Roo Roofing Pty Ltd v Commonwealth
[2017] VSC 31
•23 FEBRUARY 2017
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
MAJOR TORTS LIST
S CI 2015 03382
| ROO ROOFING PTY LTD and ANOR | Plaintiffs |
| v | |
| THE COMMONWEALTH OF AUSTRALIA | Defendant |
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JUDGE: | JOHN DIXON J |
WHERE HELD: | MELBOURNE |
DATE OF HEARING: | 31 JANUARY 2017 |
DATE OF JUDGMENT: | 23 FEBRUARY 2017 |
CASE MAY BE CITED AS: | Roo Roofing Pty Ltd v Commonwealth |
MEDIUM NEUTRAL CITATION: | [2017] VSC 31 |
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PRACTICE and PROCEDURE – Application for summary dismissal – Negligent misrepresentation and misleading and deceptive conduct alleged against Commonwealth – Whether conduct of the Commonwealth in promoting and administering Home Insulation Program carrying on a business or in trade or commerce – Whether no real prospect of success – Application for summary judgment dismissed.
PRACTICE and PROCEDURE – Application for summary dismissal – Unconscionable conduct alleged against Commonwealth – Whether plaintiffs at a special disability – Not possible to discern basis for alleged disability or how it was taken advantage of – Pleading deficient – Plaintiffs’ claim struck out with leave to re-plead.
GROUP PROCEEDINGS – Class action – Whether claims of potential group members who already entered into deed with regard to loss substantially the subject of this proceeding can be maintained – No evidence that any such potential plaintiff seeks to set deed aside – Whether ‘just and convenient’ – Group re-defined.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Delany QC with Ms C Van Proctor | ACA Lawyers |
| For the Defendant | Ms R M Doyle SC with Ms R L Enbom and Mr L T Brown | Australian Government Solicitors Office |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Test to be applied............................................................................................................................... 1
Material facts....................................................................................................................................... 1
Claims not challenged....................................................................................................................... 1
Impugned claims................................................................................................................................ 1
Negligent misrepresentation....................................................................................................... 1
Misleading or deceptive conduct............................................................................................... 1
Unconscionable conduct.............................................................................................................. 1
Issues.................................................................................................................................................... 1
Carrying on a business – s 2A.......................................................................................................... 1
Commonwealth’s submissions................................................................................................... 1
Plaintiffs’ submissions................................................................................................................. 1
Principles applying...................................................................................................................... 1
In trade or commerce......................................................................................................................... 1
Commonwealth submissions...................................................................................................... 1
Plaintiffs’ submissions................................................................................................................. 1
Principles applying...................................................................................................................... 1
Duty of care concerning statements about government policy................................................. 1
Commonwealth submissions...................................................................................................... 1
Plaintiffs’ submissions................................................................................................................. 1
Principles applying...................................................................................................................... 1
Analysis................................................................................................................................................ 1
Whether the unconscionable conduct claim can stand............................................................... 1
Commonwealth submissions...................................................................................................... 1
Plaintiffs’ submissions................................................................................................................. 1
Principles applying...................................................................................................................... 1
The definition of the class................................................................................................................ 1
Commonwealth submissions...................................................................................................... 1
Plaintiffs’ submissions................................................................................................................. 1
Principles applying...................................................................................................................... 1
Conclusion........................................................................................................................................... 1
HIS HONOUR:
Introduction
It is notorious that following the global financial crisis in 2008–9, the Commonwealth set up, and later shut down, a Home Insulation Program (HIP). A Royal Commission followed. Arising from the circumstances of the HIP, the plaintiffs commenced a group proceeding against the defendant pursuant to Part 4A of the Supreme Court Act1986. The first plaintiff is a roofing contractor and an installer of roof insulation. The second plaintiff manufactured insulation, including for use in retrofit installation in homes.
Pursuant to directions, the plaintiffs have served a draft further amended statement of claim. There are two applications before the court. The plaintiffs seek leave to file and serve the draft further amended statement of claim. Like the amended statement of claim filed 14 July 2016 that currently stands as the plaintiffs’ pleading, the draft further amended statement of claim pleads five distinct causes of action. The defendant opposes such leave being granted in respect of three causes of action challenged by its summons.
The defendant seeks relief in, broadly, three respects, directed at the existing pleading, the amended statement of claim. First, that there be summary judgment pursuant to s 63 of the Civil Procedure Act2010 on the claims in negligent misstatement, misleading and deceptive conduct under s 52 of the Trade Practices Act (TPA), and unconscionable conduct under s 51AA of that Act. Secondly, and alternatively, that those claims be struck out under r 23.02 of the Supreme Court (General Civil Procedure) Rules2015. Thirdly, an issue was raised that 92 group members from the group as defined by the pleading are parties to deeds of settlement with the defendant, that were entered into in consideration of participation in a compensation scheme set up in implementation of a recommendation of the Hanger Royal Commission (the releasors group).
It is convenient to first briefly state the principles to be applied on the applications.
Test to be applied
The applicable tests were not controversial. Section 63 of the Civil Procedure Act states that a court may give summary judgment in any civil proceeding if satisfied that a claim, or part of the claim, has no real prospect of success. A claim has no real prospect of success if its chances of success are no more than fanciful.[1] This test applied to the defendant’s application in respect of the amended statement of claim. What is required is a practical judgment as to whether the prospects of success of a claim in a proceeding are not fanciful, and the plaintiffs realistically might succeed on that claim in the proceeding. The defendant contended that the plaintiffs’ prospects of success on the nominated claims were fanciful and the defects in the pleading were not cured by the proposed amendments.
[1]Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd (2013) 42 VR 27, Mandie v Memart Nominees Pty Ltd [2016] VSCA 4.
In respect of the plaintiffs’ application for leave to amend that pleading, allegations that are not fanciful or futile, and of which it cannot be said that they have no real prospect of success, must be permitted to go to trial.[2] It must follow that a proposed pleading amendment raising a claim of that type should be permitted. If the existing pleading, unamended, raised a claim without real prospects of success, a defendant will be entitled to summary judgment on that claim. As the Court of Appeal observed in Mandie v Memart Nominees Pty Ltd, the principle: [3]
[F]acilitates the administration of justice, as it enables courts to prevent claims or defences being pleaded where they will inevitably fail and thus avoid the cost and inconvenience that would otherwise arise if those claims or defences were permitted to be made only to be the subject of summary judgment subsequently.
[2]Utility Services Corporation Ltd v SPI Electricity Pty Ltd (2012) 35 VR 628, 630 [8], 641 [48].
[3][2016] VSCA 4, [43].
In Lysaght Building Solutions Pty Ltd v Blanalko Pty Ltd, the Court of Appeal explained:[4]
(a)the test for summary judgment under s 63 of the Civil Procedure Act2010 is whether the respondent to the application for summary judgment has a ’real’ as opposed to a ’fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ’hopeless’ or ’bound to fail test’ essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the ’hopeless’ or ’bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
[4](2013) 42 VR 27, 40 [35] (Warren CJ and Nettle JA).
Rule 23.02 is well understood. It is invoked as a subsidiary submission by the defendant. The rule is concerned only with the sufficiency of the plaintiffs’ pleading as distinct from the validity of their claims. Its purpose is to secure compliance with the rules of pleading. Those rules are based on the fundamental requirement that pleadings apprise the opposite party of the nature of the case to be met with sufficient particulars to make the party’s case plain, so that each side may know the issues of fact to be investigated at the hearing and to promote efficient and cost effective litigation.
Byrne J in Opat Decorating Service (Vic) Pty Ltd v Jennings Group Ltd,[5] stated the principles that applied to the exercise of the power under r 23.02 prior to the enactment of the Civil Procedure Act. His Honour said:
I am permitted to look at the terms of the pleading only. This includes requests for particulars and the particulars provided by the plaintiff in response to those requests. The power is, of course, subject to my overriding discretion to refuse to strike out an offending part, a discretion which has as its starting point the requirement that pleadings and particulars be sufficient to enable the defendants to know what it is they have to meet and the trial judge to conduct a trial which is fair to all parties. Insofar as it is contended that a particular paragraph or paragraphs does not disclose a cause of action I am not determining a demurrer. A plaintiff will be stopped from putting a claim forward only where, assuming the facts pleaded have been established, the claim is so manifestly hopeless that a trial would be a futility. In case of doubt I should refuse to exercise the power.
[5]Unreported, Supreme Court of Victoria, Byrne J, 16 September 1996, BC9405101, 5-6.
These observations, broadly speaking, remain relevant,[6] save that the test is no longer one of manifest hopelessness, but is rather as I have already stated. The overriding discretion is now stated in s 64 of the Civil Procedure Act, as follows:
Despite anything to the contrary in this Part or any rules of court, a court may order that a civil proceeding proceed to trial if the court is satisfied that, despite there being no real prospect of success the civil proceeding should not be disposed of summarily because—
(a) it is not in the interests of justice to do so; or
(b)the dispute is of such a nature that only a full hearing on the merits is appropriate.
[6]Compare Murphy v Victoria [2014] VSC 363, [9].
Assuming the facts as pleaded are established at trial, the parties’ contentions are to be assessed in the following circumstances.
Material facts
The proposed amended pleading does not add new causes of action. It fleshes out the amended statement of claim, by identifying some additional material facts and identifying some further particulars including documents that are relied on.
From January 2009, the Department of Prime Minister and Cabinet (DPMC) developed the proposal for the HIP and it co-opted officers from other departments for this purpose. In the early stages of the HIP, it was directed by the DPMC, which imposed short time frames for it, despite recommendations for a five year rollout. The Department of Environment, Water, Heritage and the Arts (DEWHA) was responsible for developing the initial design of the HIP, in particular the model by which the program would be delivered. DEWHA was primarily responsible for its administration, and, from 4 February 2009, was responsible for publishing and providing information relating to the HIP to the insulation industry.
The Office of the Coordinator General (OCG) had oversight and responsibility to coordinate the delivery of the HIP. This responsibility included setting up reporting and monitoring systems for the rollout of the HIP, clearing blockages when they arose, coordinating legislative or program issues and providing support to DEWHA. OCG built a website and was involved in strategic communications concerning the HIP. OCG reported to the Prime Minister, initially weekly, but later less frequently. It also reported to the Strategic Priorities and Budget Committee of Cabinet, the members of which then comprised Prime Minister Rudd, Deputy Prime Minister Gillard, and Ministers Swan and Tanner. It also reported to Senator Arbib, the Parliamentary Secretary assisting the Prime Minister with service delivery. OCG devised the new HIP model that became the adopted delivery model.
Politically, while the Minister for the Environment had formal control of the HIP, the Prime Minister had ultimate direction and control of it in an overall government sense, together with the Deputy Prime Minister, the Minister for the Environment and/or Parliamentary Secretary Arbib.
Within the bureaucracy, there was a project control group comprised of representatives from the DPMC, OCG, DEWHA, and other Commonwealth departments. The project control group also included project management consultants and risk advisers. Its functions included providing oversight and strategic direction to the HIP and ensuring that high standards of governance were met. In particular, it was charged to provide oversight and strategic direction in managing risks. The project control group was the primary governance mechanism within the government for the HIP and made key decisions regarding it.
