Technology Leasing Ltd v Lennmar Pty Ltd

Case [2012] FCA 709

FEDERAL COURT OF AUSTRALIA

Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709

Citation: Technology Leasing Ltd v Lennmar Pty Ltd
[2012] FCA 709
Parties: TECHNOLOGY LEASING LTD ACN 071 702 264 v LENNMAR PTY LTD ACN 116 493 773, GLENN JAMES PARTON and THOMAS DAVID FORD
File number: NSD 1401 of 2010
Judge: COWDROY J
Date of judgment: 6 July 2012
Catchwords:

CONTRACT – telecommunications company offering telecommunications services – associated equipment leasing agreement – telecommunications company becomes insolvent – whether leasing contract frustrated

CONSUMER LAW – whether telecommunications made misleading and deceptive statements – whether leasing company – whether leasing company aided and abetted contravention by telecommunications company and contravened s 75B Trade Practices Act 1974 –whether leasing company was linked credit provider – whether s 73(1) Trade Practices Act 1974 renders leasing company liable for conduct of telecommunications company – whether leasing company engaged in unconscionable conduct contravening s 12CA Australian Securities and Investment Commission Act

AGENCY – implied agency – ostensible agency – whether leasing company was agent of telecommunications company in respect of the breaches of Trade Practices Act by telecommunications company

TRADE PRACTICES – exclusive dealing – whether telecommunications company engaged in third line forcing – whether leasing company engaged in third line forcing – whether leasing company aided and abetted telecommunication company’s third line forcing

STATUTES – whether applicant entitled to relief under s 7 Contracts Review Act 1980 (NSW)

Legislation: Australian Securities and Investments Commission Act 2001 (Cth) ss 12BA, 12BAB, 12CA, 12CC, 12DA, 12GB, 12GBA, 12GF
Contracts Review Act 1980 (NSW) ss 7, 9
Federal Court of Australia Act 1976 (Cth) s 41
Trade Practices Act 1974 (Cth) ss 4, 47, 51AF, 52, 73, 75B 82
Cases cited: ACCC v 4WD Systems Pty Ltd (2003) 200 ALR 491
ACCC v IMB Group Pty Limited (in liq) [2002] FCA 402
ACCC v Link Solutions Pty Ltd (No 2) (2010) 188 FCR 463
ACCC v Original Mama’s Pizza & Ribs Pty Ltd
[2008] FCA 370
A.L. Underwood Ltd v Bank of Liverpool [1924] 1 KB 775
ANZ Banking Group v Frost Holdings [1989] VR 695
Ashfind Pty Ltd v McDonald (1989) 5 BPR 11, 244
ASIC v Bank of Queensland Ltd (2011) 86 ACSR 258
Attorney-General of New South Wales v World Best Holdings Ltd (2005) 63 NSWLR 557
Australian Automotive Repairers’ Association (Political Action Committee) Inc v Insurance Australia Ltd (No 6) [2004] FCA 700
Boulas v Angelopoulos (New South Wales Court of Appeal, 18 October 1991, Gleeson CJ, Kirby P and Samuels JA)
B.P. Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Branwhite v Worcester Works Finance Ltd [1969] AC 552
British Movietonews v London and District Cinemas Ltd [1952] AC 166
Butcher v Lachlan Elder Realty Pty Ltd
(2004) 218 CLR 592
Campbell v Backoffice Investments Pty Ltd
(2009) 238 CLR 304
Castlemaine Tooheys Ltd v Williams & Hodgson Transport Pty Ltd (1986) 162 CLR 395
Codelfa Construction Pty Ltd v State Rail…

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Details
AGLC
Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709
Case
[2012] FCA 709
Decision Date

CaseChat Overview and Summary

Technology Leasing Limited (TLL) was engaged in providing equipment leasing, and Lennmar Pty Ltd (Lennmar) was a company managing a medical surgery in Capalaba, Queensland. Lennmar entered into a services agreement with Freshtel, a telecommunications services provider, and a separate rental agreement with TLL for leasing equipment. Freshtel ceased providing telecommunications services, and Lennmar sought to declare the agreement frustrated, void, or unenforceable. Lennmar and Mr Parton also made claims against TLL, alleging misleading and deceptive conduct, third line forcing, and unconscionable conduct. TLL sought relief from its obligations under the rental agreement. The court considered whether the contract was frustrated, if TLL was liable for Freshtel's actions, and if TLL engaged in misleading and deceptive conduct and unconscionable conduct.

