY2014, $119,600.41;

c.     in FY2015, $57,758.00;

d.     in FY2016, $39,194.39;

e.     in FY2017, $54,427.80; and

f.     in FY2018, $68,423.62.

13    How A&A sustained losses in the financial year before the representations were made and before it opened the franchise has not yet been explained.

14    A&A’s pleading as to loss is as follows:

By reason of the matters pleaded in paragraphs 6 to 18 above, the Plaintiff has suffered loss and damage.

Particulars

a.    The Plaintiff paid $308,000 for equipment, stock and fit-out of the Franchise.

b.    Incurred the losses set out in 12 above.

c.    Losses are presently estimated to exceed $1,000,000.

d.    Further particulars will be provided prior to trial.

15    By its originating application, A&A seeks declarations about Nestle’s conduct, including that it engaged in conduct which was unconscionable and that it contravened cll 6(1) and 9(1) of the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth). In its originating application and statement of claim, A&A claims damages under s 236(1) of the ACL and orders for compensation under s 237(1) of the ACL.

16    A&A noted that the claim under the Competition and Consumer (Industry Codes – Franchising) Regulation 2014 (Cth) (primarily for breach of cl 6(1) of the Code and thereby s 51ACB of the Competition and Consumer Act 2010 (Cth)) finds its remedy in s 82 of the ACL. The applicant accepted that this was not pleaded and would require an amendment to the pleadings. The applicant noted that the limitation period for that claim was the same as a claim under s 236(1), being six years, and did not contend that any different result would flow so far as this application is concerned if that amendment had been made.

Relevant principles

Interlocutory applications about limitations issues

17    Rule 30.01 of the Rules provides:

30.01 Application for separate trials

(1)    A party may apply to the Court for an order that a question arising in the proceeding be heard separately from any other questions.

(2)    The application must be made before a date is fixed for trial of the proceeding.

Note 1: The Court may order that a party state a case and the question for decision.

Note 2: The Court will give any directions that are necessary for the hearing of the separate question.

18    Rule 30.01 must be applied in a way that best promotes the overarching purpose of civil practice and procedure, which includes facilitating the just resolution of disputes as quickly, inexpensively and efficiently as possible: s 37M of the Federal Court of Australia Act 1976 (Cth).

19    Nestle must demonstrate that it is just and convenient for the order under rule 30.01 to be made: EnergyAustralia v Australian Energy Limited [2001] FCA 1049 at [5]-[8]; Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 240 FCR 276 at [8]-[9]. The starting point is that all issues of law and fact should be determined simultaneously: Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130 at 141-142. “The attractions of trials of issues rather than of cases in their totality, are often more chimerical than real”: Tepko Pty Limited v Water Board (2001) 206 CLR 1 at [168]. Where determining a particular question may “determine the outcome of an application and save the parties the expense of a trial upon all the issues, the advantages of the use of the power [to order a separate question be determined] are plain”: TVW Enterprises Ltd v Duffy (No 3) (1985) 8 FCR 93 at 95; Todd Hadley Pty Limited v Lake Maintenance (NSW) Pty Limited [2019] NSWCA 262 at [15], [46] and [105]. If the separate determination of the question may save time and cost by “substantially narrowing the issues for trial, or … contribute to the settlement of the litigation”, this will tend in favour of granting the order: Reading at [8]. If a separate question would prolong the litigation or “result in significant overlap between the evidence adduced on the hearing of the separate question and at trial”, this will tend against making the order: Reading at [8].

20    As Bell P observed in Todd Hadley Pty Limited v Lake Maintenance (NSW) Pty Limited [2019] NSWCA 262 at [15], “[t]he length of time which a separate question with the capacity to resolve the entirety of the dispute may take, relative to the likely length of a full hearing, is a very important consideration in the exercise of a discretion whether or not to order the decision of a separate question”.