DEWHA agreed with Medicare Australia that the latter would be responsible for registering roofing insulation installers and processing payments to installers involved in the delivery of the HIP.
In administering the HIP and in publishing or providing information in relation to it to the insulation industry, the politicians, the bureaucrats and consultants acted within their authority and in the course of their employment for and on behalf of the Commonwealth such that their knowledge was the knowledge of the Commonwealth.
The Commonwealth developed the HIP as part of its ‘nation building economic stimulus plan’ to encourage businesses to create jobs in the insulation industry and thereby to stimulate the economy. From 3 February 2009, by the HIP the Commonwealth engaged in carrying on a business of retrofitting home insulation to homes constructed prior to 2003. Prior to that date, the Commonwealth engaged in planning to carry on that business. On that date, by a joint announcement issued by the then Prime Minister, Deputy Prime Minister and Treasurer and Minister for the Environment, the HIP business was launched. Following that launch the Commonwealth embarked on a course of conduct anticipated to occur over a two and a half year period that involved the Commonwealth providing funds of $1,600 per home to fund the installation of ceiling insulation in a minimum of 2.2 million eligible Australian homes.
It was necessary for an installer to be registered in order to participate in the HIP. From 3 February 2009, the Commonwealth implemented a system for registration of installers and established payment systems and protocols. It specified the required standard of insulation to meet the program criteria. From that date, the business engaged in by the Commonwealth was a demand driven business and a commercial enterprise delivered by the Commonwealth.
Some days later a member of the insulation industry informed the Commonwealth that the existing Australian insulation industry could not supply sufficient insulation for a two and a half year program due to lack of manufacturing capacity. An industry consultation meeting followed at which the Commonwealth ‘gave an undertaking’ to representatives of the insulation industry (manufacturers, suppliers, and installers) that it would fund the installation of ceiling insulation until the earlier of 31 December 2011 or when the funds that the Commonwealth had allocated to the HIP had run out (the expiration date). From time to time after 18 February 2009, the Commonwealth repeated that commitment, particularly by the issue of HIP guidelines and ‘installer advices’.
On 20 March 2009, the Commonwealth hosted a national industry consultation meeting at Old Parliament House attended by representatives of the insulation industry at which Minister Garrett stated words to the effect that the HIP ‘will run for the full term or until the money runs out. You can take my word for that’. This commitment was repeated from time to time by Minister Garrett and Parliamentary Secretary Arbib, by media release and at meetings.
Following a meeting on 31 March 2009, the Commonwealth adopted a new business model for the delivery of the HIP. It abandoned a model that involved large and experienced firms in the insulation industry being engaged to effect installations whether by themselves or by subcontract and substituted a business model of direct delivery between the installer and a household. This was a demand driven direct engagement model that permitted householders to choose their own installer. This model involved DEWHA having responsibility for determining installer eligibility, installer competencies, and taking over the information aspects, compliance and audit functions of the HIP. Workforce training became the responsibility of employers and installer registration and payment was delivered through Medicare.
Through the HIP, the Commonwealth entered into contracts with 7,541 individual installers and regularly communicated with the insulation industry through ‘installer advice’ emails and ministerial media press releases. Its installer provider register opened on 9 June 2009 and was publicly launched on 29 June 2009.
From 1 July 2009, in the second phase of the HIP, the Commonwealth entered into direct contracts with eligible registered installers to retrofit insulation to homes constructed prior to 2003 and be paid by a direct payment from the Commonwealth. An eligible business was entitled to $1,600 per home installation. That payment was reduced to $1,200 per installation from 2 November 2009.
It was anticipated that up to 2.7 to 2.9 million homes would be retrofitted with insulation over a 2.5 year period.
On a repetitive basis, the Commonwealth paid installers through until 19 February 2010 as each individual home insulation was completed. The Commonwealth arranged for and funded the insulation of HIP eligible houses in the same way as a private citizen or trader would carry on such a business. It also maintained the website to promote the program and for interaction with it by installers and householders. The website was used for communications with installers.
On 19 February 2010, the Commonwealth announced the early termination of the HIP to take effect that day. The HIP was to be replaced with a household renewable energy bonus scheme, but the Commonwealth did not proceed with that scheme.
Claims not challenged
The primary claim is that by this conduct the Commonwealth offered to enter into contracts with installers on particular terms, which contracts were of a fixed term until the expiration date (the earlier of 31 December 2011 or the day upon which the funds that the Commonwealth had allocated to the HIP were exhausted). Installers had to meet certain conditions in order to qualify to accept the Commonwealth’s offer. The Commonwealth intended to be contractually bound to the terms of its offer with each of the installers who accepted the offer. The first plaintiff was an installer who performed the contract by installing insulation in homes in Australia, while the Commonwealth performed the contract by paying the first plaintiff the agreed sum for each home in which insulation was installed.
In phase one, 73,005 rebate payments to householders were made at a cost of $103.1 million. In phase two, 1.16 million payments were made to registered installers at a cost of $1.45 billion.
The first plaintiff alleges that the Commonwealth repudiated the contract by evincing an intention no longer to be bound by it, which repudiation was accepted. The first plaintiff alleges that it suffered loss and damage by reason of that repudiation.
The pleading of this cause of action was not challenged.
The plaintiffs further alleged that the Commonwealth had a duty to take reasonable care in the administration and delivery of the HIP, because in implementing the HIP, the Commonwealth was interfering with, and intending to interfere with, the existing market for the goods and services that were supplied by the businesses owned by the plaintiffs and group members or financed by the plaintiffs and group members, alternatively financed by third parties on the personal guarantees or other security provided by the plaintiffs and group members. The Commonwealth knew or ought to have known that the plaintiffs and group members would be induced to invest in and expand their businesses when they made the announcements and provided the information contained in media releases, program guidelines and other statements as set out above.
Prior to the scheme, around 200 to 250 businesses supported by 33 manufacturing businesses carried out between 65,000 and 70,000 retrofitted insulations annually. The objective of the HIP was to increase the rate of insulation installation 15 fold. The HIP, if successful, would have effectively exhausted the supply of houses available for retrofit insulation and thereby decimated, if not destroyed, the pre-existing insulation business. The Commonwealth intended to induce the plaintiffs and group members to invest in and expand their businesses and could not have achieved the objectives of the HIP had they not done so. A duty of care, owed by the Commonwealth to the second plaintiff and manufacturers and suppliers, was also pleaded in a like manner.
This cause of action was also not challenged on this application.
Before turning to the three particular causes of action that are challenged, the plaintiffs’ primary contention was that each of their claims was not fanciful and had real prospects of success. The plaintiffs submitted the allegations supporting the causes of action that were not challenged were fact intensive and the determinations of the court made following a trial will necessarily be much better informed by a thorough analysis of evidence. There was substantial factual overlap between the claims that are not challenged and those that are. The full circumstances of the HIP cannot properly be understood and appreciated, whether in relation to the impugned claims or all claims, simply from a recitation of the material facts pleaded.
Further, if necessary, the plaintiffs submitted that determination of the issues in dispute on the basis of findings of fact made after a trial would be a more just way to determine whether or not the impugned claims are valid. Were the court persuaded that one or more of the impugned claims had no real prospect of success it would nevertheless be in the interests of justice that such claims not be shut out at this stage.
The plaintiffs submitted that only a full hearing on the merits could deliver a just determination of the dispute and there was a very substantial overlap between the factual matrix relied upon for the causes of action that are not subject to attack and those that are. Accordingly, the court should conclude that a trial on all causes of action would not substantially extend or materially change the ambit of the trial if persuaded, despite the plaintiffs’ submissions, that the prospects of success of those particular causes of action were fanciful.
Impugned claims
Negligent misrepresentation
The first impugned claim is the plaintiffs’ negligent misrepresentation claim. The plaintiffs allege that the Commonwealth owed a duty to them and group members to take reasonable care in making representations or, alternatively, a duty of care to correct representations once it became aware that they were false or that circumstances existed to question their accuracy. In essence, the Commonwealth submitted that there was no arguable duty to take reasonable care when making the statements and representations that are alleged, and, secondly, as a matter of law, there could be no reasonable reliance on such statements.
The misrepresentations upon which this claim rests consisted of ministerial announcements, statements made at industry consultation meetings, statements made and repeated by public servants in the administration of the program and written representations included in fact sheets and program guidelines, as already described.
The plaintiffs also alleged that the conduct constituted by the making of the various representations carried a further express or implied representation that the Commonwealth would not reconsider its decision to operate the HIP until the expiration date. The Commonwealth made these representations to encourage the plaintiffs and group members to invest, or to continue investments, in the insulation industry to ensure sufficient insulation product was manufactured and supplied to sufficient installers to achieve its objectives.
Misleading or deceptive conduct
The claim that the Commonwealth engaged in misleading or deceptive conduct in carrying on a business in trade or commerce in breach of s 52 of the TPA was based on the same conduct.
The Commonwealth contended that it was fanciful to claim that it was carrying on a business and that the misleading and deceptive conduct alleged was part of the activity of carrying on a business. A related question was also raised as to whether the conduct said to be misleading or deceptive was conduct in trade or commerce.
Unconscionable conduct
The remaining impugned claim was the plaintiffs’ allegation that the Commonwealth in the conduct of the business in trade or commerce engaged in conduct that was unconscionable within the meaning of the unwritten law, from time to time, being the prohibition established by s 51AA of the TPA. This claim was advanced by a subgroup, being pre-existing insulation installers, in the alternative to the allegation that the Commonwealth intended to be contractually bound to the terms of its offer. It is a claim for damages, alternatively for compensation pursuant to s 87 of the TPA.
The plaintiffs alleged that had the Commonwealth implemented the HIP for its full term, the HIP would have extinguished most of the market for the goods and services supplied by the plaintiffs and the pre-existing installers, manufacturers and suppliers. Extinguishment would have flowed from the Commonwealth’s intention by the operation of the scheme to insulate nearly all of the 2.7 million homes that had no or little ceiling insulation as at 3 February 2009. The Commonwealth knew or ought to have known that the scheme would have this effect on the market. The plaintiffs were under a special disability as there was an inequality of bargaining power through the control that the Commonwealth would exert over the retrofitting sector of the insulation industry. If at no material time did the Commonwealth intend that it would be contractually bound until the expiration date, the plaintiffs and subgroup members were at a special disadvantage that was unconscionably exploited by the Commonwealth.
The plaintiffs alleged that they and the subgroup members were under a special disability in deciding whether to invest in the expansion of their businesses, whether that be as installers, manufacturers or suppliers. Essentially, there was no choice. The plaintiffs alleged that it was unconscionable for the Commonwealth to exercise its legal right to terminate the HIP before the expiration date or alternatively, to make representations to encourage the subgroup members to invest in the expansion of their businesses to manufacture, supply and install insulation pursuant to the terms of the HIP.
