Qamaruddin v Kolak Living Pty Limited (Civil Dispute)
[2017] ACAT 45
•16 June 2017
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
QAMARUDDIN v KOLAK LIVING PTY LIMITED (Civil Dispute) [2017] ACAT 45
XD 1046/2016
Catchwords: CIVIL DISPUTE – Australian Consumer Law – unfair contract terms – whether the no refund term was unfair – whether there was misleading and deceptive conduct – whether there was unconscionable conduct – whether the contract was a standard form contract – whether the contract was a consumer contract – whether unfair term was reasonably necessary in order to protect the legitimate interests of the respondent
Legislation cited: ACT Civil and Administrative Tribunal Act 2008 ss 9, 16,17
Australian Consumer Law ss 2, 18, 21, 23, 24, 25, 26, 27, 237
Competition and Consumer Act 2010 (Cth) ss 139B, Sch 2
Fair Trading (Australian Consumer Law) Act1992 s 9
Cases cited:Australian Competition and Consumer Commission v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 368
Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited [2015] FCA 1204
Australian Securities & Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226
Baltic Shipping Company v Dillon (1993) 176 CLR 344
Ferme & Ors v Kimberly Discovery Cruises Pty Ltd [2015] FCCA 2384
Hearn v O’Rourke [2003] FCAFC 78
Paciocco v Australia and New Zealand Banking Group Limited [2016] HCA 28
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1
List of
Texts/Papers cited: Contract Law Masterclass 2017, presented at ACT Law Society seminar, Canberra
Tribunal: Senior Member E Ferguson
Date of Orders: 16 June 2017
Date of Reasons for Decision: 16 June 2017
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) XD 1046/2016
BETWEEN:
MERAJUNNISA QAMARUDDIN
Applicant
AND:
KOLAK LIVING PTY LIMITED
Respondent
TRIBUNAL: Senior Member E Ferguson
DATE:16 June 2017
ORDER
The Tribunal orders that:
1.The respondent is to pay to the applicant the sum of $7,154 by 14 July 2017 comprised of:
(a)$7,000.00 pursuant to section 237 of the Australian Consumer Law being
(i) refund of the reservation fee of $5000; and
(ii) partial refund of design fee of $2000.
(b)$145 for filing fee;
(c)$9 for ASIC search fee.
………………………………..
President G Neate AM
Delivered for and on behalf of the Tribunal
REASONS FOR DECISION
1.The applicant claims a partial refund of monies she paid to the respondent’s building company, Kolak Living Pty Ltd (Kolak Living) under a preliminary contract entered into by the parties in expectation of a main contract for the construction of an ‘off the plan’ home. The main contract did not eventuate.
2.The respondent counterclaims $10,000 for compensation for additional work, time and resources used.
3.After hearing the parties’ submissions the Tribunal reserved its decision. This is the Tribunal’s decision. In this decision a reference to the ‘tribunal’ or ‘ACAT’ refers to the ACT Civil and Administrative Tribunal generally and a reference to the ‘Tribunal’ or the first person refers to the member who heard the matter.
Background
4.The following facts are largely undisputed.
5.Kolak Living Pty Ltd advertised for sale a number of houses to be built in Wright on blocks it leased from the ACT Government under the Land Rent Scheme. This scheme allows home buyers or builders to rent land from the government rather than purchasing a building block thereby reducing the cost of establishing a new home.
6.Kolak Living had acquired several blocks in Wright under the scheme and paid the ACT Government a bond for each block. It also paid the government rent for the period it held the block. Kolak Living then offered for sale ‘off the plan’ homes to be built on those blocks. Each block came with a choice of standard house designs. Alternatively, customers could have Kolak Living customise a standard plan for their selected block for an additional fixed design fee.
7.Ms Qamaruddin was looking for a first home for her family. She had a strict budget of $540,000. In late March 2016 she contacted Mr Russell and expressed interest in the block at 101 Ulysses Circuit because of its impressive views. Gabe Kolak, the principal of Kolak Living had chosen the same block to build a home for his own family and already had a two storey design for it.
8.At, or soon after their first meeting, Mr Russell gave Ms Qamaruddin a document tilted ‘Kolak Living- What’s Next-Design Process’ (What’s Next) which explained what the parties needed to do before a building contract was entered into.
9.Ms Qamaruddin wanted a two storey design to make the most of the views and particularly liked the design developed for Mr Kolak which she says cost about $623,583 with premium inclusions and a size of 273.2 m2.
10.Mr Russell agreed to work with Ms Qamaruddin to modify the plan and inclusions to bring the project within her budget. Mr Russell and Ms Qamaruddin discussed a number of possible designs and inclusion packages for the block.
11.Before the main contracts to build the home and transfer the land lease Kolak Living and Ms Qamaruddin entered a preliminary contract. Under the preliminary contract Ms Qamaruddin paid Kolak Living $8,300 comprised of a $5,000 ‘reservation fee’ to reserve the selected block for 28 days and a $3,300 ‘design fee’ to customise the existing plan during that period. In these reasons I will refer to the preliminary contract as the ‘reservation and design contract’ and the contract to build and transfer the lease as the ‘building contract’.
12.Under the terms of the reservation and design contract, as explained in What’s Next, if the parties went on to exchange building contracts the reservation fee was credited against the building price, but if they did not proceed for any reason Kolak Living retained the fee. The design fee was not refundable and was not credited against the price of any subsequent building contract.
13.Kolak Living issued Ms Qamaruddin with an invoice dated 9 April 2016 (the invoice) for the reservation and design fees which operated as an offer to enter the reservation and design contract. Under its terms the offer was deemed accepted by payment of the invoice.
14.Ms Qamaruddin was reluctant to part with $8,300 without an assurance that Kolak Living would ultimately build her an acceptable home within her budget.
15.After extensive consultation with Ms Qamaruddin, Mr Russell managed to reduce the floor plan of Mr Kolak’s design to 230 square metres and lower the standard of inclusions to bring the price of the package down to $560,000.
16.After further discussions Mr Russell sent Ms Qamaruddin an email on 12 April 2016 in which he confirmed three specific options discussed to reduce the size of the design and/or the standard of inclusions to bring the cost down further and within Ms Qamaruddin’s limit of $540,000 with the qualification that Kolak Living could not offer a definitive price “until we have fully drafted and dimensioned concept plans.” Reassured, Ms Qamaruddin accepted the terms of the reservation and design contract by paying Kolak Living’s invoice. She did so by a series of payments between 15 and 18 April 2016.
17.However, building contracts were never exchanged because the parties were unable to agree on a final design which was both acceptable to Ms Qamaruddin and within her budget. The parties differ as to who was responsible for the failure to agree and blame each other. Kolak Living relied on the terms of the reservation and design contract and refused to refund any of the $8,300 paid by Ms Qamaruddin.
The Claim
18.Ms Qamaruddin is seeking a full refund of the $5,000 reservation fee. She argues that:
(a)the non-refundable character of the reservation fee was unfair; and
(b)she paid the fee in reliance upon false representations by the respondent that her budget could be achieved by her choosing one of the options put to her in Mr Russell’s email of 12 April 2016.
19.Ms Qamaruddin also seeks a partial refund of the design fee ($2,000 of the $3,300 charged) because:
(a)the amount charged was excessive and was not a reasonable estimate of actual cost of the design work; and
(b)although she paid for full working plans from the architect engaged by Kolak Living she only received a sketch plan.
20.In her application Ms Qamaruddin nominated the type of her application as being “under other authorising law”, specifically “consumer law” but did not specify which provisions. Based on Ms Qamaruddin’s assertions, the relevant provisions in the Australian Consumer Law in relation to the contract are those regarding unfair contract terms[1]; and in relation to Mr Russell’s conduct: unconscionable conduct[2]; and misleading or deceptive conduct.[3]
The Counter Claim
[1] Section 23 of the Australian Consumer Law
[2] Section 21 of the Australian Consumer Law
[3] Section 18 of the Australian Consumer Law
21.Kolak Living denies Ms Qamaruddin’s assertions and counter claims an amount of $10,000 for “additional work time and resources used.” At the hearing Mr Russell explained the claim was founded on Ms Qamaruddin’s failure to proceed with the building contract.
