Houghton & Anor v Arms

[2006] HCATrans 411

[2006] HCATrans 411

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M59 of 2006

B e t w e e n -

JAMES HOUGHTON AND JAMES STUDENT

Applicants

and

SIMON ARMS

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

FROM MELBOURNE BY VIDEO LINK TO CANBERRA

ON FRIDAY, 4 AUGUST 2006, AT 11.25 AM

Copyright in the High Court of Australia

MR D.J. O’CALLAGHAN, SC:   If the Court pleases, I appear with MR M.D. RUSH for the applicants.  (instructed by Deacons)

MR P.J. RIORDAN, SC:   If the Court pleases, I appear with MR D.W. BENNETT for the respondent.  (instructed by Middletons)

GLEESON CJ:   Yes, Mr O’Callaghan.

MR O’CALLAGHAN:   The question of law raised in this application, in our submission, is whether an employee who, as the company engages in misleading or deceptive conduct, by the fact of his employment shares with his employer without more a coextensive primary liability under the State fair trading legislation for that conduct.  That is a question that the Full Court of the Federal Court answered in the affirmative, we say incorrectly.  That question involves the proper construction of section 9(1) of the Fair Trading Act.  That question of construction of course involves an analysis of both the words and the context of that provision.

In our submission, this is a case like Parkdale Custom Built Furniture v Puxu (1982) 149 CLR 191, because common law principles are relevant to a true understanding of the scope and operation of provisions like section 9. Those common law principles assist in determining the meaning to be given to words like “engage in conduct” and “in trade or commerce”. In our submission, a corporate employee who, when acting as the corporation, relevantly misleads a plaintiff who had contracted with the corporate employee’s employer and does nothing to exhibit a separate identity or interest cannot contravene section 9 of the Fair Trading Act or its equivalents.  We say so as a matter of construction of that provision, which is in similar terms to section 52 of the Trade Practices Act, of course.

In our submission, as a matter of the proper construction of that subsection, the employee is not a person who engages in conduct.  It is the employer who engages in the conduct because an employee acting in the course of his authority acts on behalf of and for the benefit of the employer.  What employees do in such circumstances is not “in trade or commerce”, because what they do, that is to say, work in accordance with their contract of employment, does not constitute conduct in trade or commerce.  Were it otherwise, it would be necessary to read into section 9 words which simply are not there, like “indirectly participating in trade or commerce” or some such expression.

In this case the applicants, Mr Houghton and Mr Student, were not, in our submission, for themselves in trade or commerce because they were employed by WSA, the first respondent at the trial, they never acted other than as WSA, as Justice Ryan found, and Mr Arms chose to contract with WSA to provide the relevant services which it did.  In such circumstances, as the cases say, it is elementary that absent fraud and the like, that the outsider’s rights are against WSA and not the employees acting as the company.

As Chief Justice Mason and Justices Deane, Dawson and Gaudron explained in the Concrete Constructions Case (1990) 169 CLR 594, which is referred to below, section 52 and, we would say, section 9 and its equivalents likewise are governed not only by the terms in which they are created but by the context in which they are found. The words “in trade and commerce” have about them, to use the expression used by their Honours in that case, “a chameleon‑like hue, readily adapting themselves to their surroundings”.

In our submission, whether one chooses to describe the common law principles that assist in this statutory construction process as part of the “milieu of the external legal order”, as Justice Brennan, as he then was, described it in Puxu, or as part of the context, as the Judges said in Concrete Constructions.

The common law principles governing the legal liability of an employee who only ever carried out his or her employment function under the corporate name and who worked no fraud or deceit are fundamental and relevant to a true understanding of the scope of provisions like section 9.  In our respectful submission, the external legal order or context which is relevant includes two important propositions at common law.  Those propositions can be described in this way, and they emerge from the cases that are referred to in our summary of argument.  Where a tort is committed by the company an employee or a director or officer – one can use those terms interchangeably here – does not make himself liable merely because of the fact of his employment relationship or that directorship.

The second proposition is that an employee who – and they are related, to be sure – acting on behalf of his corporate employer makes a negligent or innocent misrepresentation to the plaintiff and in respect of which the company is liable because the actions were made as the company, that employee is not personally liable in tort unless he fulfils the necessary preconditions for the attribution of personal responsibility.  What those conditions are and what test is appropriate to be applied at common law is a question that courts differ about below, and that again is something we develop a little in the summary of argument.