The plaintiffs and the subgroup members claim to have suffered loss when the Commonwealth unconscionably asserted legal rights pursuant to the contract, alleging that this conduct was conduct in trade or commerce and in the course of carrying on the business. The allegation that the conduct was in the course of carrying on a business rested on the material facts referred to above. The allegation that the conduct was in trade or commerce is a reference to the trade or commerce of the plaintiffs and the subgroup of pre-existing owners, installers, manufacturers and suppliers.
Issues
To resolve the applications, the issues to be considered are:
(a) Does the allegation – that the Commonwealth was by conduct identified in the administration of the HIP carrying on a business – have a real prospect of success?
(b) Does the allegation – that the identified conduct of the Commonwealth in the administration of the HIP was conduct engaged in in trade or commerce – have a real prospect of success?
(c) Have the plaintiffs pleaded material facts that could identify a special disability for the purposes of the claim of unconscionable conduct?
(d) Does a duty of care to avoid economic loss arise in respect of representations or statements made about present or future government policy? What representations were conveyed by the pleaded statements and conduct? Could it ever be reasonable for a plaintiff to rely on such statements and conduct?
(e) Can the pleaded claims that the 92 entities that entered deeds of release following payment of compensation in respect of the HIP are group members be maintained?
Carrying on a business – s 2A
Section 2A(1) of the Trade Practices Act provided that:
Subject to [certain sections not presently relevant], this Act binds the Crown in right of the Commonwealth insofar as the Crown in right of the Commonwealth carries on a business, either directly or by an authority of the Commonwealth.
Section 2C identified activities that are not business activities but it was not contended that this section has any present relevance. The pleading alleged that the conduct described above constituted the Commonwealth carrying on a business in the relevant sense.
Commonwealth’s submissions
The Commonwealth made two preliminary observations about the HIP. First, it was an administrative scheme, implemented in reliance on executive powers without recourse to any statutory machinery.[7] Those powers were exercised in the national interest with funds appropriated as part of a response to adverse economic conditions.[8] Secondly, as the pleading alleged, by the HIP the Commonwealth pursued the dual policy goals of creating a fiscal stimulus to combat the effects of a global recession and reducing energy consumption. It was part of the Commonwealth’s Nation Building Economic Stimulus Plan and designed to set Australia up for a low-carbon future delivering on a commitment in the Carbon Pollution Reduction Scheme White Paper.
[7]Pape v Federal Commissioner of Taxation (2009) 238 CLR 1, 63 [133], 87 [228].
[8]Compare the general description of the Global Financial Crisis by the High Court in Pape v Federal Commissioner of Taxation (2009) 238 CLR 1, 26-30 [19]-[33], 88-9 [229]-[233].
It submitted that the claims that the Commonwealth was carrying on a business within the meaning of s 2A of the Act, and that the representations were made in the course of carrying on that business, were fanciful. The purpose of s 2A, it submitted, was evident from the Second Reading Speech of the Competition Policy Reform Bill 1995,[9] and was to apply the relevant provisions of the Act to publically owned businesses. The extension of the reach of the Act to government was limited to circumstances in which the government was in competition with the private sector to earn revenue or profits. It was not to make the Act generally applicable to the Crown.
[9]Hansard, 30 June 1995, 2796-2797.
Thus, the activities in question must be undertaken in a commercial enterprise or as a going concern and must be sufficiently similar to trade and commerce such that a private citizen or trader might undertake. Pursuit of profit, although ordinarily a feature of carrying on a business, is not an essential characteristic and purely altruistic or charitable activities may be conduct in carrying on a business. The expression generally connotes activity on a continuous and repetitive basis. Where the conduct is divorced from carrying on a business, the operation of the Act will not be attracted. Activities that are governmental or regulatory cannot constitute carrying on a business.[10]
[10]Compare s 2D, Trade Practices Act1975.
The Commonwealth submitted that when an assessment is made of the presumed facts to precisely identify the business being carried on, it is plain that the Commonwealth’s establishment, administration and funding of the HIP only involved governmental functions and there was no element of trade or commerce such as might have been undertaken by a private citizen or trader. Because s 2A of the Act cannot be engaged, the s 52 claim is fanciful.
Further, the assumed facts cannot support the assertion that the Commonwealth was directly engaged, by the HIP, in the business of retrofitting home insulation. The Commonwealth was not selling or buying insulation installation services. It was not competing with installers and it was not earning revenue or profit. Such services were provided by the installer to the householder, who was free to choose the installer. Although the Commonwealth initially paid a rebate, and later paid installers directly, the system of payments for the benefit of, or directly to, installers registered to participate in the scheme did not convert the Commonwealth’s conduct from administration of policy in pursuit of good governance into something possessing a commercial character. The use of labels such as ‘commercial enterprise’ and ‘demand driven’ could not achieve the required characterisation. The fact that more money was paid out as installations were completed does not convert government policy administration into carrying on a business. Equally, the stimulation of commercial activity by others cannot bring about such a conversion. There are many examples where government activity appears to have that effect but is not conduct in carrying on a business, including in relation to pharmaceutical benefits, aged care, and child care.
The Commonwealth’s role was confined to funding economic activity, a role that cannot be converted into the notion that the Commonwealth was running a business, as the example of a pharmaceutical benefits scheme, or a child care rebate demonstrates. Such activity represents implementation of policy for the good order and good governance of the country.
The correlation between the conduct of the government and that of a private trader was, the Commonwealth submitted, fanciful, being an unexplained assertion that failed analysis. The plaintiffs’ case cannot demonstrate how a private trader would arrange for and fund retrofitting of insulation in a manner that bears any resemblance to the HIP. While the Commonwealth’s conduct would and did affect the market for retrofitted insulation, the HIP was obviously an administrative program implementing government policy in the community interest. There is a distinction between implementation of government policy to provide a service and sub-contracting out to a third party the provision of the service. The provider would be engaging in a commercial enterprise, carrying on a business, but the government, in contracting for the delivery of the service, would not.
The Commonwealth further submitted that, were the court to conclude otherwise, the Act was not engaged in any event because the impugned conduct must itself be engaged in in the course of carrying on the business. That conclusion could not be drawn in respect of announcements or representations about the intended duration of the HIP that lack the necessary commercial character. Assuming that the Commonwealth was carrying on a business, such representations were only preparatory to carrying on the business and were divorced from running it.
The final limb of this argument drew on the related submission that the Commonwealth’s conduct was not in trade or commerce. That phrase confined the operation of the Act to conduct that was an aspect or element of activities or transactions, which of their nature, bear a trading or commercial character. At the highest, the plaintiffs asserted that the conduct ‘concerned’ the trade or commerce of the plaintiffs and group members. The allegation that the representations were about the trade or commerce of the plaintiffs and group members cannot convey the necessary character in circumstances where there is no trading or commercial relationship between the representor and the person to whom or about whom the representation is made.
Further, statements concerning matters of government policy are incapable of bearing that characterisation. Statements by politicians as to their intentions on matters of policy are not made in a commercial or trading relationship or in trade or commerce. The Commonwealth’s provision of the HIP was a service to the community in response to the economic policy dictates of the global financial crisis and the environmental policy dictates of reducing carbon pollution.
A key allegation drawn out by the plaintiffs was that the Commonwealth represented that it would not reconsider its decision to operate the HIP until the expiration date. None of the instances of representations alleged are capable of this characterisation, because the Commonwealth’s executive power is bound to be exercised in the national interest, not in the interest of one segment of the population. The statements cannot be any more than a collection of ideas, plans, or policies that are at that time regarded as being the best result in the national interest. That is all the speaker is suggesting by the statement.
The factual basis for the allegation that the Commonwealth was carrying on a business is complete on consideration of the pleadings. Interlocutory processes and evidence at trial will not shed more light on the questions of whether the Commonwealth was carrying on a business, or whether the HIP was a policy response to the GFC. That is because the plaintiffs’ pleadings draw heavily on material from the public domain, particularly through the processes of the Royal Commission. In an evidentiary sense, a great deal of documentary information is already identified and, probably, beyond contest.
The Commonwealth relied on a number of authorities, both single judge and appellate, in support of these propositions including JS McMillan Pty Ltd v Commonwealth,[11] Corrections Corporation of Australia Pty Ltd v Commonwealth,[12] Saitta Pty Ltd v Commonwealth,[13] and Sirway Asia Pacific Pty Ltd v Commonwealth.[14]
[11](1997) 77 FCR 337.
[12](2000) 104 FCR 448.
[13](2001) 162 FLR 35.
[14][2002] FCA 1152.
Plaintiffs’ submissions
The plaintiffs submitted that the proposed pleading recognised the limitations in the current pleading about the conduct of the Commonwealth in carrying on a business. The Commonwealth cannot simply dismiss preparatory conduct as not being part of carrying on a business. Extensive allegations are now made that are capable of establishing that contention.
Acting in the national interest did not isolate the Commonwealth’s conduct from being capable of being found to be in trade or commerce or require that the Commonwealth was not involved in carrying on a business. The Commonwealth’s conduct cannot be narrowly characterised as the payment of a rebate. The word ‘business’ has a wide and flexible meaning. The question is a factual one that must be determined on the entirety of the evidence at trial. Statements of material facts do not expose the full ambit of the business activity involved in the HIP.
The HIP was novel and, in respect of the insulation industry, pervasive in its impact. The Commonwealth was not acting under statute, or exercising any statutory function when it engaged in the conduct identified by the plaintiffs in the pleading. The conduct may be capable of being characterised in more than one way and the proper characterisation of it must be based on all of the known facts and circumstances as they emerge from a full examination at a trial.
The plaintiffs ought to be afforded the opportunity of making good their allegations at a trial having regard to the possibility of developing more fully their basis through pleadings, interlocutory processes, and evidence. It is well established that a court ought be slow to deny a party the opportunity of a trial and should do so only in the clearest of cases.
Principles applying
Although I was referred to many authorities on the construction of s 2A of the TPA, the authorities have been surveyed by other courts and it is not necessary to repeat the exercise.
In Village Building Company Ltd v Canberra International Airport Pty Ltd (No 2),[15] Finn J drew from the authorities a number of established principles concerning the operation of s 2A of the TPA. More recently, the Court of Appeal in Murphy v State of Victoria & Anor,[16] considered the analogous question of the application of the Australian Consumer Law (ACL) to the Crown in right of the State of Victoria and in that context considered the judgment in Village Building Company. In Murphy, the primary issue was whether it was ’just and convenient‘ for the issue of whether conduct was engaged in by the State of Victoria as part of the carrying on of a business by it, and whether representations made by the State were made in trade or commerce, to be determined as a preliminary question for separate trial under r 47.04.
[15](2004) 134 FCR 422 (‘Village Building Company’).
[16](2014) 45 VR 119 (‘Murphy’).
In Murphy, there were disputed questions of fact. Murphy alleged, and the State denied, that it carried on a business that included designing, funding, developing and procuring the construction and operation of a motorway as a tollway in public/private partnership with a private developer. Murphy alleged that the nature and extent of that business was such as to engage the operation of s 18 the ACL and that representations were made and continued to be made in the course of carrying on the business in trade and commerce. The Court of Appeal concluded that the range and complexity of the disputed facts rendered it inappropriate to proceed on the basis of only those facts that were admitted on the pleadings. Murphy relied on the documents referred to in the particulars given under each of the disputed allegations of fact in his pleading, but he did not limit his case to those documents. Rather, he put them forward as the best particulars he was able to provide in the absence of discovery; and thus, in effect, as instances of a broader range of activities that he argued it would be found constituted the carrying on of the business as alleged. It was for that reason that he sought discovery concerning the questions to be tried and contended that there should be no trial of the questions until and unless discovery had been given.
