Quickfund (Australia) Pty Ltd ACN 116 768 711 and Airmark Consolidators Pty LTDFirst and Mark Gonsalves

[2014] HCATrans 264

[2014] HCATrans 264

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney   No S196 of 2014

No S197 of 2014

B e t w e e n -

QUICKFUND (AUSTRALIA) PTY LTD ACN 116 768 711

Applicant

and

AIRMARK CONSOLIDATORS PTY LTD

First Respondent

MARK GONSALVES

Second Respondent

Office of the Registry
  Sydney   No S198 of 2014

B e t w e e n -

ENTERPRISE FINANCE SOLUTIONS PTY LTD

First Applicant

AUSTRALIAN EQUIPMENT RENTALS PTY LTD ACN 126 049 376

Second Applicant

and

AUSTEC.NET PTY LTD ACN 100 558 754

First Respondent

JOHN ALBERT HARRISON

Second Respondent

LYNETTE ANNE HARRISON

Third Respondent

Applications for special leave to appeal

KIEFEL J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 NOVEMBER 2014, AT 11.41 AM

Copyright in the High Court of Australia

____________________

MR N.C. HUTLEY, SC:   If the Court pleases, I appear with my learned friends, MR S.L. BELL and MR C.P. CARTER for the applicants.  (instructed by SR Law)

MR R.M. NIALL, QC:   If the Court pleases, I appear with my learned friend, MR A.D. CROSSLAND, for the respondents.  (instructed by Attwood Marshall Lawyers)

KIEFEL J:   Yes, Mr Hutley.

MR HUTLEY:   Two points arise:  firstly, the construction of section 51AF and section 73 of the Trade Practices Act, as they then stood, and the construction of section 6(2) of the Contracts Review Act.  As to the first, whilst the provisions have been repealed or re‑enacted in a new form, and I accept the implications of that for a special leave application immediately, it is, in effect, a provision which has a long and significant tale, as your Honours will see from application book 153, where reference is made to the fact that this provision lies at the heart of the Storm litigation which is ongoing ‑ ‑ ‑

KIEFEL J:   But in relation to loans, not rental agreements, is it not?

MR HUTLEY:   Yes, but the essential same problem.  Your Honour will see the reference to Justice Foster’s judgment which was relied upon by the Full Court as part of the reasoning.  That was in precisely – that was in a Storm case where the point was raised.  That actual case has been resolved, but the central same point arises because it is the extension of the definition of “financial service” through amendments to the ASIC legislation which were then affected by regulation which brought about the operation which applies in the Storm litigation. 

It is the same problem.  It is the effect upon the meaning of “financial service” brought about by the regulations.  Your Honours will see the reference to the regulations with which we are concerned in the application book where it is explained how it operated here as a matter of history in – if your Honours bear with me for the moment, I have just lost the section – it is paragraph – I will just turn it up, if your Honours please – it is paragraph 40, I think, 47 in the application.  Yes, there is it ‑ your Honour will find it in paragraph 40 at application book 107.  I do apologise.

It lay in the regulations which came about by the amendments to the definition of “financial product” which took place in 2001, which produce the situation that the predicates to the operation of section 73, and that is 73(1)(a) and (1)(b), which your Honours will see in paragraph – at application book 104, paragraph 33, over to the next page – the predicate to the operation of 73, namely, a contract for the provision of credit, both under (a) and under (b) were not financial products within the meaning of the Act as originally enacted, which your Honours will see in paragraph 31. 

That is why, and I will come to it in due course, in the explanatory memorandum, it was said that 73 did not fall within the relevant part of the ASIC Act. The reason they said it did not fall within it is because the predicates to the operation of 73 simply were not financial services within the meaning of the relevant ASIC Act – the 1989 ASIC Act – which was the defined term of “financial services” for the purposes of 51AF.

