1IQ Pty Ltd (ACN: 134 734 614) and Anor v Delaney Associates Pty Ltd (ACN: 063 887 836) and Anor (Civil Claims) [2011] VCAT 671

1. As against the first respondent, the proceeding is struck out for want of jurisdiction.

1. Unless the applicants notify the principal registrar in writing by 4.00pm on 1 June 2011 that they wish there to be a hearing at which they may show cause why the whole proceeding should not be struck out for want of jurisdiction, the proceeding will be struck out on 2 June 2011 for want of jurisdiction.

1. If the applicants do so notify the principal registrar in writing by 4.00pm on 1 June 2011, there shall be a hearing, before me, at which the applicants must show cause why the proceeding should not be struck out for want of jurisdiction.

1. Each of the respondents is an auditor involved in audits by the Victorian Registration and Qualifications Authority ("VRQA") of two registered training organisations.
2. In this proceeding the applicants have complained about the way in which those audits have been conducted. They allege that they have suffered loss and damage for which, under section 159 of the Fair Trading Act 1999, they are entitled to recover compensation. They allege that the loss and damage is a consequence of the respondents' contravention of section 9 of the Fair Trading Act, which provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Although section 9 has now been repealed and replaced by a provision of the Australian Consumer Law it was in force at all material times.
3. The first respondent has applied for an order under section 75 of the VCAT Act 1998 dismissing or striking out the proceeding summarily as against it. The first respondent's contention in support of the application is that in the course of the audits it did not engage in any conduct "in trade or commerce", so no conduct on its part could be a contravention of section 9 of the Fair Trading Act which might enliven the Tribunal's jurisdiction under section 159 of the Fair Trading Act to allow recovery of loss and damage which was the alleged result of a contravention. In short, the contention is that the proceeding as against the first respondent should be struck out for want of jurisdiction.
4. I heard the application on 7 March 2011 and reserved my decision.
5. I begin by setting out the statutory context in which the audits began.

1. VRQA is a body corporate established under Part 4.2 of the Education and Training Reform Act 2006 ("the ETR Act"). Some of its functions are to accredit education and training courses, to authorise providers to deliver accredited courses and to maintain a State Register that includes registered education and training organisations and the accredited courses for which they are registered: sections 4.2.2(1)(c), (d) and (i)(iii). Another of its functions is to conduct audits of education or training organisations: section 4.2.2(1)(i).
2. The Commonwealth of Australia maintains a National Information Service, defined in section 4.1.1 of the ETR Act as the "National Register". Under Part 4.6 of the ETR Act, VRQA is required to maintain the State Register.
3. Section 4.1.1 defines "RTO" and "RTO standards" as follows:

RTO means a training organisation registered on the State Register and National Register;

RTO standards means the standards for registered training organisations adopted on 8 June 2001 by the Ministerial Council under the Australian Quality Training Framework endorsed by the Council on that date as amended from time to time by the Ministerial Council; ....