The court found that the rental agreement was not frustrated as its performance was not dependent on Freshtel continuing to provide services. TLL was not Freshtel's agent, so TLL could not be held liable for Freshtel's actions based on agency. However, TLL was jointly and severally liable for Freshtel's misleading and deceptive conduct under section 73(1) of the Trade Practices Act 1974 (Cth). TLL also aided and abetted Freshtel's misleading and deceptive conduct and unconscionable conduct, contravening sections 75B and 12CA of the Trade Practices Act 1974 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth), respectively. The court found that relief could be granted under section 7 of the Contracts Review Act 1980 (NSW).

The court's reasoning was based on the contractual obligations and the nature of the agreements between the parties. The court found that Lennmar and Mr Parton were entitled to rely on section 73(4) of the Trade Practices Act 1974 (Cth) to offset their liability to TLL. The court directed the parties to confer to formulate declarations and orders reflecting its findings.

The court's decision highlights the importance of understanding the nature of agreements and contractual obligations. The court found that TLL was liable for Freshtel's actions and engaged in unconscionable conduct. The decision also emphasises the need for businesses to be aware of their obligations under consumer law and the potential consequences of misleading and deceptive conduct. The court's decision provides guidance on the application of the Contracts Review Act 1980 (NSW) and the Trade Practices Act 1974 (Cth) in similar cases.

Orders

Orders of the court

1. Within 14 days of this order the parties formulate the declarations and orders arising from this decision.

2. The proceedings be listed for the making of orders on 20 July 2012.

3. Liberty to apply.

4. Costs be reserved.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Background

Background to the litigation

Over time, these proceedings have metastasised into a series of complex issues. For this reason, it is convenient to set out a summary of the Court’s findings on the various issues raised by the parties. Each issue is discussed hereunder.(a) Lennmar did enter into a valid agreement with TLL.(b)The contract between Lennmar and TLL was not frustrated.(c)Although Freshtel did make misleading and deceptive statements, Freshtel was not TLL’s agent and thus TLL cannot be held liable on this basis.(d)However, TLL is jointly and severally liable for Freshtel’s misrepresentations by virtue of s 73(1) Trade Practices Act 1974 (Cth) (‘TPA’).(e)TLL aided and abetted Freshtel’s misleading and deceptive conduct and thus contravened s 75B of the TPA.(f)TLL did not contravene s 47(6)(a) of the TPA by engaging in third line forcing. However, TLL aided and abetted Freshtel’s contravention of this section. (g)TLL contravened s 12CA(1) of the Australian Securities and Investment Commission Act 2001 (Cth) (‘ASIC Act’) by engaging in unconscionable conduct.(h)Relief should be granted under s 7 Contracts Review Act 1980 (NSW).BACKGROUND TLL is engaged in the business of providing equipment leasing, that is, purchasing certain equipment at the request of customers and leasing such equipment to those customers. At all relevant times Lennmar managed a medical surgery in Capalaba, Queensland known as ‘Capalaba Surgery’ which was used by three medical practitioners. Mr Parton and a third party are the directors of Lennmar Pty Ltd. Mrs Kieren Parton, the wife of Mr Parton, is the practice manager of the Capalaba Surgery, but not a director of Lennmar. Freshtel was a telecommunications services provider. In November 2007 Freshtel represented to the respondent that Freshtel could supply the respondents with telecommunications services and telephone equipment (‘the equipment’) for use in the conduct of the Capalaba Surgery. According to the Partons’ evidence the representative of Freshtel represented that Freshtel rented telephone capacity from large communications companies such as Telstra and could provide telephone services at the same charges as that which Lennmar was currently incurring. Freshtel would pass on its savings to its customers in the form of equipment. Relying upon such representations, Lennmar, by its director Mr Parton, duly signed a Services Agreement with Freshtel. Unknown to Mr Parton, the papers he signed also included a rental agreement with TLL (‘the rental agreement’). The obligations under both agreements were guaranteed by Mr Parton. After Mr Parton signed the service agreement and rental agreement, Freshtel transmitted it to Bower Finance Pty Ltd (‘Bower Finance’). Bower Finance was in the business of preparing leasing proposals. It acted as a broker, who referred applications from customers to financers including TLL. If the leasing proposal was approved by the financer, Freshtel would prepare an invoice in respect of the equipment to be leased and forward such invoice to Bower Finance, who would forward it on to TLL. In consideration for these services, TLL paid Bower Finance a brokerage fee.

