Enterprise Finance Solutions Pty Ltd v Austec Pty Ltd
[2013] FCA 491
•24 May 2013
FEDERAL COURT OF AUSTRALIA
Enterprise Finance Solutions Pty Limited v Austec Pty Limited [2013] FCA 491
Citation: Enterprise Finance Solutions Pty Limited v Austec Pty Limited [2013] FCA 491 Parties: ENTERPRISE FINANCE SOLUTIONS PTY LIMITED v AUSTEC PTY LIMITED and JOHN HARRISON and LYNETTE HARRISON; AUSTEC PTY LIMITED and JOHN HARRISON and LYNETTE HARRISON v
ENTERPRISE FINANCE SOLUTIONS PTY LIMITED and AUSTRALIAN EQUIPMENT RENTALS PTY LIMITEDFile Number: NSD 1192 of 2010 Parties: QUIKFUND (AUSTRALIA) PTY LIMITED v AIRMARK CONSOLIDATORS PTY LIMITED and MARK GONSALVES; AIRMARK CONSOLIDATORS PTY LIMITED and MARK GONSALVES v QUIKFUND (AUSTRALIA) PTY LIMITED File Number: NSD 1206 of 2010 Parties: QUIKFUND (AUSTRALIA) PTY LIMITED v AIRMARK CONSOLIDATORS PTY LIMITED and MARK GONSALVES; AIRMARK CONSOLIDATORS PTY LIMITED and MARK GONSALVES v QUIKFUND (AUSTRALIA) PTY LIMITED File Number: NSD 1207 of 2010 Judge: NICHOLAS J Date of judgment: 24 May 2013 Catchwords: TRADE PRACTICES – where equipment supplier made misrepresentation to consumer concerning price of goods – where finance company acquired goods for hire to consumer – where equipment hired to consumer by finance company – whether finance company “linked credit provider” for purposes of s 73 of the Trade Practices Act 1974 (Cth) (TP Act) – whether s 51AF of TP Act operated to exclude application of s 73 because misrepresentation made by equipment supplier related to financial services.
AGENCY – where equipment supplier made misrepresentation concerning price of goods – where finance company acquired goods for hire to consumer – where finance company “linked credit provider” for purposes of s 73 of TP Act – whether equipment supplier agent of linked credit provider under general law – whether equipment supplier possessed ostensible authority to make representation on behalf of linked credit provider – significance of documents in nature of applications for finance provided by finance company for use by equipment supplier.CONSUMER LAW – where director of company entered into contract of guarantee and indemnity guaranteeing company’s obligations under rental agreement with finance company – whether such contract was unjust in the circumstances relating to contract at the time it was made for purposes of Contracts Review Act 1980 (NSW) – whether there should be declaration that contract of guarantee and indemnity void with effect from time it was made.
Legislation: Australian Securities and Investments Commission Act 2001 (Cth) s 12BAA, s 12BAB, s 12DA, s 12ED
Australian Securities and Investments Commission Regulations 2001 (Cth) Reg 2B
Contracts Review Act 1980 (NSW) s 7, s 9
Financial Sector Reform (Consequential Amendments) Act 1998 (Cth) Sch 2, Items 27, 28 and 29
Trade Practices Act 1974 (Cth) s 4, s 4B, s 46, s 51AB, s 51AC, s 51AF, s 52, s 73Cases cited: Australian Securities and Investments Commission v Bank of Queensland Limited (2011) 86 ACSR 258
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552
NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270
Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709
Quikfund (Australia) Pty Limited v Prosperity Group International Pty Limited (In Liq) (2013) 295 ALR 472Date of hearing: 12, 13, 14 September, 27 October, 12 and 13 December 2011 Date of last submissions: 7 March 2013 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 211 Counsel for the Applicant/Cross-Respondents: Mr S Bell with Mr D Aquilina Solicitor for the Applicant/Cross-Respondents: SR Law Counsel for the Respondents/Cross-Claimants: Mr A Crossland with Mr M Sealey Solicitor for the Respondents/Cross-Claimants: Attwood Marshall Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1192 of 2010
BETWEEN: ENTERPRISE FINANCE SOLUTIONS PTY LIMITED
ApplicantAND: AUSTEC PTY LIMITED
First RespondentJOHN HARRISON
Second RespondentLYNETTE HARRISON
Third RespondentAND BETWEEN: AUSTEC PTY LIMITED
First Cross-ClaimantJOHN HARRISON
Second Cross-ClaimantLYNETTE HARRISON
Third Cross-ClaimantAND: ENTERPRISE FINANCE SOLUTIONS PTY LIMITED
First Cross-RespondentAUSTRALIAN EQUIPMENT RENTALS PTY LIMITED
Second Cross-Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
24 MAY 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The cross-claimants are to file and serve within 7 days short minutes of proposed declarations and orders that give effect to these reasons for judgment.
2.This proceeding is stood over to a date to be fixed for the purpose of making declarations and orders (including in relation to costs).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1206 of 2010
BETWEEN: QUIKFUND (AUSTRALIA) PTY LIMITED
ApplicantAND: AIRMARK CONSOLIDATORS PTY LIMITED
First RespondentMARK GONSALVES
Second RespondentAND BETWEEN: AIRMARK CONSOLIDATORS PTY LIMITED
First Cross-ClaimantMARK GONSALVES
Second Cross-ClaimantAND: QUIKFUND (AUSTRALIA) PTY LIMITED
Cross-Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
24 MAY 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The cross-claimants are to file and serve within 7 days short minutes of proposed declarations and orders that give effect to these reasons for judgment.
2.This proceeding is stood over to a date to be fixed for the purpose of making declarations and orders (including in relation to costs).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1207 of 2010
BETWEEN: QUIKFUND (AUSTRALIA) PTY LIMITED
ApplicantAND: AIRMARK CONSOLIDATORS PTY LIMITED
First RespondentMARK GONSALVES
Second RespondentAND BETWEEN: AIRMARK CONSOLIDATORS PTY LIMITED
First Cross-ClaimantMARK GONSALVES
Second Cross-ClaimantAND: QUIKFUND (AUSTRALIA) PTY LIMITED
Cross-Respondent
JUDGE:
NICHOLAS J
DATE OF ORDER:
24 MAY 2013
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The cross-claimants are to file and serve within 7 days short minutes of proposed declarations and orders that give effect to these reasons for judgment.
2.This proceeding is stood over to a date to be fixed for the purpose of making declarations and orders (including in relation to costs).
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1192 of 2010
BETWEEN: ENTERPRISE FINANCE SOLUTIONS PTY LIMITED
ApplicantAND: AUSTEC PTY LIMITED
First RespondentJOHN HARRISON
Second RespondentLYNETTE HARRISON
Third RespondentAND BETWEEN: AUSTEC PTY LIMITED
First Cross-ClaimantJOHN HARRISON
Second Cross-ClaimantLYNETTE HARRISON
Third Cross-ClaimantAND: ENTERPRISE FINANCE SOLUTIONS PTY LIMITED
First Cross-RespondentAUSTRALIAN EQUIPMENT RENTALS PTY LIMITED
Second Cross-Respondent
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1206 of 2010
BETWEEN: QUIKFUND (AUSTRALIA) PTY LIMITED
ApplicantAIRMARK CONSOLIDATORS PTY LIMITED
First RespondentMARK GONSALVES
Second RespondentAND: AIRMARK CONSOLIDATORS PTY LIMITED
First Cross-ClaimantMARK GONSALVES
Second Cross-ClaimantQUIKFUND (AUSTRALIA) PTY LIMITED
Cross-Respondent
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1207 of 2010
BETWEEN: QUIKFUND (AUSTRALIA) PTY LIMITED
ApplicantAND: AIRMARK CONSOLIDATORS PTY LIMITED
First RespondentMARK GONSALVES
Second RespondentAND BETWEEN: AIRMARK CONSOLIDATORS PTY LIMITED
First Cross-ClaimantMARK GONSALVES
Second Cross-ClaimantAND: QUIKFUND (AUSTRALIA) PTY LIMITED
Cross-Respondent
JUDGE:
NICHOLAS J
DATE:
24 MAY 2013
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
These are my reasons for judgment in three proceedings which were heard together. The applicant in each matter is a finance company that claims to have entered into rental agreements with the corporate respondents for the hire of communications, audio-visual and office equipment. The other respondents are directors of one or the other of the corporate respondents. Each of the directors is sued by the finance company in his or her capacity as a guarantor of the corporate respondent’s obligations under one or more of the relevant rental agreements.
In each proceeding, the corporate respondent which is alleged to have entered into the relevant rental agreement asserts (inter alia) that it is entitled to a set-off equal to the whole of the amount claimed against it. Such a set-off is said to be available as a result of misrepresentations made to them by third party suppliers who are alleged to have induced the corporate respondents to enter into the rental agreements. The applicants are said to have been linked credit providers for the purposes of s 73 of the Trade Practices Act 1974 (Cth) (the TP Act) and liable to the corporate respondents pursuant to that section. In each proceeding the respondents have filed cross-claims against the applicants.
Besides the claim based upon s 73 of the TP Act, the respondents have also made direct claims against the applicants for alleged contraventions of the TP Act and for aiding and abetting such contraventions by others. For reasons which will be explained in detail, the respondents’ claims based upon s 73 of the TP Act succeed. All other claims based upon the applicants’ alleged contraventions of the TP Act fail. This is largely because the allegations of agency upon which the latter claims were founded have not been made out.
Proceeding No 1192 of 2010 – Enterprise Financial Solutions Pty Limited v Austec Pty Limited and John and Lynette Harrison
In this proceeding the applicant (EFS) claims that the first respondent (Austec) entered into a rental agreement (Ex A) which came about as a result of EFS, through its agent, Australian Equipment Rentals Pty Ltd, entering into a rental agreement with Austec. The rental agreement between EFS and Austec is alleged to have been made upon acceptance of an offer said to have been made by Austec. The offer is alleged to have been made on 19 December 2007, and accepted on 12 February 2008. The second and third respondents (Mr and Mrs Harrison) are said to have guaranteed the obligations of Austec under the rental agreement.
The structure of the rental agreement between EFS and Austec provided for 60 monthly payments of $907.50. Austec made only nine payments under the rental agreement. EFS purported to terminate the rental agreement on 4 March 2009. As at that date, there were four rental instalments that had fallen due but not been paid, and there were a further 47 rental payments that had not yet fallen due for payment. EFS claims liquidated damages in relation to the instalments that had fallen due for payment prior to termination, and general damages for loss of bargain in respect of all other amounts that it was entitled to receive had the rental agreement not been terminated. EFS calculates its damages as being $41,952.18, which it claims from Austec, as lessor, and Mr and Mrs Harrison, as guarantors. Austec and the Harrisons accept the accuracy of EFS’s damages calculations.
It is accepted by Mr and Mrs Harrison that if Austec is liable to EFS they will also be liable, subject to the availability of relief under the Contracts Review Act 1980 (NSW) (the Contracts Review Act).
