Hoy Mobile Pty Ltd v Allphones Retail Pty Ltd

[2009] HCATrans 325

[2009] HCATrans 325

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S184 of 2009

B e t w e e n -

HOY MOBILE PTY LTD

Applicant

and

ALLPHONES RETAIL PTY LTD

Respondent

Application for special leave to appeal

FRENCH CJ
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 11 DECEMBER 2009, AT 12.01 PM

Copyright in the High Court of Australia

MR D.A. SMALLBONE:   May it please your Honours, in that matter I appear with my learned friend, MR D.P. O’CONNOR, for the applicant.  (instructed by Birch Partners Solicitors)

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friends, MR D.R. PRITCHARD, SC and MR E.C. MUSTON, for the respondent.  (instructed by DLA Phillips Fox Lawyers

FRENCH CJ:   Yes, Mr Smallbone.

MR SMALLBONE:   Your Honours, the case presents issues of general importance about the ambit of conduct that section 51AC of the Trade Practices Act prescribes and about the contractual setting.  Does the requirement of readiness and willingness to perform apply to the exercise of contractual powers so that, if it does not, a drafting expedient will get rid of that obligation in relation to terminations?  If it does not apply at common law, is it ever unconscionable, can it ever be unconscionable within the meaning of section 51AC to rely on such rights of termination?  I say “ever” because if one turns to the restrictions in the view of the majority in the Full Court, one sees that those coincide with restrictions that would exist in any event at common law.  That can be seen in the application book at pages 169 to 170.

FRENCH CJ:   The approach taken by Justice Perram to the exercise of the termination was really to do with the construction of the termination power conferred by the express provisions of the contract and their contractual context.  Why should one not say that is simply a question of the construction of a particular contract?

MR SMALLBONE:   We say that that requirement, a readiness and willingness, arises not as a matter of construction but as a general rule of law which is applicable simply as a rule of law.  We rely for that on the dictum of Lord Finlay in the Morris v Baron & Co Case.  Justice Perram, as your Honour said, treated it as a question of construction and said that there is no presumption and no implication and therefore we are simply not in that territory when we have a contractual power and expressly disagreed with the dictum of Lord Finlay.

FRENCH CJ:   Well, you could write into a contract a provision that that dictum shall not apply.  So if you could do that, why can you not either imply it or exclude it in other ways – implies exclusion in other ways?

MR SMALLBONE:   There are two questions there.  One is, whether the rule is so fundamental that you cannot exclude it, like the rule that you have to have consideration, and we make that submission because it is so deeply rooted in contractual principles.  The other answer to it is that the normal approach that one would take, if one does treat it as a matter that can be excluded, is that one presumes that the common law rules continue to apply unless there is some clear indication that they are excluded and there was none here.  But the observations of Justice Perram were that there is no presumption and no basis for implications.  So his Honour, as it were, started from a clean slate rather than from any presumption.

FRENCH CJ:   Because here he is dealing with apparent termination for fraud, is he not?

MR SMALLBONE:   Yes, but the principle was not conditioned specifically on any differentiation between that contractually provided for event as against any other, and there are many events prescribed in the contract and the principle would be of perfectly general application to this contract and, indeed, throughout the law generally.  Anyone who wanted to write in a power of termination, for example, if execution is returned unsatisfied and remains unsatisfied for seven days, for example, contracts like that, the principle would be no different because it is simply put as a matter of construction and implication, as it were, from a clean slate.  I hope that answers your Honour’s question.

FRENCH CJ:   Yes.

MR SMALLBONE:   Getting back to 51AC, I was about to take your Honours to pages 169 and 170.  One sees there at paragraph 4 that the majority judges recited the primary judge’s findings on a Renard Constructions point that we took as a separate ground and then go on at paragraph 5 to essentially say that his Honour’s rejection of that ground means that the 51AC ground also fails.  Their Honours use the emphatic expression: 

It must follow, therefore, that Allphones’ contractual right to terminate the agreement could not constitute conduct which was unconscionable for the purposes of s 51AC.

So no Renard Constructions point, therefore, no 51AC point.  Then over the page their Honours go even further and say at 6:

Once it is accepted that Allphones’ conduct did not cause or contribute to the fraud –

so the event, the contractual event relied upon to enliven the power –

it must follow that s 87 of the Trade Practices Act was not engaged.

That view is reiterated in paragraphs 7 and 8.

FRENCH CJ:   You do not suggest, do you, that it follows from the – perhaps you do – Full Court’s approach that 51AC is being tied down to unconscionability in the sense of the established equitable doctrines in the same way that the other provision, 51AA, is?

MR SMALLBONE:   I might go a little further than that, your Honours, because, of course, their Honours do not mention that, but the two points that are mentioned, the Renard Constructions point and the New Zealand Shipping Company doctrine that comes in at 6, are, of course, common law restrictions on the ability to terminate and if their Honours are right and their Honours’ approach must be taken as an authoritative rejection of the opposite view taken by Justice Rares and described by Justice Perram, if their Honours are right, then in relation to terminations there is no work left for 51AC to do.  We submit that that is the impermissible adoption of a rule of restriction.

GUMMOW J:   At the practical level the primary judge said, in effect, that these were two blemished litigants, did he not?

MR SMALLBONE:   He did.  His Honour numerous times during the argument described it as a case of two pots calling each other black and that was why ‑ ‑ ‑

GUMMOW J:   Found a good footing for 51AC.

MR SMALLBONE:   It was why the case presents in such a stark form the relevance of the readiness and willing requirement and if not available at law, its relevance under 51AC presents it in a very stark form for that very reason.  His Honour described a whole array of circumstances which showed really egregious repudiation by the respondent.  Your Honours can see the conclusions.  They are summarised by Justice Perram at 190 to 191.