GLEESON CJ:   I think we understand the point, Mr O’Callaghan, and it does seem to be an issue of some significance.  Perhaps we would be assisted by hearing by what Mr Riordan had to say at this stage.

MR O’CALLAGHAN:   If the Court pleases.

GLEESON CJ:   Yes, Mr Riordan.

MR RIORDAN:   If the Court pleases, in this case the statements which constituted misleading and deceptive conduct were made, without any doubt, by the applicants, Houghton and Student.  The liability of the company, WSA, the employer, arose by reason of section 84(2)(a) of the Trade Practices Act which effectively attributed the responsibility for the conduct of Student and Houghton to the company.  The applicants contend that there are surprising and undesirable consequences of the decision, is that the director, officer or employee of the company would also be liable with the company for the misrepresentations.

We contest the propositions that they are surprising or undesirable.  There does not appear to be any contest about the proposition that Student and Houghton would have been otherwise liable for the statements constituting any misleading and deceptive conduct were it not for the fact that it is said that they were employees at the time, such as if it was their own business or if in fact the comments were made with respect to another business in respect of which they were not the employees.

The corporation’s liability arising from section 84(2)(a) – and that section is reproduced in the decision of the Full Court below at page 65 of the application book – the liability of the corporation arises because under that subsection:

Any conduct engaged in on behalf of a body corporate –

as it was here –

(a)by a director, servant or agent of the body corporate within the scope of the person’s actual or apparent authority . . . 

shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.

So we say that on any interpretation of that section it could hardly be said that the actions and the liability of the individuals is displaced by the liability of the company.  The terms of the section itself anticipates the company’s liability will be in addition to the liability of the servant or agent who is actually engaged or has engaged in the conduct which has been misleading or deceptive. 

So we say on that basis it is very difficult to see the line of argument which says that because these individuals are employees their conduct is, if you like, subsumed by the liability of the corporation under section 84(2)(a).  Likewise, we say that, leaving aside the question of statutory interpretation, the normal common law principles do not support the proposition that the act is not actionable because of what our learned friends would call the primary liability of the employer.  While the employer’s liability might arise from vicarious or it might be joint by reason of the fact that the agent’s act is the act of the principal, we say it is trite law that the individual’s personal liability is unaffected by the fact that in the course of his employment or in the scope of the agency and so ‑ ‑ ‑

CALLINAN J:   But this is statutory liability.

MR RIORDAN:   It is, and that is why we say ‑ ‑ ‑

CALLINAN J:   So all of the rights and obligations and duties are within the statute.  The common law has nothing to do with it, has it?

MR RIORDAN:  We would agree with that, with respect, your Honour, but in the outline of argument the basis of this special leave application is to say that the Full Court did not consider all of the matters adumbrated by Justice Sundberg in Pioneer Electronics v Lee and we agree with the proposition that that has nothing to do with it.  This is legislation and it is interpretation of legislation and section 9 provides that a person who engages in misleading and deceptive conduct, et cetera, is a contravention of the Act. 

The proposition that the employee is not, in this case, himself engaged in trade or commerce does not fall within the section, we say, has been widely discounted commencing with Concrete Constructions itself.  In Concrete Constructions the majority constituted by the Chief Justice and Justices Deane, Dawson and Gaudron – and this is quoted in fact by the trial judge at application book page 43 at line 23.  It quotes there the majority, as I say, at about line 20.  It is concerned with:

“the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character”.

Justice Toohey similarly made comments in Concrete Constructions to the same effect.  It has been well established and applied in all jurisdictions that the person making the representation does not need to have a personal interest in a business for it to have the necessary character of being in trade or commerce. 

So we say, with respect, in agreement with what was put by Justice Callinan, that the applicants’ proposition that this can give rise to the law relating to the liability of directors at common law for the conduct of corporations is misconceived because those are cases where a corporation is liable and it is the directors, or employees, are not directly liable.  They have not breached the statute themselves personally or not breached the tort and, in those circumstances, the additional principles adumbrated by Justice Sundberg are relevant. 

In any event, we say that in terms of this case any such liability based on those principles – this case does not present a very good vehicle on the basis that it was a point that was never argued at first instance or below in the Full Court.  The application of those principles to this question is a new point that has only been taken now on this application.