Proceeding No 1207 of 2010 – Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited and Mark Gonsalves
In this proceeding the applicant (Quikfund) claims that the first respondent (Airmark) entered into two different rental agreements which came about as a result of Quikfund accepting offers made to it by Airmark. The first of these rental agreements (Ex F) is alleged to have been entered into in September 2008 as a result of Quikfund’s acceptance of an offer made by Airmark and Mr Gonsalves. Mr Gonsalves is said to have guaranteed Airmark’s obligations under the rental agreement. The structure of this rental agreement provided for 60 monthly payments of $550. Quikfund claims that Airmark made only 14 of the 60 rental payments. This rental agreement was purportedly terminated by Quikfund on 24 February 2010, on account of what was said to have been a repudiation by Airmark. Quikfund calculates its damages for breach of this rental agreement as being $23,319.15. Airmark and Mr Gonsalves accepts the accuracy of this calculation.
The other rental agreement the subject of this proceeding (Ex D) was said to have been made upon acceptance of an offer by Airmark on 15 January 2009. The structure of this rental agreement provided for 60 monthly payments of $706.20 per month. This rental agreement was purportedly terminated by Quikfund on 24 February 2010, on account of what was said to have been a repudiation by Airmark.
In the case of the rental agreement said to have been accepted on 15 January 2009, Quikfund calculates its damages as being $32,261.81. Again, neither Airmark nor Mr Gonsalves disputes the accuracy of this calculation.
Proceeding No 1206 of 2010 – Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited and Mark Gonsalves
In this proceeding Quikfund makes further claims against Airmark and Mr Gonsalves, this time arising out of a third rental agreement (Ex B) said to have been made at the same time as the second rental agreement. As with the second rental agreement with Airmark, this rental agreement is alleged to have been made on or about 15 January 2009. Quikfund claims that Airmark was required to make 60 monthly payments of $1,232 per month under this rental agreement.
Quikfund alleges, and Airmark accepts, that only 10 rental payments were made. In this case the damages claimed by Quikfund are calculated at $56,282.28. Again, the accuracy of these calculations is accepted by Airmark and Mr Gonsalves.
It is also accepted by Mr Gonsalves that, if Airmark is liable to Quikfund, he too will be liable subject to the availability of relief under the Contracts Review Act.
FACTUAL ISSUES
There are numerous factual disputes. They concern various matters, not all of which are of significance to the resolution of the proceedings. But there are some factual issues which are of considerable significance. Plainly, the most important of these concern Airmark’s allegations that it neither ordered nor received any of the equipment the subject of the second and third rental agreements which it is alleged to have entered into with Quikfund. I refer to this and other factual issues that are significant to the resolution of the proceedings in the course of these reasons.
RELEVANT STATUTORY PROVISIONS
Some of the key statutory provisions relevant to these proceedings are set out below. The Australian Consumer Law (ACL), which is found at Schedule 2 to the Competition and Consumer Act2010 (Cth) (the new name of the TP Act), took effect on 1 January 2011. However, when I refer in these reasons to the TP Act, it is to the TP Act as it stood at relevant times, which was prior to the ACL taking effect.
Section 52(1) in Pt V, Div 1 of the TP Act, provides that “[a] corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.” Section 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) provides that “[a] person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.”
Section 51AF of the TP Act, also in Pt V, Div 1, provides:
(1)This Part does not apply to the supply, or possible supply, of services that are financial services.
(2)Without limiting subsection (1):
(a)sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and
…
Section 4 of the TP Act provides that, unless the contrary intention appears, “financial service” has the same meaning as in Div 2 of Pt 2 of the ASIC Act. The expression “financial service” is defined in a rather elaborate way in the ASIC Act.
Section 12BAB(1) of the ASIC Act states that a person provides a financial service if they (inter alia) “deal in a financial product”. Sections 12BAB(7) and (8) relevantly provide:
(7)For the purposes of this section, the following conduct constitutes dealing in a financial product:
(a)applying for or acquiring a financial product;
(b)issuing a financial product;
…
(8)Arranging for a person to engage in conduct referred to in subsection (7) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice.
Section 12BAA(7)(k) of the ASIC Act provides that a “credit facility (within the meaning of the regulations)” is a financial product. The Australian Securities and Investments Commission Regulations 2001 (Cth) (the ASIC regulations) include Reg 2B which relevantly provides:
(1)For paragraph 12BAA(7)(k) of the Act, each of the following is a credit facility:
(a)the provision of credit:
(i)for any period; and
(ii)with or without prior agreement between the credit provider and the debtor; and
(iii)whether or not both credit and debit facilities are available;
…
(3)In this regulation:
credit means a contract, arrangement or understanding:
(a)under which:
(i)payment of a debt owed by one person (a debtor) to another person (a credit provider) is deferred; or
(ii)one person (a debtor) incurs a deferred debt to another person (a credit provider); and
(b)including any of the following:
(i)any form of financial accommodation;
(ii)a hire purchase agreement;
(iii)credit provided for the purchase of goods or services;
(iv)a contract, arrangement or understanding for the hire, lease or rental of goods or services, other than a contract, arrangement or understanding under which:
(A)full payment is made before or when the goods or services are provided; and
(B)for the hire, lease or rental of goods—an amount at least equal to the value of the goods is paid as a deposit in relation to the return of the goods;
…
Section 73 of the TP Act is in Pt V, Div 2 of the TP Act. Subsections 73(1), (3), (7) and (14) relevantly provide:
(1) Where:
(a)a corporation (in this section referred to as the supplier) supplies goods, or causes goods to be supplied, to a linked credit provider of the supplier and a consumer enters into a contract with the linked credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire‑purchase of the goods to the consumer; or
(b)a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer;
and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 2001, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction.
…
(3)A linked credit provider of a particular supplier is not liable to a consumer by virtue of subsection (1) in proceedings arising under that subsection if the credit provider establishes:
(a)that the credit provided by the credit provider to the consumer was the result of an approach made to the credit provider by the consumer that was not induced by the supplier;
(b)where the proceedings relate to the supply by way of lease, hire or hire‑purchase of goods by the linked credit provider to the consumer, that:
(i)after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good; and
(ii)after becoming a linked credit provider of the supplier, the credit provider had not had cause to suspect that:
(A)the consumer might be entitled to recover an amount of loss or damage suffered as a result of misrepresentation or breach of a condition or warranty referred to in subsection (1); and
(B)the supplier might be unable to meet the supplier’s liabilities as and when they fall due;
…
(7)The liability of a linked credit provider to a consumer for damages or a sum of money in respect of a contract referred to in subsection (1) does not exceed the sum of:
(a)the amount financed under the tied loan contract, tied continuing credit contract, lease contract, contract of hire or contract of hire‑purchase;
(b)the amount of interest (if any) or damages in the nature of interest allowed or awarded against the linked credit provider by the court; and
(c)the amount of costs (if any) awarded by the court against the linked credit provider or supplier or both.
…
(14)In this section:
credit provider means a corporation providing, or proposing to provide, in the course of a business carried on by the corporation, credit to consumers in relation to the acquisition of goods or services.
linked credit provider, in relation to a supplier, means a credit provider:
(a)with whom the supplier has a contract, arrangement or understanding relating to:
(i)the supply to the supplier of goods in which the supplier deals;
(ii)the business carried on by the supplier of supplying goods or services; or
(iii)the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services;
(b)to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit;
(c)whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or
(d)with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier.
…
Section 4B of the TP Act relevantly provides:
(1)For the purposes of this Act, unless the contrary intention appears:
(a)a person shall be taken to have acquired particular goods as a consumer if, and only if:
(i)the price of the goods did not exceed the prescribed amount; or
(ii)where that price exceeded the prescribed amount—the goods were of a kind ordinarily acquired for personal, domestic or household use or consumption or the goods consisted of a commercial road vehicle;
and the person did not acquire the goods, or hold himself or herself out as acquiring the goods, for the purpose of re‑supply or for the purpose of using them up or transforming them, in trade or commerce, in the course of a process of production or manufacture or of repairing or treating other goods or fixtures on land; and
(b)a person shall be taken to have acquired particular services as a consumer if, and only if:
(i)the price of the services did not exceed the prescribed amount; or
(ii)where that price exceeded the prescribed amount—the services were of a kind ordinarily acquired for personal, domestic or household use or consumption.
(2)For the purposes of subsection (1):
(a)the prescribed amount is $40,000 or, if a greater amount is prescribed for the purposes of this paragraph, that greater amount;
(b)subject to paragraph (c), the price of goods or services purchased by a person shall be taken to have been the amount paid or payable by the person for the goods or services;
(c)where a person purchased goods or services together with other property or services, or with both other property and services, and a specified price was not allocated to the goods or services in the contract under which they were purchased, the price of the goods or services shall be taken to have been:
(i)the price at which, at the time of the acquisition, the person could have purchased from the supplier the goods or services without the other property or services;
(ii)if, at the time of the acquisition, the goods or services were not available for purchase from the supplier except together with the other property or services but, at that time, goods or services of the kind acquired were available for purchase from another supplier without other property or services—the lowest price at which the person could, at that time, reasonably have purchased goods or services of that kind from another supplier; or
(iii)if, at the time of the acquisition, goods or services of the kind acquired were not available for purchase from any supplier except together with other property or services—the value of the goods or services at that time;
(d)where a person acquired goods or services otherwise than by way of purchase, the price of the goods or services shall be taken to have been:
(i)the price at which, at the time of the acquisition, the person could have purchased the goods or services from the supplier;
(ii)if, at the time of the acquisition, the goods or services were not available for purchase from the supplier or were so available only together with other property or services but, at that time, goods or services of the kind acquired were available for purchase from another supplier—the lowest price at which the person could, at that time, reasonably have purchased goods or services of that kind from another supplier; or
(iii)if goods or services of the kind acquired were not available, at the time of the acquisition, for purchase from any supplier or were not so available except together with other property or services—the value of the goods or services at that time; and
(e)without limiting by implication the meaning of the expression services in subsection 4(1), the obtaining of credit by a person in connection with the acquisition of goods or services by him or her shall be deemed to be the acquisition by him or her of a service and any amount by which the amount paid or payable by him or her for the goods or services is increased by reason of his or her so obtaining credit shall be deemed to be paid or payable by him or her for that service.
(3)Where it is alleged in any proceeding under this Act or in any other proceeding in respect of a matter arising under this Act that a person was a consumer in relation to particular goods or services, it shall be presumed, unless the contrary is established, that the person was a consumer in relation to those goods or services.
…
THE AUSTEC PROCEEDING
Factual Background
On or about 19 December 2007 Mr Rodney Dadson and a colleague visited Austec’s premises at Eagle Farm, Queensland and spoke to Mr and Mrs Harrison. Mr Dadson told the Harrisons he was from Technix (Technix) which “was part of Queensland Communication Company.” He handed over a business card which indicated he was a Regional Manager for Technix.
A business name search of Technix Australia (Qld) is in evidence. It reveals that the business name Technix Australia (Qld) was registered to Queensland Communication Company Pty Ltd (QCC) from 1 April 2008 to 3 February 2011. The nature of the business carried on under the registered business name is described in the registration as Telecommunication Services, and places of business are shown as Suite 32, Ashmore Commercial Centre, 207 Currumburra Road, Ashmore, Queensland and 3 Balaclava Street, Woolloongabba, Queensland (Ex 3). The latter address is that which appears on Mr Dadson’s business card.