1. The first applicant 1IQ Pty Ltd is a manager engaged by an RTO, Deborah Whitehead, who was registered under the name Work, Life and Learning. On or about 20 January 2010 Deborah Whitehead made an application to VRQA under section 4.3.19 for amendment of the scope of her registration.
2. On or about 26 January 2010 the second applicant Australian Skills Registration Institute Pty Ltd applied to VRQA under section 4.3.15 for registration on the National Register, so that it might become an RTO.
3. Simon Smith is a director of both applicants.
4. Section 4.3.16(3)(c) of the ETR Act applied to the application to VRQA which the second applicant made. By virtue of section 4.3.19, section 4.3.16(3)(c) also applied to Deborah Whitehead's application to VRQA to extend the scope of registration. Section 4.3.16(3) provides:
   • (3) The Authority must not grant the application unless -
     • (a) ....; and
     • (b) ....; and
     • (c) a compliance audit has been conducted of the applicant that shows the applicant complies with the RTO standards (other than the legislative compliance standard).
5. During March and April 2010 VRQA retained the second respondent to conduct compliance audits of both applicants. (For ease of reference I shall treat the first applicant in this proceeding, 1IQ Pty Ltd, as if it were one and the same person as Deborah Whitehead, one of the applicants to VRQA. The fact that they were and are different persons does not matter for the purpose of my determination of the first respondent's application for an order for summary dismissal or striking out.) In turn the second respondent retained the first respondent, as a sub-contractor, to assist in the conduct of the compliance audits.
6. Section 4.2.7 of the ETR Act provides that VRQA may, by instrument under its common seal, delegate functions or powers to various specified persons or classes of persons. VRQA did not exercise or purport to exercise this power of delegation when it engaged the second respondent. VRQA did not delegate or purport to delegate to the second respondent the function of conducting compliance audits. It simply engaged the second respondent by contract. Whether there could have been or should have been a delegation is not my concern. All I am concerned to record is that there was no delegation, rather an engagement by contract.
7. In mid-May 2010 the respondents began their work for the purposes of the compliance audits of the applicants. Soon the applicants became aggrieved at the way in which the audits were being conducted. Those grievances led to the commencement of this proceeding. Nevertheless the respondents completed a draft audit report and submitted it to VRQA. The applicants became aware of the contents of the draft report. They were aggrieved about those contents too.
8. After the applicants had made unsuccessful interlocutory applications in the course of this proceeding, they withdraw their applications to VRQA concerning registration. So the audits were never completed, and the audit report remained in draft form.

1. In their initiating application to VCAT which commenced this proceeding, and in documents accompanying that initiating application, the applicants' emphasis was upon their grievances about the audit process. They alleged that the respondents were not following guidelines and requirements set out in the Australian Quality Training Framework handbook. They alleged that the respondents were not permitting the applicants to have any or any proper input into the auditing process, were not taking any notice of the applicants' objections about the process and were, in effect, denying the applicants a right to be heard. They sought to have the Tribunal make orders which would prevent the respondents from completing the audits and would require them to commence the auditing process afresh, conducting it in a proper manner.
2. Although in that initiating application and in that supporting documentation the applicants also alleged misleading and deceptive conduct of the respondents, instanced by statements made by one or both of them to Mr Smith during the course of the auditing work, those allegations of misleading or deceptive conduct originally occupied only a small place in the catalogue of allegations.
3. While this proceeding has been on foot, and no doubt as a result of what has transpired during the hearing of unsuccessful interlocutory applications, Mr Smith has come to realise that the Civil Claims List of VCAT is not the appropriate forum in which to make complaints about the process which VRQA has followed or which the respondents have followed, and that the jurisdiction which the Fair Trading Act confers upon the Tribunal in its Civil Claims List does not enable the Tribunal to interfere in that process in the way that the applicants had sought.
4. So the emphasis in the proceeding has changed. The applicants filed a document which ran to 33 pages and which could stand as their new Points of Claim. At all events the respondents have seemed content to regard it as such. The document has now confined (if that is the right word in connection with a document of 33 pages) the applicants' allegations to those of misleading or deceptive conduct. Earlier allegations about process and the denial of a right to be heard have fallen away. There are three forms of alleged misleading or deceptive conduct. First, there is the draft audit report itself, and its contents. A copy of the draft audit report is an appendix to the Points of Claim. The making of incorrect statements in the draft report is said to have been misleading or deceptive conduct. Secondly, the very act of presentation of the draft report to VRQA is said to have been misleading or deceptive. Thirdly, there are various statements which the respondents or their representatives made to Mr Smith which are alleged to have been misleading or deceptive. The applicants have claimed $46,000.00 as loss and damage suffered as a result of the conduct.