The Court stated: [17]
But to foreclose a plaintiff’s opportunity of obtaining discovery from the State in order to prove a case which is ex facie implied by so many of the documents as are presently available to him would be to subvert the justice process. It would mean that, whenever the State is party to litigation of this kind, it could effectively eliminate the scrutiny of executive action which the curial process is calculated to deliver by the simple device of claiming public interest immunity and then pleading that the time required to determine the validity of that claim would add unacceptably to the costs and delays of the litigation.
…
Surely the most cost effective and efficient manner of dealing with the matter was to resolve the claim for immunity, order discovery with respect to the three questions ordered to be tried under r 47.04 and then try those questions on the basis of evidence in the usual way, just as was done in Village [Building Company].
[17]Ibid, 129-130 [37]-[38].
In Village Building Company, Finn J dealt with like preliminary questions by a trial on the basis of evidence rather than by reference to admitted facts in the pleadings. The vice identified by the Court of Appeal in Murphy was that Murphy had his case determined against him on a final basis upon a consideration of only part of his pleaded case, in circumstances where the documents which he sought to substantiate the remainder of it were denied to him on the basis of an untested assertion of public interest immunity.
That, of course, is not this case, but the decision remains, if not binding, highly persuasive, because the court concluded that:[18]
Given, as we will explain, that the question whether the impugned representations were made by the respondents in the course of carrying on business (and in trade and commerce within the meaning of the Australian Consumer Law) is a question of fact and degree which turns on consideration of all of the relevant facts and circumstances, we have no doubt that the result of what has occurred has been to deny the appellant a fair hearing.
[18]Ibid, 130 [42].
As the issue was to be remitted back for rehearing, the court did not express a view whether the conclusion that the State was not carrying on a business was correct. However, the court did not disagree with the trial judge’s identification, after a thorough review of the authorities, of the following propositions as relevant and helpful.[19]
[19]Ibid, 131-132 [46]-[47] (citations omitted).
(a)For activities to constitute ‘carrying on a business’, the activities must be undertaken in a commercial enterprise or as a going concern. The activities must constitute trade, or commercial transactions or engagements. A business activity is an activity which takes place in a business context and which, of itself, bears a business character.
(b)The expression ‘carry on a business’ signifies a course of conduct involving the performance of a succession of acts with system and regularity, not the effecting of a solitary transaction. The less commercial the character and objectives of an organisation, the greater the degree of system and regularity required to establish that it carries on a business.
(c)On the other hand, mere repetitiveness is insufficient. It does not necessarily follow that one who engages in transactions of the same kind systematically or regularly is carrying on a business in those transactions (eg regular deposits into a bank account). Absence of a system and regularity might deny that a business is being carried on but their presence does not necessarily establish that it is.
(d)There is a distinction between those functions of a government which are purely governmental or regulatory and those functions which entail the carrying on of business. To carry on some part of ‘the business of government’ is something different from carrying on a business in the relevant sense.
(e)The carrying out of a function of government in the interests of the community, such as the performance of a statutory function (including one in respect of which fees may be charged), is not the carrying on of a business. That the purpose of the activities is the provision of governmental services will tend against a conclusion that they amount to the carrying on of a business.
(f)There must be present some element of commerce or trade such as a private citizen or trader might undertake.
The Court added several further observations. Firstly,[20]
[T]he word “business” is an “etymological chameleon” which takes its meaning from the context in which it appears and from the purpose of the statute in which it is found. Thus, as the majority observed in NT Power Generation Pty Ltd v Power and Water Authority, “business” in the context of s 2A of the Trade Practices Act 1974 was a wide and general word which was further widened by the inclusion in the definition of “business” in s 4(1) of “a business not carried on for profit”. Ultimately, its meaning was informed by the purpose of s 2A of that Act which was to ensure that the Commonwealth Government should, in its commercial activities, be subject to the same regime as corporations.
[20]Ibid, 132 [47].
Secondly, when the trial judge identified three important limitations inherent in s 18 of the ACL, being:[21]
[21]Ibid, 133 [49] (citations omitted).
1.First, the focus must be on the impugned conduct: the impugned conduct must be engaged in in the course of carrying on the business.
2.Secondly, and consequently, it is not sufficient that the impugned conduct be connected in some way with a business to be conducted by the State at some time in the future; and activities preparatory to the establishment of a business do not constitute the commencement of or the carrying on of a business.
3.Thirdly, the activity in the course of which the impugned conduct occurs must properly be characterized as carrying on a business;
the Court of Appeal did not disagree, but added that considerable care should be taken when drawing the line between what the judge described as activities preparatory to the establishment of a business and acts which may in fact be done early on in the carrying on of the business.[22] That was because the judge so reasoned on the basis of observations made by the Full Court in Pioneer Concrete Services Ltd v Galli[23] where the expression ‘carrying on a business’ took its meaning from a particular context. Different considerations applied in Murphy and,[24]
[I]n this context, where the object of s 18 (insofar as it applies to the State) is to prevent the State engaging in misleading or deceptive conduct in the course of carrying on a business, it may be assumed that s 18 is intended to apply from the earliest point of commencement of carrying on business. So, as counsel for the appellant submitted, just as a newly floated company which begins to lay out subscription moneys in the acquisition of assets with which to conduct its business may be conceived to have commenced carrying on a business of acquiring and operating those assets, so too might the State be regarded as beginning to carry on a business of constructing and operating an asset as soon as it starts to take steps to acquire the asset for the purposes of that operation.
[22]Ibid, 133 [50].
[23][1985] VR 675.
[24](2014) 45 VR 119, 135 [53].
Thirdly, an impossibly narrow view of when the State might commence to carry on that business should be avoided. Depending on the facts, which are yet to be determined at trial, it is conceivable that the State might have commenced, or alternatively might yet commence, to carry on a business of designing, constructing and operating a motorway as a tollway for reward at some point before the tollway begins to operate.[25]
[25]Ibid, 136 [56].
Fourthly, although the activities in question must present some element of commerce or trade such as a private citizen or trader might undertake; and that, as is established by authority, there is a distinction between those functions of a government which are purely governmental or regulatory and those which may entail the carrying on of business, it is important to keep in mind that, in some cases, the two may co-exist.[26] The Court of Appeal added:[27]
So, for example, while to plan and provide for the regulatory framework for the construction of State infrastructure might be thought to be a purely governmental or regulatory activity, whereas in contrast, as NT Power shows, to carry on of an operation for the generation and sale of electricity is regarded as essentially if not exclusively a commercial undertaking, between those extremities conceivably lies a range of possibilities of mixed governmental and business activities which, depending on all the facts and circumstances of the particular case, may yield a conclusion that the State is carrying on a business in conjunction with or at the same time as discharging its purely governmental functions.
[26]Ibid, 138 [58].
[27]Ibid.
Fifthly, the judge concluded that the State’s attempt to inform and engage the community was devoid of any business or trading character. The like submission was advanced by the Commonwealth in this case. The Court in Murphy observed:[28]
Depending on the facts which are yet to be ascertained, that may well be so. In case it matters, however, we should say that, in our view, there is nothing of itself about informing and engaging the community concerning the supposed benefits of an anticipated infrastructure project which renders the exercise an essentially governmental activity. It depends on all the facts. Common experience is enough to know that both governments and private organisations publish large amounts of propaganda in order to attune the hearts and minds of the public to the supposed benefits of projects which they propose to construct. It depends on the nature of the project whether the propaganda is entirely governmental or imbued with a commercial flavour.
[28]Ibid, 138 [59].
Finally, the Court added that whether substantial infrastructure planning and development is not an activity which a private citizen or trader might undertake depended on the nature and purpose of the planning and development including, among other considerations, whether what is proposed is a commercial operation, and the stage and level at which the planning and development are undertaken. It will be a question to be determined on the basis of all of the facts and circumstances of the case whether that is sufficient to take the matter out of the realm of purely governmental or regulatory activity into the ambit of carrying on business.[29]
[29]Ibid, 139 [61]-[63].
In view of his decision on the first preliminary question, the trial judge did not necessarily need to address the second question of whether the State in making representations had engaged in conduct in trade or commerce. However, the judge did address it and concluded that the impugned conduct was not conduct in trade or commerce. The notice of appeal in large part addressed the impact of the procedure adopted by the judge and as the court found substance in those complaints and remitted the matter, it did not deal with the grounds of appeal related to the issue of whether it was in trade or commerce under the TPA.
In Salvation Army (New South Wales) Property Trust v Commonwealth of Australia,[30] the plaintiff alleged that the Commonwealth was carrying on a business by providing immigration processing services to Nauru and Papua New Guinea through a contract with the plaintiff. Jagot J noted that particular reference was made to four decisions[31] that stated principles relevant to the operation of s 2A that were not disputed by the parties. His Honour concluded the pleading left open the prospect that the Commonwealth was acting as the head contractor, as well as operator and/or manager of the regional processing centres in circumstances where there was no governmental obligation for it to do so. The Commonwealth had contended that it was a pure or inherently governmental function for services to be provided by one nation state to another. His Honour concluded:[32]
Ultimately however, the true character of the activities of the Commonwealth, it seems to me, is one that can be determined only by reference to all of the facts and not on an application to strike out part of a pleading. In summary, I accept the submission for the Salvation Army “that the Commonwealth has not discharged the high onus upon it on this application and, at the very least, the application is premature”. The reason for this, as the Salvation Army has said, is that the question whether or not the Commonwealth is carrying on business is “a factual question to be determined on the entirety of the evidence available at trial”.
[30][2015] FCA 674.
[31]JS McMillan Pty Ltd v Commonwealth (1997) 77 FCR 337; Murphy v Victoria (2014) 45 VR 119; Sirway Asia Pacific Pty Ltd v Commonwealth [2002] FCA 1152; and Corrections Corporation of Australia Pty Ltd v Commonwealth (2000) 104 FCR 448.
[32][2015] FCA 674, [28].
In trade or commerce
Commonwealth submissions
The Commonwealth submitted that s 52 of the TPA is confined in its application to conduct which is itself an aspect or element of activities or transactions that, of their nature, bear a trading commercial character.[33] The Commonwealth was not engaged in trade or commerce. The matters alleged by the plaintiffs, who rely on the same allegations of fact that support the allegation that the Commonwealth was carrying on a business, are insufficient to engage the TPA. The plaintiffs claimed that the representations were made about the trade or commerce of group members, but that assertion failed to ascribe a trading or commercial character to the representations on which the plaintiffs rely, because there was no trading or commercial relationship between the representor and representee.
[33]Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594, 603–604 (‘Concrete Constructions’).