So that is to answer your Honour’s question – it is precisely the same question and that is why – your Honour will see the reference to the affidavit from the solicitor who is acting on behalf of the investors in the Storm litigation is saying this is the point.  This is a point which is going to come up and obviously that is a very important, large piece of litigation.

KIEFEL J:   How much is involved here in money terms?

MR HUTLEY:   Your Honour – could I ‑ ‑ ‑

KIEFEL J:   I could not find that very easily ‑ ‑ ‑

MR HUTLEY:   It was a collection – there are three cases.  The sums involved – together about 150, Mr Bell has told me, and he ran the case.  But we have behind it – we have bought a business – we have behind it a succession of these, and your Honours will have seen that referred to – but our position is, we have obviously an interest in that but ‑ ‑ ‑

KIEFEL J:   The Full Court reasoned in relation to section 73 that the class of services which section 51AF(1) refers to limits the operation of section 73.  Is that right?

MR HUTLEY:   Well, your Honour, can I take your Honours – in essence, what your Honour says is correct but the Full Court’s, with the greatest respect to them, reasoning in this regard, is in two parts because they, in effect, give one analysis and then they say that there is an alternate analysis and, in effect, the two analyses are inconsistent one with the other.  One finds that – if your Honours go to 91 to 94, they dealt with our argument in two ways.  Firstly, in 91 through to 94 they said if one – if your Honours take up 73(1)(a) and (1)(b), (1)(b) particularly ‑ your Honours will see that the reference to:

in respect of the supply by the supplier of goods or services –

They said that that is a 51AF supply of goods and services. Therefore, to the extent that there is a supply – underlying supply – of services which are a financial service within the meaning of the ASIC Act, that would operate. But they said the provision relevantly of credit by the linked credit provider was not a supply of a financial service. Of course – and we say, with respect to their Honours, that immediately went wrong because ‑ ‑ ‑

KIEFEL J:   Your point is that the characteristic of a rental agreement is the provision of money, not goods.  Is that the ‑ ‑ ‑

MR HUTLEY:   Quite – it is the provision of a service.  The only reason it was not a financial service – and I will come to the second reading speech – is because “financial service” was defined very narrowly.  There was one conceivable possibility where the predicates could become a financial service and that is if they were provided in relation to a financial product.  That is precisely why they put the reference to 12ED in the body of section 73.  With all due respect to the Full Court, if the Full Court relied – it said that that was incorrect, and your Honours will find that discussion, where we come to it, commencing at paragraph 100 and following, and they refer to the explanatory memorandum.

In fact, properly read, that explanatory memorandum makes it perfectly clear that what we were saying was absolutely what they were dealing with. It is clear, if I could take your Honours to it, for these reasons. The explanatory memorandum says, in effect, that the object of what is happening here is to take “financial services” as defined into the ASIC Act and, as it were, bifurcate. They say at 3.32 – section 73A is outside:

Proposed Subdivision E will not include provisions equivalent to sections 73 . . . These provisions deal with linked credit contracts and are therefore outside the scope of Schedule 2.

Schedule 2 was the provision which entered the cognate provisions into the ASIC Act. The question is why were they outside it? They were outside it because the predicates to the operation of the section were not the supply of financial services within the meaning of the defined meaning. That is made clear when they go on to say why they need 12ED, and your Honours will see that 3.53. It says:

Proposed items 27 and 28 will amend subsections 73(1) and 73(2) of the Trade Practices Act.  These amendments will reflect the inclusion of proposed section 12ED –

an ASIC Act –

which will imply in contracts for the supply of financial services a warranty that the services will be rendered with due care and skill . . . As outlined above in paragraph 3.30 above, section 73‑73B of the Trade Practices Act are detailed provisions dealing with the recovery of amounts from a linked credit provider for a breach of this warranty. Section 73-73B will have no equivalent in the ASIC Act, but the amendments . . . will ensure that consumers have access to those provisions in relation to credit supplied for financial services.