75. Summary dismissal of unjustified proceedings

(1) At any time, the Tribunal may make an order summarily dismissing or striking out all, or any part, of a proceeding that, in its opinion -

(a) is frivolous, vexatious, misconceived or lacking in substance; or

1. The principles governing the disposition of an application under section 75 for summary dismissal or striking out are well established. It is a very serious matter to dismiss or strike out a proceeding summarily, and the power to do so under section 75 should be exercised only where it is obvious that the case cannot possibly succeed. Otherwise an applicant is entitled to have his case fully heard and adjudicated upon at a final hearing. Moreover, the application for an order for summary dismissal or striking out should be dealt with on the footing that the Tribunal should assume that all facts alleged in the claim are able to be proved. In Forrester v AIMS Corporation [2004] VSC 506; (2004) 22 VAR 97 Kaye J confirmed that those principles, expressed by the Court of Appeal in State Electricity Commission of Victoria v Rabel [1998] 1 VR 102, apply to applications brought under section 75.
2. In accordance with those principles, I approach the first respondent's application by assuming, as the two applicants have alleged, that both respondents did engage in the conduct alleged in the Points of Claim, that that conduct was misleading or deceptive, and that the applicants suffered loss and damage as a result.
3. If, however, all the material put forward upon the hearing of the first respondent's application establishes clearly that the Tribunal lacks the jurisdiction to hear and determine the proceeding because the first respondent did not engage in that conduct "in trade or commerce" and so the conduct could not be a contravention of a provision of the Fair Trading Act, the consequence would be that this proceeding cannot possibly succeed and it would be appropriate to exercise the power to strike it out summarily.

1. In support of its application the first respondent filed an affidavit by Bernadette Delaney sworn on 28 January 2011 to which there were numerous exhibits. The affidavit dealt only with background non-contentious matters, many of which have been reflected in earlier paragraphs of these reasons.
2. The applicants had filed and served upon the respondents, and upon other persons, summonses to witness to produce documents at the hearing on 7 March 2011. It seemed that Mr Smith instigated those summonses because he believed that he needed to prove at the hearing the allegations that the applicants had made in the Points of Claim. As I have indicated above, and as I told Mr Smith during the hearing, such a belief was incorrect. I was obliged to assume that those allegations would be proved eventually. So the summonses were largely unnecessary. Partly for that reason and partly for other reasons I set aside one summons and struck out parts of another. But one of the summonses was addressed to Marlene Johnson and Mr Smith adduced some oral evidence from her. She is a person who has done work for the second respondent Susan Foster for the purposes of VRQA compliance audits. Her evidence was that she also advised RTOs, at their request, in relation to VRQA policies and procedure, and that whenever Ms Foster had engaged her she had invoiced Ms Foster for her services.
3. Although the applicants did not file any affidavit that was specifically in opposition to the first respondent's application, Mr Smith referred to various other affidavits that had been filed from time to time in the course of the proceeding and to a great deal of other documentary material, including documents that he had obtained from the website of James Nash, another person who appears to do auditing and advisory work similar to the work done by Ms Delaney, Ms Foster and Ms Johnson. From all that material, and from the evidence of Ms Johnson, I am prepared to infer that the two respondents conduct businesses and that, like Ms Johnson and Mr Nash, they are providing their services for reward not only to VRQA, if so requested, but also to RTOs and to other persons.
4. With one possible reservation, I consider that I am in as good a position as any Member presiding over a final hearing of the proceeding would be to determine whether the first respondent engaged in conduct "in trade or commerce" when performing the compliance audit work and otherwise conducting itself in the manner about which the applicants have complained in this proceeding. The possible reservation is this. A summons to witness to produce documents had been served upon Susie Wilson of Skills Victoria. Unknown to me, Ms Wilson had attended the hearing but, seemingly through some misunderstanding, had left the hearing at the luncheon adjournment, and had not returned. So I do not know what documents she might have produced or whether they could possibly have had any bearing upon the question whether either respondent was engaging in conduct "in trade or commerce" at the relevant times. I cannot imagine how they might have had a bearing upon that issue, but I do not know whether they might have.
5. As to that issue, I consider that the following matters have been established from evidence available at the hearing, from reasonable inferences from that evidence and from what I am obliged to assume to be true because the applicants have alleged them as facts:

(a) For the purposes of having their applications considered and approved by VRQA, the applicants paid fees to VRQA.