21    The applicants’ submissions focussed on Nestle having not applied to have the applicants’ claims summarily dismissed. The applicants submitted that there was little material difference between determining a separate question relating to a limitation issue, based purely on the pleaded allegations taken at their highest, from an application for summary dismissal. The applicants submitted that the only real difference is that the summary dismissal of a claim is interlocutory in nature, whereas a determination of a separate question is final – see: Joey Construction Pty Ltd v IT Environmental (Australia) Pty Ltd [2018] FCA 534. The applicants submitted that, if Nestle applied for summary dismissal of their claims on the basis that the claims were statute-barred, Nestle would have faced significant difficulties because it is well-established that it is a rare case in which the operation of a limitation period would justify summary dismissal of a proceeding.

22    The applicants relied on Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 at 533, where the High Court emphasised that, except in the clearest of cases, it is undesirable to decide limitation questions in interlocutory proceedings:

We should, however, state in the plainest of terms that we regard it as undesirable that limitation questions of the kind under consideration should be decided in interlocutory proceedings in advance of the hearing of the action, except in the clearest of cases. Generally speaking, in such proceedings, insufficient is known of the damage sustained by the plaintiff and of the circumstances in which it was sustained to justify a confident answer to the question.

23    The simple answer to the applicants’ submission is that it is also a rare case in which the claimed operation of a limitation period will justify the ordering of a separate question about whether the limitation period operates to preclude relief. The caution expressed in Wardley and in numerous other authorities applies equally to the present application. The fact that an alternative available procedure for Nestle to achieve its desired result was an application for summary dismissal under s 31A of the Federal Court of Australia Act 1976 (Cth) and rule 26.01 of the Rules does not preclude it from proceeding in the way it has. In Joey at [28], Wigney J stated:

It is clear that exactly the same considerations [as are applicable to an application for summary judgment on the basis of a limitation period] operate to make it generally undesirable, if not inappropriate or impossible, to determine whether a proceeding is statute-barred on the basis of separate or preliminary questions, particularly when the questions are supposedly to be determined purely on the pleadings.

24    It is not always impossible to determine limitation questions in interlocutory proceedings. In Reilly v Australia and New Zealand Banking Group Limited (No 2) [2020] FCA 1502 at [21], O’Bryan J noted that the caution expressed in Wardley “need not apply where the nature and incidence of the alleged loss and damage is clear and the application of the limitation period turns upon a question of law”.

25    In Jobbins v Capel Court Corporation Ltd (1989) 25 FCR 226, the Full Court observed at 231 that “where it is clear that an applicant cannot succeed upon the case pleaded because s 82(2) will be a complete answer to the claim, the court should not merely defer the inevitable”. In Jobbins, the Court concluded that the relevant damage was suffered immediately upon entry into the agreement and, accordingly, the issue for the Court was ultimately a question of application of the law to the clear facts.

When does a cause of action accrue?

26    Sections 236(2) and 237(3) require identification of when “the cause of action that relates to the conduct accrued”. The provisions do not turn on whether loss or damage continues to be suffered within the period of six years before the action is commenced, but when the cause of action giving rise to actual loss or damage arose. A respondent’s misleading conduct might give rise to continuing losses, as is alleged in the present case, but the question is when the cause of action accrued.

27    Nestle relied heavily on the decision of the High Court in HTW Valuers (Central QLD) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640. HTW Valuers concerned a claim by an applicant who had purchased a shopping arcade relying upon what was said to have been misleading advice as to the effect of a competing shopping centre which was under construction nearby. The issue in the case was the correct measure of damages, not any limitation issue. The High Court held that the loss was suffered upon acquisition of the shopping centre because the market value of what was acquired was less than the price paid. The case was concerned therefore with the acquisition of property at a price which did not reflect its true market value. At [28], the Court explained that the limitation period under the predecessor to s 236(2) of the ACL (s 82(2) of the Trade Practices Act 1974 (Cth) (TPA 1974) which provided a limitation period of 3 years) had started to run from the date of the purchase (footnote omitted):

