3WJ v Director-General, Fair Trading - [2003] NSWSC 331

No judgment structure available for this case.

CITATION: 3WJ v Director-General, Fair Trading [2003] NSWSC 331

HEARING DATE(S): 16 April 2003

JUDGMENT DATE:
17 April 2003

JURISDICTION:
Equity

JUDGMENT OF: Austin J

DECISION: Declaration that the defendant's determination was ultra vires and void, and order setting the determination aside

CATCHWORDS: ADMINISTRATIVE LAW - defendant empowered by Motor Dealers Act to give notice to show cause if of opinion that there are reasonable grounds for believing plaintiff's business carried on in dishonest or unfair manner - Act empowers defendant to impose restriction on licence if satisfied that matter has been established - Director-General gives notice and then makes determination for stated reasons - reasons include matters incorrect in law - determination invalid

LEGISLATION CITED: Fair Trading Act 1987 (NSW) s 42
Motor Dealers Act 1974 (NSW) ss 20D, 20E, 24

CASES CITED: Arbest Pty Ltd v State Bank of New South Wales (1996) ATPR para 41-481
Green v Daniels (1977) 13 ALR 1
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559

PARTIES :
3WJ Pty Ltd (P)
The Director-General of Department of Fair Trading (D)

FILE NUMBER(S): SC 2054/02

COUNSEL: B Toomey QC with P Ramos (P)
P Griffin (D)

SOLICITORS: R F Bergagnin & Co (P)
David Catt (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

AUSTIN J

THURSDAY 17 JULY 2003

2054/02 3WJ PTY LTD V THE DIRECTOR-GENERAL OF DEPARTMENT OF FAIR TRADING

JUDGMENT

1 HIS HONOUR: The plaintiff is a motor vehicle dealer, trading at Lakemba in Sydney. While the company has been in business since about 1974, the direction of the business changed in about 1980 from the business of a traditional seller of motor vehicles to that of a specialist four-wheel-drive and commercial motor vehicle dealer. The business includes the specialist dismantling and repair of motor vehicles.

2 The plaintiff holds a Class A licence issued by the former Department of Fair Trading pursuant to the Motor Dealers Act 1974 (NSW). This class of licence permits the plaintiff to dismantle and rebuild motor vehicles, sell parts, and sell second-hand and new domestic and commercial motor vehicles and motor cycles. The business is a large business, conducted in premises of about three acres of commercial land employing about 35 full-time staff.

3 A substantial component of the plaintiff's business involves the purchase of damaged motor vehicles from private sellers, insurance companies and at auctions. The plaintiff then repairs or re-manufactures the vehicles. They are then subject to Roads and Traffic Authority (RTA) inspection for the purpose of obtaining certification of roadworthiness and registration. Then the plaintiff sells the vehicles to members of the public.

4 Some of the damaged motor vehicles acquired by the plaintiff have been "written off". There is an important distinction between "statutory write-off" and "economic write-off". In a statutory write-off, the damage to the vehicle is so extensive that the RTA cancels the vehicle identification or "VIN" number of the vehicle, thereby rendering the vehicle unregistrable and therefore unrepairable for any practical purpose involving the sale of the vehicle to the public. In the case of economic write-off, the damage to the vehicle is such that it is classified by the RTA as a repairable vehicle which is capable of being registered by the RTA after proper repairs have been carried out and the vehicle has been certified by the RTA as roadworthy. The VIN number is not cancelled. An economic write-off may occur in various circumstances. For example, the insurance company for a damaged vehicle may make a decision that repair of the vehicle is not a viable option in light of the value of the vehicle and the cost of repair. Motor vehicles the subject of a statutory or economic write-off are recorded in the register of written off vehicles kept by the RTA, on the advice of the entity declaring the vehicle to be written off. The register can be accessed via the Register of Encumbered Vehicles formerly managed by the Department of Fair Trading and now (since April 2003) managed by the Office of Fair Trading of the Department of Commerce of New South Wales.

5 Mr Wright, on behalf of the defendant, became involved in investigating the operations of the plaintiff following inspection of the plaintiff's premises in October 2000. Mr Wright and Senior Investigator Wrigley met Mr Wakim of the plaintiff on 18 January 2001 to discuss a number of concerns relating to the alleged failure of the plaintiff to disclose to customers the history of vehicles sold by it. After extensive floods in Queensland in February and March 2001, the defendant obtained details of 169 vehicles that had been written off by insurance companies due to flood damage and sold by Fowles Auctions to buyers in New South Wales. The plaintiff bought 11 of these vehicles, and subsequently sold four. Mr Wright visited the plaintiff's premises on 24 April 2001 and asked Mr Wakim whether he had disclosed to the buyers of the vehicles he had sold that they had been water damaged. Mr Wright made further investigations and ultimately on 16 May 2001 he met with Mr Wakim and Mr Wakim's lawyer, together with Mr Wrigley. Subsequent to that meeting, the plaintiff indicated through its solicitor that it was not prepared to enter into any undertakings concerning disclosure of the history of vehicles, on the ground that it had no legal obligation to do so. The plaintiff has maintained that attitude in all subsequent contacts with the defendant.