That is a direct reference – an absolute clear reference – going back if your Honours would to paragraph 31 in the judgment, to the definition of “financial service” having two aspects:  one a financial product which had a limited meaning; and, two, otherwise a service ‑

supplied in relation to a financial product.

In other words, it was possible that a service – a provision of credit – could become a financial product if it was finance provided in relation to a financial product. Then it could become a financial service. If it was ever contemplated that the predicates to 73 were in fact financial services themselves, then the logic of the bifurcation of responsibility would have, of course, meant that there would have been a 73 cognate in the ASIC Act. But in fact, with all due respect to the Full Court, the object of what was being done proves too much because the obvious object was that 73 is outside it because it is not, except in a very limited circumstance, which appears from the last line on the second reading speech – the memorandum:

credit supplied for financial services.

In that very limited circumstance then you needed a 12ED exclusion.  That was our argument.  With respect to the Full Court ‑ ‑ ‑

BELL J:   Their Honours dealt with that at application book 124, paragraph 102.

MR HUTLEY:   I accept – yes, your Honour – and with all due respect to their Honours, their Honours say that is demonstrated by the explanatory memorandum, but the explanatory memorandum properly read establishes the exact opposite because otherwise the last sentence of –

access to those provisions in relation to credit supplied for financial services -

would be unintelligible because it was obvious that is only on the basis of credit supplied not being a financial service, because otherwise credit supplied being a financial service.  So it is referring to the relationship.  That was our argument and, with respect to their Honours, their Honours’ analysis was wrong. 

Can I then go back shortly, if I might, to the two bases put.  The first bases at 91 to 94 I have dealt with.  The second basis, between 95 and following, their Honours characterise 73 as remedial.  In our respectful submission, it is not remedial.  It is wholly substantive because the effect of it is to expose organisations who have no liability for wrongs to liability for wrongs.  In effect, it makes a credit provider responsible for a supplier’s wrongs, and a supplier responsible for a credit provider’s wrong. 

BELL J:   It depends on your perspective in terms of ‑ ‑ ‑

MR HUTLEY: I understand, your Honour. But we say that that – that conclusion does not assist in any meaningful way, to construction. That then – their Honours appear to have had a second reason, at paragraph 98, where they again referred to the fact that there was – provision was not supply. Now, the difficulty with that, with respect to their Honours, is that there were many provisions which were transferred over into the ASIC Act and some of them did not use the word “supply” at all.

For example, if I could draw your Honours’ attention in the bundle to behind tab 10 to the Trade Practices Act, section 64(2A), which was one of the provisions for which there was a cognate developed in respect of – in the ASIC Act – that is, went in as part of Schedule 2, that says – this is page 312:

A corporation shall not, in trade or commerce, assert a right to payment from a person for unsolicited services unless the corporation has reasonable cause to believe that there is a right to payment.

There is no reference to supply there at all, but it is common ground that 51AF would attach to that.  So 51AF(1) is in completely general terminology.  In essence, with all due respect to the Full Court, a process of construction which is both strained and, with respect, leads to – is internally inconsistent – has been arrived at which has come to a conclusion which, in our respectful submission, has resulted in 51AF(1) being construed in a wholly incorrect manner.  That is all I wish to say on the first point, your Honour.  Can I turn to the second point.

The second point, your Honour, with respect to section 6(2), in our respectful submission, this is a provision which originally was construed in two first instance decisions in the New South Wales Supreme Court which your Honours will see referred to in the judgment at page 127, the original decision of Justice McLelland in Toscano and then there was – which is referred to in the submissions – and that is then taken up again by their Honours at 124 on page 129.  Then a decision of Justice Rogers ‑ ‑ ‑

BELL J:   Mr Hutley, before we go through them all ‑ ‑ ‑

MR HUTLEY:   I am not going through them, your Honour.  I am just telling you what happened.

BELL J:   How do you deal with the point taken against you on this?  This is New South Wales legislation.  For 30 years it has been applied consistently by the courts of New South Wales.  It has been affirmed by the most senior court in New South Wales.  Why would this Court trouble with it?