A company search of QCC reveals that it went into liquidation in June 2009 and was deregistered in February 2011. The same search reveals that QCC’s registered office between June 2007 and September 2008 was Level 1, 66-76 Dickson Avenue, Artarmon, NSW (Dickson Avenue) and that Mr Mark Nesbitt was a director of QCC during the same period. Another company search reveals that between June 2007 and November 2007 Australian Equipment Rentals Pty Ltd (AER) had its registered office at Dickson Avenue and that Mr Nesbitt was a director of AER between June 2007 and October 2008.
During the course of his visit to Austec’s premises, Mr Dadson told the Harrisons that he could offer Austec a better telephone package than that which was currently being provided to Austec by its then telecommunications supplier. Mr Dadson told them that he could reduce their telephone bill from $1,200 per month (which is what it was at the time) to $900 per month. He also told them that the call costs would be fixed and capped so that Austec would only ever have to pay the fixed amount each month.
Mr Dadson also talked to the Harrisons about the desirability of securing some extra telephone lines which would be available to them in future should they be needed. Having obtained the Harrisons’ agreement to take up two additional mobile telephone lines, Mr Dadson then had a conversation with the Harrisons to the following effect:
Mr Dadson:With this package – you are already eligible for a PABX phone system and a couple of free printers.
Mrs Harrison: What do you mean ‘free’, nothing in this world is free. How can you give away free equipment?
Mr Dadson:Let me explain Lynette. The deal is, we ask you to tell your friends about the deal that we have just given to you. They hopefully will sign up. Where the big companies advertise we make our money through word of mouth. We give you incentives such as the free equipment. You get a capped account which helps you with your future budgeting and this way you know what your future quantity is. Hopefully you spread the word and this is how our business grows – from word of mouth.
Mr Harrison: Why would we need them when we are an IT company – we get wholesale prices for this equipment. We are more interested in the telecommunications and keeping the cost as low as possible.
Mr Dadson:The goods are part of the deal – why wouldn’t you have them. They are updated and current up to date models. With the PABX it has more enhanced features than the one you already have. And it is not costing you anything.
Mr Dadson’s colleague performed some calculations and advised the Harrisons that the monthly cost would be $907.50. This amount represents a monthly charge of $825.00 plus GST of $82.50. Mr Dadson then prepared some paperwork which he apparently asked the Harrisons to sign. Before they did so Mr Dadson said to the Harrisons words to the following effect:
Mr Dadson:With the billings – you will receive two invoices. One is the equipment and one is the telephone calls. The equipment will be $907.50 and the phone calls will be $0.00 per month. But you will see the offset in your phone account.
The Harrisons were provided with various documents by Mr Dadson for their signature.
The documents signed by Mr Harrison include a form headed “Application for Axis Telephone Service” (the AATS). This form identifies five telephone lines then being made available to Austec by Telstra. The AATS purports to record the terms and conditions pursuant to which Axis Telecoms Pty Ltd (Axis), also of Level 1, 66 Dickson Avenue, Artarmon, New South Wales, would provide telecommunications services to Austec.
Another document signed by Mr Harrison was headed “Sales Order Specification” (the Sales Specification). The name and trade mark of QCC appears at the top of the document. The customer is identified in the document as Austec.
The Sales Specification is by no means self-explanatory. Among other things, it specifies various figures in respect of “Monthly Rental” (shown as $825 x 60 months), “AXIS Telecoms Plan” (shown as $825 per month), “AXIS Telecoms Plan Credits” (also shown as $825 per month), “Business Plan Credits” (shown as $475) and “Mobile Plan Credits” (shown as $350).
The Sales Specification refers to telephone equipment (including a Panasonic TDA 30) and, in an attachment, various other items of equipment. These other items of equipment include a Fuji Xerox colour copier, an “FS1118” copier, a NEC 42" plasma display, a NEC 32" LCD display and a wall bracket.
The Sales Specification contains some printed terms which appear under the heading “Mobile Payouts/Finance Payouts”. The relevance of these terms to the transaction between Austec and QCC is not readily apparent. Immediately above Mr Harrison’s signature on the first page of the Sales Specification, the following appears:
PLEASE NOTE THAT “COOLING OFF PERIODS” ARE NOT APPLICABLE TO THIS AGREEMENT
Please supply and install the above telephone equipment and deliver any other equipment which is included in the agreed rental. I agree to the Terms and Conditions. I acknowledge that I have the authority to enter this Agreement. I acknowledge that the Rental Agreement will be settled on delivery of the equipment and not delayed by the provisioning and supply of telephone services.
The documents signed by the Harrisons also included a document headed “Australian Equipment Rentals Pty Ltd – Rental Schedule & Tax Invoice” (the RSTI). What appears to be an ABN number – 50 126 049 376 – also appears at the top of each page of the document. There is a company search in evidence which shows that this is the ABN number of AER. On 10 April 2008, AER changed its name to Service AER Pty Ltd.
Austec, trading as the Austec Technology Trust, is identified in the RSTI as the hirer. The equipment referred to in the Sales Specification is also identified in the RSTI. The RSTI refers to a monthly rental instalment of $907.50 (including $82.50 GST) for 60 months.
The RSTI is signed by the Harrisons on behalf of Austec as hirer, and by the Harrisons as guarantors. At the bottom of the same page there is a “Business Purpose Declaration” which is also signed by the Harrisons.
A set of standard terms and conditions also form part of the RSTI. At the top of the second page of the RSTI the name of AER again appears together with a statement that “THIS AGREEMENT IS ONLY MADE WHEN WE ACCEPT IT IN ACCORDANCE WITH CLAUSE 2 OF THE LEASE AND RENTAL TERMS”.
The RSTI includes a section entitled “Authorisation by Applicant/Guarantor”. This section of the RSTI includes a clause (cl 1) which relevantly provides that the applicant/guarantor acknowledges that AER:
… may enter into the Hiring Agreement with You as agent or subagent for a principal … or may assign our interest under this Hiring Agreement or Guarantee to anyone … or as part of a securitisation arrangement;
Clauses 2 and 10 of the standard terms and conditions in the RSTI also provide as follows:
2. AGREEMENT
2.1You may offer to lease or rent Goods from us by giving a signed Hiring Schedule (which can be either a Lease Schedule or a Rental Schedule). You may only withdraw or vary this offer with our consent. If we accept an offer made by You in a Lease Schedule, then we will enter into a Lease Agreement with You. If it is a Rental Schedule, then we will enter into a Rental Agreement with You.
2.2Our acceptance of Your offer will occur when we notify You that we also have signed the Hiring Schedule or when we agree with the supplier of the Goods to acquire them for the purposes of the Hiring Agreement, whichever occurs first.
2.3These are the only ways in which we will accept Your offer. Neither the payment by You of any money on account of rent (even if we accept it) or any representations made by the supplier of the Goods, even if we have an arrangement with the supplier for providing finance for the supplier’s products, nor any agreement which we make with the supplier can be relied upon to establish the Hiring Agreement.
2.4Our acceptance of Your offer may be subject to a guarantee given by someone nominated by us and in the form of the annexed Guarantee Schedule.
...
10.OUR OWNERSHIP AND RIGHTS
10.1The Goods are our property. You are a bailee of the Goods only and have no right to purchase or acquire any interest in them.
10.2You agree that we may have entered into Hiring Agreement in any capacity we chose and may, in any way, charge assign, transfer or otherwise deal with our rights or interests in the Hiring Agreement without notice to You. We may provide information about this Hiring Agreement, You and any of your related bodies corporate (as defined in the Corporations Act) to any person with whom we have dealings in relation to the Hiring Agreement.
10.3You must ensure that we have access to the Goods, at any time, in order to exercise any of our rights, including testing the Goods or otherwise checking whether You have complied with Your obligations. You authorise us to enter any premises where the Goods are located for these purposes. We will give You reasonable notice before doing so, unless we consider we must act quickly in order to protect our interest in the Goods.
As is apparent from cl 2 of the standard terms, the arrangement entered into by Austec, at least at the time of execution of the relevant documents by the Harrisons on 19 December 2007, involved them making an offer to enter into a hiring agreement and related guarantee that, according to cl 2.1, could only be withdrawn or varied with the consent of AER.
There is evidence which indicates that Austec’s offer was accepted by AER for the purposes of cl 2 of the RSTI on 12 February 2008. On that date a person referred to only as an authorised officer of AER signed and dated a form of acceptance. By that time it is clear that AER was acting as an agent for Enterprise Finance Solutions (EFS) albeit that this was not something then known to Austec or the Harrisons.
The Austec offer was submitted by AER to EFS on or about 20 December 2007 and approved by EFS on that date. I infer that EFS notified AER on or about that date of the approval and that AER proceeded from that point forward on the basis that EFS would provide the funds in the amount of $35,000 so that it could acquire the rental equipment that was to be hired to Austec, and that EFS would be AER’s undisclosed principal for the purpose of any rental agreement made between AER and Austec.
It appears that the amount of $35,000 was paid by EFS to the equipment supplier, QCC, on or about 14 February 2008. The rental equipment was delivered to Austec on or about that date. There is no acknowledgment signed by Mrs Harrison around this time that confirms the delivery of the equipment.
The AATS, signed by Mr Harrison on 19 December 2007, states:
AXIS Telecoms Pty Ltd. ABN 69 076 807 718 of Level 1, 66 Dickson Avenue, Artarmon NSW 2064 (“AXIS Telecoms”). By executing this Application for Telephone Service (“Application”), you agree to the terms and conditions by which AXIS Telecoms will provide you with the Services. …
The same document includes a section headed “ACKNOWLEDGMENT, CONSENT AND SIGNING”. Included in this section are 15 conditions written in small print and in a form and style that makes them extremely difficult to read. I have no doubt that they were not read by either of the Harrisons before Mr Harrison signed the document. The task of reading and understanding the terms is not one that Mr Dadson could possibly have expected Mr Harrison or Mrs Harrison to perform in the time they spent together.