The plaintiff’s endeavour to support the reasoning of the courts below must fail, because the first criticism of that reasoning made by the defendant is unquestionably correct and sufficient to undermine it entirely. If the plaintiff had learned the day after entering the contract to buy the Plaza, or the day after completing that contract, that the defendant’s conduct had been misleading in the sense ultimately found by the trial judge, it could have started proceedings then and there. There was unchallenged evidence from Mr Dodds that on either of those dates the plaintiff was in fact worse off as a result of the defendant’s breach, since the market value was less than the price. It was not necessary to wait for nearly two years to ascertain that some loss had been suffered. The plaintiff could have found out at once that it had bought something which was worth less than that which it had agreed to pay and did pay. It could have recovered at least the difference between the price paid for, and the market value of, the Plaza. The limitation period would have begun to run.

28    For reasons I will come to, it is important to note that the basis of the Court’s decision is that it was possible to ascertain that loss had been suffered as soon as the acquisition occurred. That loss was the difference between the market value and the price paid. The Court expressly observed in the passage just set out that it was “not necessary to wait for nearly two years to ascertain that some loss had been suffered”.

29    Nestle submitted that, for the purposes of s 236(2) and 237(3), the cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable. For this proposition, Nestle referred to Bodycorp Repairers Pty Limited v Holding Redlich [2018] VSCA 17 at [181], in which the Victorian Court of Appeal stated:

It seems to us that the High Court has set out the principles which are applicable here and that the other authorities relied upon should properly be seen as particular applications of those principles. The principles are:

1.     The cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable: Hawkins v Clayton.

2.    Where a detriment is suffered as a result of entering into an agreement:

(a)    loss and damage may be suffered immediately in some circumstances, such as where an asset is acquired at a price above its true value: HTW Valuers;

(b)    however, if the detriment is exposure to a loss which will only be suffered if events transpire in a particular way, loss and damage will not be suffered until those events do so occur: Wardley, Murphy.

3.        In determining when loss and damage is suffered it is necessary to:

(a)    analyse the facts of the particular case: Wardley;

(b)    identify the economic interest of the claimant which allegedly has been infringed: Hawkins v Clayton, Wardley; and

(c)    have regard to the pleaded loss and damage claimed: Wardley.

30    Nestle’s submission that a cause of action accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable, is not accurate if intended as a universal proposition. The reference by the Victorian Court of Appeal in Bodycorp to Hawkins v Clayton (1988) 164 CLR 539 in the Court of Appeal’s first proposition makes clear that the Court was intending to summarise the High Court’s decision in Hawkins v Clayton. Hawkins v Clayton concerned the negligent failure of solicitors to locate the executor of a deceased person’s will. During the period it took to notify the executor, the main asset of the estate, a house, fell into disrepair. The High Court accepted that, in the ordinary case of breach of duty to disclose, the cause of action in negligence accrues when damage is first suffered, regardless of whether the damage is then discovered or discoverable. But it was not said to be true of all cases and was not necessarily true in Hawkins v Clayton itself. Brennan J (at 562) held that, in the circumstance, the cause of action did not accrue until after damage was suffered; it was the nominated executor’s assumption of office which was held to be the final temporal element for the cause of action to accrue. Gaudron J (at 599-602) held that, although the assets had diminished in value, it was not until the assets came under the executor’s control that damage was suffered by him and the cause of action was complete. Deane J (at 589) held that, notwithstanding that the negligent failure to inform the executor of the existence of the will caused damage, the cause of action did not accrue until after the period in which the wrongful act itself precluded bringing the proceedings; the wrongful act precluded bringing the proceedings because the wrongful act effectively concealed the existence of the cause of action.