The ACL
22.The Competition and Consumer Act 2010 (Cth) effectively enacted the former Trade Practices Act consumer protections as its Schedule 2: The Australian Consumer Law (the ACL), which came into effect on 1 January 2011.
23.The ACL is a national consumer law and is applied at the Commonwealth level and in each state and territory.
24.The ACT Government enacted Fair Trading (Australian Consumer Law) Act1992 (FT (ACL) Act) to include the ACL as part of its own law.
25.ACAT has the power to make orders under the ACL by virtue of section 9 of the ACAT Act because the FT (ACL) Act allows individuals, or Fair Trading, to apply to the Court for specified orders in certain circumstances.
26.Section 9 of the FT (ACL) Act defines ‘Court’ for the purpose of the Act to include ACAT.
27.ACAT’s jurisdiction is reflected in section 16(i) of the ACT Civil and Administrative Tribunal Act 2008, which provides that an application for orders under the ACL is a type of civil dispute allowed under section 17.
28.The ACL provides a comprehensive framework of consumer protections, which includes prohibitions on certain business conduct, and mandatory statutory guarantees for all goods and services bought by consumers.
ACL Part 2-3 Unfair Contract Terms
Legislative framework
29.Chapter 2 Part 2-3 of the ACL contains the provisions regarding unfair contract terms (UCT) in consumer and small business contracts.
30.The operative UCT provision, section 23(1) and (2), and the definition of a ‘consumer contract’ found in section 23(3) are set out below:
Section 23 Unfair terms of consumer contracts and small business contracts
(1)A term of a consumer contract or small business contract is void if:
(a) the term is unfair; and
(b) the contract is a standard form contract.
(2)The contract continues to bind the parties if it is capable of operating without the unfair term.
(3)A consumer contract is a contract for:
(a) a supply of goods or services; or
(b) a sale or grant of an interest in land;
to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.
Section 27- what is a standard form contract?
(1) If a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceeding proves otherwise.
(2) In determining whether a contract is a standard form contract, a court may take into account such matters as it thinks relevant, but must take into account the following:
(a) whether one of the parties has all or most of the bargaining power relating to the transaction;
(b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
(c) whether another party was, in effect, required either to accept or reject the terms of the contract (other than the terms referred to in section 26(1)) in the form in which they were presented;
(d) whether another party was given an effective opportunity to negotiate the terms of the contract that were not the terms referred to in section 26(1);
(e) whether the terms of the contract (other than the terms referred to in section 26(1)) take into account the specific characteristics of another party or the particular transaction;
(f) any other matter prescribed by the regulations.
Section 24 meaning of unfair
(1) A term of a consumer contract or small business contract is unfair if:
(a) it would cause a significant imbalance in the parties' rights and obligations arising under the contract; and
(b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
(c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.
(2) In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following:
(a) the extent to which the term is transparent;
(b) the contract as a whole.
(3) A term is transparent if the term is:
(a) expressed in reasonably plain language; and
(b) legible; and
(c) presented clearly; and
(d) readily available to any party affected by the term.
(4) For the purposes of subsection (1)(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise.
Section 25 examples of unfair terms:
Without limiting section 24, the following are examples of the kinds of terms of a consumer contract or small business contract that may be unfair:(a)a term that permits, or has the effect of permitting, one party (but not another party) to avoid or limit performance of the contract;
(b)a term that permits, or has the effect of permitting, one party (but not another party) to terminate the contract;
(c)a term that penalises, or has the effect of penalising, one party (but not another party) for a breach or termination of the contract;
(d)a term that permits, or has the effect of permitting, one party (but not another party) to vary the terms of the contract;
(e)a term that permits, or has the effect of permitting, one party (but not another party) to renew or not renew the contract;
(f)a term that permits, or has the effect of permitting, one party to vary the upfront price payable under the contract without the right of another party to terminate the contract;
(g)a term that permits, or has the effect of permitting, one party unilaterally to vary the characteristics of the goods or services to be supplied, or the interest in land to be sold or granted, under the contract;
(h)a term that permits, or has the effect of permitting, one party unilaterally to determine whether the contract has been breached or to interpret its meaning;
(i)a term that limits, or has the effect of limiting, one party's vicarious liability for its agents;
(j)a term that permits, or has the effect of permitting, one party to assign the contract to the detriment of another party without that other party's consent;
(k)a term that limits, or has the effect of limiting, one party's right to sue another party;
(l)a term that limits, or has the effect of limiting, the evidence one party can adduce in proceedings relating to the contract;
(m)a term that imposes, or has the effect of imposing, the evidential burden on one party in proceedings relating to the contract;
(n)a term of a kind, or a term that has an effect of a kind, prescribed by the regulations.
Section 26 contractual terms exempt from the operation of section 23
26 Terms that define main subject matter of consumer contracts or small business contracts etc. are unaffected
(1) Section 23 does not apply to a term of a consumer contract or small business contract to the extent, but only to the extent, that the term:
(a) defines the main subject matter of the contract; or
(b) sets the upfront price payable under the contract; or
(c) is a term required, or expressly permitted, by a law of the Commonwealth, a State or a Territory.
(2) The upfront price payable under a contract is the consideration that:
(a) is provided, or is to be provided, for the supply, sale or grant under the contract; and
(b) is disclosed at or before the time the contract is entered into;
but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event.
What constitutes the contract?
31.It is not disputed that under the terms of their contract Ms Qamaruddin was required to pay a $5,000 reservation fee in return for Kolak Living taking her preferred block off the market for 28 days to allow the design to be finalised; and a design fee of $3,300 to cover the designer’s costs to modify the design.
32.The parties agree that the terms could be found both in the What’s Next document and the respondent’s invoice dated 9 April 2016.
33.Mr Russell submitted at the hearing that the contract encompassed the totality of the parties communications before Ms Qamaruddin paid the fees comprising:
…everything that precedes it [the email from him to Ms Qamaruddin of 12 April 2016] from the meetings, the emails, the options provided, paperwork sent through, it all forms part of the meeting of minds. It would be wrong to exclude one email if not another, it’s all part of it [the contract].[4]
[4] Transcript of proceedings 24 February 2017, page 25, line 20
34.I am satisfied that the discussions prior to Ms Qamaruddin paying the invoice were negotiations and did not form part of the contract. Nowhere in the email or other correspondence do I find the requisite intention to create legally binding relations.
35.The What’s Next document sets out in detail Kolak Living’s step by step process for both standard designs and customised designs leading up to the exchange of building contracts. As Ms Qamaruddin wanted an existing design structurally modified to bring it within her budget those terms relating to custom designs applied.
36.I am satisfied that the What’s Next document set out in full below, comprehensively describes the parties’ respective obligations and, when accepted by Ms Qamaruddin, formed the reservation and design contract. Kolak gave it to Ms Qamaruddin before it issued its invoice on 9 April 2016 for payment of the reservation and design fees (the invoice).
Next Steps- STANDARD DESIGN- if based on one of our designs
1. Secure your block with reservation fee of $5,000a. This is non-refundable, however it will be deducted from your build contract price when you proceed to signing contracts;
b. This payment will reserve your block for 28 days (Days being Monday – Sunday);
2. Week 1 – By the end of week 1, if required, you will review your chosen plan and inclusions and provide to us (1) list of minor non-structural changes;
a. If no updates are required proceed to preparing and exchanging contracts;
If there are any structural changes required, please refer to ‘Next Steps- CUSTOM DESIGN- If custom design is required’;
Next Steps- CUSTOM DESIGN- if custom design is required:
1. Secure your block with reservation fee of $5,000
a. This is non-refundable, however, it will be deducted from your build contract price when you proceed to signing contracts;
b. This payment will reserve your block for 28 days (Days being Monday-Sunday);
2. Week 1 – We will need to create a sketch for your custom design and review your inclusions;
a. This service will require an additional design fee of $3,300 to cover the designer’s time to make changes required or create new drawings;
b. This fee allows for (4) design changes only, each additional revision is $50, payable prior to each revision.
c. This fee is in addition to your contract price and is non- refundable;
d. You will also need to review your chosen inclusions and provide to us clear updates and changes, if required;
When your design has been finalised:
3. Week 2- We will update your plan and proposal for you
a. Note that any revision after this step will be charged at $450 per revision;
4. Week 3- Based on your updated plan and inclusions we will prepare your build contract;
5. Week 4- Exchange contracts
a. This proposal is valid for 30 days from the date of issue;
(i)We need to have exchanged contracts in this timeframe to avoid: Additional holding costs on the land;
(ii)Build Escalation costs;
(iii)The proposal will need to be revised every 30 days for the above costs
Note that we use a standard MBA Building Contract Template
this timeframe to avoid:
37.The invoice summarised the terms set out in steps 1 and 2 in the What’s Next document as follows:
Reservation Fee (Non Refundable): the reservation fee will be applied against the construction contract if contracts are exchanged.