Evidence

Evidence Before The Court

In the further alternative, the respondents seek a declaration pursuant to s 41 of the Federal Court of Australia Act 1976 (Cth) that the agreement was frustrated or became void or unenforceable from 18 July 2008 (being the date that Freshtel ceased providing telecommunications services) and that the respondents ceased to have obligations under the agreement after this date. Evidence Lennmar’s evidence consists of the testimony and affidavits of Mr and Mrs Parton. The Partons claim that Lennmar agreed to accept telephone services from Freshtel for five years on the basis of a number of representations made by Freshtel. Those representations were to the following effect: That Lennmar would be liable to meet only the cost of telephonic charges in excess of its existing monthly telephonic charges; that Lennmar was required to use equipment supplied by Freshtel as part of the ‘package’; that Lennmar could purchase the equipment for a cost of $1 at the end of the contract period or return the equipment; that Lennmar was only entering into one contract; and that such contract was with Freshtel. In early November 2007 Mrs Parton had learnt that Freshtel had offered to an acquaintance a favourable contract for the supply of telephone services. As she believed it might be attractive, she contacted Freshtel. Later she received a phone call from Mr Howard Alexander of Freshtel. During the conversation Mrs Parton was asked the current charges being incurred by Lennmar for telephone charges and she informed Mr Alexander that Lennmar operated eight land lines and four mobile phones for the Capalaba Surgery and spent approximately $570 per month on phone calls. She said words to the following effect to Mr Alexander:We have 8 land lines and 4 mobiles and our monthly spend is approximately $570.00. We will see you on the 19th [of November 2007]. Also, we are not interested in getting any equipment, but getting cash instead. We are aware of someone else who got this sort of a deal. On or about 19 November 2007, Mr Alexander visited Mr and Mrs Parton (‘the Partons’) at their home office. Mr Alexander said words to the following effect:Fresh Telecoms are a telecommunication company who can provide customers with cheap telephone calls and free equipment. We basically rent telephone lines from Telstra or another big company and rent them to customers for cheaper rates which enables Fresh to give to you goodies like plasma’s [sic] and laptops. I know that when I spoke with Kieren the other day. She said you guys had a monthly spend of approximately $570.00 per month and you will get a credit of $570.00 per month over the equipment. Further, Mr Alexander stated: When you make your monthly payments each month, you will get credits which will offset your equipment cost each month. That way, you will only pay one invoice per month for the phone bill, keeping in mind that the equipment you will be getting is free.The TLL proposal Mr Alexander had prepared a proposal in writing which he brought to the meeting. A letter dated 19 November 2007 on the letterhead of Fresh Telecoms addressed to Glenn and Kieran Parton was attached to the proposal. The letter relevantly stated:RE: TELECOMMUNICATIONS PROPOSALThank you for the opportunity to provide a proposal for the telecommunications equipment.The rental on the system is based on our exclusive “Billing Credit” financing.The “Fresh Billing Credit” package allows you to offset the cost of your new equipment with the call usage that you are currently making. It actually gives you a substantial return for all those communications dollars that you have to spend to run your business.The call rates associated with this package are more than competitive with Telstra, Optus and others, in many cases, cheaper.We look forward to welcoming you as a client.In the meantime should you have any queries, please contact me on the number below.Yours faithfully,Howard AlexanderSales Executive

