Sidgreaves v State of New South Wales

1. [1]

   HIS HONOUR: The first plaintiff in these proceedings is Anthony Sidgreaves, and the second plaintiff is A J Holdings NSW Pty Ltd. There are three defendants; they are the State of New South Wales, the Chief Commissioner of State Revenue, and the Independent Liquor and Gaming Authority respectively. This is a notice of motion filed on 22 July 2019 by the three defendants seeking an order that the plaintiffs’ amended consolidated statement of claim (“ACSOC”) filed on 10 July 2019 be struck out pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (“UCPR”). Alternatively, the defendants seek that certain paragraphs of the ACSOC be struck out pursuant to the same provision, or in some instances, dismissed pursuant to r 13.4(1) of the UCPR. The notice of motion also sought an order for security for costs pursuant to r 42.21 of the UCPR, but the parties have resolved that issue.

2. [2]

   The essence of the plaintiffs’ claim is that in 2012 and 2013, the defendants, acting jointly and/or severally, unlawfully thwarted attempts by the plaintiffs to sell their business and lease out the business premises, by the third defendant not processing applications by them to transfer a liquor licence, which was a necessary adjunct to the sale of the business, thus occasioning economic loss to them.

The relevant background to the ACSOC

1. [3]

   The proceedings concern a tavern in Lismore known as “Tommy’s Tavern” (“the Tavern”). As of 2011, the registered proprietors of the property were the second plaintiff and another company, Cumedo Pty Ltd (“Cumedo”). The first plaintiff was the sole director of the second plaintiff and one of two directors of Cumedo. The third defendant, then known as the Office of Liquor, Gaming and Racing, issued a liquor licence to the first plaintiff in 2005 in relation to the Tavern (“the liquor licence”). The business of the Tavern was owned by AJS Hotel Management Pty Ltd, of which the first plaintiff was the director.

2. [4]

   On about 9 August 2011, the first plaintiff transferred the liquor licence to a Robert Parrott, who at the same time took over the business of operating the Tavern. The first plaintiff contended that on or shortly before 29 December 2011, he received a message from an employee of Mr Parrott’s company, Buckoe Pty Ltd, to the following effect:

3. [5]

   The first plaintiff contended that on 2 January 2012, he forwarded an email to Mr Parrott informing him that he was terminating his lease. On 4 January 2012, the first plaintiff reopened the Tavern and it appears that it operated until he transferred the liquor licence in 2016, as part of a sale of the business and lease of the premises.

4. [6]

   At all relevant times, there were poker machines on the premises of the Tavern which made the hotelier liable for payment to the second defendant of tax (“gaming tax”) pursuant to the Gaming Machine Tax Act 2001 (NSW) (“the Act”). An issue arose as to whether the plaintiffs or Mr Parrott were liable for payment of the gaming tax for the final quarter of 2011.

5. [7]

   The relevant provisions of the Act are as follows:

6. [8]

   Certain provisions of the Liquor Act 2007 (NSW) are relevant. Section 40 provides that licence applications are to be made to “the Authority”, which is defined in s 4 to mean “the Independent Liquor and Gaming Authority”, which is the third defendant. The terms “hotel” and “hotelier” are defined in s 4 of the Liquor Act as follows:

7. [9]

   Other relevant provisions of the Liquor Act are as follows:

8. [10]

   The term “owner of premises” in s 61 is defined in s 4 of the Liquor Act to mean “the person entitled to the rents or profits of the premises”.

9. [11]

   Also relevant is s 58 of the Gaming Machines Act 2001 (NSW), which provides:

10. [12]

    Pursuant to the Taxation Administration Act 1996 (NSW), gaming tax is payable to the second defendant: see s 3 (definition of “tax” includes a “tax … under a taxation law”); s 4 (“taxation laws” includes the Gaming Machine Tax Act); s 43 (“tax that is payable is payable to the Chief Commissioner”); and s 60 (“There is to be a Chief Commissioner of State Revenue”).