Block held for clients for 4 weeks, at the end of which point contracts are to be exchange (sic). Failure to exchange will end the reservations (sic) period and fee is forfeited to the builder.
Custom Design Fee: 4 weeks to finalise custom design
Note this offwe will be withdrawn in 5 days if not accepted, acceptance being payment of fees (sic) (Tribunal emphasis)
38.The invoice also supplemented the terms in the What’s Next document by stipulating that Ms Qamaruddin could accept Kolak Living’s terms, and thereby form the contract, by paying the invoice.
39.It is not disputed that Ms Qamaruddin paid the invoice in three instalments between 15 and 18 April 2016, accordingly I find that the reservation and design contract was formed upon the final payment on 18 April 2016.
Is the reservation and design contract a consumer contract?
40.Was the contract for the supply of goods or services as required by section 23(3) of the ACL?
41.A ‘service’ is defined in section 2 of the ACL to include:
any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce
42.I am satisfied that in return for payment of the fees, the reservation and design contract conferred benefits upon Ms Qamaruddin being the design service to modify the standard plan to Ms Qamaruddin’s specifications; and the reservation of her chosen block for her for a period of 28 days. There would be little point in Ms Qamaruddin paying for the modification of a design without a guarantee that the block would be available at the end of the design process.
43.Under the terms of the contract the reservation fee also played a role in any subsequent building contract. I will return to consider the significance of that role later in these reasons.
44.The meaning of the term ‘trade and commerce’ in equivalent provision in the now repealed Trade Practice Act 1974 was considered by Dowsett J in Hearn v O’Rourke[5] who said:
The correct approach is to determine whether or not the relevant conduct, can, according to ordinary usage, be described as having occurred in the course of dealings ‘…which, of their nature, bear a trading or commercial character.’
[5] [2003] FCAFC 78 at Dowsett J at [29]
45.I am satisfied that the promised benefit was provided by Kolak Living to Ms Qamaruddin in trade or commerce. It is not disputed that Ms Qamaruddin intended to acquire a family home from Kolak Living for her personal use.
46.For the reasons set out above I am satisfied that the reservation and design contract was a consumer contract within the meaning of section 23(3) of the ACL because it was for the ‘supply of services’ (as defined by section 2) to an individual who acquired the services wholly or predominantly for personal, domestic or household use or consumption.
Is the reservation and design contract a standard form contract?
47.A ‘standard form contract’ is not defined by the ACL but as Coorey observes[6],
a ‘standard form contract’ is typically a contract that contains the same terms for all transactions of that type and has been prepared by one party and the other party has little or no ability to negotiate.
[6] Coorey, A. Australian Consumer Law. Lexis Nexis Butterworths, Australia 2015 at [7.35]
48.Ms Qamaruddin told the Tribunal that the terms set out in the What’s Next document represented the ‘business model’ of Kolak Living. Ms Qamaruddin indicated in her oral testimony and submissions that she felt there was no scope for negotiations. For this reason she was at pains to ensure before she entered the reservation and design contract that the final design would enable the build to come within budget.
49.Section 27(1) of the ACL states that if a party to a proceeding alleges that a contract is a standard form contract, it is presumed to be a standard form contract unless another party to the proceedings proves otherwise.
50.Section 27(2) sets out the matters I must take into account in determining whether the contract was a standard term contract but allows me to take into account any other matter I consider relevant.
51.Mr Russell argued that the terms set out in the What’s Next document were negotiable and that Ms Qamaruddin had an opportunity to raise an objection to them before accepting them but had failed to do so. He does not suggest that Kolak Living informed her that the contract was negotiable.
52.At the hearing Mr Russell gave evidence that he could recollect that one previous customer had negotiated payment of the reservation fee by instalments. He also told the Tribunal that during the 18 months he had worked as sales manager about 35 to 45% the customers entered the building contract without having first reserved the block – some of whom had chosen a custom design.
53.On the balance of the evidence, and having taken into account all the matters set out in section 27(2), I am not satisfied that Kolak Living has rebutted the presumption that the contract was a standard form contract for the following reasons:
(a)The terms of the contract are encapsulated in the What’s Next document; and that document was prepared by Kolak Living before any discussion relating to the transaction occurred between the parties.
(b)I prefer Ms Qamaruddin’s evidence that she was not given an effective opportunity to negotiate the terms of the contract (other than those terms referred to in section 26(1)).
(c)The terms of the contract (other than those terms referred to in section 26(1)) do not take into account the specific characteristics of Ms Qamaruddin or the particular transaction.
(d)Potential customers were all given the What’s Next document when they expressed an interest in a particular house and land package. Nothing in the document suggests or invites negotiation.
What are the impugned terms?
54.Ms Qamaruddin objects to the amount of the design fee on the basis that it is excessive and does not reflect the true cost of the design process. She also asserts that the reservation fee was excessive, being more than the industry standard, and therefore unfair.
55.Whilst Ms Qamaruddin does not object to the imposition of a reservation fee as such she argues that the stipulation that it was ‘non refundable’ was unfair. I will refer to that part of the reservation fee clause as the ‘no refund term’.
Are the impugned terms exempt from the operation of section 23 pursuant to section 26(1)?
56.Section 26(1) of the ACL exempts from the UCT provisions terms which define the main subject matter of the contract and terms which set the upfront price payable under the contract.
57.Subsection 26(2) defines ‘upfront price’ as follows:
The upfront price payable under a contract is the consideration that:
a) is provided, or is to be provided, for the supply, sale or grant under the contract; and
b) is disclosed at or before the time the contract is entered into;
but does not include any other consideration that is contingent on the occurrence or non-occurrence of a particular event.
58.The normal meaning of consideration is the price paid for a promise.
59.Ms Qamaruddin argues that both the price for the design process and the price for reserving the block were excessive. Both fees were disclosed in the invoice before the contract was entered into and were not contingent on the occurrence or non-occurrence of a particular event. Accordingly, pursuant to section 26(1) of the ACL I find that the UCT provisions do not apply to these terms.
60.The stipulation that the reservation fee is not refundable is neither a term which defines the subject matter of the contract under section 26(1) nor a term which sets the upfront fee under section 26(2) and is therefore not exempt from the operation of section 23. Courts have applied the UCT provisions of the ACL to no refund clauses[7]; and to terms which purport to limit or impose conditions on refunds.[8]
Was the no refund term in relation to the reservation fee unfair?
[7] Ferme & Ors v Kimberly Discovery Cruises Pty Ltd [2015] FCCA 2384
[8] Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited [2015] FCA 1204; and ACCC v ACN 117 372 915 Pty Ltd (in liq) (formerly Advanced Medical Institute Pty Ltd) [2015] FCA 368
61.The Federal Circuit Court in Ferme & Ors v Kimberly Discovery Cruises Pty Ltd (Ferme) found that a no refund clause embedded in a cancellation clause in a cruise contract was void pursuant to section 23(1) of the ACL. The term purported to allow the cruise company to cancel the cruise without compensation or refund of fare to their customers if the itinerary was varied or cancelled due to an unexpected event, defined to include bad weather. The cruise was cancelled due to a tropical cyclone and the cruise company relied on the clause to refuse to refund the fare. It was not disputed that the company was justified in cancelling the cruise given the risk the adverse weather posed to its customers, staff and assets. The Court found that the offending term could be severed without affecting the balance of the cancellation clause. Having found the no refund clause void ab initio the Court allowed the applicants’ claim for refund of their fares on the basis that the consideration for which they paid their fares had wholly failed.[9]
When is unfairness assessed?
