Australian Competition and Consumer Commission v Taxsmart

[2014] FCA 337

FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Taxsmart [2014] FCA 337

Citation:	Australian Competition and Consumer Commission v Taxsmart [2014] FCA 337
Parties:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v TAXSMART GROUP PTY LTD, TAXSMART FRANCHISING PTY LTD, RESULTSMART PTY LTD ACN 125 894 322, SCOTT RICHARD ANDREWS and JANINE KAY ANDREWS
File number(s):	VID 494 of 2013
Judge(s):	DAVIES J
Date of judgment:	4 April 2014
Catchwords:	PRACTICE AND PROCEDURE – interlocutory application for summary dismissal of the proceeding on the ground of abuse of process – whether issue estoppel – application dismissed
Legislation:	Competition and Consumer Act 2010 (Cth), schedule 2, ss 18, 31 and 37(2) Federal Court Rules 2011 (Cth) rule 4.01(2) Tax Agent Services Regulations 2009 (Cth) schedule 2, part 2, division 1, regs 201(d) and 207(c)
Cases cited:	Blair v Curran (1939) 62 CLR 464 Champerslife Pty Ltd v Manojlovski & Anor (2010) 75 NSWLR 245 Ramsay v Pigram (1967-1968) 118 CLR 271 Yousef v Taxsmart Group Pty Ltd & Anor [2013] FCCA 2089
Date of hearing:	27 March 2014
Date of last submissions:	27 March 2014
Place:	Melbourne
Division:	GENERAL DIVISION
Category:	Catchwords
Number of paragraphs:	21
Counsel for the Applicant:	Mr L Merrick
Solicitor for the Applicant:	Corrs Chambers Westgarth

Counsel for the Respondent:    The Respondent appeared in person

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 494 of 2013

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

TAXSMART GROUP PTY LTD
First Respondent

TAXSMART FRANCHISING PTY LTD
Second Respondent

RESULTSMART PTY LTD ACN 125 894 322
Third Respondent

SCOTT RICHARD ANDREWS
Fourth Respondent

JANINE KAY ANDREWS
Fifth Respondent

JUDGE:	DAVIES J
DATE OF ORDER:	4 APRIL 2014
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1.The fourth respondent’s application dated 11 March 2014 be dismissed.

2.The fourth respondent pay the applicant’s costs of, and incidental to, the fourth respondent’s application dated 11 March 2014.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION	VID 494 of 2013

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

TAXSMART GROUP PTY LTD
First Respondent

TAXSMART FRANCHISING PTY LTD
Second Respondent

RESULTSMART PTY LTD ACN 125 894 322
Third Respondent

SCOTT RICHARD ANDREWS
Fourth Respondent

JANINE KAY ANDREWS
Fifth Respondent

JUDGE:	DAVIES J
DATE:	4 APRIL 2014
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1. In this proceeding, the applicant (“ACCC”) alleges that certain representations made by one or more or all of the first, second and third respondents (collectively “Taxsmart”) in job advertisements and in communications with potential graduate accounting employees about what would be provided to them as part of their employment constituted:

   (a)conduct in trade or in commerce that was misleading and deceptive or likely to mislead or deceive, and was liable to mislead persons seeking employment as to matters relating to employment in contravention of s 18 of the Australian Consumer Law (“ACL”) being schedule 2 to the Competition and Consumer Act 2010 (Cth) (“CCA”);

   (b)conduct, in relation to employment, that was liable to mislead persons seeking the employment in contravention of s 31 of the ACL; and

   (c)representations, in trade or commerce, that were false or misleading a material particular, and concerned a material aspect of a business activity, in contravention of s 37(2) of the ACL.

2. The ACCC also alleges that the fourth and fifth respondents aided, abetted, counselled or procured Taxsmart to contravene the ACL and were directly or indirectly knowingly concerned in or a party to the contraventions of the ACL by Taxsmart.

3. The ACCC seeks declaratory and injunctive relief against the respondents, and related orders including pecuniary penalty and compensation orders.

4. The application is listed for trial to commence on 28 April 2014.

5. In advance of that hearing, the fourth respondent, Mr Scott Andrews, who is self-represented, made two applications to the Court on behalf of all the respondents. The first application was for dispensation from the requirement in rule 4.01(2) of the Federal Court Rules 2011 (Cth) for the corporate respondents to be represented by a lawyer and for leave for all the respondents (including the fifth respondent, a natural person) to be represented in these proceedings by him. The second application was for an order for summary dismissal of the proceeding on the ground that the proceeding is an abuse of the process of the Court.

6. I heard the leave application first, and for reasons given separately I dismissed that application without prejudice to his right to bring a further application supported by proper material. I then allowed Mr Andrews to proceed with the second application as an application by him.

