Evans v Davantage Group Pty Ltd

Case [2019] FCA 884

FEDERAL COURT OF AUSTRALIA

Evans v Davantage Group Pty Ltd [2019] FCA 884

File number(s): VID 982 of 2018
Judge(s): BEACH J
Date of judgment: 11 June 2019
Catchwords: CONTRACTS – representative proceedings – separate question – motor vehicle warranties – construction of contracts including incorporated terms of product disclosure statements – discretionary risk products – 26,000 warranty holders – 49 common form products applying to the total class giving rise to the same question – whether consideration or benefit promised illusory – distinction between a discretion whether to perform a promise and a discretion as to its manner of performance – discussion of Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 – separate question answered
Legislation:

Australian Securities and Investments Commission Act 2001 (Cth) ss 12BF(1)(a),(3), 12BG, 12BH, 12CB

Corporations Act 2001 (Cth) Pt 7.6, Pt 7.9, ss 912A, 1012A to 1012C
Cases cited:

Australian Securities and Investments Commission v Westpac Banking Corp (No 2) (2018) 357 ALR 240; [2018] FCA 751

Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130

Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256

Chappell & Co Ltd v Nestlé Co Ltd [1960] AC 87

Crown Melbourne Ltd v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1

Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503

Loftus v Roberts (1902) 18 TLR 532

LSKF Holdings Pty Ltd v Shield Lifestone Holdings Pty Ltd (2018) 128 ACSR 542

Meehan v Jones (1982) 149 CLR 571

Memery v Trilogy Funds Management Ltd [2012] QCA 160

Placer Development Ltd v The Commonwealth (1969) 121 CLR 353

Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234

Scammell (G) & Nephew Ltd v H C & T G Ouston [1941] AC 251

Taylor v Brewer (1813) 105 ER 108

Thorby v Goldberg (1965) 112 CLR 597

Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429

Virk Pty Ltd (in liq) v YUM! Restaurants Australia Pty Ltd [2017] FCAFC 190

Date of hearing: 16 May 2019
Registry: Victoria
Division: General Division
National Practice Area: Commercial and Corporations
Sub-area: Corporations and Corporate Insolvency
Category: Catchwords
Number of paragraphs: 113
Counsel for the Applicant: Mr NC Hutley SC and Mr J Redwood
Solicitor for the Applicant: Baker McKenzie
Counsel for the Respondent: Mr B Walker SC and Dr CO Parkinson
Solicitor for the Respondent: Herbert Smith Freehills

ORDERS

VID 982 of 2018
BETWEEN:

BRETT WILLIAM EVANS

Applicant
AND:

DAVANTAGE GROUP PTY LTD (ACN 161 967 166)

Respondent

JUDGE:

BEACH J

DATE OF ORDER:

11 JUNE 2019

THE COURT ORDERS THAT:

1.The question, “[a]re the Respondent’s promises in the Applicant Warranty that are subject to clause 11 of the Applicant Warranty, illusory?”, be answered: “Yes”.

2.Within 7 days of these orders the Applicant file and serve minutes of orders and submissions limited to 3 pages on any question of costs and on any modification to the main trial orders made on 12…

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AGLC
Evans v Davantage Group Pty Ltd [2019] FCA 884
Case
[2019] FCA 884
Decision Date

CaseChat Overview and Summary

Evans v Davantage Group Pty Ltd involved a dispute between the plaintiff, who held a motor vehicle warranty, and the defendant, Davantage Group Pty Ltd, over the enforceability of certain terms within the warranty agreement. The case was heard by the Federal Court of Australia, where the central issue was whether the discretionary obligations imposed on the defendant to provide warranty coverage were illusory and therefore unenforceable. This determination was sought in the context of a representative proceeding involving approximately 26,000 warranty holders and 49 common form products.

The legal issues before the court revolved around the construction of the contractual terms, specifically clause 11.1 of the warranty, which allowed the defendant to decide in a "fair or just way" whether to pay for repairs. The court had to decide whether the discretion granted by this clause rendered the promise to provide warranty coverage illusory. The court also examined whether the discretion was truly fettered or effectively unfettered, considering whether the language used in the clause provided any meaningful limitation on the defendant's discretion.