Your Honours, the issue which is raised – and that is the question of whether this liability applies to directors, employees, and officers of corporations – is one that has been consistently applied throughout Australia in the jurisdictions, in the Full Court of the Federal Court in Arktos, obviously as well as the decision which is the subject of this application, in the New South Wales Court of Appeal in Wong v Citibank and numerous decisions of superior courts at first instance, all of which have been unanimous to the effect that employees and officers of corporations being persons are liable under the Fair Trading Act if their personal conduct, whether or not they are employed at the time or directors at the time, breaches section 9. 

That position really has maintained since even writing extrajudicially Justice Heydon in his work Trade Practices Law, Law Book Company.  He has since 1989 stated just such, as was noted by the Full Court at application book 68 on line 23, that the Fair Trading Acts do apply to directors and officers of the company acting in that capacity if it is their conduct which constitutes the misleading and deceptive conduct. 

We contend that our learned friend’s suggestion that section 75B of the Trade Practices Act would be the necessary requirement or would become rendered superfluous is not supportable on any view.  Section 75B is intended to, by definition of involvement, incorporate a liability for those persons who aid and abet.  It is an “aid and abet” provision.  This case is not an “aid and abet” case.  These persons who are the subject of this action were the perpetrators of the conduct which was found to be misleading and deceptive. 

In any event, if the Court were otherwise attracted to this point as indicating that such persons could only become liable, directors and officers and the like, by reason of section 75B‑type involvement, this would be a poor vehicle because at the time of these events, which is prior to the 2003 amendment to the Fair Trading Act, there was no section 75B involvement provision.  It did not get introduced into the Fair Trading Act 1999 (Vic) until 2003. So this case does not present an opportunity to say whether liability can only arise under such a section. Victoria, in that respect, is anomalous because the other Fair Trading Acts did all include section 75‑type involvement provisions.

Certainly, we contend that rather than being the surprising and undesirable consequence of this decision, if liability can be avoided by a person who makes statements which are ultimately found to be misleading and deceptive for which he or she would otherwise be liable but can take the point to avoid liability by saying that in fact they were made on behalf of another person or in the course of employment, we say that is more likely to result in substantial injustice.  The individual perpetrators of the wrong will simply rely upon the insolvent corporation as a means of exculpating themselves, whereas otherwise they would not be able to do so, as in this case. 

We also note that such a consideration would require the courts to examine the nature of the conduct as to whether or not the conduct could be said to involve anything other than being on behalf of or agent as the employee, but it will also, as indicated by the learned trial judge, require some analysis of whether the employee was a director or had an interest in the business such as some personal interest can be incorporated, whether it be a shareholder, a director, shareholder schemes.  All of these matters will require examination if what we contend will be an added complexity arises.

We say by allowing a person to be exculpated, a person who would otherwise be responsible under section 9, by simply saying, “I was in the course of employment”, the course of the scope of agency gives rise to an extra level of complexity, one that the common law does not recognise in any sense and one that, we say, is inconsistent with section 84(2)(a) which only gives rise to the corporation being additionally liable rather than liable instead of as a result of the actions of the person being the servant or the agent acting on behalf of. 

So if an employee is to be able to exculpate him or herself by reason of the employment, questions will arise if the employment is a commission agent and whether a commission agent is still able to say that the conduct is still as an agent on behalf of the principal and that the level of interest that that person may have in the ultimate outcome is sufficient to say that his own conduct constitutes conduct on his own behalf which is misleading or deceptive.  We say they are undesirable consequences of the proposition that employment in these circumstances will be exculpatory. 

Finally, your Honours, we say that it certainly does not represent any challenge, as is suggested by our learned friends, to the notion of distinct liability and legal identity of corporations.  Our learned friends put some emphasis on the fact that there was some contractual arrangement between the two parties, being the two corporations in this case, at the time when the misleading and deceptive conduct took place.  Plainly enough, no action in contract can be brought against the employees when they act, but that has never prevented a person bringing an action against an employee if it is alleged that within a contractual arrangement the employee personally commits a tort.  We say the same must apply if the employee’s conduct is misleading or deceptive and therefore in contravention of the legislation.  They are the submissions on behalf of the respondent, if the Court pleases.

GLEESON CJ:   Thank you Mr Riordan.  In this matter there will be a grant of special leave to appeal. 

AT 11.48 AM THE MATTER WAS CONCLUDED