7. Mr Andrews’ claim that the proceeding is an abuse of process rests on the contention that the issue of fact and law for determination in this proceeding has already been decided favourably to the respondents in an earlier proceeding before the Federal Circuit Court. In the earlier proceeding, the first respondent and Mr Andrews, who was the managing director of the first respondent, were sued by a former employee, Mr Yousef, for unfair dismissal. The claim arose out of the termination of his employment contract with the first respondent.

   BACKGROUND TO BOTH PROCEEDINGS

8. Taxsmart operated an accountancy business that provided tax agent services. Throughout 2011, Taxsmart advertised the availability of graduate positions for tax accountants, offering employment with training to apply for a tax agent’s licence and a franchise of the Taxsmart business. Successful applicants paid an upfront fee to the second respondent for a franchise of the Taxsmart business and given employment with the first respondent to obtain the relevant experience to qualify for registration as tax agents so to be able to commence operations as a Taxsmart franchisee.

9. In order to obtain registration as a tax agent, a person must have been engaged in the equivalent of 12 months of full time “relevant experience”: Regulation 201(d) of part 2 division 1 to Schedule 2 of the Tax Agent Services Regulations 2009 (Cth) (‘the Regulations”). “Relevant experience” is defined to include:

   work by an individual … under the supervision and control of a tax agent registered under the Act.

   See regulation 207(c), part 2, division 1 to schedule 2 of the Regulations.

   The Federal Circuit Court proceeding

10. The Federal Circuit Court decision of Yousef v Taxsmart Group Pty Ltd & Anor [2013] FCCA 2089 concerned a claim by Mr Yousef against the first respondent and Mr Andrews (“the FFC proceeding”). Mr Yousef was one of the successful applicants for a graduate position with Taxsmart. He responded to the following advertisement:

    Graduate Positions Available – Tax Accountants

    ·    fast track your career

    ·    Melbourne CBD

    ·    $50,0000 annual salary plus bonus

    ·    6 weeks paid annual holidays

    ·    no experience necessary

    ·    must purchase franchise

    ·    training to apply for Tax Agents License

    ·    Intensive on the job training

    ·    one on one mentoring

    ·    respected accounting firm

    Education and Qualifications

    -     Business or Commerce degree

    Successful applicants will be required to purchase a franchise prior to commencing employment.

11. Mr Yousef paid $55,000 upfront to purchase a franchise of the Taxsmart business and entered into a 16 month employment contract with Taxsmart Group to obtain the training necessary to qualify for registration as a tax agent. Six months into employment, Mr Yousef was made redundant. Mr Yousef then brought unfair dismissal proceedings against Taxsmart Group and Mr Andrews under the Part 3-2 of the Fair Work Act 2009 (Cth), seeking payment of unpaid entitlements and compensation, representing the wages he would have received, and the superannuation payments that would have been paid on is behalf from the date of termination of his employment until the expiry date of the employment contract. Mr Yousef also commenced proceedings against the first and second respondents and Mr Andrews, in the Victorian Civil and Administrative Tribunal (“VCAT”) seeking recovery of the $55,000 that he had paid for the franchise (“the VCAT proceeding”).

12. The first respondent and Mr Andrews defended the FCC proceeding on the ground that the termination of his employment was a case of genuine redundancy: see s 385(d) of the Fair Work Act 2009 (Cth). The claim was heard in the Federal Circuit Court of Australia (“FCC”) and dismissed. The FCC found that the termination of Mr Yousef’s employment was because of a genuine redundancy: Yousef v Taxsmart Group Pty Ltd & Anor [2013] FCCA 2089.

13. One of the claims that Mr Yousef made in that proceeding was that the training that he received would not have qualified him for registration as a tax agent had he completed 12 months employment with the first respondent. The FCC stated:

    (a)       At paragraph [3]:

    To qualify for a licence to practice as a tax agent, one had, amongst other means, to work for a registered tax agent under that agent’s supervision and mentoring for a period of 12 months.

    This statement was footnoted as follows:

    In order to obtain a tax agent’s licence, the Tax Practitioners Board requires an applicant to have 12 months full-time relevant experience, which [Mr Yousef] would have obtained as a result of his employment with Taxsmart [Group].

    (b)       At paragraph [25]:

    It is evident that training in relation to [Mr Yousef’s] employment and, more particularly, that which is necessary for him to qualify at the end of his 12 month employment period for registration as a tax agent, was given to him. He complains about the quality of that training, but does acknowledge it was given.

    (c)At paragraph [35]:

    The level of training was appropriate for [Mr Yousef] and others to qualify for a tax agent’s license after completion of the requisite 12 months employment with Taxsmart [Group]. I am satisfied that [Mr Yousef], although he believes otherwise, was provided with training in accordance with the representations properly associated with his employment agreement.