(b) Like Ms Johnson, each of the respondents carries on a business which includes giving advice and assistance to RTOs or prospective RTOs.

(c) Each of the respondents participated in the VRQA audits of the applicants in the course of that business.

(d) VRQA had engaged the second respondent Ms Foster under a contract which had expired on 31 August 2008. On 24 June 2010 VRQA extended, or purported to extend, that contract, and requested the second respondent to do work upon the audits of the applicants.

(e) The second respondent engaged the first respondent, as a sub-contractor, to assist with the auditing work.

(f) The first respondent invoiced the second respondent monthly for its services.

(g) In turn, the first respondent invoiced VRQA monthly for her services.

(h) There was no written consent by VRQA to the second respondent's sub-contracting of work to the first respondent.

(i) The conduct of the audits did not involve any exercise of VRQA's power of delegation.

1. Some of those matters may raise legitimate questions as to whether the audits were conducted properly and according to law. That is not my concern. What I have to determine is whether or not the conduct of the first respondent of which the applicants have complained was conduct in which the first respondent engaged "in trade or commerce".

1. I adhere to the view of the law which I expressed in Seachange Management Pty Ltd v Madgwicks and Ballantyne [2010] VCAT 599:
   1. Apart from stating in section 3 that "trade or commerce" includes a business not carried on for profit, the Fair Trading Act does not illuminate the phrase "in trade or commerce." A guide to the limits of the phrase has been given, however, in well known passage from the majority judgment of the High Court in Concrete Constructions (New South Wales) Pty Ltd v Nelson [1990] HCA 17; (1990) 169 CLR 594 at 604. The High Court was dealing with section 52 of the Trade Practices Act 1974 (Commonwealth), which is the analogue of section 9 of the Fair Trading Act except that the Commonwealth Act refers to a "corporation", not to a "person." The High Court stated that section 52 is concerned with

...the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character.

22. One must, therefore, discern the character of the activity or transaction in the course of which conduct takes place in order to determine whether a person who engages in that conduct is doing so "in trade or commerce." If the activity or the transaction bears a trading or commercial character, the conduct will probably take place "in trade or commerce."

1. The activity in the course of which the first respondent's conduct took place was the performance of a compliance audit. The context in which that activity occurred was VRQA's consideration of the applicants' two applications to it, and the statutory requirement for VRQA not to grant the applications until a compliance audit had been conducted that showed that the applicants had complied with RTO standards. The function of VRQA in fulfilling that requirement was an administrative function. The activity of VRQA had no trading or commercial character, even though the applicants paid fees to it. It was discharging a statutory obligation not to grant an application unless there had been the requisite compliance audit.
2. The ETR Act does not specify how a compliance audit is to be conducted, or by whom. It only requires that there has been one. Had the audits of the applicants been conducted by employees of VRQA, I think it would have been plain beyond argument that the conduct was not "in trade or commerce". The audits, however, were physically performed by an outside contractor and sub-contractor, with VRQA paying a fee to the contractor who in turn paid a fee to the sub-contractor. Moreover each of those persons was performing the work in the course of her or its business. Did those circumstances make any difference to the characterisation of the activity?
3. The first respondent submitted that they made no difference. It submitted that the decision of von Doussa in Chapman v Luminis (No 4) [2001] FCA 1106; (2001) 123 FCR 62 should be applied to determine the issue in its favour. In that case the relevant Minister had nominated Professor Saunders to prepare a report as to certain matters specified in section 10 of the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Commonwealth) ("the HPA"). Professor Saunders prepared and submitted the report. The case raised an issue whether statements made in the report constituted misleading or deceptive conduct in contravention of section 52 of the Trade Practices Act. They were capable of contravening that section only if Professor Saunders had engaged in conduct "in trade or commerce" when making them. Section 10(1) of the HPA provided:
   • (1) Where the Minister:
     • (a) receives an application made orally or in writing by or on behalf of an Aboriginal or a group of Aboriginals seeking the preservation or protection of a specified area from injury or desecration;
     • (b) is satisfied:
       • (i) that the area is a significant Aboriginal area; and
       • (ii) that it is under threat of injury or desecration;
     • (c) has received a report under subsection (4) in relation to the area from a person nominated by him and has considered the report and any representation attached to the report; and
     • (d) has considered such other matters as he thinks relevant;

