//
[2020] VSC 388
General information, not legal advice.
Supreme Court of Victoria
2020-06-26
Richards J
Original judgment source is linked above.
ADMINISTRATIVE LAW - Appeal from orders of Victorian Civil and Administrative Tribunal in proceedings under Australian Consumer Law and Fair Trading Act 2012 (Vic) - Whether Tribunal denied appellant natural justice by deciding claim on a basis not pleaded or argued - Whether Tribunal denied appellant natural justice by refusing adjournment application - Tribunal's jurisdiction to determine 'consumer and trader dispute' - Australian Consumer Law and Fair Trading Act 2012 (Vic), ss 182, 184 - Victorian Civil and Administrative Tribunal Act 1998 (Vic), s 148.
1 Between 2012 and 2018, A&H Natoli Pty Ltd and Organic Oz Pty Ltd operated a green grocery business from leased premises in Centre Road, Bentleigh East. Tony Natoli was the director of both of these Natoli companies, and his wife Helen Natoli worked in the business. By 2014, the business had run into financial difficulties and the Natoli companies were in dispute with their landlord.
2 The Natolis met Irena Spaleta and her husband Bob Spaleta through the soccer club at which their sons played. They were introduced by another soccer parent, who suggested that Mrs Spaleta might be able to help the Natolis with the dispute with their landlord. She agreed to assist, and was able to negotiate a resolution to the dispute.
3 Mrs Spaleta then offered to provide the Natoli companies with further assistance in managing their finances. This arrangement continued for about a year, ending in late 2015. By 2017, the Natoli companies were again in financial trouble. Mrs Spaleta provided further assistance in managing their expenses. The terms on which she agreed to do this are in dispute.
4 On 30 March 2018, a company called Teen Entertainment Enterprise Network Pty Ltd was incorporated. Its sole director was Mrs Spaleta's mother, Stefanija Posaric.
5 On 4 April 2018, the Natoli companies entered into a written agreement with Teen, 'for the provision of exclusive management consultancy services'. The April 2018 agreement provided for Teen to provide a wide range of management services to the Natoli companies, on fairly unusual terms. Teen was to receive all proceeds of the Natoli companies' business, to be managed and retained 'for management dues', and could invest in the business as it found fit. It was to pay all business expenses, including rent and outgoings under the lease, and also agreed to pay existing supplier debts of $37,958.77. From 4 April 2018, Teen was to engage and manage all staff, and all new stock and equipment purchased by the business would be owned by Teen. A&H Natoli Pty Ltd was to remain the leaseholder of the premises, and Mr Natoli was to be engaged in the business and 'receive payment for his engagement from the proceeds of the business'. The Natoli companies were to provide Teen with the keys and security system codes for the premises, computer passwords and logins, and point of sale system codes. A breach of the agreement by the Natoli companies would result in ownership of the business vesting in Teen.
6 The April 2018 agreement also provided that the Natoli companies would secure payment for the services to be provided and investments to be made by Teen, by providing security in the form of a charge over the business. On 7 May 2018, Mr Natoli, on behalf of the Natoli companies, executed a deed of charge in favour of Teen and Mr Spaleta. The May 2018 charge provided a charge over all of the Natoli companies' 'right title and interest' in the business, 'as security for the due and punctual payment' for the services to be provided by Teen and Mr Spaleta. On 30 May 2018, Teen registered the May 2018 charge over the Natoli companies' business on the Personal Properties Securities Register.
7 Separately, on 4 April 2018, Mrs Natoli had executed a deed of charge in favour of Mrs Spaleta, Mr Spaleta, and Teen. The April 2018 charge secured payment for the services to be provided by Teen and the Spaletas, by way of a charge over the Natoli family home in Hughesdale, which is in Mrs Natoli's name.
8 On 18 May 2018, the Natoli companies purported to terminate the April 2018 agreement. A letter from their solicitors to Ms Posaric asserted that the agreement was a sham and an unfair contract within the meaning of the Competition and Consumer Act 2010 (Cth).
9 The Natoli companies commenced a proceeding in the Victorian Civil and Administrative Tribunal in June 2018.[1] They claimed that the April 2018 agreement was an unfair contract 'within the provisions of the Competition & Consumer Act 2010 (Cth), Schedule 2 of Australian Consumer Law and the _Treasury Legislation Amendment (Small Business & Unfair Contract Terms) Act 2015 (_Cth)'. The relief sought included declarations that the April 2018 agreement was properly terminated on 18 May 2018, and that the May 2018 charge was of no force or effect. They also sought an accounting and reimbursement of all funds received by Teen, less any payments properly made.