[9] Following the decision in Baltic Shipping Company v Dillon (1993) 176 CLR 344
62.Jarrett J in Ferme at [58] stated:
In my view, the appropriate point in time to assess unfairness for the purposes of s. 23(1) of the Australian Consumer law is at the time at which the contract is formed. I reach that conclusion because:
a) Section 23(1) is concerned with whether the relevant term is void. Ordinarily as a matter of the law of contract, a term that is void, is void ab initio. It is usually void for reasons that have occurred before or at the time of the formation of the contract and whether a term or a contract is void is independent of any election of the parties to the contract. A contract is voidable, generally speaking upon a party to the contract- the innocent party – electing for it to be so. That election must necessarily occur after the contract is formed;
b) Section 24(1)(a) requires a prospective inquiry – “A term of a consumer contract is unfair if… it would cause significant imbalance in the parties rights and obligations arising under the contract”. It does not provide that a term is void if it did cause a significant imbalance between the rights of the parties. That it did cause such an imbalance might be relevant ( such matters might be taken into account under s.24(2) – a court may take into account such matters as it thinks relevant), but the subsection expressly contemplates a prospective inquiry to ascertain the first element of unfairness;
c) so too, ss. 24(1)(b) and 24(1)(e) contemplate a prospective inquiry; and
d) the text of s.24, more generally, focusses attention upon the term sought to be impugned. It does so by directing attention to the form of the contract, the language of the term in the overall contract and the effect of the term- what work it would do in the context of the contract as a whole.
First criteria - Imbalance
63.The first of the three criteria in section 24(1) is whether the term would cause significant imbalance in the parties’ rights and obligations arising under the contract.
64.The no refund term deprives the customer of the benefit of her deposit should the parties not proceed to a building contract.
65.If they proceed then the customer retains the benefit of the fee as it is deducted from the building contract price – if the building contract is not entered into for any reason she forfeits any benefit of the fee to Kolak Living. Either way Kolak Living retains possession, and the full benefit, of the monies paid.
66.It is irrelevant whether, as Mr Russell asserted, it was unlikely that Kolak Living would choose not to proceed with the build; or whether it is likely to refund the reservation fee to the customer if it did. Because as observed by Jarrett J in Ferme at [64]:
Section 24(1)(a) requires an inquiry into the balance ‘in the parties rights and obligations arising under the contract’. Actual conduct is irrelevant.
67.I am satisfied that the non-refundable character of the reservation fee creates an imbalance in the parties rights and obligations under the contract because only the customer’s rights are adversely affected if the main contract did not proceed for any reason.
Second criteria- Reasonably necessary to protect legitimate interests
68.The second criterion is whether the no refund term is reasonably necessary in order to protect Kolak Living’s legitimate interests, being the party advantaged by it.
69.Section 24(4) provides that for the purposes of section 24(1)(b):
a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise. (Tribunal’s emphasis)
70.I have applied the following two step test established in Ferme[10] to determine whether Kolak Living has rebutted the presumption under section 24(4):
(a)Has it identified its legitimate interests it says are protected by the term?
(b)Has it demonstrated that the term was reasonably necessary in order to protect the legitimate interests identified as warranting protection?
Legitimate interests
[10] Jarrett J in Ferme at [72]-[74]
71.The respondent in its written submissions stated:
The Reservation Fee charged is to offset significant resources expended by Kolak Living in acquiring, marketing and if required customising house and land packages for clients. Where clients proceed with the construction of a home, this fee is credited to their contract as a payment. Where a client does not proceed, this fee will partially off set some of the sunk and lost opportunity costs associated with the removing the house and land package from the market.
72.The substance of the respondent’s written and oral submissions was that the no refund term protected its legitimate economic interests in defraying certain types of costs of business which I have categorised and set out in the following paragraphs:
(a)Operating Costs - These are costs which are necessarily incurred in the ordinary course of business but are not attributable to any specific customer, for example producing standard design; marketing properties; answering general customer enquiries.
(b)Negotiation costs - Costs incurred in working through options with a customer to the point where the parties are prepared to enter the first contract.
(c)Compliance costs - Under the terms of the reservation and design contract the reservation fee is paid in return for Kolak Living holding the block for the customer for a period of 28 days. On the basis of the evidence there were two types of costs potentially incurred by Kolak Living as a consequence of complying with this obligation:
(i)land rent at the rate of 4% per annum on the unimproved value of the block; and
(ii)loss of opportunity to sell to another potential buyer during reservation period if the customer does not go on to a building contract.
73.I find that in general the types of costs described above would normally and properly be incurred in the course of its business. The respondent has a legitimate interest in defraying all its normal and proper costs of business to protect its financial position.
Reasonably necessary
74.Courts have considered the term ‘reasonably necessary’ in the context of medical treatment in several cases and found that the term ‘reasonably’ moderates the absolute meaning of necessary so that an action can be ‘reasonably necessary’ if it is necessary in the circumstances even if not strictly indispensable.[11]
[11] See Diab v NRMA [2014] NSWWCCPD 72 for a summary of authorities at [76]-[91]
75.A narrow construction of the term ‘reasonably necessary” in section 24(1)(b) could mean that the respondent’s legitimate ends justified unreasonable, yet necessary, means. Such an interpretation would be contrary the intent of the legislation which is to protect consumers against unfair business practices. In my view ‘reasonably necessary’ in the context of section 24(1)(b) must mean the use of the impugned term is both reasonable and necessary. Black's Law Dictionary[12] defines reasonable as “Fair, proper, or moderate under the circumstances.”
To defray costs
[12] thelawdictionary.org
76.In Ferme the respondent claimed it had a legitimate interest in defraying both its costs of organising the subsequently cancelled cruise; and the costs it expended after the cancellation in evacuating and accommodating its disappointed customers in order to protect its business reputation. The respondent was obliged to incur the first type of cost in order to fulfil its obligations under the contract; the second type was incurred gratuitously for the stated purpose of protecting the respondent’s business reputation.
77.Jarrett J in Ferme observed that:
In my view, an objective approach to the assessment of reasonable necessity is required for the purposes of s. 24(4) of the Australian Consumer Law. The respondent must provide some basis for determining that the impugned term passes the test of reasonable necessity.
78.The appropriate test is not whether the impugned term was reasonably necessary to defray costs of this particular interaction. As His Honour pointed out in Ferme the respondent was entitled to retain the applicant’s fare regardless of whether it could establish any costs in that particular case. The Court postulated that if there was such evidence, and the amount retained by the respondent was based on a sliding scale informed by a genuine estimate of its costs then it might be the case that such a term was reasonably necessary.
79.As the no refund term applied to all customers regardless of the actual cost of doing business with a particular customer its necessity could only be established in the context of the respondent’s business operations and practices generally.[13]
[13] At [80]
80.The Court found that although the respondent had established on the evidence that it had expended funds on preparations for the cruise its evidence did not go so far as to establish the nature and quantum of those costs.[14]
[14] At [73]
81.The Court was also not convinced in relation to the post cancellation losses due to insufficient evidence as to the amount necessary to cover the contingency of evacuation; and, “the fact that retaining the entire fare is perhaps just as likely to cause a loss of good will and lack of repeat business.”[15]
Operating and negotiating costs
[15] At [85]
82.Whilst I accept that Kolak Living in running its business ordinarily incurs the types of operating and negotiating costs previously described I am not satisfied there was sufficient evidence to establish:
(a)what those likely costs were or how they could be quantified; and
(b)whether or how such costs were otherwise defrayed in its business operations; for example by the proceeds from building contracts or design fees.
Compliance costs
83.As a matter of course Kolak Living would be liable to pay land rent during the 28 day reservation period calculated as a percentage of the value of the particular block.
84.In this case the evidence suggests that the amount due for 28 days would be approximately $1,534.25.[16] But as there is no evidence as to whether this amount was typical it does not help the Tribunal to decide whether the term permitting retention of the whole reservation fee was reasonably necessary, as a matter of course, to cover this expense.
[16]Land rent $20,000 per annum = $54.79 per day X 28 days = $1,534.25
85.The respondent also argued that the no refund term was designed to compensate it for the loss of the opportunity to sell a reserved block to another customer during the reservation period.