The court found that the discretion granted to the defendant was indeed illusory. Despite the clause's wording suggesting a fair assessment, the court determined that the defendant retained an unfettered discretion to decide whether to pay for repairs. This discretion was so broad that it rendered the promise to provide coverage illusory, as the defendant could effectively avoid liability at its discretion. The court rejected the defendant's argument that the clause was not illusory because it contained a discretion, emphasizing that the substance of the discretion was what mattered. The court concluded that the promise lacked any enforceable obligation on the defendant's part to provide coverage, as it could always refuse payment under the guise of the clause's discretionary terms.

The final orders of the court confirmed that the defendant's promises under the warranty were illusory. The court mandated that this question be answered affirmatively and outlined the subsequent procedural steps for addressing costs and potential modifications to the main trial orders. The court also allowed for applications to be made for further orders if necessary.

Orders

Orders of the court

1. The question, “[a]re the Respondent’s promises in the Applicant Warranty that are subject to clause 11 of the Applicant Warranty, illusory?”, be answered: “Yes”.

2. Within 7 days of these orders the Applicant file and serve minutes of orders and submissions limited to 3 pages on any question of costs and on any modification to the main trial orders made on 12 March 2019.

3. Within 7 days of the service of the Applicant’s minutes of orders and submissions, the Respondent file and serve its minutes of orders and responding submissions limited to 3 pages.

4. Liberty to apply.

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

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

Third, a lot of discussion took place before me concerning whether the relevant contractual discretionary obligation (cl 11.1) was fettered or unfettered. The respondent submitted that in order for it to be said to be illusory, the discretion had to be unfettered. I must say that I prefer to look at the commercial substance of the matter. Of course, if the discretion is unfettered, that would support a finding that the promise is illusory. But if the discretion is fettered, the promise can still be illusory if the fetters are vacuously worded or in substance permit the promisor at his own choosing to avoid payment. A fortiori is this the case where the fetters only apply to the process to be followed as distinct from the outcome or result. At the end of the day, what is paramount is the substance of the matter rather than merely its form.(d) Conclusion In his treatise on contractual law Corbin on Contracts (Revised edition, West Publishing, 1995) at [5.28], Professor Corbin described the effect of an illusory promise in terms:If what appears to be a promise is an illusion, there is no promise. Like the mirage of the desert with its vision of flowing water which yet lets the traveller die of thirst, there is nothing there. This description is apt to describe the Applicant Warranty. It promises the features and protection of a “warranty” or “cover”, but in fact there is no such commitment at all because the respondent reserves to itself whether to pay at all for the cost of those repairs. And the insertion of the words “fair or just way” in cl 11.1 is no panacea. This is confirmed by a revealing exchange that I had with Mr Bret Walker SC, counsel for the respondent:HIS HONOUR: Can you give me an example – just one example of where somebody has gone through the filter of clause 8, so they’re eligible, and they haven’t been knocked out by clause 9, and yet coming to clause 11, it would be fair or just to exclude.MR WALKER: No. I can’t.HIS HONOUR: Or dismiss their claim. You can’t?MR WALKER: No. I can’t. Ultimately, the respondent’s attempts to construct even a peppercorn from the language of cl 11.1 are unpersuasive. Moreover, even if I were to accept the respondent’s contention that a discretion is only illusory when unfettered, the respondent’s promises to pay under the Applicant Warranty, in substance, are to be regarded as unfettered. The overriding discretion reserved to the respondent qualifies its promise to pay consumers to such a substantial extent that it renders the promise illusory. The effect of the overriding discretion in cl 11.1 is that there is no circumstance in which the respondent may be legally obligated to pay money to the applicant. Further, a mere requirement to consider or hear the customer as to the merits of their claim does not meaningfully qualify the intended substantive operation of the discretion. And as I have said, no real limitation on the discretion can otherwise sensibly be derived from the language of “fair or just”. It provides no discernible or meaningful criteria to be applied by the respondent. It can only have been intended to operate to permit denial of full coverage where the claim fell within the terms and conditions of the Applicant Warranty.

Ratio Decidendi

Legal Principle Established

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