    This proceeding

14. In this proceeding, the ACCC has alleged, amongst other things, that the representations conveyed by the advertisements placed by Taxsmart and in communications with potential graduate accountant employees were that:

    a)Taxsmart was offering a graduate program for accounting graduates with no previous work experience in tax accounting that would enable such graduates to satisfy the legal requirements or registration as a tax agent;

    b)throughout the graduate program with Taxsmart the successful applicant would receive one on one mentoring from a registered tax agent; and

    c)in undertaking the graduate program with Taxsmart the successful applicant would receive supervision of his or her work by a registered agent of a level that would satisfy the legal requirements for registration as a tax agent –

    when Taxsmart did not have reasonable grounds for making those representations and that by making those representations, Taxsmart engaged in conduct that was misleading or deceptive in contravention of s 18, 31 and 37(2) of the ACL.

15. The ACCC has alleged that 18 graduates took up employment with Taxsmart and agreed to provide substantial franchise fees to Taxsmart. Those persons included Mr Yousef. The relief sought by the ACCC includes orders that the franchise agreements are void and compensation orders pursuant to s 237(1) of the ACL, including a compensation order on behalf Mr Yousef.

    ISSUE ESTOPPEL

16. The legal basis for Mr Andrews’ claim that these proceedings are an abuse of process appeared to be issue estoppel: namely, that the determination of Mr Yousef’s claim in the FCC gave rise to an issue estoppel on the question of whether the training offered by Taxsmart would enable graduates with no prior experience to satisfy the legal requirements for registration as a tax agent. There is no basis for a claim of res judicata because for res judicata to apply, the cause of action in this proceeding must in substance be the same as that litigated to judgment in the FCC proceeding: Champerslife Pty Ltd v Manojlovski & Anor (2010) 75 NSWLR 245 at 263 [106] per Handley AJA. Yousef was an application bought under the Fair Work Act 2009 (Cth) for unfair dismissal from employment. The issue determined by the Court was whether his redundancy was genuine. Yousef did not relate to the causes of action which are pleaded in this proceeding, either in form or in substance.

17. It is well settled law that issue estoppel only arises where an earlier judgment has determined an issue in a cause of action as an essential step in its reasoning. Findings of law or fact which are subsidiary or collateral do not give rise to an estoppel: Blair v Curran (1939) 62 CLR 464. In Blair v Curran Dixon J explained at 531-532 that:

    A judicial determination directly involving an issue of fact or of law disposes once and for all of the issue, so that it cannot afterwards be raised between the same parties or their privies. The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared. …

    Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded. In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established. …

    In the phraseology of Lord Shaw, “a fact fundamental to the decision arrived at” in the former proceedings and “the legal quality of the fact” must be taken as finally and conclusively established (Hoystead v. Commissioner of Taxation [(1926) AC 155]. But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tending to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation.

    Thus an earlier judicial determination does not create an issue estoppel unless the finding of fact or law was fundamental to, and formed the basis of, that judicial determination. If the relevant finding was no more than part of the reasoning supporting the conclusion, there is no estoppel.

18. The judgment of the FCC in Yousef v Taxsmart Group Pty Ltd & Anor [2013] FCCA 2089 has not created an issue estoppel in this proceeding for the following reasons.

19. First, insofar as the FCC is taken to have made a finding of fact that the training offered by Taxsmart would enable graduates with no prior experience to satisfy the legal requirements for registration as a tax agent, that finding of fact was not an essential step in the reasoning of the Court to dismiss the unfair dismissal claim. To put it another way, it was not a fact upon which the determination that Mr Yousef’s redundancy was genuine depended but concerned only evidentiary facts.

20. Secondly, issue estoppel only operates for or against the parties or their privies. The ACCC was not a party to Yousef and, contrary to Mr Andrews’ submission, it is not a privy of Mr Yousef. Mr Andrews argued that the ACCC is a privy of Mr Yousef because the ACCC, amongst other things, seeks compensation on his behalf but that argument is misconceived. In the first place, there has been no prior adjudication on Mr Yousef’s right to compensation. It appears from the material before the Court that an order for the repayment of the franchise fee was made in the VCAT proceeding on 8 October 2012 in default of appearance by the respondents. However that order was set aside on 19 December 2012 when the respondents successfully made an application for review of that order. On 2 August 2013, the respondents sought and were granted a stay of the VCAT proceeding until determination of this proceeding. Furthermore, in any event, the ACCC has an independent cause of action against the respondents that is not made under, through or on behalf of Mr Yousef: Ramsay v Pigram (1967-1968) 118 CLR 271 at 279-280 per Barwick CJ.

21. Accordingly, Mr Andrews’ application to have the proceeding dismissed as an abuse of process is dismissed.

I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.

Associate:

Dated:       4 April 2014