86.How does the no refund term protect Kolak Living’s legitimate defraying lost opportunity to sell?
87.Although Mr Russell conceded that Ms Qamaruddin was not contractually bound to enter a building contract he told the Tribunal that by the time the customer paid the fees they had “already made a commitment.”
88.The terms of the reservation and design contract contemplate that the parties would move on to enter a building contract at the completion of the reservation and design phase.
89.The most significant legal connection between the reservation and design phase and the building phase is the term in the reservation and design contract that Kolak Living would apply the non-refundable reservation fee paid by the customer towards the price of any subsequent building contract.
90.Taking into account the contract as a whole. I am satisfied that the purpose of the no refund clause, in conjunction with the term applying the reservation fee against the price of any subsequent building contract was, at least partially, to deter customers from deciding not to proceed to the building contract, and that there was no equivalent deterrent for Kolak Living.
91.Under the reservation and design contract a customer would automatically forfeit the benefit of the reservation fee if a building contract did not eventuate, an outcome that was:
(a)not entirely within the customer’s control, given that Kolak Living could itself choose not to proceed; or intervening circumstances might preclude progression; and
(b)to the extent it was within the customer’s control, not something they were contractually bound to do.
92.Mr Russell described the situation as analogous to a retailer claiming for loss of profit on the sale of a motor vehicle or a piece of furniture when the customer repudiated the sale.
93.I do not accept the respondent’s analogy for the following reasons:
(a)There is no automatic entitlement for a seller to recover ‘loss of profit’ in contract when a purchaser repudiates a sale. Damages for breach of contract depend on the plaintiff establishing, in the particular circumstances, both its loss it and the requisite causal connection between that loss and the breach.
(b)Unlike the basis for damages in contract, the test of reasonableness under section 24(1)(b) is objective and not case specific. Accordingly only the nature and quantum of cost the respondent faces in general from parties not signing a building contract after the reservation period is relevant.
94.For the same reasons it is irrelevant under the UCT provisions that in the particular circumstances of this case the evidence suggests that:
(a)the respondent suffered no loss as a result of the parties not proceeding with the building contract because the principal of the company simply went ahead with his original plans to build his home on the block; and
(b)in the current market conditions the it is likely that the respondent would have no difficulty finding another buyer without needing to drop its price.
95.It is conceivable that in different circumstances Kolak Living may have to drop the price of a home to sell it, or incur extended holding costs while waiting for an alternative buyer.
96.However, the respondent produced no evidence as to the quantum of costs to its business in general caused by customers not proceeding with building contract after the reservation period.
97.I am not satisfied that the respondent has established that it was reasonably necessary to defray its holding costs by retaining the whole of the reservation fee. If as suggested by Jarrett J in Ferme, the amount retained was based on a formula informed by a genuine estimate of the respondent’s costs it might be the case that such a term was reasonably necessary. In this case, for example, such a formula might factor in the actual cost of land rent for the reservation period.
98.There is also nothing to suggest any attempt to balance the interests of the parties as the term only penalised the customer regardless of the cause of the failure to proceed with the project.
The third criteria- Detriment
99.The third criterion to determine whether a term is unfair under section 24(1) is whether it would cause detriment, whether financial or otherwise, to a party if it were to be applied or relied on.
100.A customer not going on to a build contract after the reservation period would suffer a financial detriment if Kolak Living relied on the non-refund clause to retain the reservation fee as they would be $5,000 out of pocket with nothing to show for it. An outcome suffered by Ms Qamaruddin in this case.
Transparency
101.In determining whether the no refund term is unfair I am required by section 24(2) to take into account both the extent to which the term is transparent within the meaning of section 24(3).
102.Although both parties submitted, and I accept, that neither party is bound under the reservation and design contract to enter a building contract, the terms of the contract taken as a whole are ambiguous and confusing. Both the What’s Next document and the invoice assume that the parties will proceed to the building contract; even though at the point the reservation and design contract is entered into a final design had not yet been agreed upon.
103.The following term in the What’s Next document under the ‘Custom Design’ heading suggests that both parties are bound to enter a building contract after the reservation period:
1 (a) when you proceed to signing contracts. (Tribunal’s emphasis)
104.But the wording later in the document, under the heading, ‘When your design has been finalised’, refers to Kolak Living putting a proposal to the customer ‘after the design has been finalised’, implying that the customer is free to accept or reject the proposal.
105.The invoice at first recognises that the parties may not proceed with the building contract by stating:
If the contracts are exchanged. (Tribunal’s emphasis)
106.But in the following sentence states:
…. after reservation period contracts are to be exchanged. (Tribunal’s emphasis)
107.The terms are not transparent as the language used is contradictory and unclear and is capable of leading a customer to mistakenly conclude that they are contractually obliged to enter the building contract after the reservation period expires.
Conclusions- section 23(1) of the ACL
108.I am satisfied that the no refund term:
(a)would cause a significant imbalance in the parties rights and obligations under the contract; and
(b)is not reasonably necessary in order to protect the legitimate interests of the respondent, the party who is advantaged by the term; and
(c)it would cause detriment to the applicants if it were to be applied or relied on.
109.I have found that the term was not transparent within the meaning of section 24(3) of the ACL and have taken that into account in reaching the conclusions set out above.
110.I have also taken into account the contract as a whole in the context of the respondent’s business model.
111.Accordingly I find that the no refund term was unfair within the meaning of that term under section 23(1)(a) of the ACL.
112.Further I am satisfied for the reasons set out above, that the reservation and design contract containing the no refund term was a standard contract pursuant to section 27 of the ACL.
113.Consequently I am satisfied that no refund term is void by reason of section 23(1) of the ACL.
Remedy
114.Section 23(2) ACL provides that the contract continues to bind the parties if it is capable of operating without the unfair term.
115.The impugned term is underlined and set out in the context of the reservation clause as follows.
116.In the invoice:
Reservation Fee (Non Refundable): the reservation fee will be applied against the construction contract if contracts are exchanged.
Block held for clients for 4 weeks, at the end of which point contracts are to be exchanged. Failure to exchange will end the reservation period and fee is forfeited to the builder.
117.In the What’s Next document under the ‘Custom Design’ heading:
1. Secure your block with reservation fee of $5,000
a.This is non refundable, however, it will be deducted from your build contract price when you proceed to signing contracts;
b.This payment will reserve your block for 28 days (Days being Monday – Sunday)
118.I am satisfied that the impugned term can be severed and declared void ab initio without effecting the operation of the rest of reservation fee and the reservation and design contract.
Remedy
119.What is the practical effect of striking out the no refund term?
120.In Ferme the Court struck out the no refund term and left the rest of the contract standing. The applicants were therefore able to recover the fares they paid on the basis that amount paid was for a consideration, that is the provision of a cruise, that had wholly failed.
121.In deciding to order a refund of the fares the Court in Ferme followed the decision of the High Court in Baltic Shipping Company v Dillon (1993) 176 CLR 344:
an innocent party cannot recover that money unless there has been a total failure of consideration... If the party receives ‘substantial part of the benefit expected under the contract’ there will not be a total failure of consideration
122.I find that in the circumstances this case, unlike Ferme, there has not been a total failure of consideration because Ms Qamaruddin paid the reservation fee in return for the reservation of the block. The respondent reserved the block as it was contractually obliged to.
123.Accordingly, severance of the no refund term from the contract does not entitle Ms Qamaruddin to a refund of the reservation fee.
Other actions under the ACL
124.Ms Qamaruddin’s evidence and submissions about Mr Russell’s conduct on behalf of the respondent raise the ACL prohibitions on unconscionable conduct[17]; and misleading or deceptive conduct.[18]
Liability of respondent for acts of its employees
[17] Part 2-2 of the ACL
[18] Part 2-1, section 18 of the ACL
125.Section 139B of the Competition and Consumer Act 2010 provides in relation to the conduct of directors, employees or agents of bodies corporate:
(1)...
(2)Any conduct engaged in on behalf of a body corporate:
(a) by a director, employee or agent of the body corporate within the scope of the actual or apparent authority of the director, employee or agent; or
(b) by any other person:
(i) at the direction of a director, employee or agent of the body corporate; or
(ii) with the consent or agreement (whether express or implied) of such a director, employee or agent;
if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;
is taken, for the purposes of this Part or the Australian Consumer Law, to have been engaged in also by the body corporate.