31    In Hawkins v Clayton, the High Court rejected a submission that there was an overriding qualification in tortious economic loss cases that the cause of action only accrues when loss is discovered or discoverable. The Court’s rejection of the overriding qualification does not mean that there cannot be a case in which the cause of action only accrues when some actual adverse consequence is known or becomes manifest. Further, it has no relevance to a situation where damage is not in fact suffered until a contingency is fulfilled. These points about Hawkins v Clayton were explained by Deane J in Wardley at 540 in the following way (footnotes omitted):

In Hawkins v Clayton, a majority of the Court implicitly or explicitly rejected a submission that the Court should recognize a general overriding qualification of the prima facie position that a requirement of loss or damage as an ingredient of a cause of action is satisfied as soon as relevant loss or damage is in fact sustained. That suggested qualification was to the effect that, at least in the case of claims in negligence for damages for economic loss, time under a limitations provision does not commence to run until the stage is reached when the plaintiff discovers, or could on reasonable inquiry have discovered, that the loss has been sustained. If such a broad overriding qualification had been adopted in relation to such claims, reasoning by analogy would have lent strong support for the conclusion that, in a case such as the present where the action under s 82(1) is for damages for economic loss caused by misleading conduct in contravention of s 52 of the Act, time does not commence to run until the plaintiff knows or reasonably ought to know that the relevant conduct has in fact caused loss. The Court’s rejection of such an overriding qualification does not, however, alter the fact that, in some of the cases where an action lies in negligence for pure economic loss, no relevant loss is actually sustained or suffered and no cause of action for damages accrues unless and until some actual adverse consequence of the negligence is known or becomes manifest. Nor does the rejection of such a qualification provide, by analogy or otherwise, a general answer to the question whether the mere incurring of a contingent liability to make a future payment of itself constitutes loss or damage for the purpose of determining when a cause of action of which loss or damage is a necessary ingredient accrues or arises.

32    In Wardley, the State of Western Australia gave an indemnity to a bank, but the cause of action did not accrue on the day the indemnity was given; rather, the loss was only suffered once a contingency was fulfilled, such as a claim being made on the indemnity. It was unnecessary for the Court to identify the precise time when the cause of action accrued because all of the potentially relevant dates after execution of the indemnity were within the three-year time limit.

33    Brennan J (at 536-7) made some general observations of some relevance to the present case. His Honour said that, in a situation where the question of whether loss or damage is actually suffered depends upon a transaction involving both potential benefit and detriment, it cannot be said that a loss has been suffered until events occur which mean that an ‘adverse balance’ has been struck (footnote omitted):

The cause of action created by s 82(1) has several elements, but it is a cause of action for the recovery of money representing loss or damage suffered by the plaintiff – “the amount of the loss or damage”. The loss or damage includes, of course, economic loss or damage which the plaintiff suffers. A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff’s net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne —that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur.

The quantification of the diminution in value of an asset or of a liability incurred or the value of any benefit acquired may not be ascertainable at the time when the burden of the transaction is borne. In that event, the suffering of any loss cannot be said to occur before it is reasonably ascertainable (not before it is ascertained) that the burdens which the plaintiff has borne are greater than the value of the benefits that the plaintiff has acquired or will acquire. In other words, no loss is suffered until it is reasonably ascertainable that, by bearing the burdens, the plaintiff is “worse off than if he had not entered into the transaction”.

34    Brennan J observed that a loss could be suffered upon entry into an agreement if loss was inevitable regardless of extrinsic circumstances, but if the loss depends on extrinsic circumstances, the loss will not be suffered until those circumstances have occurred. His Honour said at 537-8 (footnotes omitted):