6 In November 2001 substantial reforms were made to the Motor Dealers Act 1974 and the Motor Vehicle Repairs Act 1980, by the Motor Trade Legislation Amendment Act. According to a press release dated 14 November 2001, the amendments were designed to "protect consumers and prevent crime in the State's car sale and repair industries". The press release said that the new Act contained reforms including:

· "enhanced consumer protection, including a one-day 'cooling off' period for new and used cars bought on credit provided by the dealer;

· tough new crime prevention measures, including forcing car dealers and repairers to report if they suspect cars or parts to have been stolen;

· increasing the maximum fine for unlicensed car dealing and repair work to $110,000;

· obliging motor dealers to tell car buyers if the vehicle has been damaged by floodwater or previously written off."

7 Surprisingly, notwithstanding the terms of the press release the legislation as enacted did not contain any provisions obliging motor dealers to tell car buyers if the vehicle had been damaged by floodwater or written off. I infer from some remarks made by counsel, although there is no evidence on the subject, that there were proposals for legislation on these matters but they were not implemented.

8 Part 2 of the Motor Dealers Act 1974 deals with licences. Division 3 is headed "Disciplinary Proceedings". Section 20D deals with notices to show cause, s 20E deals with determination of disciplinary measures by the Director-General, and s 20F deals with reviews by the Administrative Decisions Tribunal. There is no evidence before me that any application has been made to the Tribunal for review of the decision challenged in this proceeding.

9 Section 20D(1) provides (so far as relevant) as follows:

10 In the present case a delegate of the Director-General issued a document entitled "Notice to Show Cause" on 27 August 2001. The document stated that the delegate had reasonable grounds to believe that, pursuant to s 20D(1)(e), the business to which the plaintiff's licence related was being conducted in a dishonest or unfair manner, the details of which were particularised in Schedule A to the notice. The plaintiff was required to show cause within 21 days why he should not be dealt with in accordance with s 20E.

11 Schedule A was divided into numbered paragraphs under three headings. The headings were:

12 Under heading 1, it was said that the plaintiff purchased 11 vehicles from Fowles Auction Group in Queensland, that were written off due to flood damage. Four of these flood damaged vehicles had been sold. The remaining vehicles were in stock displayed for sale on the plaintiff's premises and did not have any notices attached to them to advise customers that the vehicles had been flood damaged. The plaintiff admits these facts, saying that the vehicles were subject to "economic write-off". The plaintiff says that it is under no statutory obligation to disclose that the vehicles had been written off or flood damaged.

13 Under heading 2, allegations were made about the defects in six specific vehicles sold by the plaintiff to identified purchasers. Three of the six were vehicles purchased at the Fowles Auction on 27 March 2001, two related to other water damaged vehicles sold in the year 2000, and one related to a water damaged vehicle sold in April 2001. The plaintiff disputes the facts alleged under heading 2, so far as they relate to defects in the vehicles or failure of the plaintiff to carry out appropriate remedial work but it does not contend that in each case it disclosed to the purchaser that the vehicle had been water damaged.

14 Heading 3 identifies four specific vehicles sold by the plaintiff to identified purchasers in 1999, 2000 and 2001, alleging in each case that the vehicle had been the subject of an economic write-off not disclosed to the purchaser, and were subject to specified defects not adequately remedied by the plaintiff. Again, the plaintiff disputes these factual allegations so far as they relate to the alleged defects or failure to remedy them, but the plaintiff does not contend that in each case it disclosed to the purchaser that the vehicle had been written off.

15 The parties agreed, for the purposes of the hearing, that some of the vehicles referred to in Schedule A had the benefit of a three months or 5000 km (whichever comes first) statutory warranty, but that some of the vehicles were not subject to this warranty.

16 Paragraph 4 of Schedule A stated:

"4. Departmental officers have advised the licensee of the Department's policy to notify prospective purchasers about the history of written-off vehicles. Notwithstanding the licensee's awareness of this policy, the licensee has refused to advise all prospective purchasers of the history of the vehicles and has been selective of what vehicles he declares as damaged."