Although the pleading mentions the two criteria that need to be matched, all that is particularised is that the conduct ‘concerned’ the trade or commerce of insulation installers without alleging that such conduct was ‘in’ trade or commerce. It is not alleged how the conduct alleged was in the trade and commerce of the installers or why that conclusion might be drawn. The issue cannot be resolved by amendment.
Further, statements made concerning matters of government policy are incapable of bearing the character of being made in trade or commerce. In this case, statements about future policy, that at no time in the future will the present arrangement change, could not be given effect as a representation that the Commonwealth would not reconsider its decision to operate the HIP until the expiration date.
Plaintiffs’ submissions
The plaintiffs submitted that conduct may be characterised in more than one way. Conduct that appears to be a statement of political intention may, when all of the relevant circumstances have been identified and analysed, also be characterised as conduct in trade or commerce. It is a question for the trial judge, to be determined on the evidence at trial, whether the conduct of the Commonwealth takes the matter out of the realm of purely governmental or regulatory activity.
Principles applying
The phrase ‘in trade or commerce’ was authoritatively considered by the High Court in Concrete Constructions.[34] The High Court’s reasons have been examined in many cases but it is unnecessary in the present circumstances to review the authorities. The Commonwealth referred to three principles identified by the trial judge in Murphy, that were set out by the Court of Appeal in its reasons without apparent criticism.[35] Those principles, which are presently apposite, are:
(a)Even though the terms ‘trade’ and ‘commerce’ are not terms of art ‘but are expressions of fact and terms of common knowledge of the widest import’, the terms are prefaced by the preposition ‘in’, which limits the operation of the provision.
(b)In any particular case there may be a temporal issue, as the impugned conduct must coincide with the conduct of trade or commerce.
(c)Although the categories are not necessarily mutually exclusive, ‘political’ conduct may often lack the necessary commercial character to constitute conduct in trade or commerce.
[34](1990) 169 CLR 594, 603–604.
[35](2014) 45 VR 119, 140 [66].
In Village Building Company Limited v Canberra International Airport Pty Limited (No 2),[36] Finn J considered whether representations in relation to noise forecasts on projected flight paths into Canberra airport could arguably have been made in trade or commerce. His Honour concluded that s 52 had no role to play. The circumstances included that the representations in question were made in the context of a planning application having been made to re-zone the relevant area for development. The first respondent’s opposition was consistent with its own business interests and took the form of community consultation and representations for the purpose of informing and influencing public, political and governmental opinion. By operation of statute, the second respondent (Airservices Australia, a Commonwealth government business enterprise) had a necessary and ongoing interest in aircraft noise and its incidence. It sought to engage community interest not only in the subject of noise exposure as a matter of public concern but also in its specific opposition to the development.
[36](2004) 134 FCR 422.
Finn J observed:[37]
In both respects it was engaging in what properly should be described as political activity, but especially so in relation to the latter. The rezoning application highlighted both conflicting private interests and conflicting public interests. Those conflicts could only be resolved by governmental action. In seeking, directly or indirectly, to contrive or influence outcomes by representations made in public debate, or in the processes of informing the public, CIA was engaging in activities of a political, not of a commercial or trading, character. And this was not the less so because its activities were informed by a degree of self-interest. Altruism is often a stranger to political action.
His Honour added that, although it could properly be said that CIA was promoting, directly or indirectly, the services provided by the airport, it was, nonetheless, acting to protect its business. Finn J continued:[38]
[A]ction so taken is not for that reason alone in trade or commerce. It would be surprising if the legislature had intended the contrary to be the case in the Trade Practices Act. Corporations engage directly and indirectly in public and political debate on a myriad of matters that do or might impact actually or prospectively on their own interests. While all such debate will not be beyond the reach of s 52 of the Trade Practices Act: see e.g. Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc; much will be as it will not be directed at consumers (actual or potential), or will not be an incident of an activity which bears a trading or commercial character.
[37](2004) 134 FCR 422, 439 [61].
[38]Ibid, 439 [62].
In June 1990, a Commonwealth Government minister gave a speech to the annual conference of the International Wool Textile Organisation. He made certain observations about whether there would be movement in the floor price of wool. Prior to that speech companies engaged in the international wool trade had sought the minister’s assurance that the reserve price would not be reduced and it was assumed, on a strikeout application, that the minister knew and intended the persons engaged in the international wool trade would rely on his statements and act accordingly. After the speech was given the relevant legislation was amended effectively suspending the entire marketing scheme, including the concept of a reserve price. In Unilan Holdings Pty Ltd v Kerin[39] the applicant contended that it had suffered loss and damage by reason that the Minister’s representations were conduct in breach of s 52 of the TPA. An issue was whether that conduct was ‘in trade or commerce’.
[39](1992) 35 FCR 272.
Hill J struck out the claim, applying Concrete Constructions and concluding that a minister of state giving a speech to an international wool conference was not an aspect or element of activities or transactions which, of their nature, bore a trading or commercial character. It was not enough that the speech concerned matters of trade or commerce or could be said to be in relation to trade or commerce. The relevant conduct must actually be in trade or commerce.
In Houghton v Arms,[40] the High Court stated that while in most cases, the focus will be on the nature of the business of the party making the representation, s 52 was not so limited; in particular, the section did not, in terms, refer to the trade or commerce of any particular corporation. Accordingly, statements made by a person not himself or herself engaged in trade or commerce may answer the statutory expression if, for example, they are designed to encourage others to invest, or to continue investments, in a particular trading entity.
[40](2006) 225 CLR 553.
Duty of care concerning statements about government policy
Commonwealth submissions
The Commonwealth submitted that no duty to take care to avoid economic loss arises in respect of statements in relation to present government policy. Even if a duty of care could arise in such circumstances, there is no possibility in the circumstances of this case of reasonable reliance by the plaintiffs or group members on such statements such that no duty of care is capable of arising.
The impugned statements were not statements of fact. The matters that were the subject of the impugned statements could not be regarded as permanent proposals immune from alteration, variation or revocation. The statements cannot imply any assurance that the suggested state of affairs will continuously and inflexibly apply into the future. The statements do not constitute any more than an expression of present intention and future expectation and can only be reasonably understood as being subject to a change in government, or of policy, dependent on the prevailing national or public interest.
Because such statements cannot ordinarily reasonably be understood or relied on as anything other than a statement of belief as to what the current policy is and must be understood, or relied on, as contingent upon changing circumstances, there cannot be reasonable reliance by a representee upon such statements in deciding to assume business or commercial risk.
Further, the Commonwealth was exercising executive power to serve the national interest. The Commonwealth is at liberty to devise and adopt policy on the basis of what is expedient or in the best interests of the nation from time to time and the adoption of government policy to spend funds in pursuit of the twin goals of economic stimulus and promotion of environmental benefit was a case of the exercise of power in the public interest. It cannot be a source of liability.
The merits of government action in adopting, altering, or abandoning any particular economic policy is a matter beyond interrogation by the courts through the prism of negligence. The Commonwealth is at liberty to change or abandon a policy for any reason. This consequence follows because a government cannot be constrained or fettered in its capacity to make future decisions and it is recognised that a government may have to change decisions or alter its policy as factors affecting the national interest vary or change.
The exercise of public powers in favour of the community as a whole as here occurred is fatal to the contention that a duty of care was owed to one segment of the community, namely the plaintiffs and other participants in the retrofitting installation industry.
If there be no duty of care owed by the Commonwealth in the formulation, adoption, amendment, or termination of policy, it must follow that there is no duty to be careful in what is said about such policies.
Careful examination of the representations pleaded demonstrates that there is no actionable misrepresentation alleged. The conduct constituted by the representations pleaded is not capable of supporting the key alleged representation, that the Commonwealth would not reconsider its decision to operate the HIP until the expiration date, because those pleaded representations are announcements of policy decisions. That key representation cannot be alleged as having been made in the circumstances. A reasonable person would not interpret the conduct alleged as conveying anything more than statements about current government policy, that could, by their nature, only be regarded as impermanent and unreliable.
The plaintiffs alleged that their economic losses flowed from the nonfulfillment of the representation as to the duration of the HIP, notwithstanding that allegations of breach of duty are based in maladministration of the program. It appears the plaintiffs’ complaints would not change if the HIP had been abruptly terminated for other, non-justiciable, reasons such as a change of government, loss of a parliamentary majority, a war, or a major national disaster.
Plaintiffs’ submissions
The plaintiffs submitted that the existence, and content, of a duty of care to avoid economic loss depended on examination of all salient features of the relationship between the parties and that such an examination was not suitable for a summary judgment application but required close analysis of the facts established at trial. Each case, including in the context of negligent misstatements, requires the application of general negligence principles, features of which can only be unravelled by close examination of the factual circumstances.
Reasonableness of reliance will not be a critical factor in cases where the defendant intended a statement to operate as a direct inducement to action. It is alleged, and must presently be assumed, that the Commonwealth had that intention in this case.
The Commonwealth does not and cannot contend that the statements as pleaded were not made. That circumstance provides a critical distinction between this case and San Sebastian Pty Ltd v Minister Administering the Environment Planning and Assessment Act.[41] In that case the determinative finding was that the council made no relevant representation and in the absence of any statement in terms of the representations pleaded, the court concluded the publication of plans and proposals was intended only to serve as a guide for future development.
[41](1986) 162 CLR 340 (‘San Sebastian’).
Each case must depend on its own facts. Unilan Holdings Pty Ltd v Kerin,[42] on which the Commonwealth relied, was a case in which a strikeout was refused on the basis that such a duty of care may exist and the trial judge’s decision that there was no duty of care was reached after a trial with the benefit of a full examination of the evidence. Although that decision was upheld on appeal, the Full Court declined to consider whether, if factual reliance had been made out, the judge was correct in holding that such reliance would not have been reasonable.
[42](1992) 35 FCR 272.
Principles applying
In San Sebastian, the High Court stated a number of relevant propositions.
(a) In cases of negligent misstatement, reliance plays an important role, particularly so when the defendant directs a statement to a class of persons with the intention of inducing members of the class to act or refrain from acting, in reliance on the statement, in circumstances where he should realise that they may thereby suffer economic loss if the statement is not true.[43]
(b) Where a statement is made for the purpose of inducing the plaintiff, or the members of a limited class including the plaintiff, to commit themselves financially upon the basis that the statement is true, and the plaintiff acts in reliance on the statement, the law will impose a duty of care on the maker of the statement.[44]
(c) In cases where the defendant intends the statement to operate as a direct inducement to action, the reasonableness of the reliance will not be a critical factor, although in other cases the defendant’s appreciation of the reasonableness of reliance will be relevant.[45]
[43](1986) 162 CLR 340, 355.
[44]Ibid, 357.
[45]Ibid, 358.
In San Sebastian, the High Court held that the appellant had failed to establish that the alleged representation was made. There being no contrary indication, it could not be inferred that planning scheme documents intended as a guide to future development carried an assurance that they will be applied continuously and inflexibly. The plurality stated:[46]
There are, accordingly, two relevant characteristics of a development plan of the kind in question. First, there is the element of impermanence and capacity for modification and revocation. Secondly, the plan does not diminish the overriding discretion of the responsible authority to depart from the proposals incorporated in the plan when determining individual applications for development approval.