MR HUTLEY:   Your Honour, no court has ever had drawn to its attention, so far as we can see, from first instance there has been an assumption that one did not look at the second reading speech.  In fact, no court – and as the Full Court said, the Full Court, the Court of Appeal, has never had it argued whether this is right or wrong.  So there was a construction – and that is why I was taking your Honour to Justice Rogers for a moment ‑ Justice Rogers, in effect, struggled with what the purpose was.  He was in a world before he could look at the second reading speeches. 

When one looks at the second reading speech in this case, in our respectful submission, it is quite clear – quite clear because it says so in terms – that the only people who are to get the benefit of this are true consumers and unincorporated farmers.  What has resulted as a result of this construction is that essentially commercial contracts by commercial people who are, we say, conducting businesses are able to take advantage of it.  But I accept, your Honour, that no one has raised this argument ever.

BELL J:   So we go behind 30 years of established authority based on the text because of an omission to look at extrinsic material?

MR HUTLEY:   With respect, an inability, and since then it has never been argued.  What we submit is that the Court of Appeal’s judgments have presumed on the fact there has never been a submission made such as we have advanced.  So it is one of those situations, as they say, that is why your Honours are here.  I see the time, your Honour.  Those are our submissions.

KIEFEL J:   Thank you.  Yes, Mr Niall.

MR NIALL:   If the Court pleases.  In our submission, this is not suitable case to determine the construction by this Court of section 73 and its relationship with section 51AF given the section is repealed.  Our learned friends refer to a long tail but that tail is significantly different to the issues.  Can I just explore, very briefly, how 73 was engaged in this case?  At application book 104, your Honours will see there set out section 73(1) and, although little attention was given at either first instance or in the appeal judgment to which limb of section 73(1) was engaged, it is tolerably clear that it was (1)(a). 

A corporation – and to pick one of the two cases – QCC - supplied goods, telephones, to a linked credit provider of the supplier and the consumer, that is, Austec, entered into a contract with the linked credit provider for the provision of credit in respect of the supply of the goods.  No services were engaged.  It was a case about misrepresentation in respect of goods.  Their Honours in the Full Court identified that the critical operation of 51AF identifies when there is a supply of services.

When one looks at paragraph 1(b), which really informs the analysis of 94, slightly different considerations apply because there could be a contract in relation to goods or services and those services themselves could be financial products in the case of…..and in the case of loans.  That is why at 94 their Honours say, beginning at 93 perhaps:

The terms of s 73(1)(a) and (b), and in particular the latter, indicate that a consumer’s contract with a linked credit provider does not involve a service of the contemplated kind -

making reference to “in respect of the supply” and that is why their Honours go on to say in this respect -

This understanding suggests that. . . s 73 are left untouched by s 51AF in relation to the provision of credit by a linked credit provider in respect of goods and services other than financial services.

KIEFEL J:   What about section 73(1)(a)?

MR NIALL:   Well, in relation to 73(1)(a) it is not concerned, in our respectful submission, with the supply of services.  What is buried within it necessarily is the provision of credit.

KIEFEL J:   In respect of the supply by way of hire.

MR NIALL:   That is so, but it is in relation to goods and the service, if there be a service, is buried in this concept of the provision of credit.  That means that 73 will never apply because there will always be the provision of credit.  That is the confounding problem that faces the applicant.  They read section 73 out of the Act entirely, even where the misrepresentation concerns the supply of goods.  They do that because they unpack the provision of credit as involving post‑regulation of financial product in the financial service. 

But even before the regulation changes, as your Honours may have seen, financial product included security and it would often be the case that a sale lease hire or hire purchase would be accompanied by a security in the form of a guarantee, particularly given the wide meaning of the word “security”.  So, in essence, their Honours reasoned – if your Honours turn to section 51AF:

This Part does not apply to the supply, or possibly supply, of services that are financial services.