The conditions that are most relevant are as follows:
-You acknowledge reading a copy of the AXiS Terms and Conditions for Telephone and/or Broadband services and agree to its terms (cl 3);
-You acknowledge that, (i) AXIS Telecoms will bill you for all Services under this Agreement; (ii) you have received a copy of the Tariff Schedule or Rate Card(s) and understand and accept those to be the rates to be charged; (iii) the services will be provided in accordance with the Telecommunications Act 1997 (Cth) and the Terms and Conditions for Telephone and Broadband Service; (iv) AXIS Telecoms may select a Service Provider(s) to provide the services; (v) AXIS Telecoms and the Service Provider(s) may exchange your call charging information and your telecommunications details for the purposes of providing the services; (vi) You will be liable for any charges arising out of this Agreement even if part of this Agreement does not continue to apply; (vii) in the event that any associated agreement for the rental, lease, hire purchase or other financing method for the acquisition of equipment is not approved for any reason whatsoever, that Call Plan Credits, Monthly Call Plan Credits and Included Calls will not apply to these arrangements and you acknowledge by signing below that you will become a customer of AXiS Telecoms Pty Limited for Telephone Services only and at rates equal to or better than the rates referred to in this Application; (viii) if you are currently a customer of another service provider, it may take up to 120 days to fully transfer your services to AXiS Telecoms; (cl 4)
-AXiS Telecoms makes no representation to you that your monthly bill will be lower than your previous supplier or will be for any amount other than as described in this Application; (cl 13)
-This is the whole agreement between us and You acknowledge that this written expression supercedes all prior representations and agreements, whether verbal or written, in connection with this Application for Telephone Services; (cl 14)
On or about 20 February 2008 Austec received an invoice from Axis in respect of telephone calls and service and equipment charges in the amount of $564.11. Thereafter, Austec began receiving invoices not from Axis, but from Clear Telecoms (Clear) which appears to have taken over the Axis’ business around this time. The invoices issued by Clear to Austec between March 2008 and July 2008 were as follows:
6 March 2008
$463.09
9 April 2008
$356.23
6 June 2008
$1,167.27
10 July 2008
$1,036.02
Mrs Harrison gave evidence, which I accept, that she could not locate a copy of the invoice for May 2008. There is no reason to believe that an invoice was not issued by Clear in respect of that month as well. Based upon the invoices which are in evidence, Austec was charged an average of $750.00 or thereabouts each month on top of the $907.50 payable to AER/EFS under the rental agreement.
It is apparent from Mrs Harrison’s evidence, including the invoices to which I have referred, that from the very outset of Austec’s relationship with Axis, Austec was required to make substantial payments for telephone calls and related services in addition to monthly payments of $907.50 under the rental agreement. While there were delays in making payments, Austec appears to have paid what it was required to pay under the rental agreement until about November 2008 when it ceased to make any further payments. The rental agreement was terminated by AER/EFS in March 2009 by which time it was apparent that Austec had no intention of making any further payments under the rental agreement.
The EFS claim
EFS is the sole applicant in the Austec proceeding. EFS alleges that AER entered into a rental agreement with Austec on 12 February 2008 for the hire of equipment as EFS’s agent. According to EFS, it was an undisclosed principal on whose behalf AER contracted with Austec and the Harrisons.
EFS relies upon an agency agreement dated 29 September 2006 (the agency agreement) made between EFS and AER. The entity referred to in the agency agreement as AER is a company that uses ABN 89 056 519 530 (AER 530). The agency agreement plainly envisages that AER 530 will enter into finance transactions as agent for EFS.
According to counsel for Austec and the Harrisons, this creates a difficulty for EFS in that the rental agreement and related guarantee entered into was with AER not AER 530. However, in circumstances where EFS approved the proposed rental agreement with Austec and paid the supplier of the goods for them, I infer that EFS was AER’s undisclosed principal even though the written agency agreement was made between EFS and AER 530.
Austec and the Harrisons’ defence
Austec and the Harrisons deny that they entered into a rental agreement with AER or EFS. In this regard, they raise two particular arguments which I can deal with quite briefly.
The first argument is that the Austec offer was never accepted by AER in accordance with cl 2 of the standard terms and conditions. It will be apparent from my discussion of the evidence concerning this issue that this argument must be rejected. Under the terms of the offer made by Austec and the Harrisons to AER, acceptance could occur when AER agreed with the supplier to acquire the relevant goods. I infer that this must have occurred, and with it acceptance of the offer, some time prior to payment being made to the supplier. The evidence establishes that payment was made by EFS to QCC on or about 14 February 2008.
The second argument – to the effect that neither Austec nor the Harrisons were party to any agreement (be it the rental agreement or a related guarantee) with EFS – must also be rejected. I am satisfied that the Austec offer was accepted by AER as agent for EFS which was, at all material times thereafter, AER’s undisclosed principal.
Austec and the Harrisons’ cross-claim
In their cross-claim Austec and the Harrisons allege that Mr Dadson made a series of representations as agent for AER, and that EFS, as AER’s undisclosed principal, is bound by Mr Dadson’s representations in the same way that AER must be bound by them. It is alleged by Austec and the Harrisons that the representations were misleading and deceptive for the purposes of s 52 of the TP Act and s 12DA of the ASIC Act. In particular, they allege that the monthly charges payable by Austec for telecommunication services and so-called “free” equipment, was substantially more than $907.50 per month which Mr Dadson represented they would be. They further allege that:
taken as a whole, the oral representations gave a misleading impression about the commercial arrangements proposed in that they gave the impression that the supply of equipment and services were each interdependent or related parts of a single deal or contract.
The Austec cross-claim includes claims against EFS and AER based upon s 73 and s 46 of the TP Act. It also includes claims based upon s 51AF of the TP Act and a claim for relief by the Harrisons under s 9 of the Contracts Review Act.
It is convenient to first consider what representations Mr Dadson made to Austec and the Harrisons and whether any such representations were false or misleading or deceptive.
The misrepresentation case
The representations which Austec and the Harrisons allege Mr Dadson made to them include the following:
(a)what was being offered was a single package or deal comprising equipment and telephony services;
(b)the monthly cost of the package being offered ($907.50) would be cheaper than the monthly cost of payments under Austec’s existing telephony services agreement, being about $1,200 per month (including line rental);
(c)the monthly payment of $907.50 was a “capped payment” for telephone calls, meaning that regardless of telephone use, Austec would not pay more than $907.50 per month;
(d)the equipment that Austec would receive as part of its package would be free; and
(e)the bills that Austec would receive each month (being one bill for equipment and one bill for telephony services) would off-set each other.
I am satisfied that Mr Dadson represented that Austec would be charged on a monthly basis for telecommunication services and for equipment rental, and that payments made in relation to the equipment rental would be credited against telecommunications charges such that the net amount payable by Austec in respect of both telecommunication services and equipment rental would not exceed $907.50 per month.
I am also satisfied that Mr Dadson represented to the Harrisons that Austec would not be required to pay more than $907.50 per month for telecommunication services and that this amount would also include the cost of the equipment which was to be supplied to Austec.
Most of the pleaded representations made by Mr Dadson relate to future matters. Whether or not these representations were misleading or deceptive, or likely to mislead or deceive, depends upon whether Mr Dadson knew them to be false at the time they were made, or whether he lacked reasonable grounds to believe that such representations were true at the time they were made.
Mr Dadson did not give evidence and, consequently, I am left to draw inferences as to his state of mind at the time of his dealings with the Harrisons.
One inference I draw is that Mr Dadson would have been familiar with the terms and conditions of the documents which he invited Austec and the Harrisons to sign. In particular, I infer that Mr Dadson would have been aware at the time he made the relevant representations to the Harrisons that:
·the proposed rental agreement which would come into existence if the Austec offer was accepted by AER did not make any provision for crediting payments in relation to rental equipment against telecommunications charges;
·the terms and conditions upon which Axis agreed to supply telecommunication services to Austec did not make any provision for crediting payments in relation to rental equipment against telecommunications charges imposed by Axis;
·Austec was contractually obliged under the terms of the written agreement between Axis and Austec to acquire telecommunications services from Axis for a period of 60 months even if AER did not accept Austec’s offer to enter into a rental agreement.
I am satisfied that each of the representations referred to in para [58] above was misleading and deceptive. I am satisfied that each such representation was made in circumstances where Mr Dadson did not have any reasonable grounds to believe that the commercial arrangements which he invited the Harrisons to enter into on behalf of Austec would ensure that Austec received both telecommunication services and the rental equipment for no more than $907.50 per month. In this respect, I am satisfied Mr Dadson misrepresented the nature and effect of the various documents that he invited the Harrisons to sign.
Ostensible Agency
The Austec cross-claim alleges that QCC and/or Axis were ostensible agents of EFS or AER because:
(a)Austec had no dealings with EFS or AER (except via the rental agreement itself) but dealt only with Mr Dadson and, through him, with his employer, QCC and/or Axis;
(b)EFS or AER armed Mr Dadson with blank rental agreements and direct debit authority forms for the purpose of putting QCC and/or Axis into a position where it could obtain the signatures of potential business customers on those forms as part of a process of agreeing to receive business equipment and telephony services;
(c)no reference was made to EFS or AER by Mr Dadson – the only reference to EFS or AER was where AER’s name appeared on the rental agreement;
(d)a reasonable person in the position of Austec would have assumed that Mr Dadson had been authorised to make binding representations about the offer that AER was making to Austec or the nature of the commercial arrangements that Austec would enter if AER agreed to deal with Austec.
The first of the matters relied upon assumes Mr Dadson was employed by QCC and/or Axis. As to this, I am satisfied that Mr Dadson was an employee or, at least, an authorised agent of QCC. The evidence does not reveal whether he was also an employee or an authorised agent of Axis.
However, even if Mr Dadson was an employee or authorised agent of both QCC and Axis, the question that must be decided is whether Mr Dadson, QCC or Axis were ostensible agents of AER. All of the matters relied upon in support of the case based upon ostensible agency, with one exception, involve inaction on the part of EFS and AER. A key proposition underpinning this aspect of Austec’s pleaded case seems to be that AER was under a duty to provide supervision and training of various kinds to Mr Dadson. Counsel’s submissions did not identify the legal basis for imposing any such duty upon AER. There is no basis upon which to find that any such duty arose.
The one exception concerns the provision of forms by AER to QCC or Axis. The mere provision by AER of blank rental agreements and direct authority forms to QCC or Axis – something which I am prepared to infer occurred at least as between QCC and AER – is insufficient in the circumstances of this case either alone, or taken together with any of the other matters referred to in the cross-claim, to support a finding that QCC or Axis had ostensible authority to make any representations to Austec or the Harrisons on behalf of AER or EFS: see Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552; NMFM Property Pty Ltd v Citibank Ltd (No 10) (2000) 107 FCR 270; Quikfund (Australia) Pty Limited v Prosperity Group International Pty Limited (In Liq) (2013) 295 ALR 472.
The case brought by Austec and the Harrisons against EFS and AER based upon ostensible agency fails.
Section 73
The submissions made on behalf of EFS and AER in relation to s 73 of the TP Act were brief and to the following effect:
·Broadly speaking, s 73 of the TP Act has the effect of making both the supplier and financier liable in certain circumstances where a consumer suffers loss or damage in relation to goods or services the consumer has acquired from the supplier with finance provided by the financier.
·Section 73 is within Pt V of the TP Act. By reason of s 51AF, Pt V “does not apply in relation to financial services”. The rental agreement between EFS/AER and Austec “is a financial service”.
·Section 73 has no application to the issues in these proceedings.
However, s 51AF does not provide that Pt V “does not apply in relation to financial services”. Section 51AF is more specific. The language in s 51AF(1) (“does not apply to the supply, or possible supply”) and in s 51AF(2) (“conduct engaged in”) picks up language used in s 53 and s 52 of the TP Act respectively. This tends to suggest that s 51AF is concerned only with those provisions in Pt V which proscribe conduct of a corporation: see, for example, ss 52-64. Section 73 is not such a provision.
If the submission of EFS and AER was correct, it would follow that a financier providing financial services by way of a lease or rental agreement in respect of goods acquired by a consumer might never be liable to the consumer under s 73 of the TP Act even where the alleged misrepresentation related to a particular characteristic of the goods. The point is well illustrated by the facts of this case in which the Harrisons allege that the supplier of the goods made misrepresentations as to the price of the goods.