GUMMOW J:   Your client had been selling these mobile phones at higher prices than he accounted for, is that right?

MR SMALLBONE:   Yes, he had.  There are two forms of revenue.  One is what you sell through the shop and the other is the commissions that come in from the phone company carriers and Mr Hoy was skimming off what was coming in through the shop and Allphones was skimming off from what was coming through the carriers.  So, as his Honour said, they were two pots calling one another black.  His Honour Justice Rares said, at 427 of the primary judgment, which is recited at 191 of the application book, that:

Allphones was not willing to carry out the franchise agreement honestly or in good faith according to its terms.  Both parties have been in default of their obligations, both contractual and moral, towards one another in the conduct of the relationship.  I have had regard to all of the circumstances, including Allphones’ conduct leading up to the notice of intention to terminate, and the consequences on Hoy Mobile of a termination.  I am of the opinion that it would be unconscientious for Allphones to insist upon its strict legal rights –

The question is, was it legally available for his Honour to consider those factors?  The Full Court majority said, “Rule it out”.  It is not a question of evaluating the merits.  Nobody tried to do that again in the Full Court.  The Full Court said, “These matters are not relevant.  They cannot be considered”.  That is an impermissible rule of restriction which is likely to blight the further understanding and development judicially ‑ ‑ ‑

GUMMOW J:   Do you say if the matter came here, we would be bound to reinstate the primary judge’s views at paragraph 427?  It is no good just complaining about the Full Court unless you can say that if you have got special leave, you will achieve a result.

MR SMALLBONE:   Nobody has attacked the primary judge’s views except on the footing that was done in the Full Court.

GUMMOW J:   I realise that.  It only gets you to look over the top of the hill.

MR SMALLBONE:   Yes.  Your Honours, it would depend on the course taken by the respondent in the hearing of the appeal.  If they wish to agitate that, they would need to take the appropriate steps, but that is a possibility that may be open, that is that it may be open for this matter to be remitted for further consideration of what Justice Rares found.

GUMMOW J:   How much money is involved in this case?

MR SMALLBONE:   What is practically left is the undertaking as to damages that the Hoys gave supported by their personal undertakings and the costs.  I do not have a figure, your Honour, but it will be ruinous for them if the result in the Full Court stands.  I am told that there are some hundreds of thousands involved.

Your Honours, the 51AC territory has excited already considerable concern.  We have referred to the report of the Senate standing committee on economics which has looked at this and there was, indeed, a submission that they received that Justice Rares’ decision showed the section working well.  The Government response has adopted the recommendations of the committee and, in summary, they are that whilst there is concern that there needs to be further development in the understanding of the scope of the section, that needs to be done judicially.  They are not proposing to intervene by defining the concept of unconscionable conduct, but they are proposing to encourage the ACCC to pursue more cases to try and get more judicial consideration of it.

There are many expressions of concern that there does need to be further judicial consideration of 51AC and we submit that if the approach of the Full Court majority stands, that further development and consideration will be somewhat blighted.  There will be endless debate, we submit, about the precise limits of what the Full Court majority has said.  There may even be some resistance in some of the other courts to adopting what has been said by the Full Court majority because, we submit, it does contain clear error and for those reasons it is pre‑eminently a matter for this Court’s attention now that the Full Court has declared its hand in that way.

We submit that the approach described at page 191 in paragraph 86 is the correct one, namely, that one looks at the conduct in relation to a termination to see whether the termination would be unconscionable.  Then in terms of the causation element, one can say that it would be likely to produce loss or damage if the party unconscionably seeking to exercise a right of termination were to go ahead and do it and that livens the 87 remedy.  That, we submit, is the correct approach.  That is an approach that the Full Court majority must be taken to have rejected and it requires correction from this Court.  In relation to the other point ‑ ‑ ‑

FRENCH CJ:   Or a fresh point was the other one, was it not?

MR SMALLBONE:   The “store refresh” point, very briefly, I submit that the idea that a franchisor under a general requirement to observe the system can unilaterally impose an obligation on what is supposedly an independent franchisee operator to alter its premises, permit the franchisor itself to undertake the work, accept the franchisor’s determination of the amount of the expense and suffer unilateral deduction of that expense from remittances otherwise obliged to be made, irrespective of whether the work is actually carried out and in advance, is a striking proposition and that is a matter of important and significance in the law of franchising and one must effect thousands of franchisees in the country.  We therefore submit that it is a matter of general importance and that the approach of Justice Rares was correct and warrants a grant of special leave.  Those are my submissions.

FRENCH CJ:   Thank you, Mr Smallbone.  We will not need to hear from you, Mr Jackson.

The power of Allphones to terminate its contract with Hoy Mobile was conferred by the terms of the written agreement between them.  The conclusion reached by the Full Court that the power was not qualified by anterior repudiation of the contract by the terminating party is not, in our opinion, attended with sufficient doubt to warrant the grant of special leave.

The Full Court also decided, by majority, that the exercise by Allphones of its contractual right to terminate could not constitute conduct which was unconscionable for the purposes of section 51AC of the Trade Practices Act.  Without endorsing all that was said by the Full Court in the circumstances which gave rise to Allphones’ contractual power to terminate, an appeal against this decision has insufficient prospects of success to warrant the grant of special leave.

The ground of the application relating to the “store refresh” charge, in our opinion does not raise a question of general principle which warrants a grant of special leave.  Special leave will be refused with costs.

We will adjourn briefly to reconstitute.

AT 12.20 PM THE MATTER WAS CONCLUDED