These characteristics point to the conclusion that, in the absence of indications to the contrary, it will not readily be inferred that a plan intended to serve as a guide to future development contains an assurance that it will be continuously and inflexibly applied in the future. Rather it is an expression of present intention and future expectation which would in ordinary circumstances deter developers and businessmen from relying on it as a solid and unchangeable foundation for development approvals. Instead, they make their own assessment and rely on their advisers and consultants, recognizing that the function of the public documents is to provide a general and flexible planning framework within which developers and businessmen are expected to make their own judgments.
[46]Ibid, 360.
Brennan J stated that the authority and the Council were under no duty of care as to making a representation that the plan was feasible because the condition of reasonable reliance was unsatisfied. His Honour explained that the public interest in knowing what policy has been adopted prevails over a private right to insist that reasonable care be taken in its preparation or adoption. It was unreasonable for a person contemplating a course of action which involves a risk of loss if a public authority does not exercise its discretion in a particular way to rely on the feasibility of a policy affecting the discretion when the discretion is one which must be exercised in the public interest. If that person were able to rely on a representation of feasibility of a policy, the public authority would be constrained to adhere to the policy to keep faith with that person. The duty which the public authority would owe to the individual would conflict with the duty it owes to the public. The latter duty must prevail and developers must form their own view of its feasibility.[47]
[47]Ibid, 374.
Returning to Unilan Holdings Pty Ltd v Kerin,[48] although the s 52 claim was struck out the negligent misrepresentation claim proceeded to trial. Lockhart J dismissed the claim and was upheld on appeal. No case of actual reliance on the Minister’s speech had been established. The Full Court did not find it necessary to opine on the view of the primary judge that a duty of care may exist, in Australia, ’in circumstances where a Minister of the Crown makes a statement about the future policy of the Government‘, nor to consider whether if actual reliance was made out, the judge was correct in stating that such reliance would not have been reasonable. However, the court did state its agreement with the following passage from the trial judgment:[49]
In short, although people attending the Dubrovnik conference were entitled to assume that what the respondent said was said genuinely by him and represented the view of himself and the Australian Government, it could not rationally be assumed that it was other than a statement of belief at the time. Many considerations including those of a political nature in Australia could have led to a change in attitude by the Australian Government and any person attending the conference should, in my view, have known or assumed that. Certainly persons were not entitled to trade on the basis that any profits made thereafter would be theirs and any losses would be borne by the Australian Government. The statements were not of this character at all.
[48](1993) 44 FCR 481.
[49][1993] FCA 420, [56]. This passage does not appear in the incomplete report of the case at (1993) 44 FCR 481.
In Meadow Gem Pty Ltd v ANZ Executors & Trustee Co Ltd,[50] some third parties (the State parties) applied to strike out proceedings against them based upon representations made by Victorian politicians and public servants to the effect that building societies within the Pyramid group were secure and adequately asset-backed, certain rumours about Pyramid were without foundation, and there was no reason for the public to withdraw funds or dispose of their investments in Pyramid. The State parties contended that the statements and conduct relied on had not been carried out in trade or commerce. Hedigan J distinguished Unilan on the basis that Minister Kerin’s speech was dealing with government policy and was not specifically dealing with any identifiable conduct which itself had a trading or commercial character. His Honour considered it arguable that because the government was not directly involved in the business of the Pyramid group and had conducted its own investigations, statements were made with the intention of encouraging investors to maintain their trading relationship with the Pyramid group. The question of whether the statements were made in trade or commerce should be deferred to the trial. His Honour also considered that the allegation that the State parties owed a duty of care in making those statements ought to be left to the trial. He was not persuaded that San Sebastian precluded, under all circumstances, no matter what the ultimate facts were shown to be, a proximity between the losses suffered by the plaintiffs and the statements in conduct of the State parties. Such an ultimate proposition was to be determined when all the facts were known.
[50]Unreported, Supreme Court of Victoria, Hedigan J, 18 May 1994.
Analysis
From this analysis it can be seen that the Commonwealth submissions are attractive. On the characterisation of the circumstances adopted by the Commonwealth for the purpose of the submissions, and accepting that the material allegations made in the pleadings can be proved at trial, it will be open to a court to conclude that the Commonwealth, in respect of the development, implementation and operation of the HIP was neither carrying on a business nor engaged in conduct in trade or commerce. Further, adopting the characterisation of the representations for which the Commonwealth contends could support a conclusion that the Commonwealth did not owe a duty to take care not to misrepresent the characteristics or conditions for participation by the plaintiffs and group members in the HIP.
There are significant considerations that point in the opposite direction to the course I propose to adopt. That said, I have not been persuaded that it would be appropriate to terminate the plaintiffs’ claims by summary judgment.
The HIP was a unique program. It represented a form of government activity that cannot be directly compared with other forms of governmental activity discussed in the cases to which I have referred. The range and complexity of the circumstances of operation of the HIP cannot be properly understood by a limited analysis of the minimum essential material facts required for a valid pleading. It is not appropriate to proceed to resolution of claims in the proceeding on the basis of only those facts. As the issue will in any event advance to a trial for resolution, there is no point in assessing the issues on the basis of the pleaded facts alone.
In particular, the prospect that the court may conclude that the governmental functions that were the emphasis of the Commonwealth’s submissions coexisted with conduct that entailed the carrying on of a business that might be described as financing retrofitted insulation enjoys more than a fanciful prospect of success. The Commonwealth may have chosen to achieve policy goals by active participation in a sector of an industry in order to manipulate the forces of supply and demand other than by advancing generally applicable fiscal policy. Concentrating on the governance aspect of the Commonwealth’s conduct emphasises those features of its conduct that the authorities recognise as taking conduct outside the realm of carrying on a business or acting in trade of commerce.
On the other hand, concentration on the nature and extent of government participation in the activities of the retrofitting insulation business by contracting with and financing installers, and taking measures to ensure a sufficient supply of labour and materials bespeaks a real connection with commercial activity, a context that bears a business or commercial character. System and regularity are alleged ― 7541 contracts, 73,000 rebates paid to householders, and 1.16 million payments totalling $1.45 billion flowed directly into boosting demand and ensuring supply to meet that demand. While the mere fact of repetitive conduct is not sufficient for proper characterisation of the Commonwealth’s conduct, it does suggest that this is a plain case where conclusions should be made on findings of fact made at trial. In my view, sorting out the mix between activities that might be purely governmental or regulatory and activities that are commercial or of a business nature cannot fairly be made other than on the basis of findings made after a trial.
I bear in mind that the word ‘business’ is an ‘etymological chameleon’, and that considerable care is needed in evaluating the Commonwealth’s contentions that preparatory activity is not carrying on a business. The reference to what activity a private citizen or trader might undertake is not applied to the whole of the HIP. Again, I am not persuaded that the contention that some elements of the activities of the Commonwealth in connection with the HIP might be undertaken by a private trader is fanciful. Contracting, or sub-contracting, for services and financing of proprietors for the acquisition of home improvements are commonplace commercial activities undertaken in the building and construction sector of the economy. The Commonwealth’s conduct allegedly included issuing work orders, selecting eligible tradespeople, setting the terms and conditions on which the work would be performed, and making payments for work done and material supplied.
I do not accept the Commonwealth’s submission that the court will not obtain a better picture of the operation of the HIP through evidence at trial because the claim is mostly constructed on the basis of documents that are in the public domain and were the subject of examination by a royal commission. I have observed that material allegations have been particularised by reference to documents. No documents material to these claims were produced to the court. This submission cannot be tested. The plaintiffs submitted, and I agree, that, exercising a practical judgment, it is highly likely that a court will have a far more sophisticated and nuanced understanding of the operation of the HIP and its impact on the issues that are currently in dispute on this application after all of the available material has been analysed through interlocutory processes and the evidence at trial has been subjected to explanation, close scrutiny, and rigorous assessment.
The issue concerning paragraph 59B is a matter to be resolved by particulars. The material allegation in the pleading follows the statutory language and the particulars identify that the trade and commerce being alleged is that of the plaintiffs and group members. The plaintiffs are alleging that the representations were made in trade or commerce in relation to the business of retrofitting installation promoting not the Commonwealth but those businesses and the goods and services provided by those businesses.
It is well accepted that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried. As the Court of Appeal noted in Victoria v Richards,[51] the frequently cited observations made by Kirby P (as he then was) in Wickstead v Brown[52] that were subsequently approved by the High Court on appeal, remain apposite. That is so in two respects on this application.
[51](2010) 27 VR 343, 345 [8].
[52](1992) 30 NSWLR 1.
First, as Kirby P said:[53]
Common experience teaches that it is usually more efficient and just to consider the viability of a cause of action when the facts said to support it are adduced and the suggested action can be judged with a full understanding of all relevant evidence. Testimony gives colour and content to the application and development of legal principle. ... Out of the detail of the evidence ultimately proved, affecting the relationship of the respondent and the appellant, may arise a finding of a duty of care which the common law of negligence would uphold.
[53]Ibid, 5-6.
Secondly, in effect, Kirby P stated that a Court should be very reluctant to terminate summarily part of an action based on an alternative cause of action when the trial on other causes of action based on substantially overlapping facts will be proceeding, notwithstanding that the legal basis for it may be doubtful or problematic in circumstances where the court will nevertheless be required to hear and determine substantially the same factual matters.[54]
[54]Ibid, 6.
In this proceeding, it is not in contest that there will be a trial on the claims made in contract and negligence. Although there was some dispute between the parties as to whether permitting the impugned claims to proceed to trial will substantially increase the length and complexity of the trial, I am not presently in a position to form a view about that proposition. What is clear is that there are substantially overlapping facts, while the extent of delay or complexity arising from the possibility that evidence directed particularly to the impugned claims may be contested, cannot presently be assessed.
Because I am satisfied that the Commonwealth has not established that the contentions that it was carrying on a business and was engaged in conduct in trade or commerce have no real prospect of success, the Commonwealth’s claim that it is entitled to summary judgment on these grounds is rejected.
For substantially similar reasons, the contention that the Commonwealth owed a duty to exercise care in making statements about the HIP has more than a fanciful prospect of success at trial. That is not to say that the Commonwealth’s submissions will lack cogency at trial. I refrain from expressing any view in that regard. The Commonwealth’s contentions that there can be no reasonable reliance on statements of government policy and statements touching on that subject must be impermanent and unreliable are dependent on the initial characterisation of the Commonwealth’s conduct as being explanatory of a policy position or, more broadly, matters of government administration and regulation in the national interest. That submission fails to take account of the real prospect that on a thorough and detailed examination of the evidence at trial a court may conclude otherwise, and accept the plaintiffs’ alleged alternative characterisation. It is pertinent to observe that the conduct alleged by the plaintiffs is not confined to ministerial statements and extends to the conduct of bureaucrats in both oral and written form, including in documents that were relevant to the contracts with installers.