The dispute over liability for the gaming tax

1. [13]

   On 3 January 2012, Mr Parrott forwarded an email to the third defendant and a police email address, advising that he no longer had the leasehold of the premises and had relinquished responsibility for the liquor licence. On 20 January 2012, the first plaintiff sent an email to an employee of the third defendant. On that same date, an officer of the second defendant advised him, by email, that he was liable for the gaming tax. The officer wrote, relevantly:

2. [14]

   On 4 February 2012, the first plaintiff lodged an objection to the gaming tax assessment with the second defendant. By letter dated 20 April 2012 from the second defendant, he was advised that his appeal was successful. The letter stated:

3. [15]

   By letters dated 1 and 4 May 2012 respectively, Cumedo and the second plaintiff were advised they were “jointly and severally liable” to pay for the gaming tax, which was now calculated to be $26,441.21. They lodged an objection with the second defendant. By letter dated 3 September 2012, the second defendant disallowed the objection. The two companies unsuccessfully challenged the decision in the Administrative Decisions Tribunal (“ADT”), its judgment being handed down on 9 July 2013: A J Holdings (NSW) Pty Limited & Cumedo Pty Limited v Chief Commissioner of State Revenue [2013] NSWADT 156.

4. [16]

   Cumedo and the second plaintiff successfully appealed this decision to the Appeal Panel of the New South Wales Civil and Administrative Tribunal (“NCAT”), which handed down its decision on 11 August 2014: A J Holdings (NSW) Pty Limited v Chief Commissioner of State Revenue [2014] NSWCATAP 40. The Appeal Panel found, at [90], that pursuant to ss 6(3)(a) and 7(4) of the Act, the relevant date for the determination of the gaming tax was 31 December 2011, and that the second defendant was not the “hotelier” at that time. The Appeal Panel remitted the matter to NCAT to determine whether the two companies were liable pursuant to s 6(3)(b) of the Act, as being at that time “directly interested in the business, or the profits of the business, carried on under the hotel licence” and, if so, whether it was appropriate to apportion liability. On 13 February 2015, NCAT determined the first part of the question in the negative, thus finding that Cumedo and the second defendant were not liable for the gaming tax: A J Holdings (NSW) Pty Ltd v Chief Commissioner of State Revenue [2015] NSWCATAD 17.

Attempts by the plaintiffs to transfer the licence

1. [17]

   On 23 January 2012, the first plaintiff lodged an application for transfer of the liquor licence from Mr Parrott to himself. The defendants claim that the licence transfer was provisionally approved on 30 January 2012, and that the first plaintiff held the licence until 24 January 2016, when an application by him to transfer it was approved.

2. [18]

   At times between those dates and during the course of their dispute with the defendants, the plaintiffs sought to transfer the hotel licence as part of attempts to sell the business and lease out the premises, but the second and third defendants declined to process the transfer applications until the gaming tax was paid.

3. [19]

   On 31 January 2012, the third defendant informed the first plaintiff by letter that the second defendant had recommended it to cancel “the hotel’s authorisation to keep gaming machines” and that, if the outstanding amount of $8,512.00 was not paid before 7 February 2012, the first plaintiff’s authorisation to keep gaming machines would be cancelled.

4. [20]

   On 2 February 2012, Peter Wicks, the Acting Director of Licensing at the third defendant, sent an email to Eric Blazek, a Senior Compliance Officer of the second defendant, stating:

5. [21]

   Later the same day, Mr Blazek advised the first plaintiff by email that the second defendant would not be exercising its discretion under s 11 of the Act to apportion the liability for tax because it “believe[s] there is no need to apportion the tax”. He concluded:

6. [22]

   In about April 2013, the second plaintiff and Cumedo commenced negotiations to sell the business of the Tavern to 21st Century Hotel Company Pty Ltd (“21st Century”). The parties negotiated a sale of the business for $500,000 and a ten-year lease, the rent for the first year being $200,000. However, according to the first plaintiff, on 11 September 2013, the third defendant informed the first plaintiff that the liquor licence would not be transferred to 21st Century until the gaming tax was paid.

7. [23]

   On 23 September 2013, the first plaintiff lodged an application with the third defendant to transfer the licence to TT Hotel Management Pty Ltd (“TT Hotel Management”) “in an attempt to facilitate the transaction with [21st Century]”. The application was made in the name of TT Hotel Management.

8. [24]

   By email dated 3 October 2013, the third defendant advised that the application was “put on hold” subject to the first plaintiff providing details of the directors and shareholders of TT Hotel Management and settlement with the second defendant of the gaming tax. On 17 October 2013, the first plaintiff advised 21st Century that the sale could not proceed until the gaming tax was paid.

