McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd

• Jurisdiction: Australia Federal only
• Court: Full Federal Court (Australia)
• Judgment Date: 24 January 2008
• Neutral Citation: [2008] FCAFC 2
• Date: 24 January 2008

FEDERAL COURT OF AUSTRALIA

McGrath; in the matter of Pan Pharmaceuticals Ltd (in liq) v Australian Naturalcare Products Pty Ltd [2008] FCAFC 2

TRADE PRACTICES – misleading and deceptive conduct – whether conduct capable of amounting to representation – whether representations continuous or made as to future matters – onus of proof in establishing ‘reasonable grounds’ for making representation.

TORT – whether a duty of care to avoid economic loss owed.

DAMAGES – method of calculation in claims under Trade Practices Act 1974 – no error in primary judge’s approach.

Fair Trading Act 1987 (SA) s 54(2)

Fair Trading Act 1990 (Tas) s 11(2)

Fair Trading Act 1992 (ACT) s 11(2)

Therapeutic Goods Act 1989 (Cth) ss 36,38, 40, 41

Trade Practices Act 1974 (Cth)ss 51, 51A, 52, 79, 82

Trade Practices Revision Act 1986 (Cth)

Accounting Systems 2000 (Developments) Pty Limited v CCH Australia Ltd (1993) 42 FCR 470 cited

Adelaide Petroleum NL v Poseidon Limited (1988) ATPR 40-901 cited

Australian Competition and Consumer Commission v Danoz Direct Pty Limited [2003] FCA 881 discussed

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Limited [2005] FCA 1703 referred to

Australian Competition and Consumer Commission v Henry Kaye [2004] FCA 1363 discussed

Australian Competition and Consumer Commission v IMB Group Pty Limited (1999) ATPR 41-704 cited

Australian Competition and Consumer Commission v Oceana Commercial Pty Limited [2003] FCA 1516 referred to

Australian Competition and Consumer Commission v Universal Sports Challenge Limited [2002] FCA 1276 discussed

Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 cited

Blacker v National Australia Bank [2000] FCA 681 discussed

Branir Pty Limited v Owston Nominees (No 2) Pty Limited (2001) 117 FCR 424 cited

Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005) 148 FCR 68 cited

Chappel v Hart (1998) 195 CLR 232 referred to

CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 cited

City of Botany Bay Council v Jazabas Pty Limited [2001] NSWCA 94 discussed

Concrete Constructions Group v Litevale Pty Ltd (2002) ATPR (Digest) 46-224 referred to

Downey v Carlson Hotels Asia Pacific Pty Limited [2005] QCA 199 discussed

Effem Foods Pty Limited (t/as Uncle Ben’s of Australia) v Lake Cumbeline Pty Limited (1999) 161 ALR 599 cited

Farah Constructions Pty Limited v Say-Dee Pty Limited (2007) 236 ALR 209 cited

Fubilan Catering Services Limited v Compass Group (Australia) Pty Limited [2007] FCA 1205 discussed

Futuretronics International Pty Limited v Gadzhis [1992] 2 VR 217 cited

Lewarne v Momentum Productions Pty Limited [2007] FCA 1136 discussed

Miba Pty Limited v Nescore Industries Group Pty Limited (1996) 141 ALR 525 cited

Murphy v Overton Investments Pty Limited (2004) 216 CLR 388 referred to

Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 cited

Network Ten Pty Ltd v TCN Channel Nine Pty Limited (2004) 218 CLR 273 cited

Phoenix Court Pty Limited v Melbourne Central Pty Limited, [1997] FCA 1101 cited

R v Secretary of State for the Environment, Transport and the Regions, Ex parte Spath Holme Ltd [2001] 2 AC 349 approved

Sykes v Reserve Bank of Australia (1998) 88 FCR 511 cited

Thompson v Mastertouch TV Services (1977) 29 FLR 270 referred to

Ting v Blanche (1993) 118 ALR 543 cited

Wheeler Grace & Pierucci Pty Limited v Wright (1989) ATPR 40-940 cited

Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 cited

Wright v TNT Management Pty Limited (1985) 15 NSWLR 679 cited

Parliamentary Debates, House of Representatives, Vol H of R 147

Parliamentary Debates Vol H of R 148

Parliamentary Debates Vol S 114

ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD v AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED

NSD 2506 OF 2006

EMMETT, STONE AND ALLSOP JJ

24 JANUARY 2008

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED Respondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE OF ORDER:	24 january 2008
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed.