Because the characterisation of the Commonwealth’s conduct cannot be conclusively determined on the assumed facts presently being adopted, it is not yet clear whether the principles emerging from cases such as San Sebastian, Unilan v Kerin, or Meadow Gem are truly applicable. Plainly there are material distinctions between the circumstances considered in each of those cases and the present claims. Those cases may ultimately prove distinguishable from the circumstances presented by the Commonwealth’s conduct in respect of the HIP. For the reasons already stated, the negligent misrepresentation claim will be permitted to proceed to trial.
Subject to what is said later in these reasons, leave will be granted to the plaintiffs to file and serve their further amended statement of claim.
Whether the unconscionable conduct claim can stand
Commonwealth submissions
On the basis of the submissions that have already been set out, the Commonwealth contended that the claim under s 51AA of the TPA should be summarily dismissed because the Commonwealth was not carrying on a business or engaged in conduct in trade or commerce. For the reasons I have given, that claim fails.
The Commonwealth further submitted that the unconscionable conduct claim should be struck out as defectively pleaded. The crux of this submission was the contention that the plaintiffs and the subgroup (pre-existing manufacturers, suppliers and installers, and the owners of those businesses) were ‘at a special disability’ in deciding whether to participate in the HIP and whether to invest in the expansion of their businesses, presumably in order to take advantage of the HIP. The pleading does not identify the material facts on which it will be established that the plaintiffs and subgroup members were at a special disability. The proposed pleading does not distinctly make an allegation in this regard. By following cross-references, it would seem that the special disability that burdened the plaintiffs was that the Commonwealth knew that it did not intend to be contractually bound by the terms of the offer it is alleged to have made to operate the HIP until the expiration date, when had the HIP ran for its full term, the market for retrofitted home insulation would have been substantially extinguished.
By reason of that special disability, it seems to be alleged that the plaintiffs were at a special disadvantage in making a judgment about their own best interests when participating in the HIP. Presumably, because the Commonwealth knew that the HIP, had it run its full term, would have extinguished the relevant market, it acted unconscionably when it exercised its legal right to terminate the HIP or alternatively in making representations to encourage the plaintiffs and the subgroup to invest in and expand their businesses to meet the demand that would be created by the HIP.
The Commonwealth submitted that no material allegation is made as to whether the plaintiffs and subgroup members were incapable of making a judgment in their best interests about participating in the HIP. If the Commonwealth did not intend to be contractually bound by the policy that it had announced, the plaintiffs and subgroup members were not at a special disadvantage.
Plaintiffs’ submissions
Whether there was unconscionability at general law for the purpose of s 51AA requires consideration of broader questions of conduct involving the taking of advantage of a situational disadvantage. Such matters cannot be determined other than on careful analysis of the evidence at trial.
The plaintiffs submitted the claim is not dependent upon inequality of bargaining power leading them to enter into a bargain. Rather, what is alleged is that the Commonwealth did not intend to enter into legal relations with the plaintiffs through the HIP in circumstances where the intended purpose of the HIP was to extinguish the market in which the pre-existing businesses operated by accelerating the take-up of retrofitting of installation. Such circumstances constituted an obvious inducement to the plaintiffs to rapidly expand their businesses. Given that they did not have the benefit of contractual protection in respect of the duration of the HIP, it was unconscionable for the Commonwealth to terminate the scheme prematurely or, if the scheme was of uncertain duration, to encourage them to invest in their businesses.
In oral submissions, counsel explained that:
The disability is the inability to control any aspect of the conduct in this business with the Commonwealth having announced the scheme, completely dominating what was previously a 60 to 70,000 homes a year business, now has transformed to be a new scale of intensive activity, 15 times the size, but where previously persons would pay themselves for the installation, now the Commonwealth would be the sole person paying, so it's effectively dominating the market.
I know it's not that type of case, but that's the reality. It's becoming the dominant force in the market, and the only basis on which a person who is a pre-existing person can continue in the business is to be a participant in that new market that's dominated by the Commonwealth, and those persons were being encouraged and induced to increase the size of their activities, build up their businesses, so as to take up that demand that was being created and fostered.
[A]nd they couldn't control anything that the Commonwealth would do as to the terms and conditions, or anything else. If they wanted to remain in the game and-or if they wanted to expand their business, they had to do it as per the Commonwealth. So it was a complete inequality of bargaining power, not just a relative inequality.
To the extent that the Commonwealth is submitting that the basis for the special disability was not sufficiently identified, that is a matter properly addressed by particulars.
Principles applying
On a claim of unconscionable conduct, the plaintiffs must properly allege, first, the existence of a disabling condition, often called a special disability, that seriously affects the plaintiffs’ ability to make a rational judgment as to their own best interests when transacting with the defendant. Secondly, the plaintiffs must allege that the defendant knowingly acted unconscionably to take advantage of that special disability such that the defendant obtained a beneficial bargain by inequitable exploitation of the plaintiffs’ special disability. When these matters are proved by the plaintiffs, the defendant must prove that its conduct was fair, just and reasonable.[55]
[55]Blomley v Ryan (1956) 99 CLR 362; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (‘Amadio’);, Louth v Diprose (1992) 175 CLR 621; Bridgewater v Leahy (1998) 194 CLR 457; and Kakavis v Crown Melbourne Ltd (2013) 250 CLR 392 (‘Kakavis’).
In a joint judgment in Kakavis v Crown Melbourne Ltd,[56] the High Court said:
Essential to the principle stated by both Mason J and Deane J in Amadio is that there should be an unconscientious taking advantage by one party of some disabling condition or circumstance that seriously affects the ability of the other party to make a rational judgment as to his or her own best interests. It may well be that an unconscientious taking of advantage will not always be manifest in a demonstrated inequality of bargaining power or in a demonstrated inadequacy in the consideration moving from the stronger party to the weaker; but the abiding rationale of the principle is to ensure that it is fair, just and reasonable for the stronger party to retain the benefit of the impugned transaction.
And later it added:[57]
Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness of, or indifference to, the best interests of the other party is not sufficient for this purpose. The principle is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned.
[56](2013) 250 CLR 392, 425 [118].
[57]Ibid, 439-440 [161].
The focus in such a claim is on the defendant’s conduct, although the assistance for the plaintiffs of a disinterested adviser will be an important factor. Commonly, the impugned transaction is demonstrated to be at an undervalue, which is relevant to establishing that the defendant obtained a beneficial bargain by inequitable exploitation of the plaintiffs’ special disability. In Amadio,[58] Mason J, as he then was, stated:
I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
Dawson J stated:[59]
What is necessary for the application of the principle is exploitation by one party of another's position of disadvantage in such a manner that the former could not in good conscience retain the benefit of the bargain.
[58](1983) 151 CLR 447, 462.
[59]Ibid, 489.
In Louth v Diprose, Deane J stated:[60]
The adverse circumstances which may constitute a special disability for the purposes of the principle relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible of being comprehensively catalogued. In Blomley v Ryan, Fullagar J. listed some examples of such special disability: "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". As Fullagar J. remarked, the common characteristic of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other".
[60](1992) 175 CLR 621, 637-8 (citations omitted)
Moreover, the court must take a comprehensive view, and look to every connected circumstance that ought to influence its determination upon the real justice of the case. Accordingly, as the High Court observed in Kakavis,[61] it does not accord with that approach to consider the appellant's "special disadvantage" separately, in isolation from the other circumstances of the impugned transactions which bear upon the principle invoked by the appellant. The issue as to special disadvantage must be considered as part of the broader question, which is whether the impugned transactions were procured by Crown's taking advantage of an inability on the appellant's part to make worthwhile decisions in his own interests, which inability was sufficiently evident to Crown's employees to render their conduct exploitative.
[61](2013) 250 CLR 392, 426-7 [124].
The equity that arises once an unconscionable dealing is established generally affects the standing of the transaction. In order to satisfy equity, that transaction may be set aside either wholly or to the extent necessary to relieve the unconscionability identified by the court. Here, the plaintiffs seek damages pursuant to s 82 or compensation pursuant to s 87.
Judged against these principles, the pleading of the claim of unconscionable conduct under s 51AA is deficient in the sense identified in r 23.02. Although its intended meaning was expanded on by counsel for the plaintiffs in submissions, paragraphs 62–72 of the pleading do not clearly and distinctly identify the cause of action and the material facts being relied on. It does not unambiguously disclose the cause of action, and carries a real risk that the fair trial of the proceeding will be prejudiced, embarrassed or delayed. The pleading does not make clear how an inability to control any aspect of its conduct in the retrofit insulation business compromised the plaintiffs’ ability to make a judgment as to their own best interests when transacting with householders or the Commonwealth. Nor can it be discerned how the Commonwealth exploited such an inability to unfairly obtain for itself an advantageous bargain. The broad and general particulars of loss do not assist in understanding the relationship between whatever be the impugned transactions, another key allegation that cannot be understood on reading the proposed pleading, and the Commonwealth’s conduct.
I have not attempted to precisely document each deficiency in the pleading of this claim. It is not the court’s function to rectify a party’s pleading. I am prepared to accept that there may be an equitable claim capable of being raised if leave is granted to re-plead. I doubt whether it is a claim under s 51AA of the TPA.
I will order that paragraphs 62–72 of the amended statement of claim be struck out with leave to re-plead. The leave I have granted to the plaintiffs to file the further amended statement of claim does not extend to a form that contains paragraphs 62–72 and 74 of the proposed pleading.
The definition of the class
Before dealing with the final issue raised by the parties, I need to say a little more about the facts. The group members are identified in section A2, paragraph 1 of the pleading. The plaintiffs state that they have commenced the proceeding as a group proceeding pursuant to Part 4A of the Supreme Court Act 1986 on behalf of group members falling within one or more of the descriptions in the subparagraphs, who are collectively described as the ‘Insulation Industry’, being persons who at material times either carried on business in Australia and/or were incorporated in, citizens of, or resident in, Australia. Four different categories of group members comprising the insulation industry are then identified as owners, installers, manufacturers, or suppliers. There is no relevant distinction between each group and it is convenient to take the example of installers.
The class definition is in the following terms:
On behalf of the group of other persons (installers) who:
(i)operated a business that installed insulation in a home or homes in Australia:
A.between sometime after 3 February 2009 and 19 February 2010; and
B.pursuant to the terms of HIP;
(ii) being either:
A.pre-existing installers who operated such a business prior to 3 February 2009 (pre-existing installers);
B.new installers who operated such a business after 3 February 2009 (new installers);
(iii)suffered loss as a result of the early termination of the HIP on 19 February 2010.
On 7 July 2015, the then Minister for Industry and Science issued guidelines for a HIP Industry Payment Scheme (the HIP IPS). These guidelines stated that the HIP IPS was established in response to recommendations made by the Hanger Royal Commission for the purpose of making payments to pre-existing home insulation installation businesses that suffered an adverse financial impact as a direct result of the HIP.
Ninety-two such businesses, the releasers group, accepted payments and entered into deeds of settlement with the Commonwealth, which has disclosed the names and ABN of each business, the amount paid, and the date upon which a deed was executed.
This proceeding was commenced on 30 June 2015 and the 92 deeds of settlement were executed between 2 September 2015 and 29 April 2016. Of these deeds, 90 of them are in identical form and two contain some variations that are immaterial for present purposes. In every case, the Commonwealth has paid the settlement sum as defined in each of the deeds. No party who has entered into a deed of settlement has sought to have it set aside.