9. [25]

   On 22 April 2014, Principal Member Seiden of the Appeal Panel that was hearing the second defendant’s appeal from the ADT, issued a direction that the Chief Commissioner of State Revenue make inquiries as to whether the second defendant had made any decision affecting the second plaintiff’s transfer of a liquor licence.

10. [26]

    By letter dated 1 May 2014, the Crown Solicitor’s Office of New South Wales informed the first plaintiff, as the director of the second plaintiff, as follows:

11. [27]

    On 4 August 2014, according to the third defendant, the transfer application lodged on 23 September 2013 was withdrawn by the first plaintiff’s solicitors.

12. [28]

    By email dated 10 September 2014, that is, in the month following the handing down of the Appeal Panel’s decision, the first plaintiff wrote to the third defendant, requesting reasons for its decision to refuse his application of 23 September 2013 for a transfer of the liquor licence from himself to TT Hotel Management. By letter dated 25 September 2014, the third defendant responded as follows:

13. [29]

    Following the decision of NCAT of 13 February 2015, the second plaintiff and Cumedo recommenced negotiations to sell the business. Pursuant to those negotiations, an application to transfer the licence was lodged on 18 January 2016 and approved on 25 January 2016.

14. [30]

    By letter sent in about May 2016, the third defendant responded to questions that had been asked by the first plaintiff, which involved an explanation of the procedure which had resulted in his earlier transfer applications not being processed. The letter stated, relevantly:

History of the proceedings

1. [31]

   In 2018, the plaintiffs commenced proceedings in the District Court and in the Supreme Court. The District Court proceedings were transferred to the Supreme Court, and consolidated into one proceeding on 1 April 2019. The ACSOC was filed and served on 10 July 2019. By that time, the plaintiffs had filed or served six variants of statements of claim that combined to formulate the ACSOC. During that process, the defendants had frequently asked for further and better particulars.

The ACSOC

1. [32]

   The plaintiffs nominate the first defendant because the Office of Liquor and Gaming is located within, and a part of, the New South Wales Department of Customer Service. The third defendant, the Independent Liquor and Gaming Authority, is a statutory corporation created by s 6 of the Gaming and Liquor Act 2007 (NSW).

2. [33]

   The ACSOC relevantly pleads as follows:

3. [34]

   In response to a request for particulars in respect of a paragraph in the amended statement of claim that was filed in the District Court on 1 June 2018, the plaintiffs identified the relevant licence transfer applications made by them as being those that were made on 24 January 2012 and 23 September 2013. The terms of the relevant part of that paragraph are almost identical to pars (9) and (13) of the ACSOC, with the ACSOC stating that the applications in question were those made “From and about early 2012, and thereafter until late 2013”.

The notice of motion

1. [35]

   The notice of motion was filed on 22 July 2019. I heard the matter on 13 February 2020. The orders sought are as follows:

2. [36]

   Rule 14.28 of the UCPR is as follows:

3. [37]

   Rule 13.4(1) of the UCPR provides:

4. [38]

   The allegation in par (11A) of the ACSOC is confined to the first and second defendants. The defendants submitted that it is unclear from the plaintiffs’ pleadings whether the expressed reliance on s 18 of the Australian Consumer Law (“ACL”) is within Sch 2 of the Competition and Consumer Act 2010 (Cth), or pursuant to Pt 3 of the Fair Trading Act 1987 (NSW), which applies Sch 2 as a law of New South Wales: ss 27 and 28.

5. [39]

   Section 18 of Sch 2 of the Competition and Consumer Act is as follows:

6. [40]

   The defendants submitted that if the pleading is in terms of the Commonwealth ACL, the claim is “doomed to fail”, because there is no underlying cause of action, and should be dismissed pursuant to rr 13.4(1)(a), (b) or (c) of the UCPR. The application of Sch 2 is as follows:

7. [41]

   The defendants submitted that, pursuant to s 2B of the Competition and Consumer Act, Sch 2 does not apply to the States. Section 2B provides:

8. [42]

   Section 131 of the Competition and Consumer Act provides that Sch 2 applies to the conduct of corporations, which the first and second defendants are not. Parts of Sch 2 also apply to “persons” in certain respects.