126.It is not disputed that at all relevant times:
(a)the respondent was a body corporate;
(b)Mr Russell was employed by the respondent as its Sales Manager; and
(c)Ms Qamaruddin dealt solely with Mr Russell.
127.I am satisfied that if the representations complained of were made by Mr Russell then he made them on behalf of the respondent within his actual or apparent authority as the respondent’s Sales Manager.
128.Accordingly I find that the respondent is capable of being liable for the contravention of sections 18 and 20 of the ACL in relation to the conduct alleged.
Unconscionable conduct- Part 2-2 of the ACL
Legislative framework
129.Section 21 of the ACL specifically prohibits unconscionable conduct (UC) in connection with goods and services supplied to consumers and provides:
(1) A person must not in trade or commerce, in connection with:
(a)The supply or possible supply of goods or services to a person (other than a listed public company)…
Engage in conduct that is, in all the circumstances, unconscionable.
130.Section 21[19] is in addition to and not constrained by unwritten law. As observed by the Full Court of the Federal Court in Australian Securities & Investments Commission v National Exchange Pty Ltd[20] in relation to equivalent provisions to section 21 in the Trade Practices Act (later repealed) and the ASIC Act:
It is equally clear both from the actual language of section 51AC and of section 12CC and from the extrinsic materials relating to section 51AC that these provisions were intended to build on and not be constrained by common law case law… The language must be given its ordinary meaning and must not be qualified by pre-existing constraints on liability….[21]
[19] Section 21(4)(a) of the ACL
[20] [2005] FCAFC 226
[21] Australian Securities &Investments Commission v National Exchange Pty Ltd [2005] FCAFC 226 - cited by Goldberger, J. (2017 March) Contract Law Masterclass 2017, presented at ACT Law Society seminar, Canberra, at page 49
131.Section 21 applies to system of conduct or a pattern of behaviour. It is not necessary that a customer be disadvantaged by the conduct.[22] In determining whether the respondent has engaged in UC under the ACL I can consider whether any of its conduct to which the contract relates was unconscionable, including circumstances relating to the formation of the contract.[23]
[22] Section 21(4)(b)
[23] Section 21(4) (c)
132.Section 22(1) which I have set out in full below, sets out matters to which I may give regard in determining whether the respondent has engaged in UC within the meaning of section 21.
22 Matters the court may have regard to for the purposes of section 21
(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the customer; and
(b)whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e)the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f)the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and
(g)the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i)the extent to which the supplier unreasonably failed to disclose to the customer:
(i)any intended conduct of the supplier that might affect the interests of the customer; and
(ii)any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
(j)if there is a contract between the supplier and the customer for the supply of the goods or services:
(i)the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv)any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
(l)the extent to which the supplier and the customer acted in good faith.
133.The High Court in Paciocco v Australia and New Zealand Banking Group Limited explained that the word ‘may’ in corresponding provisions in the ASIC Act “was not permissive but conditional.”[24]
The import of s 12CB(2) was to spell out that circumstances relevant to the determination of whether conduct was objectively to be characterised as ‘unconscionable’ according to the ordinary meaning of that term might or might not include, in respect of particular conduct, all or any of the matters referred to n s 12CB(2). The provisions made clear that, where any one or more of those matters existed in respect of particular conduct, each of those extant matters was to form part of the totality of the circumstances mandatorily to be taken into account for the purposes of determining the statutory question posed by s 12 CB (1).
[24] [2016] HCA 28
134.A long line of cases has considered unconscionability under the ACL as well as its equivalent provisions in the now repealed TPA and the current ASIC Act.[25]
[25] Part IVA of the repealed Trade Practices Act (comprising sections 51AA, 51AB and 51AC) has been reproduced with minor modifications both in Part 2-2 of the ACL (sections 20, 21 and 22) and its mirror provisions in Subdivision C of Part 2 of the ASIC Act (sections 12CA,12CB and 12CC)
135.Later cases have focused more on trying to establish the ordinary meaning of ‘unconscionability’ rather than relying on moral obloquy as the determinative test.
136.As observed by Sackville AJA in PT Ltd v Spuds Surf Chatswood Pty Ltd[26]
Conduct involving dishonesty, sharp practice or conscious wrongdoing is no doubt unconscionable, and equally clearly deserving discredit or detraction. Other less heinous conduct may be more difficult to characterise.
[26] [2013] NSWCA 446
137.In ACCC v Lux Distributors Pty Ltd[27] the Full Federal Court declared that Lux Distributers had engaged in UC in relation to sale tactics employed on three elderly consumers. The salesperson called on the consumers on the pretext of arranging a free vacuum cleaner maintenance check and having gained access to the their homes engaged in unfair and pressuring sales tactics to induce them to buy a very expensive vacuum cleaner.
[41] In our view, the above conduct was unconscionable. It is unnecessary to deal with the cases on s 51AB of the TPA and s21 of the ACL in any detail. The word “unconscionability” means something not done in good conscience: for example, Hurley v McDonald’s Australia Ltd [1999] FCA 1728 at [22]; ACCC v Allphones Retail Pty Ltd (no2) [2009 ]FCA 17; 253ALR at [113]; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 at[291], [293], and the cases discussed therein. No argument was put that required any consideration of the authorities. Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognizes that it is conduct against conscience by reference to the norms of society that is in question. The statutory norm is one which must be understood and applied in the context in which the circumstances arise. The context here is consumer protection directed at the requirements of honest and fair conduct free of deception. Notions of justice and fairness are central, as are vulnerability, advantage and honesty.
[27] [2013] FCAFC 90
138.Lyons J in Stacks Managed Investments Ltd v Tolteca Pty Ltd summarised the law on a test for statutory unconscionability with reference to section 12CC of the ASIC Act (the mirror provision to section 22 of the ACL) as follows:
Whilst it is clear that the list of factors in 12CC of the ASIC Act are not meant to be exhaustive, it would seem that the section applies to conduct involving dishonesty, abuse and oppression. As an academic commentator has noted, the first question that is normally asked in determining whether s 12CC of the ASIC Act applies is whether there was dishonesty, that is, conduct which was intended and likely to lead another person into error. The second is whether there was any abuse, particularly whether there has been a misuse of a legal right, title or position, or of a relationship or situation of trust, confidence or power, or of another’s age, infirmity, disability or ignorance. The third question is generally whether an issue of oppression exists and whether the enforcement of a strict legal right would cause overwhelming hardship to another party such that it ought not to be enforced. (footnotes omitted)[28]
[28] [2015] QSC 276 at [3.5]
The impugned conduct
Undue pressure
139.Ms Qamaruddin submitted that Mr Russell pressured her into entering the reservation and design contract before the design was fully settled by telling her that the principal of Kolak Living had selected the block for his own family home. It is not disputed that Mr Russell did advise her of Mr Kolak’s interest in the block and Mr Russell told the Tribunal that when the sale did not go ahead with Ms Qamaruddin, Mr Kolak built a home on the block.
Inadequate warning to Ms Qamaruddin of risk of variation in price
140.Ms Qamaruddin submitted that Mr Russell’s pattern of conduct created the false impression, that if she chose one of the three options set out in his email of 12 April 2016, Kolak Living would deliver a proposal based on a final plan for a home and land package within her budget.
Relevant circumstances
141.As Keane J observed in Paciocco at [293]:
The existence of a disparity in bargaining power, which is an all pervading feature of capitalist economy, does not establish that the party which enjoys the superior power acts unconscionably by exercising it….
142.There is nothing to suggest that Ms Qamaruddin was by reason of her personal attributes or circumstances at a particular disadvantage in her dealings with the respondent.
143.But the balance of evidence suggests that Kolak Living were in a stronger bargaining position because:
(a)the strong market demand for properties of this type;
(b)the block was particularly desirable due to its attractive views;
(c)Ms Qamaruddin’s strong preference for the block in question; and
(d)The fact that if Ms Qamaruddin’s did not proceed Kolak Living would not suffer detriment as Mr Kolak would keep the block for his own use.