That is – I beg your Honours’ pardon – it is at page 103, paragraph 30.  Their Honours make some textual points.  Firstly, it is not applied in relation – it does not apply in relation to services.  It is only concerned with the supply of services and only concerned with a limited class of services.

What their Honours then identify in paragraph 90 on page 120 is a series of provisions which identify services. For example – and their Honours give an example of section 73. So their Honours identify this is an Act which deals with services specifically and makes them an object of liability, or a norm of conduct, and in this Act it extracts – following the amendment – it extracts from the definition of “services” financial services, puts all those liabilities and norms of conduct in the ASIC Act and gives regulatory control to ASIC but leaves untouched goods and services. That is why, when one looks at 73, one asks does it apply to the provision of services?

There is a real risk, in our respectful submission, that one seeks to, as a matter of construction, chart the potential boundaries of section 73 without looking at the particular context.  Storm may present a context in which section 73 gives rise to a question about the supply of financial services and the buried supply.  That is not this case which was entirely about the provision of goods and misrepresentation concerning the price of goods. 

So for that reason both sides will be before the Full Court, if special leave were granted, arguing that there is a distinction.  Our friends will say it does not apply at all.  We say it would at least apply in respect of goods which would leave Storm out of the picture.  The other aspect of Storm – if I could briefly mention – is there has been no first instance decision.  There are a number of causes of action in relation to Storm.  This issue – section 73 – may never arise.

So for those reasons, it is not an appropriate vehicle to agitate the Storm matters and, in our respectful submission, it is not an appropriate vehicle to agitate the question of goods, particularly of a repealed provision where the construction does not arise and the quantum for one of the respondents is 40,000 and the quantum for the other respondents is 110,000.

If the Court pleases, that is what we wish to say about the section 73 point, subject of course that if it is always engaging with the provision of financial services and never applies that would defeat, rather than advance the purpose.  In terms of the 6(2) issue, in our submission it is a question of text rather than explanatory memorandum and of course we have set out what we wish to say about that. 

If your Honours are minded to grant special leave, in our submission it should be on condition that the applicants for special leave undertake to pay the costs of the respondent on the basis that they have, it appears, a larger interest than the cumulative 150,000 and the Storm litigation is a very, very large class action for which the respondent should not be in the vanguard.  So for those reasons special leave should be refused, or alternatively on a condition as to an undertaking as to costs.  May it please the Court.

KIEFEL J:   Yes, thank you, Mr Niall.  Anything in reply?

MR HUTLEY:   Just shortly, your Honour.  As to the first point, my learned friend – the argument proves too much.  The only reason 73(1)(a) is engaged – there is a financial service – is because a regulation has made the provision of credit by way of lease a financial service and it is a service.  We say it is not a question of goods.  The argument simply proves too much. 

What happened here, and what has led to – to take my learned friend’s points – the defeat of 73(1)(a) is because a regulation has gone beyond the structure contemplated by 51AF and brought about a situation.  He accepts that that could be the case with respect to (b) as it must be, having regard to the Full Court’s judgment.  The Full Court’s judgment did not, with respect, apply the logic of (b) to (a), which, in our respectful submission, was inexorable. 

As to the point of security, including a guarantee, my learned friend, with respect, is wrong.  We are talking about here things supplied to a consumer.  A guarantee is supplied by a consumer.  Securities there were clearly intended to be securities in the nature of shares and the like and not mere promises because otherwise “financial product” would have had a completely unreal definition and necessarily 73(1)(a) would have been engaged, in our respectful submission.  That is all I wish to say by way of reply.

KIEFEL J:   We do not consider that there are questions of general importance with respect to either issue which would warrant the grant of special leave.  Special leave is refused with costs. 

The Court adjourns to 10.15 am on Tuesday, 2 December in Canberra.

AT 12.11 PM THE MATTERS WERE CONCLUDED