9. [43]

   Accordingly, the defendants submitted that Sch 2 cannot apply to the first and second defendants.

10. [44]

    Alternatively, if the pleading is in terms of the New South Wales ACL, then s 36 of the Fair Trading Act applies. Section 36 provides:

11. [45]

    The defendants submitted that the first and second defendants are “the Crown” for the purposes of s 36: Wynyard Investments Proprietary Limited v Commissioner for Railways (NSW) (1955) 93 CLR 376; [1955] HCA 72 per Williams, Webb and Taylor JJ at 382-385. In order that the plaintiffs’ action against them could proceed in line with s 36 of the Fair Trading Act, it was necessary for the plaintiffs to plead that the first or second defendants were, at the relevant times, “carrying on a business”, and to plead “any material facts in respect of what the (un-pleaded) business was”. Accordingly, pars (11A)(i) and (ii) should be struck out pursuant to r 14.28(1)(a)-(c) of the UCPR.

12. [46]

    The defendants rely on the reasoning of Campbell J in PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407. That case concerned the sale of land that was “surplus to government requirements” by the defendants to the plaintiff. The plaintiff claimed damages for losses suffered as a result of, inter alia, alleged misleading and deceptive conduct in relation to the sale in contravention of federal and state consumer protection legislation. Campbell J concluded:

13. [47]

    In oral submissions, the defendants claimed that they had twice sought clarification from the plaintiffs as to which ACL was relied upon, without success. However, having regard to the correspondence in which the defendants claim that clarification had been sought, it is not apparent to me that the query was made. Clarification was sought in the form of better and further particulars in respect of the same pleading in earlier statements of claim, in letters dated 25 June 2018 and 10 October 2018. In the first, they sought “facts, matters and circumstances” in support of the allegation that the ACL applies but did not specifically ask what legislation was relied upon. In the latter letter, the defendants observed that the asserted breach of ACL in Sch 2 to the Competition and Consumer Act is liable to be dismissed pursuant to r 13.4 or struck out pursuant to r 14.28 of the UCPR, but again, did not request clarification of which law was relied upon.

14. [48]

    I also note that in a defence filed on 22 February 2019 to an earlier draft of the statement of claim, the defendants responded to the plaintiffs’ assertion on each alternative basis without apparent difficulty. By letter dated 11 March 2019, the plaintiffs’ solicitor advised:

15. [49]

    The defendants submitted that, in any event, whatever the basis of the plaintiffs’ pleading, it should be either dismissed or struck out.

16. [50]

    The plaintiffs pleaded that, consequent to the alleged breaches of the defendants, they suffered loss and damages, which they particularised as loss of a sale and rent, apparently being the negotiated sale of the business and rent of premises to 21st Century in mid-2013.

17. [51]

    The defendants submitted that pars (10), (13), (14), (15), (18), (19), (25A) and (26) of the ACSOC constitute a claim for pure economic loss, which the High Court has held to not be recoverable as damages in the absence of injury to person or property, even if the loss is foreseeable, subject to certain exceptions. Amongst other cases, the defendants relied upon Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185; [2014] HCA 36, which concerned whether a builder owed an owners’ corporation a duty of care to avoid economic loss arising from latent defects in the building. The joint judgment of Crennan, Bell and Keane JJ provides an historical and theoretical context for claims of economic loss, as follows:

18. [52]

    In the same case, French CJ referred to the “special cases” in which a duty of care for economic loss has been recognised, and stated, at [22]:

19. [53]

    In CJD Equipment v A&C Constructions [2009] NSWSC 1362, McDougall J said at [245]:

20. [54]

    The defendants submitted that it was incumbent upon the plaintiffs to plead particulars of the material facts on which they rely, identifying the assumption of responsibility by the defendants and their reliance and vulnerability, in the sense identified by McDougall J.

21. [55]

    The pleadings refer to the defendants being subject to certain duties to the plaintiffs: pars (10), (11A)(iii), (15), (18), (19) and (27). In particular, the pleadings allege that the defendants breached a duty to not act in bad faith towards the defendants: pars (10), (14), (15) and (19).