There is a sense in which it is right to say that, when a misrepresentation induces a plaintiff to enter into a transaction in which the plaintiff suffers a loss, the loss is suffered once the plaintiff becomes bound to the transaction. The die is then cast and what follows can be viewed as evidence proving the extent of the loss suffered when the first binding step was taken. That may be the correct analysis when the first binding step is such that, whatever extrinsic circumstances may transpire, a loss must be suffered. For example, when an asset is purchased for a price and, by reason of an inherent defect, it is worth less than the price paid, a loss may be said to be suffered when the plaintiff pays the price or becomes bound to pay the price. Similarly, when an agreement imposes on a plaintiff an obligation to pay an amount of money without acquiring a benefit and the amount to be paid is quantified by no factors extrinsic to the agreement save the passing of time, it is right to say that the loss is suffered when the agreement to pay becomes binding on the plaintiff. But when the actual loss that a plaintiff suffers depends not only on the making of an agreement but also on circumstances extrinsic thereto, the loss is not suffered until those circumstances have transpired and, in benefit and burden cases, not until the loss is ascertainable.

35    An example of the kind of situation about which Brennan J was speaking in Wardley is presented by the decision of the Full Court in Karedis Enterprises Pty Ltd v Antoniou (1995) 59 FCR 35. Mr and Mrs Antoniou (the lessees) had leased premises from which they intended to conduct a cafe. They traded a little over two years. The lessees claimed damages under s 82(1) of the TPA 1974, amongst other things for misrepresentations as to the likely takings. The trial judge found the lessors had contravened s 52 of the TPA 1974 and awarded damages. The damages included trading losses. The trial judge held that the lessees were obliged to wait at least 12 months to see if the takings forecasts were realised before they could show misrepresentations which might found their action, such that the actions did not accrue until 12 months after the lessees had started trading. The lessors appealed on bases which included that the trial judge should have found the proceeding to be statute barred.

36    Burchett and Hill JJ (with whom Sackville J agreed) remitted the matter to the trial judge to determine when loss or damage was first suffered, observing that it was not necessarily when the contract was entered into but concluding that the trial judge was also not correct to conclude that it was necessarily 12 months after trading commenced. Their Honours found that, when the lease was entered into, there was the potential for loss and damage, but that the lessees could only have suffered actual loss and damage when the disadvantageous character of the lease was ascertained or ascertainable by reference to the receipts and outgoings of the business over time. Their Honours said at 42:

The present is a case where the mere entry into the lease produced only a situation where the Antonious had the potential to suffer loss. That loss could only be calculated by reference to receipts and outgoings of the business over time. Certainly it could not be said at the time the lease was entered into that they had actually incurred loss or damage as distinct from potential or likely damage. In the language of the majority in Wardley:

“... the disadvantageous character or effect of the agreement [could not] be ascertained until some future date when its impact upon events as they unfold[ed] [became] known or apparent ... It was only when their loss was ascertained or ascertainable that it could be said that they had suffered loss.”

37    Of the trial judge’s view that the cause of action could not accrue for a period of 12 months, their Honours stated at 43:

His Honour’s conclusion as expressed seems to have depended upon an obligation that the Antonious wait at least 12 months to see if the projections regarding takings were realised. With respect to his Honour it is difficult to see how any such inflexible rule could be applied. The question for determination in a case such as the present, consistent with the views expressed by their Honours in the High Court in Wardley, will be when was it that the loss which the Antonious ultimately suffered (or a more than negligible part of it) was either ascertained by them or reasonably ascertainable? No question in the present case arises as to the point of time at which the loss was in fact ascertained. Essentially therefore the question was an objective one, namely, at what time could it be said that it was reasonably ascertainable that the Antonious would suffer loss. This was a question of fact to be determined by reference to the trading figures of the cafe business. It is not a question which could be resolved by reference to an arbitrary period of 12 months.

On the figures prepared by counsel for the Antonious, it would seem likely that by some time before December it was reasonably manifest that the cafe business would never take anything like the represented weekly takings and that each week losses would continue to be incurred which were unlikely ever to be made up. However, it would also be necessary to take into account both the advice given by the accountant and the fact that from at least June rental ceased to be paid.