17 Section 20E of the Motor Dealers Act empowers the Director-General to make a decision as to disciplinary measures. The relevant parts provide:

18 After the plaintiff received the Notice to Show Cause, it engaged in some correspondence with the defendant and made some submissions. By letter dated 5 December 2001 to the plaintiff's solicitor, the delegate of the defendant said:

19 The letter went on to refer to provisions of the Fair Trading Act 1987 (NSW) including s 42, as well as the Motor Dealers Act. The letter said that pursuant to these provisions, a motor dealer is required to carry on its business in an honest or fair manner, and is obliged to notify prospective purchasers of the quality of vehicles for sale and the history of these vehicles, including the fact that they have been flood damaged, immersed in water, or written off. The letter said that failure to comply with this requirement gave the Director-General or his delegate reasonable grounds to impose an appropriate sanction under s 20E of the Motor Dealers Act. It invited further written submissions.

20 By letter dated 21 March 2002, the delegate of the Director-General wrote to the plaintiff setting out his determination of "disciplinary proceedings" under s 20D. The letter referred to the Notice to Show Cause, specifying that the Notice had been given under s 20D(1)(e), and saying that the particulars upon which the delegate’s belief under that provision was based had been set out in Schedule A, under the three headings mentioned above.

21 The letter said

a person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive

Pursuant to section 20E(1)(e) of the Motor Dealers [Act} Licence No MD 10567 issued to 3W J Pty Ltd in respect of premises at 21-23 Leslie Street and 82 Rogers Street, Lakemba, shall be subject to the following restriction:

1. In all advertising by the licensee of any vehicles of which the licensee is aware, or should be aware, have been previously written-off, the licensee will include the statement:

This vehicle has been previously written-off

In all paid advertising this statement should be prominently displayed.

2. When any such vehicles are offered or displayed for sale by the licensee a notice must be attached to the vehicle and be clearly visible to the public containing the statement:

This vehicle has been previously written-off

3. At the time of sale by the licensee of any such vehicles the licensee is to provide the notice to the purchaser to sign and a copy of the signed notice is to be given to the purchaser.

4. This restriction is subject to review in the event of commencement of any amendment to the Motor Dealers Regulation 1999 in relation to written-off vehicles.

Note: In this determination a ‘Written-off Vehicle’ is defined as:

Any vehicle which has been written-off by an insurance company or other party. This includes but is not limited to vehicles that have been subject to: immersion in salt or freshwater; impact damage or damage by heat; recovered stolen and stripped vehicles; and any vehicle written-off on the basis that it is uneconomical to repair the vehicle."

22 Counsel for the plaintiff has invited me to compare this determination with the provisions of s 24 of the Motor Dealers Act, and the regulations made under it. The relevant provisions of the Act are:

23 The Motor Dealers Regulation 1999 prescribes the contents of the notices to which these provisions apply. The information to be displayed includes information about the date of manufacture and the distance travelled, but it does not include information relating to whether the vehicle has been written off.

24 By summons filed on 27 March 2002, the plaintiff sought a declaration that the determination made on 21 March 2002 was null and void on the ground of ultra vires or absence or excess of jurisdiction. The plaintiff sought an order, consequent upon that declaration, that the determination be set aside. The summons also sought a declaration that in making its determination, the defendant denied the plaintiff natural justice on the grounds of bias or failure to afford the plaintiff a proper hearing. The application for that relief was abandoned at the hearing. The plaintiff also abandoned its application for an order for damages.

25 The defendant does not contend that the Notice to Show Cause was justified on any basis other than the grounds appearing on the face of the document, which relate solely to s 20D(1)(e). At the hearing, the plaintiff's challenge to the Notice to Show Cause and the consequent determination was based solely on the contention that the Director-General could not have been satisfied of the matter referred to in s 20D(1)(e) because his opinion was based on reasons set out in the determination which could not have provided any ground for him to be so satisfied. The plaintiff did not contend, at the hearing, that there had been a denial of procedural fairness, or bias, or the exercise of power for an improper purpose. Nor did the plaintiff submit that, if there had been a proper foundation for the determination, the restrictions imposed in the determination were an improper exercise of the discretion conferred by s 20(e).

26 The principal contention of the plaintiff is that the reasoning set out in the determination discloses fundamental errors. I agree with the plaintiff's submissions.