22. [56]

    The defendants submitted that a pleading of “bad faith”, which is expressed as an allegation in negligence, is a concept in the context of administrative decision-making and requires proper grounds. The defendants cited SCAS v Minister for Immigration & Multicultural & Indigenous Affairs [2002] FCAFC 397, in which the Court said, at [19]:

23. [57]

    The defendants also relied on NAKF v Minister for Immigration and Multicultural and Indigenous Affairs (2003) 130 FCR 210; [2003] FCA 730, in which Gyles J said, at [24]:

24. [58]

    The defendants submitted that the plaintiffs have failed to plead the material facts upon which “bad faith” on the part of the defendants is alleged and appear to have coupled the allegation of bad faith with negligence whereas, as noted by Gyles J in the above passage, the concepts are distinct.

25. [59]

    To the extent that the pleadings suggest an allegation against the defendants of the tort of misfeasance in public office, the defendants submitted that the plaintiffs are obliged to plead the material facts on which the elements of the tort are alleged.

26. [60]

    The defendants submitted that the pleadings at para (11A)(iii) fail to identify the duty of care which was allegedly breached, giving rise to negligence. The “Particulars of negligence and duty of care” in the ACSOC plead the breach, but not the duty itself, or the foreseeable risk of injury.

27. [61]

    The defendants submitted that a difficulty with the terms of par (9) of the ACSOC is that one of the two transfer applications relied upon, being the 23 September 2013 application, was not to one of the plaintiffs, but rather, as noted earlier, to TT Hotel Management. [T21.12]

28. [62]

    The terms of par (10) of the ACSOC are that the defendants breached “a duty”, but then refers to what appear to be three separate alleged duties. Paragraph (15) refers back to the “duties” at par (10), suggesting that it is not a single duty, but rather multiple duties.

29. [63]

    In pars (18) and (19) of the ACSOC, the plaintiffs have not pleaded a foreseeable risk of injury.

30. [64]

    The defendants submitted that par (20) of the ACSOC, as pleaded, is bereft of a cause of action against the third defendant. The plaintiffs submitted that the relevant cause of action is apparent from other paragraphs, but in any event concedes that it could be more clearly pleaded.

31. [65]

    The defendants have challenged pars (25A), (26) and (27) of the pleadings on the basis that they are deficient, which is conceded by the plaintiffs and therefore I will not refer to that part of the notice of motion any further.

The plaintiffs’ submissions on the notice of motion

1. [66]

   At the hearing of this matter, the plaintiffs accepted the defendants’ submissions as to why their pleading based on the Commonwealth ACL could not succeed. Although they maintained that the claim had merit in terms of the New South Wales ACL, they foreshadowed that on a re-pleading, they may abandon it. Accordingly, they abandoned par (11A)(i) of the pleadings and accepted that par (11A)(ii) needed to be re-pleaded

2. [67]

   The plaintiffs acknowledged that they may have an issue in denying that the first licence transfer, which was to the first plaintiff, did not eventuate, and in any event clarified that only the failure of the second transfer application, made on 23 September 2013, allegedly resulted in an economic loss.

3. [68]

   The plaintiffs submitted that the test for bad faith is not as strict as was submitted by the defendants, illustrating their point by reference to a passage from the judgment of the High Court in Thompson v The Council of Municipality of Randwick (1950) 81 CLR 87; [1950] HCA 33, which concerned a contested resumption of land by the defendant. At 105-106, the majority (Williams, Webb and Kitto JJ) stated:

4. [69]

   The plaintiffs submitted that the third defendant’s functions did not extend to determining tax liability and restraining the plaintiffs from operating their business, which constituted an improper purpose, in the sense noted in Thompson v Council of Municipality of Randwick. The email correspondence between the second and third defendants on 2 February 2012 and the advice of the third defendant to the first plaintiff on 3 October 2013 (see [20] and [24] above) were evidence of the third defendant exceeding their authorised powers. The third defendant had acknowledged the policy behind these actions in its response to the first plaintiff’s questions in May 2016, relevantly reproduced at [30] above.

5. [70]

   The plaintiffs conceded that it had not expressly pleaded or particularised that the third defendant exceeded its authorised powers by holding up a licence transfer on the basis of the outstanding gaming tax, where liability was disputed.