2. On or before 15 February 2008, the parties file submissions on costs, including draft orders for which they contend.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD 2506 OF 2006

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:	ANTHONY GREGORY MCGRATH AND CHRISTOPHER JOHN HONEY AS JOINT LIQUIDATORS OF PAN PHARMACEUTICALS LTD Appellant
AND:	AUSTRALIAN NATURALCARE PRODUCTS PTY LIMITED Respondent

JUDGES:	EMMETT, STONE AND ALLSOP JJ
DATE:	24 JANUARY 2008
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EMMETT J INTRODUCTION

1 Australian Naturalcare Products Pty Limited (Naturalcare) sells complementary medicines by mail order. Until April 2003, Pan Pharmaceuticals Limited (Pan) was a substantial contract manufacturer of complementary medicines and Naturalcare purchased a substantial part of its stock from Pan for many years. On 28 April 2003, Pan’s licence under the Therapeutic Goods Act 1989 (Cth) (the TG Act) to manufacture therapeutic goods was suspended. As a result of that suspension, Pan ceased to manufacture and sell therapeutic goods and was no longer able to supply products to Naturalcare.

2 Subsequently, Pan became insolvent and was ordered to be wound up. Naturalcare lodged a proof of debt in the winding up claiming, inter alia, compensation for loss of profits as a consequence of being unable to obtain products from Pan. The appellants, the joint liquidators of Pan (the Liquidators), rejected Naturalcare’s proof of debt in so far as it claimed loss of profits from its inability to continue to obtain products from Pan. By Originating Process under the Federal Court (Corporations) Rules 2000 (Cth),Naturalcare appealed to the Court against the rejection of its proof of debt by the Liquidators.

3 The basis of Naturalcare’s claim to be entitled to compensation from Pan was that, in one way or another, Pan was under a duty or an obligation owed to Naturalcare to continue to comply with the conditions of its licence in relation to the conduct of its business of manufacturing therapeutic goods. Naturalcare put its claims on several bases, including breach of contract, breach of a common law duty of care, estoppel and contravention of s 52 of the Trade Practices Act 1974 (Cth) (the Trade Practices Act).

4 A judge of the Court rejected Naturalcare’s claims in so far as they were based on breach of contract, breach of duty of care and estoppel. However, his Honour concluded that there had been contraventions of s 52 of the Trade Practices Act and that Naturalcare was entitled to damages pursuant to s 82 of the Trade Practices Act. On 27 November 2006, his Honour ordered that the Liquidators’ decision to reject Naturalcare’s proof of debt be set aside and directed that, in lieu thereof, the Liquidators admit Naturalcare as a creditor of Pan for the sum of $2,242,191.67, being an increase of $471,922.97 plus interest thereon of $305,143.57.

5 The Liquidators have appealed from his Honour’s orders on grounds that his Honour erred in concluding that there were contraventions of the Trade Practices Act and in concluding that Naturalcare suffered loss or damage by reason of its reliance on conduct of Pan that was alleged to have contravened the Trade Practices Act. They also say that the primary judge erred in the assessment of the damages that his Honour found resulted from the alleged contraventions. Naturalcare has filed a notice of contention seeking to uphold his Honour’s orders on the alternative basis that Pan had acted in breach of a duty of care said to be owed by it to Naturalcare.

6 I have read in draft form the reasons of Allsop J for concluding that the appeal should be dismissed. Although I have reached a different conclusion on one question, it is unnecessary for me to decide all of the questions addressed by Allsop J. However, save for that one question, I would be disposed to agree with Allsop J’s conclusions and the reasons for them. In particular, I agree that his Honour’s observations concerning the operation of s 51A of the Trade Practices Act.

7 The question on which I have reached a different conclusion is whether a particular representation alleged to have been made by Pan to Naturalcare in April 2002 was misleading or deceptive. Because of the different conclusion I have reached on that question, it is necessary for me to deal with Naturalcare’s contention based on contravention of the Trade Practices Act. That requires, first, a brief outline of the relevant provisions of the TG Act.

THE THERAPEUTIC GOODS ACT

8 The objects of the TG Act are, relevantly, to provide for the establishment and maintenance of a national system of controls relating to the quality, safety, efficacy and timely availability of therapeutic goods that are used in Australia or exported from Australia. The Therapeutic Goods Administration (TGA) is a unit of the Australian Government Department of Health and Ageing and is responsible for administering the provisions of the TG Act.

9 Part 3-3 of the TG Act, which consists of ss 33A to 41A, deals with the manufacturing of therapeutic goods. The complementary medicines manufactured by Pan and sold by Naturalcare are therapeutic goods within the meaning of that term when used in the TG Act. For the purposes of the TG Act, sponsor, in relation to therapeutic goods, relevantly means a person who, in Australia, manufactures the goods, or...