144.Mr Russell’s intention in sharing with Ms Qamaruddin Mr Kolak’s interest in the property may well have been intended to instil a sense of urgency and induce her to enter the reservation and design contract to avoid missing out on her preferred block. Or it may have been simply to alert her to a real risk that, if she delayed, she may lose the block she wanted.
145.Did Mr Russell unreasonably fail to disclose the risk that the cost of the building may go up during the design phase?
146.Mr Russell’s email of 12 April 2016 contained the following disclaimer:
Having said that, please do note that pricing is still ball park, indicative pricing only. We cannot offer a fixed price quote till (sic) we have fully drafted and dimensioned concept plans.
147.However Ms Qamaruddin argues that her communications with Mr Russell, taken as a whole sent a contradictory message, that is, that the prices given in the email were firm enough for her to rely on.
148.I find that Mr Russell did disclose the risk of a price rise in his email. I will consider later in my reasons whether in the all the circumstances the impression he gave was nevertheless misleading in contravention of section 18 of the ACL.
149.I have already found in considering whether the contract was a standard contract for the purposes of UFT that the respondent displayed no interest or willingness to negotiate the terms in the What’s Next document with Ms Qamaruddin.
150.At no stage did Mr Russell suggest to Ms Qamaruddin that the respondent would consider finalising the building contract proposal without the payment of a reservation fee.
151.Mr Russell acted in the interests of his employer and exercised Kolak Living’s superior power. The respondent being in the stronger position, was under no commercial imperative to offer Ms Qamaruddin concessions or deviate from its standard procedure in order to seal the deal.
152.I find that both parties made genuine efforts to agree on a design that met Ms Qamaruddin requirements and was within her budget. I find no evidence of any dishonesty, sharp practice or conscious wrongdoing on Mr Russell’s part. Accordingly I find that the respondent through its agent did not contravene the unconscionable conduct provisions of the ACL.
Misleading or Deceptive Conduct - Part 2-1 Section 18 of the ACL
153.Ms Qamaruddin submitted that she entered the reservation and design contract in reliance upon representations by the applicant that the cost of building plans subsequently produced by the designer would be within her budget, if she chose one of the three design options in Mr Russel’s email of 12 April 2016.
154.There is a general prohibition on misleading and deceptive conduct in section 18(1) of the ACL, which provides that:
A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (Tribunal’s emphasis)
155.Unlike unconscionable conduct, misleading or deceptive conduct does not have to be unfair or dishonest. The provisions focus instead on the actual or likely effect of the conduct. There is no requirement in section 18 that the conduct was either intended to mislead or that it actually misled. Although whether a consumer was actually misled is relevant to the issue of causation of loss and therefore to the remedies available.
156.The term ‘a person’ includes a corporation as well as a body politic and an individual.[29]
[29] Section 2C of the Acts Interpretation Act 1901 (Cth)
157.I am satisfied that the conduct complained of occurred in the course of trade or commerce.
Misleading or deceptive conduct
158.Coorey, A[30] summarised the test for misleading and deceptive conduct established in Parkdale Furniture Pty Ltd v Puxu Pty Ltd as follows:
The threshold test for determining whether conduct is misleading or deceptive for the purposes of s.18 is if the overall impression of the conduct induces or is capable of inducing error.[31]
Whether the overall impression of the conduct induces or is capable of inducing error is a question of fact to be determined in the context of the alleged conduct and relevant surrounding circumstances.[32]
Representations with respect to future matters
[30] Coorey, A. Australian Consumer Law LexisNexis Butterworths, Australia, 2015 [3.30]-[3.31]
[31] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 42 ALR 1 Gibbs J at 5
[32] Ibid at 7
159.The alleged representation made by Mr Russell was in respect to a future matter, that is that the respondent’s construction proposal, based on fully drafted and dimensioned concept plans by the architect would come in on budget as long as such plans followed one of the three options set out in Mr Russell’s email of 12 April 2016.
160.Section 4 of the ACL, which I have set out in full below, relates to representations as to future matters.
(1) If:
a)a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act); and
b)the person does not have reasonable grounds for making the representation;
the representation is taken, for the purposes of this Schedule, to be misleading.
(2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:a)a party to the proceeding; or
b)any other person;
the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.
(3) To avoid doubt, subsection (2) does not:
a)have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; or
b)have the effect of placing on any person an onus of proving that the person who made the representation had reasonable grounds for making the representation.
(4) Subsection (1) does not limit by implication the meaning of a reference in this Schedule to:
a)a misleading representation; or
b)a representation that is misleading in a material particular; or
c)conduct that is misleading or is likely or liable to mislead;
and, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because the person has reasonable grounds for making the representation. (Tribunal’s emphasis)
161.In Carter & Anor v Delgrove Holdings Pty Ltd[33] Lindsay J explained, based on the reasoning of Allsop J in McGrath v Australian Natural Care Products[34], the effect of section 4 particularly in relation to the evidentiary onus and the legal (or persuasive) onus as follows:
Firstly, the evidentiary onus in subs (2) is to adduce evidence to the ‘contrary’. It is not enough for the defendant to simply put some evidence forward to discharge his obligation pursuant to subs (2). Any evidence is insufficient. It must be evidence to the contrary.
Secondly, if such evidence to the contrary is adduced the onus cast upon the defendant by subs (2) will have been satisfied. However, this is not the expression of a view that the legal or persuasive onus had been changed by the introduction of subs (2). As his Honour expressed it at [192] of this judgment:
For instance, if evidence ‘to the contrary’ is adduced by the representor, and if the representee itself adduces evidence, tending to the lack of reasonable grounds, the matter might be equally poised. In such a case, there has been evidence ‘to the contrary’ adduced by the representee, thereby eliminating the operation of the deeming provision and, on the totality of the evidence, the proof of reasonableness (or lack thereof) of the grounds is evenly balanced. Section 51A (2) does not, in my view, mean that in those circumstances, the representor has not met an onus. The section does not cast a legal or persuasive onus, in such a case, on the representor.
[33] [2013] FCCA 783 at [69]-[71]
[34] [2008] FCAFC 2- in relation to section 51A in the former TPA
162.As the alleged representations were with respect to a future matter the issues I must determine are:
(a)What representations, if any, did the respondent make?
(b)Were the representations incorrect?
(c)If so, were they based on reasonable grounds?
(d)If not, were they otherwise misleading or deceptive within the meaning of section 18?
What representations were made?
163.Before Ms Qamaruddin entered the reservation and design contract she and Mr Russell spent about two weeks trying to adapt Mr Kolak’s design for a two storey house of 273.2 square metres with premium inclusions, valued by Kolak at $623,583.00, so as to come within her budget of $540,000 and meet her other requirements which were to have the most useable space and best standard of inclusions she could afford.
164.Mr Russell told the Tribunal that although he did not have formal qualifications as a draftsperson he had many years of practical experience including running his own drafting company and teaching building design at the Canberra Institute of Technology.
165.They worked through various modifications of the original dimensioned floor plan, and a series of inclusions list. Mr Russell ran the options through a computer program to provide cost estimates to Ms Qamaruddin.
166.Both parties produced some working documents generated in this process including copies of the original floor plan with hand drawn modifications (the draft plans) and inclusion lists with annotations. The various iterations of the draft plans showed the sizes of the functional areas on the floor plan. Ms Qamaruddin also produced some of the cost estimates produced by Mr Russell based on various total area and inclusions options.
167.The process culminated in the following email sent by Mr Russell to Ms Qamaruddin on 12 April 2016, which expressly referred to and incorporated the content of the parties’ previous discussions.
Hi Meraj
Following on from our meetings and conversations we can confirm that we do have a few options moving forward.
Regarding:
Block 9 of Section 4 Wright
101 Ulysses Circuit Wright ACT 2611Base Package (as calculated based on design changes and inclusion updates discussed during our meetings):
Design- custom 2 storey design modified to around 230 m2
Inclusions- as per style inclusions with changes noted during our meeting
Price around $560,000Options to bring the price down to $540,000:
Option 1: If we can reduce your design by around 5m2, the difference we will be able to look at discounting for you.(This is the original option we discussed)
Option 2: reduce Inclusions and then difference we will be able to look at discounting for you. (This would be the option based around your email from Saturday the 9th).