In making her report, and in gathering information through the receipt of representations made by interested persons, or otherwise, Professor Saunders was carrying out the statutory function of a reporter under s 10(4) of the HPA. In my opinion that is not a function which is itself an aspect or element of activities or transactions which bear a trading or commercial character. That the reporter is carrying out work of a professional nature in performing that function, and is being remunerated for doing so, does not transform the function into an activity which bears a trading or commercial character.

At page 110 his Honour also decided that certain oral statements which Professor Saunders made were also made while that same statutory function was being carried out.

1. There is a difference between the Chapman case and the present case. In the Chapman case "a person nominated" by the Minister to make a report was a person who under the HPA was a necessary part of the administrative process of the Minister's considering of an application. There had to be a report, and the Minister had to nominate somebody to make it. That is why, in my view, von Doussa J regarded the reporter as "carrying out a statutory function". In the present case, there had to be a compliance audit, and so there had to be an auditor, but the ETR Act did not require the VRQA to nominate someone as an auditor. The statute itself did not confer upon a person engaged by contract to carry out the audit the status of carrying out the statutory function. Only VRQA was carrying out a statutory function.
2. Despite that difference, which makes the Chapman case a stronger case than the present case, in my opinion a similar process of reasoning leads to the conclusion that the activity in which the first respondent was engaged did not bear a trading or commercial character, with the consequence that the first respondent did not, while carrying out that activity, engage in conduct "in trade or commerce". The activity was the performance of the statutory obligation not to grant an application unless there had been a compliance audit. The obligation was VRQA's, and the activity was VRQA's, even though the first respondent was engaged in it. The facts that the first respondent was engaging in it in the course of conducting its business, and that money changed hands between VRQA and each of the respondents, and that in the course of its business the first respondent did other things that did bear a trading or commercial character, are not to the point. The focus has to be on the particular activity of the carrying out of an audit, in the context of VRQA's performance of a statutory obligation. That activity did not bear a trading or commercial character.
3. Having reached a clear view that the applicants cannot establish that the first respondent engaged in the conduct complained of "in trade or commerce", and that therefore there cannot have been a contravention of any provision of the Fair Trading Act that could attract the jurisdiction given to the Tribunal under section 159 of the Fair Trading Act, I conclude that the applicants cannot possibly succeed in this proceeding insofar as it is against the first respondent. The proceeding is without substance as against the first respondent, for that reason.
4. I grant the first respondent's application. I shall order that, as against the first respondent, the proceeding is struck out for want of jurisdiction.

1. The second respondent has not made any application, under section 75 of the VCAT Act or otherwise, for an order that the proceeding be dismissed or struck out as against her. As matters presently stand, however, and for the reasons given above, and subject to any further submissions, and any further evidence, I consider that it is just as clear that there is no jurisdiction to grant any relief against the second respondent, and that the entire proceeding ought to be struck out for want of jurisdiction.
2. I cannot do that without giving the applicants the opportunity to be heard about it, if they wish. I shall therefore make an order that unless they notify the principal registrar in writing by 1 June 2011 that they wish there to be a hearing at which they may show cause why the whole proceeding should not be struck out for want of jurisdiction, the proceeding will be struck out on 2 June 2011 for want of jurisdiction. If the applicants do so notify the principal registrar by 1 June 2011 there shall be a hearing, before me, at which the applicants must show cause why the proceeding should not be struck out for want of jurisdiction.