There is a question as to whether s 73(1) can apply to misrepresentations that relate to characteristics of goods (in particular price) if they also relate to financial services because the goods are to be acquired by a consumer using finance made available under a lease, rental or other credit contract or arrangement.
In my view, s 51AF operates to exclude the operation of Pt V of the TP Act in cases involving contraventions of any of its provisions only in so far as such conduct relates to financial services. To the extent that such conduct also relates to something other than financial services then Pt V of the TP Act is not excluded. Thus, conduct which, as in this case, relates not only to the financial services (the provision of finance under a rental contract) but also to a characteristic of goods (the price of the goods) may in fact be actionable under both the TP Act and the ASIC Act.
In the course of a discussion with a consumer a supplier of goods or services may make a misrepresentation concerning the condition or characteristics of goods or services. In the course of the same discussion the supplier may make a misrepresentation as to the availability of finance, or the terms or conditions upon which finance might be obtained by the consumer.
I do not see why a misrepresentation of the former kind might not be actionable under the TP Act on the basis that the supplier had contravened s 52(1) of the TP Act. No doubt the supplier may have made other misrepresentations during the course of such a discussion to which s 12DA of the ASIC Act might apply because the supplier had thereby engaged in conduct “in relation to financial services”. But it does not follow that every misrepresentation that may have been made by the supplier in discussions with the consumer must be “in relation to financial services”. Whether any such misrepresentation was made “in relation to financial services” must depend upon the facts of any given case.
There is certainly no reason to think that the legislature intended by the introduction of s 51AF to deny s 73 any operation in cases involving misrepresentations made to consumers by suppliers concerning goods or services acquired using finance made available pursuant to a lease, rental or other credit contract. On the contrary, the references to s 12ED of the ASIC Act were introduced into s 73 at the same time as s 51AF was introduced into Pt V of the TP Act: see Financial Sector Reform (Consequential Amendments) Act 1998 (Cth), Sch 2, Items 27, 28 and 29.
Similar arguments to those advanced by EFS and AER were addressed by Foster J in Australian Securities and Investments Commission v Bank of Queensland Limited (2011) 86 ACSR 258. In that case, the argument advanced in support of an application to strike out the statement of claim filed by the applicant (ASIC) was that s 73 could not apply to the supply, or possible supply, of services that are financial services. As in the present case, the respondents’ arguments seem to have been founded on the simple proposition that s 51AF deprives s 73 of any operation if the representations in issue relate to financial services.
Foster J considered these arguments by reference to ASIC’s response to them. His Honour said at [45]:
[45]ASIC countered these arguments with the following submissions:
(a)Section 73 of the TPA is predicated upon the existence of a linked credit provider. For s 73 of the TPA to apply to any set of circumstances, a linked credit provider must have provided credit under some form of contract in relation to a supply of goods and/or services. Providing credit under a contract (including a home loan contract or a margin loan contract) amounts to providing financial services within s 4(1) of the TPA, s 12BA of the ASIC Act and s 12BAB of the ASIC Act. Therefore, a claim under s 73 of the TPA will always involve the supply of financial services. To read s 73 in the way that the respondents urge upon the Court would render s 73 incapable of any application. ASIC urged an interpretation of s 73 which allowed it to operate harmoniously with the rest of Pt V of the TPA.
(b)Section 12ED of the ASIC Act is specifically referred to in s 73(1) of the TPA. Section 12ED is confined in its operation to a contract for the supply of financial services by a person to a consumer in the course of a business. Accordingly, s 73 of the TPA must be capable of applying to a contract for the supply or possible supply of financial services at least in so far as there is implied into such a contract the warranties specified in s 12ED of the ASIC Act.
(c)Section 51AF(1) restricts the operation of Pt V of the TPA only when a provision of Pt V would otherwise “apply to the supply, or possible supply of … financial services” (emphasis added). As a result, the only provisions of Pt V which are affected by s 51AF(1) are those which have as their subject matter some aspect of the actual supply or possible supply of financial services. There are many sections which have that operation: for example, s 52 and s 53 would operate where a misrepresentation or false statement was made in relation to the supply or possible supply of financial services.
Section 73 of the TPA is not such a provision. Section 73 merely attaches the liability of the actual supplier to such persons as fall within the definition of “linked credit providers”. Section 73 of the TPA merely creates extended rights and remedies after there has been a supply of goods or services financed by a linked service provider.
His Honour then said at [46]-[47]:
[46]In my judgment, the submissions of ASIC constitute the preferred interpretation of s 73 when read with s 51AF of the TPA. The initial fundamental engagement of the section is brought about by a consumer suffering loss or damage “as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of [certain specified sections of the TPA] or s 12ED of [the ASIC Act] … The section does not confine the source of that description of primary liability on the part of the supplier to contraventions of Pt V of the TPA. The description of the primary contravening conduct is very broad and is apt, in my view, to cover common law and statutory contraventions as well as breaches of contract.
[47]The only Pt V provisions which are excluded by s 51AF(1) from operation in respect of financial services are those which impose what I have called “primary liability” upon persons. In this case, the statutory liability of Storm directly to the Doyles for misleading and deceptive conduct would have to be anchored in a provision in the Corporations Act and could not have been litigated pursuant to s 52 of the TPA. An applicant is not prevented by s 51AF(1) of the TPA from suing a linked credit provider in respect of conduct of the relevant supplier which is not alleged to be a contravention of Pt V of the TPA. If the liability of the supplier is founded upon general law or statutory rights otherwise covered by the text of s 73(1) which I have extracted at [46] above, s 73 will be available as a means of rendering liable the linked credit provider.
I respectfully agree with his Honour’s reasoning. Cowdroy J also agreed with Foster J’s reasoning when considering similar arguments in Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709. Both Foster J’s and Cowdroy J’s decisions on this point were referred to by the Full Court in Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (In Liq) (2013) 295 ALR 472 at [96] and [128] without disapproval.
Applying this interpretation of s 51AF in this case, s 51AF did not operate to exclude liability on the part of EFS or AER for a misrepresentation made by Mr Dadson in the course of his discussions with the Harrisons even if those representations were made in relation to financial services.
If other relevant requirements of s 73 are satisfied, then it will apply in the circumstances of this case. In this regard, it was ultimately accepted by EFS that, for the purposes of s 73(1), Austec was a “consumer” and EFS was a linked credit provider of QCC.
EFS and AER relied upon a number of defences provided for in s 73(3). The first is based upon s 73(3)(a). The argument seems to be that the credit provided to Austec by EFS and AER was “the result of an approach made to the credit provider that was not induced by the supplier”. There is nothing in the evidence before me to support a finding to that effect. On the contrary, as my previous findings make clear, QCC (through Mr Dadson) induced Austec to enter into the rental agreement with AER and EFS. The defence based upon s 73(3)(a) must therefore be rejected.
The second of the defences relied upon by EFS and AER was based upon s 73(3)(b). Evidence in support of this defence was given by Mr Stavros Athanasiou and Mr Charbel Rizk. In my view their evidence does not make out a defence under s 73(3)(b). I explain why in paras [186]–[193] below.
To this point my views in relation to the contest between EFS/AER and Austec may be summarised as follows. QCC contravened both s 52(1) of the TP Act and s 12DA of the ASIC Act by making misrepresentations to Austec which induced it to enter into the rental agreement. Had the misrepresentations not been made, Austec would never have entered into the rental agreement. Section 73(1) applies to all such misrepresentations. The other requirements of s 73 are made out. None of the defences provided for in s 73(3) is made out. AER, EFS and QCC are jointly and severally liable to Austec for loss and damage suffered by it by reason of QCC’s misrepresentations.
Austec’s loss and damage
Austec is entitled to set-off the amount of EFS’s liability in diminution or extinction of Austec’s liability to EFS: see s 73(4). As previously mentioned, EFS calculates its damages as being $41,952.18. In my view, the amount of EFS’s liability to Austec under s 73 is at least equal to this amount.
In arriving at this conclusion I have taken into account the benefit derived by Austec by reason of its receipt of the rental equipment. Evidence called by Austec (which was not challenged by EFS) establishes to my satisfaction that the retail value of the relevant equipment at the time of supply was no more than about $8,300 and, most probably, considerably less than that amount. As I have mentioned, Austec has already paid more than $8,000 to EFS pursuant to the rental agreement.
Austec’s additional claims
For completeness I should mention a number of other claims raised by Austec. Austec alleged that EFS and AER engaged in the practice of exclusive dealing contrary to s 47 of the TP Act. This case was put in two different ways. The first way in which it was put assumed, contrary to what I have already found, that QCC was an agent of AER or EFS. Put in that way, the s 47 case must fail. The second way in which the s 47 case was put was said not to depend upon any finding of agency. Rather, it was said that, as a matter of substance, EFS or AER offered to supply Austec with the rental equipment on the condition that Austec also acquired telephony services from Axis.
In my view the evidence does not permit an inference that EFS or AER supplied the rental equipment to the Harrisons on condition that Austec acquire telephony services from Axis. There is nothing in the evidence capable of establishing that EFS or AER required Austec to acquire anything from Axis.
The case against EFS and AER based upon either of them having engaged in the practice of exclusive dealing fails.
Various other claims were made against EFS and AER based upon s 75B of the TP Act. In particular, EFS and AER were said to have aided and abetted, or to have been knowingly concerned in, the contraventions of s 52 of the TP Act by QCC, and the contravention of s 47 of the TP Act by Axis. It is not necessary for me to determine whether Axis contravened s 47. In my view, the evidence does not establish that either EFS or AER was knowingly concerned in any contravention of s 52 by QCC or the alleged contravention of s 47 by Axis.
The Contracts Review Act 1980 (NSW)
The Harrisons each gave guarantees in favour of AER and EFS in respect of Austec’s obligations under the rental agreement. The Harrisons seek relief under the Contracts Review Act 1980 (NSW) (the Contracts Review Act) in relation to these guarantees.
In fact the guarantees given by the Harrisons create rights and obligations of indemnity and guarantee.
Clauses 26-28 of the rental agreement (which incorporate the terms of the relevant guarantee and indemnity) provide:
26. GUARANTEE
The Guarantor unconditionally and irrevocably guarantees to us the due and punctual:
26.1Payment by the Customer of all money that is or may become payable by the Customer under the Hiring Agreement; and
26.2performance of all the Customer’s obligations under the Hiring Agreement, in each case including any variation of payment or other terms under the Hiring Agreement as provided in it or as agreed from time to time by us, with or without the Guarantor’s consent.
27.INDEMNITIES
27.1The Guarantor indemnifies and will keep us wholly indemnified against any loss, damage, cost, charge, expense or other liability directly or indirectly incurred by us in any way in connection with or arising from:
(a)any actual or attempted breach or default by the Customer of any of its obligations under the Hiring Agreement; or
(b)any inability by us to enforce the Hiring Agreement against the Customer for any reason, including that the Hiring Agreement or any part of it may be void, voidable or declared unenforceable.
27.2Each of the indemnities given in clause 27.1.