Decision

Reasons for decision

For these reasons which have already been described above at [250]–[259], Lennmar has established that TLL engaged in conduct within s 9(2)(j) which is unconscionable. It follows that relief may be granted pursuant to s 7 of that Act.CONCLUSION The Court has found that TLL succeeds in its claim, but that Lennmar and Mr Parton succeed in their cross-claim with respect to several issues. Significantly, Lennmar and Mr Parton are entitled to rely upon the provisions of s 73(4) of the TPA to offset its liability to TLL. The sum of $8,500 received by Lennmar was paid by Freshtel, not by Lennmar, and accordingly this sum is not relevant to the calculation of TLL’s loss and damage. The Court directs the parties to confer to formulate declarations and orders which will reflect the findings of the Court.

Ratio Decidendi

Legal Principle Established

Lennmar submits that clauses of the Vendor Referrer Agreement demonstrate that the provision of ‘Services’ was a critical component of the basis upon which the parties entered into the rental agreement, such that cessation of services by Freshtel frustrated the contract between Lennmar and TLL. Lennmar relies upon the observations of the High Court of Australia in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 and also upon British Movietonews v London and District Cinemas Ltd [1952] AC 166. In the latter decision Simon VC discussed the concept of a ‘fundamentally different’ situation and said at 185:The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate–a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point–not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation.Consideration There exists a ‘close analogy’ between the doctrine of frustration of contract, and avoidance of a contract resulting from mutual mistake: see Chitty on Contracts, General Principle (26 Ed) at [350]. In this claim however, Lennmar has specifically eschewed any issue of mistake. Frustration exists when, without the fault of any contracting party, the contractual obligations are unable to be fulfilled because the circumstances in which the obligations are to be performed are so radically different from those contemplated by the parties that performance of the contractual obligations would render a thing radically different than that contemplated by the parties: see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 357. The rental agreement between Lennmar and TLL does not suggest that its performance was contingent upon a condition that Freshtel would continue to provide telephone services to Lennmar. The agreement between TLL and Lennmar was one which related to the rental of office equipment, whereby TLL would lease rental equipment to Lennmar in consideration for Lennmar paying a specified amount every month. The fact that the amount that Lennmar was required to pay was in some way linked to the amount that Lennmar spent on phone services did not make the performance of the agreement conditional upon the continued performance of the agreement between Lennmar and Freshtel. Furthermore, cl 22 of the ‘Terms & Conditions’ states:22. SERVICESIf services of any description are to be provided by any person (whether that person be the supplier of the Equipment or otherwise) in connection or in conjunction with the Equipment including without limitation any maintenance, repairs, insurance, software, communications, consumables, information, data, replacement packs, updates, licenses or other matters (‘Services’) and notwithstanding that without the provision of such services the equipment is or may become wholly, substantially or partially inoperable to be used for any purpose for which it is designed or purchased, then you specifically acknowledge that:a. Neither Technology Leasing Limited nor any of its associated persons, corporations or entities has any responsibility whatsoever to the client for the provision of such services;b. Any failure by any person to provide such services (either wholly or in an incompetent or unsatisfactory manner) or any dispute which you might have with the provider of such Services will not in any way release the client from the equipment [sic: obligation] for the client to pay the rent and other moneys which the client has agreed to pay to Technology Leasing Limited under the Rental Agreement or the observance and performance of the client;c. No representation, undertaking, understanding or agreement has been made with or given to the client prior to the Rental Agreement being entered into that any such Services would be provided to the client by Technology Leasing Limited or any of its associated persons, corporations or entities.