27 First, paragraphs 2 and 9 of the reasons set out in the determination amount to the assertion that, once it is shown that the licensee has engaged in conduct in trade or commerce that is misleading or deceptive or likely to mislead or deceive, and therefore in contravention of s 42 of the Fair Trading Act, that fact alone signifies or suggests that the business of the dealer is being carried out in a dishonest and unfair, or in a dishonest or an unfair, manner contrary to s 20D(1)(e) of the Motor Dealers Act. That cannot be true as a general proposition. It is well established that conduct may contravene s 42 even though the person engaging in that conduct has acted honestly and carefully: see, for example, Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, at 197 per Gibbs CJ. The question whether conduct is misleading is a question to be judged objectively having regard to the effect of the conduct on those to whom it is directed: Arbest Pty Ltd v State Bank of New South Wales (1996) ATPR para 41-481, 41,973. It is not necessary to show an intention to mislead: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216, 223.

28 Misleading or deceptive conduct for the purposes of s 42 may sometimes be dishonest, or unfair, but not automatically or necessarily so. If, for example, I prepare an information memorandum for the sale of assets after engaging in the most meticulous "due diligence" inquiries leading to my carefully verifying every assertion in the document, but the contents of the document are incorrect in a material fashion, then my conduct in circulating the information memorandum is misleading conduct for the purposes of s 42, even though it could not possibly be said to be dishonest or unfair conduct.

29 Secondly, I agree with the plaintiff that the reasons set out in the determination are incorrect to the extent that they expressly or impliedly assert that a person in the position of the plaintiff has a legal duty in all circumstances to disclose to customers that a vehicle has been economically written off, or has been immersed in water, or affected by water damage. The Motor Dealers Act contains no express or implied duty to make such disclosure. As I have said, legislative provisions to that effect were evidently contemplated but not enacted. The defendant has purported to make good that omission by calling in aid s 42 of the Fair Trading Act. But it is not necessarily misleading to omit to disclose the fact that the vehicle the subject of sale negotiations has been economically written off at an earlier time or has been immersed in water, any more than it would be necessarily misleading to omit to disclose the fact that the vehicle had been damaged in an accident.

30 It is quite possible, depending on the circumstances of the negotiations, that an omission to disclose such matters could amount to misleading conduct, even where there is no common law equitable disclosure obligation to disclose. As Kirby ACJ said in Arbest Pty Ltd v State Bank of New South Wales, at page 41,980, the question presented by s 42 is not whether the defendant has an obligation at general law to disclose, but whether a failure to disclose significant information is misleading within the Act because of the belief thereby induced in the plaintiff. If, for example, the relationship of the parties and the circumstances of the negotiation imply that the dealer has accepted a specific obligation to make such disclosure in response to a concern expressed by the customer, but has failed to do so, then a contravention of s 42 may result. If, however, there is nothing in the prior relationship of the parties or the circumstances of the negotiations to suggest that the dealer accepted any special obligation, the mere fact that the negotiations relate to the sale of a vehicle that has been written off or immersed in water at an earlier time does not imply any duty to disclose those matters. The purchaser has a degree of protection arising out of his or her opportunity to inspect the vehicle, and out of the warranties under the Sale of Goods Act and the "statutory warranty" under s 27 of the Motor Dealers Act.

31 Counsel for the plaintiff pointed out that s 42 has universal application in trade and commerce, and is not confined to the sale and purchase of motor vehicles. It would apply, for example, if a lawnmower had been traded in to a dealer in a rusted and derelict condition and was repaired by the dealer and put up for sale. According to the defendant's argument, the seller would be under a duty to disclose that the lawnmower had been, in effect, written off and rebuilt. It would apply to a clockmaker who rebuilt an old and worn out clock, or to the seller of second-hand furniture who had rebuilt a derelict product. Counsel submitted that the defendant's argument, if accepted, would create a completely new category of misrepresentation by silence in circumstances where the only relationship between the parties is that of vendor and purchaser, in contrast with the situation in such cases as Arbest where there had been a long-standing course of dealing and trust between banker and customer. I agree. My conclusion is that s 42 cannot be construed to create a duty of disclosure of the kind contended for in the reasons for the determination.

32 The problem with the defendant's position is that the reasons set out in the determination, though they relate to the specific instances in Schedule A to the Notice to Show Cause, are expressed in general terms and are not based on the facts of the instances described in the Schedule. Paragraphs 4, 5, 6 and 9 of the reasons refer to the "matters" set out in Schedule A, but not in a manner that incorporates any assessment, on the merits, as to whether each instance amounts to an occasion of dishonesty or unfairness. Instead the "matters" in the Schedule to which the reasons refer are more general failures to disclose that a vehicle was written off, or water damaged or immersed in water.