(a)is separate and distinct from the other and from the guarantee under clause 26; and
(b)must not be construed otherwise or read down or limited in its effect or otherwise varied by virtue of its inclusion in the same document as the guarantee and any of the other undertakings given by the Guarantor.
28.GUARANTOR’S OBLIGATIONS
28.1The Guarantor must pay any money due to us under this Guarantee and Indemnity on demand and without prior notice being given.
28.2The Guarantor’s obligations and our rights and remedies against the Guarantor will continue until all guaranteed money has been paid and discharged in full and this Guarantee and Indemnity has been released and will not in any way be affected by:
(a)any release or variation of any obligation under the Hiring Agreement at any time;
(b)any time, concession, indulgence, waiver, compromise, abandonment or transfer (whether with or without consideration) of:
(i)any right of any person under this Guarantee and Indemnity or any obligations under the Hiring Agreement; or
(ii)any other of our rights against the Customer, the Guarantor or any other person;
(c)any acquiescence, delay, act, omission, neglect or mistake on our part or by any other person to enforce the Hiring Agreement or this Guarantee and Indemnity;
(d)the Customer, the Guarantor or any other person:
(i)being or becoming bankrupt, insolvent, placed under administration or in liquidation; or
(ii)dying or being dissolved or deregistered or otherwise ceasing to exist, whether or not us [sic] assents to this or receives or accepts any dividend from any trustee, administrator or liquidator;
(e)any incapacity or change in the legal capacity of the Customer or any other Guarantor including any change in the membership of any firm (whether or not this involves dissolving an existing partnership and forming another) which is the Customer or the Guarantor or of which the Customer or the Guarantor is a member;
(f)any amounts guaranteed by this Guarantee and Indemnity being or becoming irrecoverable against any person for any reason;
(g)any provision of the Hiring Agreement or any guarantee and indemnity being or becoming void, voidable or unenforceable against any person;
(h)any assignment or transfer of any rights in respect of the Hiring Agreement or this Guarantee and Indemnity by us, the Customer, the Guarantor or any assignee of them or any other person;
(i)any judgment or order being made against any person;
(j)the amount of the guaranteed money increasing or being reduced to nil or otherwise varied;
(k)the failure to give notice to or the lack of consent of the Guarantor before or after the happening of any acts or events referred to in this clause; or
(l)any other act, omission or default by any person or any other matter or thing which, but for this clause, might discharge, reduce, abrogate, prejudice or otherwise affect the liability of the Customer or the Guarantor.
28.3The Guarantor’s obligations are continuing obligations under this Guarantee and Indemnity and are unconditional and irrevocable, remaining in full force and effect until the whole of the guaranteed money has been paid or satisfied and this Guarantee and Indemnity released.
Section 7 of the Contracts Review Act relevantly provides:
(1)Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following:
(a)it may decide to refuse to enforce any or all of the provisions of the contract,
(b)it may make an order declaring the contract void, in whole or in part,
(c)it may make an order varying, in whole or in part, any provision of the contract,
…
(2)Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.
…
Section 9 specifies the matters that must be considered by the Court in determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made. Pursuant to s 9(1) the Court must have regard “to the public interest and to all the circumstances of the case” including those arising in the event of compliance or non-compliance with the provisions of the contract.
Section 9(2) of the Contracts Review Act specifies particular matters to which the Court must have regard to the extent they may be relevant. These include:
·where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed [s 9(2)(g)];
·whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act [s 9(2)(h)];
·the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect [s 9(2)(i)];
·whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:
- by any other party to the contract,
-by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or
-by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract;
[s 9(2)(j)]
·the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party [s 9(2)(k)]; and
·the commercial or other setting, purpose and effect of the contract [s 9(2)(l)].
I have had regard to all of the matters referred to in s 9(1) and s 9(2) including those referred to in the immediately preceding paragraph of these reasons. They are, in my view, considerably significant in the circumstances of this case.
By a series of misrepresentations, the Harrisons were induced to sign the document which, upon acceptance of Austec’s offer by EFS, provided the written record of the guarantee and indemnity.
The representations that were made to the Harrisons misrepresented the nature and effect of the commercial arrangements which Austec was later to enter into with Axis, and with AER in fundamental respects. Had the representations not been made and relied upon by the Harrisons, Austec would never have entered into any such arrangements with either Axis or AER.
The Harrisons did not receive legal advice before executing any of the documents signed by them.
I am satisfied that neither Mr Harrison nor Mrs Harrison understood the legal or practical effect of the guarantee and indemnity granted by them to AER. I accept that each of them most likely understood that they were giving a guarantee to AER of Austec’s obligations, but they were, in my view, fundamentally mistaken as to the nature and extent of Austec’s obligations to Axis and AER and, by implication, their own potential liability as guarantors of Austec’s obligations to either Axis or AER.
Section 9(2)(j) refers to (inter alia) unfair pressure or unfair tactics exerted on or used against the party seeking relief under the Contracts Review Act by (inter alia) a person acting or purporting to act or appearing or purporting to act for or on behalf of any other party to the contract.
In the present case I have concluded that QCC (through Mr Dadson) was not the ostensible agent of AER. Nevertheless, it seems to me that Mr Dadson certainly gave the appearance of acting for all other parties to the contract or contracts which he induced Austec and the Harrisons to enter. And on any view Mr Dadson engaged in both unfair pressure and unfair tactics in an effort to induce the Harrisons to sign (inter alia) the guarantee and indemnity given by them to AER and EFS.
I should note that AER and EFS submitted that, even if such a finding was made, the Harrisons were still not entitled to relief under the Contracts Review Act because the contract of guarantee and indemnity entered into by each of them was entered into in the course of or for the purpose of a trade or profession carried on by each of them: see s 6(2) of the Contracts Review Act. I reject this submission. There is nothing to suggest that either of the Harrisons was carrying on a business in his or her own right.
In all the circumstances, I am satisfied that the contract of guarantee and indemnity made between AER and EFS, and each of Mr and Mrs Harrison, was unjust in the circumstances relating to the contract at the time it was made.
In my opinion the relief that is appropriate in this case is to declare the contract of guarantee and indemnity void with effect from the time it was made.
THE AIRMARK PROCEEDINGS
Factual Background
Mr and Mrs Gonsalves gave evidence of dealings they had with a Mr Joe Rizcallah in August 2008. Mrs Gonsalves gave an account of a meeting with Mr Rizcallah that occurred on or about 6 August 2008 which she and Mr Gonsalves attended.
Mr Rizcallah visited Airmark’s office. He told the Gonsalves that he was from Link Solutions. He had a conversation with the Gonsalves in which he said words to the following effect:
My name is Joe Rizcallah. I am from Link Solutions and am here to try and save you some money. Can I have a look at some telephone bills to determine an amount that we might be able to save you. We have a great deal that finishes soon, so you really should take a look at what we have to offer.
Mrs Gonsalves gave Mr Rizcallah some telephone bills. Mr Rizcallah then had a conversation with the Gonsalves which was, according to Mrs Gonsalves, to the following effect:
Mr Rizcallah: You are paying too much for your phone bills. I can cut your phone bills in half. Also if you sign up today, that will allow me to give you free office equipment in exchange for call credits.
Mrs Gonsalves: What are call credits?
Mr Rizcallah: It is like points. You get points for the amount of telephone calls you make, both nationally and internationally. They give you credits and those credits go toward the free equipment.
Mr Gonsalves: Where is the catch – how much is this going to cost?
Mr Rizcallah: You will be in a much better position with me after you sign up, I am here to reduce your costs. Your phone bills will be much less than what you are paying plus you will get free equipment.
You must sign up today to get the free equipment – this special ends today.
Mrs Gonsalves: What sort of equipment can we get?
Mr Rizcallah: You can get plasmas, telephones, printers, monitors, photocopiers – any electronic equipment. It is very similar to the mobile phone type deals i.e., where you pay for the mobile phone plan and get a free mobile with it.
Mrs Gonsalves: Why are you giving away this equipment? How can you afford to do this?
Mr Rizcallah: We buy the call rates from Telstra for about 2 cents and we on sell to you, the customer at 5 cents. We buy them at a wholesale price and we make money from the difference and still save you money.
Mrs Gonsalves: This sounds like a good deal – we will sign up. We would be silly to miss out.
Mr Gonsalves: I agree. Let’s sign up.
During the course of the discussions between Mr Rizcallah and the Gonsalves, Mr Rizcallah indicated that he was not in a position to inform the Gonsalves what equipment they might obtain. According to Mrs Gonsalves, Mr Rizcallah said:
I am not trained to work out which equipment or the credits you should receive for your phone bills, someone else will have to work this out and they will send the document back to you. I think you can get about $600-$800 worth of free equipment.
There were various documents signed by Mr Gonsalves on 6 August 2008. One of these was a document entitled “Understanding the Arrangements” (the Understanding Document). This document was in these terms:
Sonofon appreciates your business and for the avoidance of any misunderstanding, our staff and customers must acknowledge that the key elements of the arrangements have been explained.
The key elements of our arrangements are as follows: -
EQUIPMENT RENTAL AGREEMENT
Monthly Rental inc GST [550] x Term [60] = Total Rental inc GST [$33,000]
• All equipment and products are rented through Quikfund Australia Pty Ltd.
• Options at the end of term are: -
° Purchase the equipment outright at fair market value
° Continue to rent the equipment
° Return the equipment and upgrade under new agreement
•Monthly Rental Amount will be debited in advance from your nominated account.
•Monthly Plan Credits for telephony services will coincide with the commencement of the Equipment Rental Agreement.
•Although Quikfund Australia Pty Ltd is able to provide the finance required you may choose to organize your own financing arrangements.
TELEPHONY SERVICES
Monthly Plan Fee ex GST [500] Monthly Credits ex GST [500] Term [60]
•Telephony services will now be delivered and billed monthly by Clear Telecoms Aust P/L in accordance with the Rate Plan also signed by me. I acknowledge that I have read the Terms and Conditions.
•Call Plan Credits will be credited on the telephone bill at the end of every calendar month.
•Call Plan Credits for fixed line services are based on eligible calls only. Eligible calls are Local calls, National calls, International calls and calls to mobile phones.
•Call Plan Credits for mobile phone services are based on different eligible calls. Eligible calls for mobile phones are Mobile to Mobile calls and Mobile to Fixed Line calls. Other charges apply.
•SMS, MMS, Premium SMS, Connect 2, GPRS (data usage), Mobile Fax, WAP, Directory and Information services, Global Roaming and other types of mobile services will be charged in addition to this arrangement (if applicable).
•Line Rentals and other carrier charges (examples include Calls to 13 numbers, Directory charges, calls to Sensis, or other Information calls) will be charged monthly in addition to this arrangement.
THIS IS THE ENTIRE AGREEMENT
It is understood that these two written agreements supersede all prior representations, whether verbal or written, and they accurately describe the whole of the arrangements between us. There are no other expectations of (Company Name), Quikfund Australia P/L or Clear Telecoms Aust P/L.