Option 3: We reduce the area by a few m2 and slightly reduce the inclusions, a little from option 1 and a little from option 2!The idea for the options above being we meet half way, if you compromise on upgrades/area or both we will also then compromise on price.
Having said that, please do note that pricing is still ball park, indicative pricing only. We cannot offer a fixed price quote till we have fully drafted and dimensioned concept plans.
Based on the above, our meetings and your most recent email we feel we will be able to find a way to work with you to ensure we meet you needs, requirements and budget.
168.Ms Qamaruddin told the Tribunal that during their discussions Mr Russell suggested that the base package could be reduced by 5m2 by removing some of the upstairs floor area to create a void without loss of useable space, which is Option 1 in the email. Ms Qamaruddin suggested Option 2 to Mr Russell in her email of 9 April 2016.
169.The respondent’s position on whether it made the representations alleged was contradictory.
170.At the hearing Mr Russell submitted that the options presented in email of 12 April 2016 to bring the price down to $540,000 were not intended to be relied upon and were subject to the qualifying words:
Having said that, please note that pricing is still ball park, indicative pricing only. We cannot offer a fixed price quote till we have finally drafted and dimensioned concept plans.
171.Whereas the respondent in its written submissions asserted that the parties had agreed to binding options to keep the project within budget and Kolak Living recognised at the time that Ms Qamaruddin was entering the reservation and design contract in reliance upon those representations:
Viable and feasible options were provided and agreed before they paid. The agreed terms were not adhered to by the claimant, and now they are blaming us.[35]
and
The claimant emphasized that they wanted to finalise everything before proceeding and depositing money….We worked with the claimant to finalise suitable options before they paid the money……….we answered their last issue (about land rent) before they paid any money.[36]
[35] Case summary filed by respondent 13 February 2017, page 1
[36] Ibid page 3
172.The respondent’s argument that the applicant did not adhere to their agreement was based on the premise that the critical matter agreed between the parties was the total area of the floor plan rather than the area of each functional section.
173.I am satisfied that the base package size of 230m2 referred to in the email was calculated by Mr Russell on the basis of the room sizes in the draft plans. Ms Qamaruddin was focussed on achieving a design that gave her the space she wanted in each area of the house and she relied on Mr Russell’s skill to ensure that the total area was correct.
174.Accordingly I find that an essential element of the representations were the room sizes on the floor plan which the parties agreed upon.
175.I find that Mr Russell made the representation alleged, including that the options presented were based on the agreed room sizes.
Was the representation incorrect?
176.On 22 April 2016 Ms Qamaruddin and Mr Russell met with the architect engaged by Kolak Living. During the meeting the architect converted Mr Russell’s draft plans to a computer sketch which showed a total area of 241.6m2.
177.The architect later produced the dimensioned sketch plans comprised of floorplans, one elevation and a site plan, which Mr Russell costed, with inclusions, at $578,919 to build.
178.Ms Qamaruddin submitted that the architect was unable to draw up a plan based on the room sizes she had previously agreed with Mr Russell, and bring it in at 230 m2. Ms Qamaruddin refused to reduce the room sizes further to achieve an overall reduction in area of 10 m2 needed to come within budget.
179.At the hearing Ms Qamaruddin said that she was surprised when the architect came back with a plan that was 10m2 larger than the size she and Mr Russell’s had agreed upon based on all the room sizes. She said, “I don’t know how that 10 metre square suddenly became part of the thing.” To which Mr Russell responded:
I’m sure you can appreciate when drawing with a ruler and a pencil there’s some margin for error, so that’s why we go to the draftsman, that’s why we take a design fee. We explain that process, the “What’s Next?” document explains that process as well.[37]
[37] Transcript of Proceedings 24 February 2017 page 20
180.Although the respondent claimed that it was Ms Qamaruddin’s unreasonable demands which produced the increase in the price they failed to point to any specific instances of her asking for an increase in the size of rooms or in the standard of inclusions after the representations were made by Mr Russell in his email of 12 April 2016.
181.The respondent provided no details or evidence as to how the process of converting the draft dimensioned floor plans, to the architect’s dimensioned sketch plans resulted in an overall increase in area of over 10 m2.
182.According I find that Mr Russell’s representation was incorrect.
Reasonable grounds for making representations
183.The respondent did not call the architect as a witness, or adduce other evidence, to explain the increase in the overall size when the architect converted the draft plan.
184.It is not necessary for me to draw an inference from the respondent’s failure to adduce such evidence. However the absence of relevant evidence leads me to conclude that the respondent has not satisfied the evidentiary onus imposed on it by section 4(2) to establish reasonable grounds and therefore according to section 4(1) I find the representation misleading and thus a contravention of section 18 of the ACL.
185.Even if the respondent had discharged the evidentiary onus under section 4(2) I am satisfied on the totality of the evidence on the balance of probabilities that:
(a)Ms Qamaruddin did not seek to add any additional area to the design after the email of 12 April 2016; and
(b)the reason for the increase in overall size, and hence cost, was that Mr Russell made an error in calculating the overall size which only became apparent when the architect translated his draft plans using her computer design program.
186.Mr Russell while not admitting the increase in overall size, and therefore cost, was caused by his miscalculations, asserted when questioned by the Tribunal that the reduction of 10 square metres to a floor plan of 230m2 was, “In my mind in the big scheme of things, it - in my mind, wouldn’t have made a difference, you wouldn’t have noticed.”[38]
[38] Transcript of Proceedings 24 February 2017 page 23 line 35
187.I do not accept Mr Russell’s assertion that a reduction in size of 10m2 is insignificant because:
(a)Based on Mr Russell’s own calculations as set out in Option 1 of his email of 12 April 2016 decreasing the area of the base package by around 5m2 from 230m2 to 225m2 would result in a reduction in price of $20,000.
(b)10m2 is equivalent to many single bedrooms – I do not accept that a reduction of this size can be achieved without being noticed, even over a total area of 230m2.
(c)Ms Qamaruddin had made it clear that she wanted to preserve as much area as possible within her budget.
Remedy
188.Section 237 of the ACL provides that a person who suffered, or is likely to suffer, loss or damage because of the conduct of another person engaged in the contravention can seek compensatory orders. The Tribunal may make any order it considers appropriate including orders to vary contracts, refund money, return property or pay compensation.
189.Ms Qamaruddin could only have suffered loss as a result of Mr Russell’s representation if she relied upon it.[39] I am satisfied that Ms Qamaruddin entered into the reservation and design contract, and paid the fees under it, in reliance upon Mr Russell’s misleading representation.
[39] Brosnan v Katke [2016] FCAFC 1 at [95]-[110]
190.Had Mr Russell’s representation been correct then Ms Qamaruddin would have gone on to have her home built by Kolak Living and enjoyed the benefit of the monies she paid them under the reservation and design contract. I am therefore satisfied that she suffered loss as a result of Mr Russell’s misleading conduct.
191.Having found that the respondent contravened section 18 of the ACL and that Ms Qamaruddin suffered loss because of the conduct constituting the contravention, I order that the respondent refund to the applicant $7,000 being:
(a)$5,000 being the reservation fee paid by Ms Qamaruddin under the contract; and
(b)$2,000 being that part of the design fee she paid under the contract which she sought a refund for.
192.Had Ms Qamaruddin sought a refund of the entire amount of the design fee I would have ordered it.
The counter claim
193.The respondent failed to establish any legal basis, whether in contract or otherwise, for its claim for losses it says its suffered as a result of the applicant not proceeding with the building contract as it admits that she was not contractually bound to do so.
194.The applicant also failed to establish any basis upon which the Tribunal could quantify the alleged loss.
195.For the reasons set out above I dismiss the counter claim.
………………………………..
President G Neate AM
Delivered for and on behalf of the Tribunal
HEARING DETAILS
FILE NUMBER:
XD 1046/2016
PARTIES, APPLICANT:
Merajunnisa Qamaruddin
PARTIES, RESPONDENT:
Kolak Living Pty Ltd
COUNSEL APPEARING, APPLICANT
N/A
COUNSEL APPEARING, RESPONDENT
N/A
SOLICITORS FOR APPLICANT
N/A
SOLICITORS FOR RESPONDENT
N/A
TRIBUNAL MEMBERS:
Senior Member E Ferguson
DATES OF HEARING:
24 February 2017
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