33 In my opinion the defendant's letter of 5 December 2001 is an obstacle to any argument on the defendant's behalf that its determination was a fact-based decision on the merits of the individual instances set out in the Schedule. When the plaintiff sought the opportunity to deal with the facts of the particular instances identified in the Schedule, and for that purpose to obtain further particulars, the defendant decided that the information on file was sufficient for an assessment to be made. The explanation for this attitude seems to have been that the defendant regarded the issue as one of general principle rather than one which required a determination of disputed facts concerning individual instances.

34 In my opinion these deficiencies in the reasons for determination imply that in making the determination and reaching the state of "satisfaction" required for that purpose, the defendant did not in fact rely upon grounds that were sustainable. Therefore his purported decision was not a decision authorised by s 20E: cf WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559.

35 That conclusion is sufficient to dispose of the case in the plaintiff's favour. Paragraph 4 of Schedule A of the Notice to Show Cause might suggest that the defendant adopted a general policy inconsistent with or not authorised by the legislation (cf Green v Daniels (1977) 13 ALR 1), or that the decision has been determined by a general policy which caused the exercise of the discretion under s 20E to miscarry. On the evidence, however, and in particular having regard to the wording of the reasons for determination, I am not sure that the policy, as such, played any significant role in the process of determination. Rather than relying on the policy referred to in paragraph 4, it appears that the defendant relied on the defective legal reasoning set out in the determination.

36 At the hearing I raised the question whether this might better be described as a case of error of law on the face of the record, than as a case of narrow ultra vires. On reflection, however, it seems to be simpler and more straightforward to say that because of the mistaken reasoning set forth in the determination, the defendant had no proper ground to be "satisfied" that the matters referred to in s 20D(1)(e) had been established. That being so, the case is one of invalidity on the ground of narrow ultra vires.

37 Counsel for the plaintiff made an argument based upon s 24 of the Motor Dealers Act, to which I have referred. His argument was that s 24 and the supporting regulations set out the requirements for notification to customers of the history of a second-hand vehicle, and those provisions do not require notification that the vehicle has been economically written off, water damaged or immersed in water. Counsel submitted that it was unarguable to say that a person acting in accordance with the requirements of s 24 could be guilty of carrying on business in a dishonest or unfair manner under the same Act. I find this argument unpersuasive. If, having regard to the relationship between the dealer and the customer and the circumstances of the negotiation, the dealer accepts a special obligation to disclose matters not required to be disclosed under s 24, and deliberately suppresses disclosable information, it would be open to the defendant to conclude that the dealer had carried on his business dishonestly.

38 It may have been possible for the defendant to make a valid determination under s 20E(1)(e) upon the basis of facts pointing to dishonest or unfair conduct of the business, after affording the plaintiff procedural fairness. I make no judgment as to whether, if a proper procedure had been followed, such a determination would have been valid. But the defendant did not proceed in that fashion, choosing instead to rely on general reasoning which was seriously deficient. I shall make orders declaring that the defendant's determination was null and void on the ground of ultra vires, and setting it aside.

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Last Modified: 04/23/2003

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Citations

3WJ v Director-General, Fair Trading [2003] NSWSC 331

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CITATION:	3WJ v Director-General, Fair Trading [2003] NSWSC 331
HEARING DATE(S):	16 April 2003
JUDGMENT DATE:	17 April 2003
JURISDICTION:	Equity
JUDGMENT OF:	Austin J
DECISION:	Declaration that the defendant's determination was ultra vires and void, and order setting the determination aside
CATCHWORDS:	ADMINISTRATIVE LAW - defendant empowered by Motor Dealers Act to give notice to show cause if of opinion that there are reasonable grounds for believing plaintiff's business carried on in dishonest or unfair manner - Act empowers defendant to impose restriction on licence if satisfied that matter has been established - Director-General gives notice and then makes determination for stated reasons - reasons include matters incorrect in law - determination invalid
LEGISLATION CITED:	Fair Trading Act 1987 (NSW) s 42 Motor Dealers Act 1974 (NSW) ss 20D, 20E, 24
CASES CITED:	Arbest Pty Ltd v State Bank of New South Wales (1996) ATPR para 41-481 Green v Daniels (1977) 13 ALR 1 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Ltd (1978) 140 CLR 216 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 WA Pines Pty Ltd v Bannerman (1980) 30 ALR 559
PARTIES :	3WJ Pty Ltd (P) The Director-General of Department of Fair Trading (D)
FILE NUMBER(S):	SC 2054/02
COUNSEL:	B Toomey QC with P Ramos (P) P Griffin (D)
SOLICITORS:	R F Bergagnin & Co (P) David Catt (D)