I do not regard Mrs Gonsalves’ account of her conversation with Mr Rizcallah in August 2008 as wholly reliable. I think she has engaged in a significant amount of reconstruction so I certainly am not persuaded that I should accept all that she has said about her dealings with Mr Rizcallah in August 2008. Further, in light of the evidence of Mr Gonsalves’ conversation with Ms Paul, I am not prepared to accept either Mrs Gonsalves’ or Mr Gonsalves’ evidence concerning their conversations with Mr Rizcallah and Mr Carroll in November and December 2008 or their evidence to the effect that the equipment referred to in the second and third rental agreements was never received by Airmark.
However, it does not follow that I do not accept any of Mrs Gonsalves’ or Mr Gonsalves’ evidence. On the contrary, there are important parts of their evidence that ring true and which I do accept after making allowance for some exaggeration and embellishment by Mrs Gonsalves. In particular, I accept Mrs Gonsalves’ evidence to the effect that Mr Rizcallah told Mr and Mrs Gonsalves at their meeting in August 2008 that communications, audio-visual and office equipment could be obtained by Airmark from Link Solutions at no additional cost beyond what Airmark would have to pay to Clear Telecoms in respect of telephony services. This is what I understood Mrs Gonsalves to mean when she referred to “free equipment”. It is an expression which I am satisfied Mr Rizcallah is likely to have used in his discussions with the Gonsalves. I think it more likely than not that Mr Rizcallah explained to the Gonsalves that if Airmark “signed up” it would receive free equipment – free in the sense that it would not cost Airmark anything after allowing for “credits” or “points” that would be available to pay any charges that might otherwise have been payable in respect of such equipment.
Further, I am satisfied that the Gonsalves were induced by these representations to cause Airmark to enter into the rental agreement which Mr Gonsalves signed in August 2008. I do not see what advantage they would have seen in entering into the rental agreement but for the enticement of what Mr Rizcallah described as “free equipment”.
The position in relation to the second and third rental agreements is more complicated because the Gonsalves have, in my view, given a false account of the circumstances in which those agreements came to be signed. But the fact that the second and third rental agreements were signed in blank strongly suggests to me that they did so in the expectation that Airmark would receive yet more “free equipment”. Again, I do not see what advantage Mr and Mrs Gonsalves would have seen in signing these rental agreements but for the enticement of “free equipment”.
It was not suggested by the Gonsalves in their evidence that the same representation as that which I have found was made to them in August 2008 was made to them again in December 2008. However, in my view it is more probable than not that the representation first made by Mr Rizcallah in August 2008 induced them to enter into the further agreements. I say this in circumstances where I am satisfied that they were never made aware of the purchase prices of any of the equipment they rented from Quikfund, and where Mr Gonsalves signed the Second Understanding Document, which was to substantially the same effect as that which he had signed in Mr Rizcallah’s presence in August 2008.
Was the representation made by Mr Rizcallah a misrepresentation?
I am satisfied that the representation which I have found was made to the Gonsalves by Mr Rizcallah was misleading and deceptive, and likely to mislead and deceive. I am also satisfied that it was a misrepresentation. The equipment rented to Airmark was not “free” in any sense, something which would have, I am satisfied, been well understood by Mr Rizcallah at the time he made the relevant representation. In the absence of evidence to the contrary, I think it should be inferred that Mr Rizcallah knew that the invoice value of the equipment that was to be rented to Airmark and upon which the rental agreements were based were grossly inflated. Leaving aside what was, no doubt, a significant interest component built into the rental instalments that would be payable to Quikfund, the invoice price of the equipment, which determined the amount of the rental payments, shows that there was never any prospect of those rental payments being matched by, or satisfied with, points or credits that would be available to Airmark through its dealings with Clear Telecoms.
Section 73
Who was the supplier?
In the case of the first rental agreement the supplier of the equipment was either Link Solutions or Sonofon. The conversation between the Gonsalves and Mr Rizcallah suggests that Link Solutions was the supplier of the equipment the subject of the rental agreement signed in August 2008. However, the Understanding Document suggests otherwise, as does the invoice issued by Sonofon to Quikfund on 2 September 2008. That invoice contains a reservation of title (Romalpa) clause in favour of Sonofon. However, even if Sonofon was the actual supplier of this equipment, it is clear that Link Solutions (by whom Mr Rizcallah was most likely employed) was the corporation that caused the relevant equipment to be supplied to Quikfund so that it could in turn hire such equipment to Airmark. On this view of the facts, s 73(1)(a) of the TP Act can apply to either Sonofon (if it is the actual supplier) or Link Solutions (on the basis that it arranged the supply). Even if it is assumed that Mr Rizcallah was authorised to represent Link Solutions but not Sonofon (which I think is unlikely) then s 73 still applies to Link Solutions on the basis that it was the corporation that arranged for the supply of the equipment to Quikfund.
In determining which company supplied the equipment to Quikfund in the case of the two rental agreements witnessed by Mr Carroll, I have taken into account the recorded conversation between Ms Paul and Mr Gonsalves in which Ms Paul claimed to be representing Quikfund. I am satisfied that she was, at the time she had her conversation with Mr Gonsalves, representing Quikfund and that she was authorised to speak on its behalf. In her conversation with Mr Gonsalves, Ms Paul made statements that clearly indicate that Link Solutions was the supplier. Why Select Telecoms came to invoice Quikfund for the equipment was never satisfactorily explained in the evidence. However, in light of the very clear admissions made by Ms Paul, I am satisfied that Link Solutions was the supplier of the equipment the subject of the two rental agreements witnessed by Mr Carroll. And even if (contrary to my finding) Link Solutions was not the supplier, then it was, at the least, a corporation that caused the relevant equipment to be supplied to Quikfund.
Was Airmark a “consumer”?
Another question that arises under s 73 is whether or not Airmark was a “consumer”. In this regard, I am mindful that the invoice price of the goods supplied under one of the rental agreements exceeded $40,000.
Airmark did not acquire the goods the subject of any of the rental agreements by way of purchase. Hence, s 4B(2)(d) of the TP Act applies. By s 4B(2)(d), the price of the goods is taken to have been, assuming that Airmark could have purchased the same goods from Link Solutions, the price at which it could have done so. Having regard to the highly inflated prices at which the goods were supplied, I would infer that the same goods could have been acquired from Link Solutions at a price well below the amount for which Quikfund was invoiced. In any event, I note that pursuant to s 4B(3) of the TP Act, the onus was on Quikfund to establish that Airmark was not a consumer. In my view, Quikfund has not discharged its onus under s 4B(3).
Was Quikfund a “linked credit provider”?
It was not disputed by Quikfund that it was a linked credit provider to both Link Solutions and Sonofon for the purposes of s 73. The relationship between Quikfund, Link Solutions and Sonofon is generally apparent from the report from Mr Athanasiou to Mr Rizk dated 29 June 2007 (Ex J) which referred to these entities (among others) and considered whether or not “sufficient controls exist for Quikfund to take some comfort in accepting leases from those entities.” The evidence included a vendor accreditation agreement between Quikfund and Link Solutions dated 1 July 2008 signed on behalf of Quikfund by Mr Rizk, and a vendor accreditation agreement between Quikfund and Sonofon, also dated 1 July 2008, and also signed by Mr Rizk on behalf of Quikfund. These agreements were in all probability entered into in light of Mr Athanasiou’s report. There is no reason to believe they did not apply at the time Link Solutions and Quikfund had their dealings with Airmark.
The s 73(3)(b) defence
Evidence was given by Mr Charbel Rizk in support of a defence under s 73(3)(b) of the TP Act which was relied upon in all three proceedings. Mr Rizk is a director of both Quikfund and EFS. Mr Rizk gave evidence that there were a number of companies that forwarded “finance applications” to Quikfund and EFS. In June 2007 these included Link Solutions, Sonofon, Oryzon Pty Ltd (which later changed its name to Select Telecoms Pty Ltd) and QCC.
Mr Rizk said that in June 2007 he received a report from Mr Stavros Athanasiou dated 29 June 2007. He claimed to have relied upon this report for the purposes of forming a view as to the financial standing of the relevant businesses. In his affidavit Mr Rizk said:
9.I recall reading the report on or about the time I received it. I recall I formed the view at the time that the businesses referred to in the report had, in my view, had good financial standing and as a result I did not doubt that any of the companies could not meet any of their liabilities.
10.I had no doubts about the financial standing of any of the businesses referred to in the report until about April or May 2009. I was aware from about July 2007 to April 2009 the businesses known to me as Link Solutions Pty Limited, Sonofon Pty Limited, Oryzon Pty Limited (which had changed it [sic] name to Select Telecoms Pty Limited) and Queensland Communications Company Pty Limited had referred some applications for rental finance to Quikfund and on occasions to EFS.
There is a fundamental difficulty with Mr Rizk’s evidence in so far as it is relied upon to support a defence based upon s 73(3)(b). To make good such a defence, the credit provider must establish that before becoming a linked credit provider, it “was satisfied that the reputation of the supplier in respect of the supplier’s financial standing and business conduct was good”. Whatever might be said of the financial standing of the relevant companies, it is not apparent to me that Mr Rizk turned his mind to the reputation of any of the companies in terms of their “business conduct” with a view to forming a view as to whether it was good or bad or somewhere in between.
Mr Athanasiou’s report indicates that it was prepared for the purposes of assessing the financial position of various businesses including, in particular, their solvency. Beyond this, his report is best described as a risk assessment. Indeed, it is entitled “Quikfund Fair Trading (trade practices) Compliance Risk Assessment”.
The nature of Mr Athanasiou’s report may be gleaned from both its introduction and conclusion, which are in the following terms:
Introduction
The purpose of this risk assessment is to inform the development of compliance procedures for a number of equipment lease originators to Quikfund. In particular we have sought to provide a risk based framework for process, training and accountability arrangements and to assist in the general awareness and management of fair trading and antitrust and associated business risks across the Australian operations.
As we understand it Quikfund intends to acquire leases originated from a number of newly aggregated companies, said companies having acquired businesses from other entities with the businesses to be run by the same management. Each of the entities has run its business relatively independently to date albeit with similar business, product and go to market arrangements.
During our review we visited several businesses – Fuszion, Link QCC, Telecom 1 Sonofon, Axsiom Victoria and Asxiom. We interviewed staff in those businesses, received sales calls and sales presentations and examined procedures for sales, controls, complaints handling and fulfilment arrangements.
…
Conclusion
It is apparent that some trade practices and fair trading risks exist for the finance originators in the day to day operations and management of their business.
We note that this risk assessment cannot be taken in isolation from the broader risk management processes and operating standards of Quikfund.
When managed within the proposed compliance program we believe these risks and critical risk points should fall within the risk appetite of the company. In some cases new procedures, systems and controls may be required. In others it will be necessary to strengthen existing systems.
When managed effectively using compliance systems and related effective management arrangements – typified by standard business practices and controls – the company should be able to conduct its business within the risk appetite of the organisation.
It is important to note that all of the sales entities had compliance programs in place and that reasonable processes are in place to avoid situations where sales have been made on basis of false or misleading representations, the key risk to Quikfund.
Given these compliance programs minimal risk resides with Quikfund resulting from the leases originated by the sales entities the subject of this review.