38    Sackville J agreed with Burchett and Hill JJ and made some further observations of potential relevance to the present case. At 45-46, his Honour set out the following passage from the majority judgment in Wardley at 527:

The reasoning of the Court does, however, support the proposition that, at least in the case where the disadvantageous character of a transaction cannot be ascertained at the outset, a loss is not sustained until the plaintiff or applicant ascertains, or has the means available to ascertain, that he or she has been prejudiced by entry into the transaction. Potential loss is not enough. The judgment of the majority says this (at 527):

“When a plaintiff is induced by a misrepresentation to enter into an agreement which is, or proves to be, to his or her disadvantage, the plaintiff sustains a detriment in a general sense on entry into the agreement. That is because the agreement subjects the plaintiff to obligations and liabilities which exceed the value or worth of the rights and benefits which it confers upon the plaintiff. But, as will appear shortly, detriment in this general sense has not universally been equated with the legal concept of ‘loss or damage’. And that is just as well. In many instances the disadvantageous character or effect of the agreement cannot be ascertained until some future date when its impact upon events as they unfold becomes known or apparent and, by then, the relevant limitation period may have expired …”

39    At 46, Sackville J observed:

This passage suggests that, where the applicant has been induced by misleading and deceptive conduct to enter a lease, as in the present case, no loss is sustained unless and until the existence of the loss is ascertained or ascertainable by the applicant. The significance of “events as they unfold” is that they bring home, or should bring home, to the lessee that the obligations imposed by the lease exceed the value of any offsetting benefits, such as the lessee’s entitlement to conduct a business on the leasehold premises. It would seem that a loss is not sustained simply because evidence given at a subsequent hearing demonstrates, with the benefit of hindsight, that the prejudice or disadvantage in fact sustained by the lessee after taking possession and paying rent outweighed any offsetting advantage.

40    At 48, Sackville J said:

Whatever the position in relation to the acquisition of an asset, the present is a case where the Antonious obtained both advantages and disadvantages from the lease transaction, which they were induced to enter by the appellant’s misleading conduct. It was not the entry into the lease which of itself produced the loss. The lease may have enabled the lessees to pursue a profitable undertaking. The losses claimed by the Antonious flowed from the pursuit of a particular business which they were encouraged to undertake by the appellants’ representations. Only when the course of events allowed the lessees the opportunity to ascertain that the business could not succeed was loss sustained in the relevant sense.

In a case of this kind, in order to determine whether loss had been sustained at a particular stage after the lease had been entered into, I think it is necessary to inquire whether the lessees had ascertained, or could reasonably have ascertained, that they were worse off than if they had not entered into the transaction. In the circumstances of the present case, it is difficult to see how the Antonious, acting reasonably, could have failed to ascertain by the second half of 1989 that they had sustained losses in the relevant sense. However, I agree that the matter should be remitted to his Honour to make findings of fact on the issue.

41    These observations emphasise that, in cases of which the present is a potential example, the cause of action for losses arising from misleading or deceptive conduct does not necessarily accrue on entry into the relevant contract or on commencement of trading.

CONSIDERATION

42    In the case of Han Jing, the franchise agreement was varied on 27 November 2013 and the business commenced in December 2013. In the case of A&A, the franchise agreement was entered into in January 2014 and the business commenced in March 2014. There was no dispute that the $318,048.56 and $308,000 that Han Jing and A&A incurred in set up costs was paid before 30 June 2014. The applicants allege that their respective franchises never generated the suggested revenue, and particularise a trading loss in the first financial year of operation, namely the year ended 30 June 2014.

43    Nestle submits that the dates of the relevant events are clear and will not change, even with the benefit of evidence at trial. Nestle submits that the applicants’ cases, as pleaded, are that the businesses were never profitable and that they “traded at a loss from [their] opening and [were] unprofitable throughout [their] operation”. Nestle says that loss or damage occurred when the set up costs were incurred or when each of the applicants first opened its franchise business for trading.