10 Teen filed a defence and, in a separate proceeding,[2] brought a counterclaim against the Natoli companies. Teen claimed that:
(a) Mrs Natoli was an agent and representative of the Natoli companies, and a person who exercised control over their business as if she were a director.
(b) In April 2017, the Natoli companies had entered into an agreement with Mrs Spaleta for the supply of managerial services, for which they would pay $200 per hour, and $500 per hour in respect of a notice of default served by the landlord.
(c) In March 2018, Mrs Spaleta 'nominated' Teen pursuant to the agreement.
(d) The 'parties' had agreed on an assignment of the business and the lease to Teen, upon which it would take over the rental bond and the supplier debt for the business.
(e) The April 2018 agreement was an addendum to the existing agreement between the parties.
(f) The Natoli companies had breached the agreement and the addendum agreement by failing to hand over management of the business to Teen, including by failing to provide it with access to the revenue of the business, staff contact details, and other information. Other breaches alleged were that the Natoli companies had dealt with funds as they pleased, used business proceeds for payment of personal expenses, and transferred proceeds to personal loan accounts.
(g) The Natoli companies, and Mr and Mrs Natoli, had ample time and opportunity to seek legal and financial advice about the agreement and the addendum agreement. They had been involved in commercial trading activity and property transactions for over 20 years, had an accountant and business adviser, and had used the services of lawyers.
Teen sought relief including specific performance of the agreement and the addendum agreement, and damages for breach of contract.
11 Both proceedings were listed for hearing in the Civil Claims List of the Tribunal, commencing on 18 February 2019, before Member Johnson. The Natoli companies were represented by their solicitor, Bill Karvela of Rigby Cooke, and Teen was represented by Mr Spaleta. At the start of the hearing, Mr Spaleta sought an adjournment, on the basis that the Natoli companies had not provided discovery of various categories of documents, contrary to an order for discovery made on 13 August 2018. The application was refused, and the hearing proceeded over four days in February and May 2019, with written submissions filed by the Natoli companies on 24 June 2019, and by Teen on 20 July 2019.
12 On 30 August 2019, the Tribunal made the following orders:
13 The orders were accompanied by written reasons for decision.[3] The Tribunal concluded that the April 2018 agreement was not an unfair contract for the purposes of Part 2-3 of the Australian Consumer Law (ACL), because it was not a standard form contract. However, the Tribunal found that there had been unconscionable conduct within the meaning of s 21 of the ACL. On that basis, the Tribunal considered it had power to make the orders set out above, under s 184 of the Australian Consumer Law and Fair Trading Act 2010 (Vic).
14 After receiving additional evidence and submissions from the parties, the Tribunal made further orders on 23 September 2019, that:
15 In this proceeding, Teen seeks leave to appeal against the orders of the Tribunal set out above, under s 148(1) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act). The questions of law that Teen seeks to raise on appeal are:
(1) Whether the Tribunal denied Teen natural justice or procedural fairness in:
(a) deciding the case on the basis of unconscionable conduct contrary to s 21 of the ACL, when a claim under that section was the subject of neither pleading, evidence or submission of any party, nor of the questions identified for determination by the Tribunal's orders of 28 May 2019;
(b) refusing on 18 February 2019, the first day of the trial, to adjourn the trial for the Natoli companies' failure to discover their financial records, which Teen needed to prove aspects of its case; and
(c) the Tribunal's conduct of the proceeding generally.
(2) Whether the Tribunal had jurisdiction to set aside the April 2018 charge, when three of the parties to it were not party to the proceeding in the Tribunal, no claim to set it aside was ever pleaded, and the Natoli companies lacked standing to seek that it be set aside.
(3) Whether the Tribunal had jurisdiction to set aside the May 2018 charge, when Mr Spaleta was not a party to the proceeding in the Tribunal.
16 For the reasons that follow, I have concluded that leave to appeal should be granted and the appeal should be allowed.
17 After setting out the factual background and the procedural history, the Tribunal identified the following issues for determination:[4]
18 As to the terms of the agreement, the Tribunal identified two contentions made by Teen that were disputed by the Natoli companies:
(a) first, that the April 2018 agreement was an 'addendum' to an earlier oral agreement between Mrs Spaleta and the Natoli companies in April 2017; and
(b) second, that there were terms to be implied into the April 2018 agreement, to the effect that once the arrears under the lease had been paid, the lease and the business would be transferred to Teen.