(emphasis added)
Mr Athanasiou, who also gave evidence, was not a witness whose evidence I found helpful, principally because I did not consider his evidence to be reliable. His evidence, like his report, was expressed in general terms that told me very little about the nature of the businesses he claimed to have investigated. However, one matter of particular interest that arose out of his oral evidence concerned the matter of “free equipment”. In the course of his cross-examination Mr Athanasiou referred to “free equipment”. The evidence (T 50-51) was as follows:
MR CROSSLAND: But what you’re talking about here is these post sale processes is that you wanted to processes up [sic] or the businesses should set processes up that stopped people and made it difficult for them to say they had been misled. That’s what that sentence is about?---No, no, no. That’s not what it’s about at all. What it’s about is that there are sufficient controls in place (a) to make sure that should people deviate from the standard training and presentation rules of the company. There is something there to ensure that it’s caught before it goes further. One of the consistent principles that has existed within this business, businesses, is that you don’t represent that equipment is free, for example, so - - -
HIS HONOUR: Sorry, can I just ask you this: why are you referring to that representation?---Well, because it’s a specific one that has come up over a number of years, your Honour.
But were you aware of that at the time you made this report?---I was aware of it as being a possible issue since 2003.
I see, that people were being told that they were being supplied equipment for free?---Or the people had formed a view that it was free.
Is that dealt with anywhere in here?---In the report, no, your Honour, specifically no.
But that was a particular problem that you saw in relation to these companies, was it?---It was a particular – it was something that I had been aware of as being a view that some customers had taken for some time.
And did you tell the gentleman who retained you to prepare the report?---I felt that – I felt that I didn’t need to tell him because the practice of voice recording had been in existence for some time prior to my writing the report.
Does voice recording [sic] at the time people are being signed up to contracts or subsequently?---Prior to the installation of the equipment.
I see?---So, in essence, before the equipment gets installed and they start paying for it, say, “Hi, it’s me, I’m coming out to install it” gets recorded. “Hi, we’re about to start deducting payments” it gets recorded.
MR CROSSLAND: Are you saying that you know that Mr Rizk was well aware that there was a risk – that in the course of doing business, these businesses would represent to people that the equipment was free?---No, I didn’t say that at all.
HIS HONOUR: No, I don’t think he did say that. I think in fairness to the witness he said, as I understood his evidence, that people had claimed that such representation had been made to them. Is that right?---That’s correct, your Honour.
All right, thank you.
MR CROSSLAND: So you say you don’t know whether Mr Rizk knew that or not?---No, I don’t know whether Mr Rizk knew that or not.
(emphasis added)
It is important to make clear that Mr Athanasiou was speaking about his understanding as at July 2007 when he prepared his report, which was well before the Harrisons or the Gonsalves had anything to do with QCC and Link Solutions. This suggests that they were not the first people to complain about offers of free equipment.
In the result, I am not persuaded that either Quikfund or EFS, through Mr Rizk or otherwise, was satisfied, before becoming a linked credit provider to the businesses or companies referred to in Mr Athanasiou’s report, that any such business or company, had a good reputation in terms of business conduct.
Airmark’s loss and damage
I am satisfied that, were it not for Mr Rizcallah’s misrepresentation, Airmark would never have entered into any of the rental agreements it entered into with Quikfund. Had Airmark sued Link Solutions for damages for such misrepresentation, Link Solutions (which is now in liquidation) would have been liable for an amount representing Airmark’s liability to Quikfund under the relevant agreements, less the value of the equipment received by Airmark under them, and after allowing for payments made by Airmark. Subject to the limitation referred to in s 73(6), Quikfund is jointly and severally liable to Airmark for the loss and damage suffered by Airmark as a result of it having relied upon Mr Rizcallah’s misrepresentation.
The fact that the invoiced value of the equipment rented to Airmark does not reflect the market value of such equipment is plain from the evidence to which I have already referred, and makes the assessment of damages for the purposes of calculating the appropriate set-off provided for by s 73 somewhat difficult. It is certainly not an exercise that can be undertaken with mathematical precision. Evidence in relation to the value of the equipment was given by Mr Ettridge who was called by Airmark. He was not cross-examined. Nor did Quikfund call any evidence of its own in relation to the value of the equipment rented to Airmark.
First Agreement (Ex F)
Airmark paid $7,700 pursuant to the first rental agreement. Though the invoice price (exclusive of GST) for this equipment was approximately $16,000 (after making deductions in relation to GPS equipment and installation services not supplied) I am satisfied that the equipment actually supplied was worth considerably less than $16,000. In particular, I am satisfied that the value of the equipment the subject of the first rental agreement was worth no more than between one third and one half of the amount invoiced by Sonofon to Quikfund. Mr Ettridge’s evidence indicates, for example, that a HP DX 7400 desktop computer had a retail price of $899 while the value attributed to these units in the Sonofon invoice was equal to about $3,000 per unit. Assuming that the unit valued by Mr Ettridge does not include a monitor, his evidence also shows that a 19" LCD monitor could be acquired at a retail price of about $300, amounting to a total of about $1,200. This indicates that the prices of equipment in the Sonofon invoice has been supplied at prices that are more than double the retail price.
Accordingly, I am satisfied that Airmark has already made payments to Quikfund that are approximately equal to the true value of the equipment it received under the first rental agreement, and to the extent that Quikfund seeks to recover any additional amount under the first agreement in respect of damages, I am satisfied that Airmark is entitled to a set-off in an equal amount.
Second Agreement (Ex D)
Airmark paid $7,062 pursuant to the second rental agreement. Although the invoice price (exclusive of GST) for this equipment was approximately $21,000 (after making deductions in relation to installation services not supplied), I am satisfied that the equipment actually supplied was worth much less than that amount and that the value of the equipment was worth no more than between one third and one half of the amount invoiced by Select Telecoms to Quikfund. The second agreement included nineteen 19" LCD monitors. As previously mentioned, these were invoiced by Select Telecoms to Quikfund at a unit price of approximately $929 whereas Mr Ettridge’s evidence shows that these monitors had a retail value of approximately $300 each.
Accordingly, I am satisfied that Airmark has already made payments to Quikfund that are approximately equal to the true value of the equipment Airmark received under the second rental agreement. To the extent that Quikfund seeks to recover an additional amount under the second agreement by way of damages, I am satisfied that Airmark is entitled to a set-off in an equal amount.
Third Agreement (Ex B)
Airmark paid $12,320 pursuant to the third rental agreement. Though the invoice price (exclusive of GST) for this equipment was approximately $37,000 (after making a deduction for installation services not supplied) I am satisfied that the equipment actually supplied was worth considerably less than this. In the case of the third rental agreement, Mr Ettridge’s evidence allows me to make a more detailed price comparison. I have already referred to some of his evidence in relation to the equipment the subject of the third agreement and I shall avoid repeating all of it here. By way of example, the invoice price of the Nokia N73 mobiles shown in the Select Telecom invoice was $12,376 in total or $2,063 per unit whereas Mr Ettridge valued these mobiles at $479 per unit based upon retail prices.
I am therefore satisfied that the value of the equipment the subject of the third rental agreement was worth between about one third and one half of the amount invoiced by Select Telecoms to Quikfund. On that basis, I am satisfied that Airmark has already made payments to Quikfund that are approximately equal to the value of the equipment it received under the third rental agreement. To the extent Quikfund seeks to recover an additional amount under the third agreement in respect of damages, I am satisfied that Airmark is entitled to a set-off in an equal amount.
The Contracts Review Act 1980 (NSW)
It remains to consider the claim for relief under the Contracts Review Act made by Mr Gonsalves in relation to the guarantees given by him in respect of Airmark’s obligations under the three rental agreements it entered into with Quikfund. I have already set out relevant provisions of the Contracts Review Act and summarised (at para [98] above) in connection with the Harrisons’ case some of the matters referred to in s 9(2) of the Contracts Review Act that I also regard as particularly significant in the context of Mr Gonsalves’ case. However, I have had regard to all matters referred to in s 9(2) of the Contracts Review Act to the extent they may be relevant.
In Mr Gonsalves’ case I find that each of the contracts of guarantee and indemnity was unjust in the circumstances relating to such contract at the time it was made. My reasons for so finding may be briefly stated.
First, Mr Gonsalves was induced to sign the guarantees by Mr Rizcallah’s misrepresentation. If it were not for that misrepresentation, I am satisfied that Mr Gonsalves would not have given any of the guarantees he gave to Quikfund.
Secondly, the invoice price of the equipment the subject of the rental agreements guaranteed by Mr Gonsalves substantially exceeded the retail value of the goods concerned. The value of the equipment was significant so far as Mr Gonsalves’ guarantees were concerned, because it directly impacted upon whether, and if so to what extent, any of his guarantees might be called upon in the event of a default by Airmark.
Thirdly, the invoice price of the equipment was never disclosed to Airmark or Mr Gonsalves by the equipment supplier’s representatives, including Ms Paul in the telephone conversation which she had with Mr Gonsalves on Quikfund’s behalf. At no other stage did Quikfund confirm with Mr Gonsalves what his understanding was as to the invoice price of the equipment being financed by Quikfund. Mr Gonsalves never inquired about the price of the equipment or the amount being financed by Quikfund because, I infer, he had been led to believe that it was “free” in the sense previously discussed.
Fourthly, at Mr Rizcallah’s request, the rental agreements, at the time they were signed by Mr Gonsalves, were left blank in significant parts, including those parts that provided for the description of the equipment to be rented, and the monthly rental charges. Further, the rental agreements did not include any statement of the total amounts to be financed by Quikfund or the interest rates that were being charged by it. I consider this was a feature of the form of agreement used by Quikfund that would have worked to Mr Rizcallah’s advantage in the deception of Mr Gonsalves.
Quikfund made a similar submission in relation to Mr Gonsalves’ claim for relief as that which was put on behalf of AER and EFS based upon s 6(2) of the Contract Review Act. Again, in the case of Mr Gonsalves, there is nothing to suggest that he was carrying on a business in his own right.
I am satisfied that there should be a declaration that each of the guarantees and indemnities given by Mr Gonsalves to Quikfund is void with effect from the time it was made.
Additional claims
There were various other claims pleaded by both Airmark and Mr Gonsalves based upon s 51AB and s 51AC of the TP Act. In light of the other conclusions reached by me in relation to their claims under s 73 of the TP Act and the Contracts Review Act it is not necessary for me to fully consider these claims. None of them was the subject of any detailed submissions on the part of Airmark and Mr Gonsalves. In any event, I am not satisfied that the evidence established that Quikfund engaged in conduct that was, in all the circumstances, unconscionable.
DECLARATIONS AND ORDERS
I will direct the cross-claimants in each matter to file and serve within 7 days short minutes of proposed declarations and orders that give effect to my reasons for judgment. These should include declarations in relation to each of the relevant guarantees, orders dismissing the applicants’ claims in each matter, and orders otherwise dismissing the cross-claimant’s cross-claims. I will then hear the parties in relation to those and any further declarations or orders which they contend should be made, including in relation to costs. The proceedings will be stood over to a date to be fixed for that purpose by arrangement with my associate.
I certify that the preceding two hundred and eleven (211) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. Associate:
Dated: 24 May 2013
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