Each deed recites that the payee is an eligible applicant for the purposes of the HIP IPS who has accepted a payment offer by the Commonwealth under the scheme.
Clause 3 of the deed provides that the Commonwealth agrees to pay and the payee agrees to accept the settlement sum in full and final settlement of the application. It also provides that in consideration of the Commonwealth entering into the deed and upon payment of the settlement sum, the payee forever discharges and releases the Commonwealth from all actions, proceedings, claims and demands whatsoever which the payee now has or may in the future have against the Commonwealth in relation to the application, and for loss or damage sustained by the payee as a result of or arising out of, directly or indirectly, the HIP and all matters arising from and incidental to it. Further, the payee agrees not to make any further claim against the Commonwealth or any of its related persons as a result of or arising out of, directly or indirectly, the application and the HIP.
By clause 4 of the deed, the parties acknowledged that payments made under the deed are in full satisfaction of any claim for loss, damage, costs or expenses in relation to the application and the HIP Claim and further that the deed may be pleaded in bar in any proceedings which may be commenced by or through either party in respect of the application and in relation to the HIP.
‘Claim’ is defined as any claim, demand, action, suit or proceeding whether at law, under statute, in equity or otherwise, for damages, costs, injunctions, enforcement of costs orders, review of decision or other remedy.
Commonwealth submissions
The Commonwealth submitted that the releasers group should be removed from the group definition and that this issue was not apt to be resolved at trial or ‘parked’ until after trial.
The Commonwealth submitted that the causes of action of each of the releasors group have been discharged or extinguished and the parties to the deed have released the Commonwealth.[62] The Commonwealth was entitled to rely on the deed as a plea in bar[63] and ought not be exposed to a group proceeding in which the claims of these persons and entities are prosecuted, because they have no claim against the Commonwealth within the meaning of s 33C of the Supreme Court Act. The Commonwealth submitted, and I agree, that the plaintiffs’ submissions appear to proceed on the basis that one or more of the releasors group members might have grounds to set aside the deed. However, no individual who may have provided such instructions has been identified, no individual has taken any steps to have a deed set aside and there is no material before the court, or any form of certification, to the effect that the plaintiffs have, as at the date of this application to amend their pleading, any proper basis on the factual and legal material available to them or their advisers to expect that any of the releasors group members has or will contend that its deed be set aside.
[62]The following cases were cited in support of that proposition: McDermott v Black (1940) 63 CLR 161, 183-5; Baltic Shipping Co v Merchant Mikhail Lermontov (1994) 36 NSWLR 361, 370-1; Osborn v McDermott [1998] 3 VR 1, 7-10; Baxter v Obacelo Pty Ltd (2001) 205 CLR 653, [56]; NAB v Pollak (2001) 186 ALR 44, [25]-[26], [33]-[34] (Madgwick J at first instance); Pollak v NAB [2002] FCA 237 [22], (Branson, Weinberg and Dowsett JJ); Associated Retailers Limited v Toys Unlimited Pty Ltd [2011] VSC 297, [185]-[187]; Scaffidi v Perpetual Trustees Victoria [2011] WASCA 159, [14]-[22].
[63]Citing Carr v Thomas [2009] NSWCA 208, [34]-[35].
The Commonwealth submitted that the court should order pursuant to s 33KA or s 33ZF of the Supreme Court Act that each of the persons and entities comprising the releasers group cease to be group members on the ground that it is just and expedient that they be removed before the proceeding advances any further.
Plaintiffs’ submissions
The plaintiffs submitted that there is and can be no dispute that the releasors group fall within the scope of the class definition in the originating process, since each of the deeds was entered into on or after that date. Accordingly, the plaintiffs contend there is no proper basis for them to be excluded as group members, and those having the conduct of the proceeding should not move to do so, particularly having regard to the observations of Murphy J in Kelly v Willmott Forests Ltd (in liq) and Ors (No 4):[64]
The scheme of Pt IVA is that the applicant has the conduct of proceedings on behalf of the class members. The applicant’s lawyers owe fiduciary duties to class members who are their clients and they also owe duties to class members who are not their clients. These duties may or may not be fiduciary in nature, but the applicant’s lawyers at least have a duty to act in the class members’ interests.
[64](2016) 335 ALR 439, 486 [220] (‘Kelly v Willmott Forests’).
The plaintiffs submitted that such defences as may be available to the Commonwealth are matters for trial and are not relevant to the determination of whether these claimants should be included as group members.
The plaintiffs sought a direction that the Commonwealth ought first be required to file its defence and that if any issue is raised that some group members have entered into deeds of settlement in relation to the HIP and for that reason are not entitled to pursue a claim for damages, then the Commonwealth be directed to provide to the plaintiffs’ solicitors the contact details of each of the 92 members of the releasors group in order that the plaintiffs’ solicitors notify them of a proposed application that they be removed from the class. The plaintiffs seek court approval of the terms of the notice, the draft of which materially states:
This notice is to inform you that the Commonwealth asserts that you entered into a deed of settlement in relation to the HIP and by having entered into that deed you are not entitled to pursue a claim for damages against the Commonwealth in relation to the HIP. The Commonwealth relies on the deed as a defence to the claims brought on your behalf in this proceeding.
But if you wish to contend that you are not bound by the deed, or that the claims made on your behalf are not limited by its scope, you should contact [the plaintiffs’ solicitors] in order to provide detailed instructions so that your interests may be advanced in response to the Commonwealth’s assertion.
If you do not contact [the plaintiffs’ solicitors] by 11 April 2017 it is likely that the Commonwealth will succeed in its contention that you are bound by the deed and any claim that has been brought on your behalf will be dismissed. If this occurs it is likely you will have no right to bring any claim against the Commonwealth in the future for damages or for compensation relating to the HIP.
The plaintiffs submitted that a plea in bar renders a claim unenforceable but does not extinguish the claim. It does not prevent such a claim from being pleaded by a plaintiff nor does it render such a claim an abuse. For these reasons it is incumbent on the defendant to both plead and make out any bar by way of defence. At this stage the Commonwealth has not established that the enforceability of the deed as a bar to each of the releasors group members’ claims is so clear-cut as to justify an order dismissing their claims. The plaintiffs accepted that any challenge to the deed’s validity by one or more members of the class would be based on individual circumstances.
Principles applying
The plaintiffs relied on Carr v Thomas.[65] One of the issues in that case was the effect of a release of one of several debtors liable to a creditor. In the context of the principle that where a creditor releases one or some of a number of debtors jointly and severally liable for the same debt then all debtors are released, the New South Wales Court of Appeal construed the relevant settlement deed as a covenant not to sue. It noted that if on the true construction of the instrument there is a reservation of liability against others jointly or severally liable, the agreement is a covenant not to sue the debtor purportedly released. Such a covenant does not act as a release of the obligations owed to the creditor.
[65][2009] NSWCA 208.
I do not consider that any issue about the proper construction of the deeds of settlement in the present case properly arises, in particular, because none of the releasors group claimants are before the court. However, assuming for present purposes that the deeds would be construed as a covenant not to sue that did not act as a release of the obligations owed to the other party (whatever that means), there is no basis evident to the court for issues of this sort to be raised in the group proceeding.
Neither of the plaintiffs is a member of the releasors group so no common question can arise at this stage of the proceeding. However, uncertainty about membership of the group may directly and adversely affect alternative dispute resolution or lead to issues arising after the court has delivered judgment on the claims of the plaintiffs and answered the common questions when the claims of the remaining members of the group come to be assessed.
However, the issue having now been raised it is likely that the Commonwealth will, by its defence, and as a matter of prudence, in response to that part of the pleading defining the class, raise the issue and in that way uncertainty about membership of the group will remain.
The observations of Murphy J in Kelly v Willmott Forests were plainly made in a different context and are not, in my view, helpful in the present circumstances where the issue is the definition of the class rather than the extent of obligations owed to members of a class whose composition is not in dispute. The obligation relevantly binding the plaintiffs (and their advisers) is the overarching requirement under s 18 of the Civil Procedure Act of a proper basis for making a claim in a proceeding. Since the proceeding was issued, and as the plaintiffs now seek to file and serve an amended statement of claim, the requirement of a proper basis for the class definition arises afresh.
No proper basis is identified on the factual and legal material apparently available to the plaintiffs for the class to be defined in a manner that may raise inappropriate issues that will not facilitate the just, efficient, timely and cost effective resolution of the real issues in dispute in this proceeding. Prima facie, the practical effect of the deed is that none of the 92 releasor claimants is entitled to maintain any claim against the Commonwealth and each would be contractually obliged to opt out of the proceeding. In my view, it is inappropriate for the court to communicate with these claimants on the basis that they be invited to contend that they may not be bound by the deed or that the claims made on their behalf are not limited by the scope of the deed and to effectively suggest that they might consider participating in the group proceeding. No proper basis for such a notice has been identified. No claimant who so contends, let alone the basis for such contention, has been identified.
Any action by any of the releasors group to set aside the deed and place themselves in a position to be entitled to participate in this group proceeding is a separate and distinct matter to be independently pursued by that claimant if required.
Although I do not accept the Commonwealth’s assertion that unless those claimants are excluded from the claim, future uncertainty will adversely affect the future conduct and resolution of the proceeding because I expect that the Commonwealth will assert its unchallenged legal rights, it is not just and convenient that the group be defined in a way that will cause the Commonwealth to plead the deeds and raise the issue in the proceeding.
I am satisfied that the court has ample power under s 33ZF to direct the plaintiffs to amend the class definition in order to presently exclude each of the 92 releasors group claimants. A form of words should be adopted that would result in inclusion in the class of any of those claimants who succeeded in an application to set aside the deed and restored their rights to prosecute claims against the Commonwealth arising out of the HIP. Whether the court acts under s 33ZF or s 33KA the relevant consideration is what is just and expedient in all of the circumstances. In my view, it is preferable that any change in circumstances affecting the releasors group should commence from the filing of the further amended statement of claim.
The plaintiffs should add a further subclause to each of the class definitions in the following terms:
(iv)remain or become legally entitled to commence and maintain a claim against the defendant in respect of that loss.
Conclusion
I make the following orders:
1.The plaintiffs have leave to file and serve a further amended statement of claim substantially in the form of the document annexed to the affidavit of Monica Helen Allen sworn 23 November 2016 but excluding section J (paragraphs 62-72) and paragraph 74 and including further paragraphs added to section A2 (paragraphs 1(c), (d), (e)) as follows:
(iv)remain or become legally entitled to commence and maintain a claim against the defendant in respect of that loss.
2.Paragraphs 62-72 and 74 of the plaintiffs’ amended statement of claim filed 14 July 2016 are struck out.
3.The plaintiffs have leave to serve on the defendant by [date to be inserted] a proposed pleading in respect of its claim for unconscionable conduct or such related claim as they may be advised to make.
4.The defendant’s summons filed 16 December 2016 is otherwise dismissed.
I will hear from the parties on the question of costs and a timetable for further directions for interlocutory steps in the proceeding.
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