44    Although it is true that the set up costs were incurred over 6 years before commencement of the proceedings and form part of the claimed losses, and that it is pleaded that the businesses were loss-making from the outset, it does not necessarily follow that the causes of action accrued when those costs were incurred or when the businesses opened. Karedis, in particular the passages set out above, permits a different conclusion, depending on the facts.

45    If one looks practically at what is at the core of the applicants’ respective claims, it is that they were induced by misleading conduct to acquire and operate franchises that turned out not to be as profitable as suggested by the representations. Whilst it will ultimately depend on the particular facts, the authorities referred to earlier permit a conclusion that the causes of action only accrued once the applicants had ascertained, or could reasonably have ascertained, that they were worse off than if they had not entered into the relevant transactions. The applicants acquired franchises which, one assumes, they considered would turn a profit. They entered into transactions with both benefits and burdens; the benefit was an income stream and the opportunity to operate a potentially profitable business, the burdens were the relevant set up costs and ongoing business expenditure. It might not have been ascertainable from the opening day of the franchises that the businesses could not succeed or would never achieve the profits implied by Nestle’s representations or that each of the applicants was definitely worse off as a result of entering into the transactions.

46    The question when the causes of action accrued is one of fact: Karedis at 43. Depending on exactly how the applicants put their cases, that question might involve, as it did in Karedis, a consideration of whether loss was ascertained or could or should have been ascertained on or before 30 June 2014. The franchises had operated for about 6 months by that time. There may be any number of facts relevant to ascertainment of loss in the sense referred to in Wardley and Karedis. Was it anticipated that foot traffic in the shopping centre or relevant location would increase? Were there other circumstances which suggested that the businesses might become profitable? Were there events which suggested that high costs or lower takings were explicable and might move closer to or better than those expressly or impliedly forecast by the representations? It is considerations such as these which make it so undesirable to determine limitation issues in interlocutory proceedings without the benefit of a clearly articulated case and the evidence relied upon.

47    In oral submissions, when the issue of ascertainment of loss in the Karedis sense was raised by the Court with Nestle, it was fairly observed that there was no pleading of such a case as might be expected. Nestle correctly submitted that, if the applicants put such a case, then rule 16.08 of the Rules suggested it should be put in a reply to Nestle’s limitation defence.

48    It became evident during the course of oral submissions that the applicants had not yet given careful attention to whether an “ascertainment case” could be put. The applicant’s only real answer to the limitation issue was that loss did not necessarily first arise on opening of the franchises and should be determined at trial once all of the evidence was complete. In circumstances where the present interlocutory applications have been made and both the applicants and respondent will be put to very significant expense in conducting the litigation, it is desirable that careful attention be given to the limitation issue. As things presently stand, the applicants plead that they incurred losses in setting up the franchises and operated at an immediate and ongoing loss (in the case of Han Jing there was in fact some small profit in later years). These losses were incurred substantially over 6 years before the litigation was commenced. The applicants should not be shut out at this stage of the litigation from pursuing their cases if there is an answer to the limitation issue, but – in the interests of the efficient and responsible conduct of litigation – careful consideration should be given to the issue up front and the case which is to be put in answer to the limitation defence should be properly articulated.

49    In their written submissions, the applicants had contended that their respective losses were “contingent”. Nestle disagreed with the applicants’ framing of the case as one involving contingent loss and observed that the applicants had not identified any contingency in any pleading. In oral submissions, the applicants confirmed that they do not make a case that their losses were “contingent” in the sense described in Wardley, namely that the losses only arose on the happening of some particular event, such as the making of a demand on an indemnity.

50    Ultimately, the parties agreed that the appropriate course was to provide an opportunity for the applicants to file a reply, if so advised, and their evidence. The parties also agreed during submissions that the matter was then appropriately referred to mediation by a Registrar of the Court. The interlocutory applications should be stood over. I reserve costs.

Associate:

Dated:    2 March 2021