6. [71]

   In relation to the defendants’ submissions on economic loss, the plaintiffs disputed that an assumption of responsibility should be pleaded. They noted that the authorities relied upon by the defendants concerned whether an incoming purchaser of a poorly-constructed building had a right of action for economic loss against the builder, and submitted that, therefore, they were of little relevance in that context. The question of assumption of responsibility did not arise, because the first plaintiff “stands aside and apart” from the defendants; the plaintiffs had no input into their decision-making.

7. [72]

   Applying similar reasoning, the plaintiffs submitted that there was a degree of artificiality in pleading or particularising vulnerability in a case in which there was nothing that the plaintiffs could have done to protect themselves from the loss of the kind that they say they have sustained.

8. [73]

   The plaintiffs conceded that the pleadings did not expressly state that the third defendant relied on representations from the second defendant, it was implied by the reference in par (14) to the third defendant relying on “an irrelevant matter”, namely, the advice from the second defendant.

Consideration

1. [74]

   In view of the plaintiffs’ concession in relation to pars (11A)(i) and (ii) of the ACSOC pleadings insofar as they depend on the Commonwealth ACL in Sch 2 of the Competition and Consumer Act, if the defendants fail in their first sought order, the case for an order in terms of order (2) of the notice of motion is made out.

2. [75]

   Similarly, in relation to alternative orders (3) and (4) of the notice of motion, although the plaintiffs have expressed a reservation as to whether they would persevere with their claim based on ACL by operation of Pt 3 of the Fair Trading Act, I do not assume that it is unarguable. Taking into account the absence of pleadings or particulars as to whether the defendants were “carrying on a business” and, if so, the material facts in respect of it, but also what I regard as a failure by the defendants to have sought further and better particulars on those issues, it should be struck out, with leave to re-plead.

3. [76]

   I also note that the plaintiffs acknowledged difficulties with pars (20), (25A), (26) and (27), as presently pleaded.

4. [77]

   The question then arises whether the defendants have satisfied the Court that the balance of the ACSOC should be struck out pursuant to r 14.28 of the UCPR, or only those paragraphs identified in orders (6), (7) and (8), or whether, in my view, the evidence on the notice of motion warrants a variation of those sought orders.

5. [78]

   The plaintiffs admitted that they do contend economic loss and that they had not pleaded the material facts on which they rely, or identifying the assumption of responsibility by the defendants and their reliance and vulnerability. However, the plaintiffs countered that, in the circumstances of this case, it was arguably not appropriate to do so. I regard this explanation as unsatisfactory. The defendants are entitled to know the case against them, and as the ACSOC is presently drafted, in terms of economic loss being a basis of claim, the pleadings insufficiently inform the defendants of material facts on which the claim is based.

6. [79]

   It is necessary, in my view, for the plaintiffs to plead with particularity how it is said that the defendants have acted in bad faith. The reliance by the plaintiffs on Thompson v Council of Municipality of Randwick does not mitigate that obligation, but rather demonstrates the importance of explaining the way in which plaintiffs claim that there has been an exercise in bad faith. I note the concern expressed by the Court in SCAS v Minister for Immigration & Multicultural & Indigenous Affairs that “proper grounds” for such an allegation must exist. At a minimum, it is appropriate to plead the material facts upon which the allegation is based.

7. [80]

   My conclusion in relation to the need to re-plead economic loss and the allegation that the defendants acted in “bad faith” affects so much of the ACSOC that the case is made out for the pleadings as a whole, to be struck out, with leave to re-plead.

8. [81]

   The defendants have succeeded on their first sought order and it is appropriate that costs follow the outcome of the application. Accordingly, I will make such an order.

Orders

1. [82]

   I make the following orders:

   1. (1)

      Pursuant to r 14.28 of the Uniform Civil Procedure Rules 2005 (NSW), the amended consolidated statement of claim filed 10 July 2019 is struck out.

   2. (2)

      Leave is granted to the plaintiffs to serve a proposed further amended statement of claim on the defendants by 16 November 2020.

   3. (3)

      The defendants are to file and serve any further notice of motion in relation to the proposed amended statement of claim by 30 November 2020.

   4. (4)

      The matter is listed before the Registrar on 2 December 2020 for directions.

   5. (5)

      The plaintiffs to pay the defendants’ costs of the notice of motion filed on 22 July 2019.