19 The terms of the April 2018 agreement were set out at length, after which the Tribunal noted:[5]
20 The Tribunal concluded that the evidence did not support Teen's contention that there was an oral agreement made in April 2017 that Mrs Spaleta would provide services to the Natoli companies in return for fees. On that basis, it rejected the assertion that the April 2018 agreement was an addendum to an earlier agreement.[6] It found that the written agreement signed in April 2018, together with the associated deeds of charge and confidentiality, constituted the entire record of the agreement between the parties.[7]
21 The May 2018 charge over the assets of the Natoli companies' business and the April 2018 charge over the family home were then referred to. In relation to the April 2018 charge, the Tribunal noted that the April 2018 agreement did not contemplate such a charge being executed by Helen Natoli, who was not a party to the April 2018 agreement.[8]
22 Applying the BP Refinery test,[9] the Tribunal concluded that it would not be reasonable and equitable to imply the asserted implied terms into the April 2018 agreement. The Tribunal was not satisfied that there was agreement between the parties to transfer the Natoli companies' business to Teen.[10]
23 The Tribunal noted that the agreement was significantly in Teen's favour:[11]
24 By contrast, Teen bore little risk, being in a position to determine what work Mr and Mrs Spaleta would do to improve the performance of the business, and having security for payment for its services. Breach of the agreement by the Natoli companies would result in the business vesting in Teen.[12]
25 The Tribunal rejected the Natoli companies' contention that the April 2018 agreement contained 'unfair terms' for the purposes of Part 2-3 of the ACL. This was because, although the Tribunal found that the agreement was a 'small business contract', it was satisfied that it was not a 'standard form contract'. Having regard to the matters listed in s 27(2) of the ACL, the Tribunal found that there was an imbalance of bargaining power in Teen's favour, that the contract was prepared by Mr Spaleta without input from the Natolis, and that the Natoli companies were not given an effective opportunity to negotiate the terms of the agreement. However, the Tribunal accepted that the April 2018 agreement was a 'bespoke' contract prepared specifically for the transaction, and for that reason was not a 'standard form contract'.[13] This conclusion is not disputed on appeal.
26 The Tribunal next considered whether Teen had behaved unconscionably. Sections 20, 21, and 22 of the ACL were set out. As a contract for the supply of services, the April 2018 agreement was found to come within the scope of s 21 of the ACL. The Tribunal concluded that there was unconscionable conduct by Teen, within the meaning of s 21, for the following reasons:
(a) The Natoli companies were in a weaker bargaining position in relation to Teen. They were in financial difficulties and, through the Natolis' trust in them, the Spaletas had gained a detailed insight into the companies' financial performance. They had no involvement in drafting the agreement, and were given no opportunity to obtain legal advice before signing it.[14]
(b) The April 2018 agreement contained conditions that were not reasonably necessary for the protection of Teen's legitimate interests, for example the condition that the business would vest in Teen in the event of any breach by the Natoli companies. Further, the April 2018 charge required from Mrs Natoli was not contemplated by the agreement.[15]
(c) The description of the April 2018 agreement as an agreement for services, when Teen's objective was to acquire the business, was both a misrepresentation and an unfair tactic.[16]
(d) Mr Spaleta applied duress in the performance of the contract, when he insisted to Mr Natoli that the charge over the business assets was necessary to avoid bankruptcy proceedings. There was no evidence that such proceedings had been proposed.[17]
(e) Mr and Mrs Spaleta misrepresented themselves as persons having expertise in marketing and social media, with skills in turning around a failing business.[18]
27 The Tribunal concluded that this evidence clearly supported a finding of unconscionable conduct.[19] This finding is challenged by Teen on appeal.
28 The consequence of this finding was that the Natoli companies' termination of the April 2018 agreement was effective, and that Teen was not entitled to specific performance or damages.
29 The Tribunal concluded by outlining how it proposed to ascertain the amount to be paid by Teen to the Natoli companies as a result of the termination of the agreement. No complaint is made about that aspect of the Tribunal's reasons, or the calculations set out in the Tribunal's further decision of 23 September 2019. Teen's complaints in this appeal focus on the fairness of the hearing and the finding of unconscionable conduct, and the Tribunal's jurisdiction to declare the charges of no force or effect.
Tribunal's consumer and trader dispute jurisdiction
30 Chapter 7 of the Fair Trading Act confers jurisdiction on the Tribunal in respect of a 'consumer and trader dispute', as defined in s 182 of the Fair Trading Act:
What is a consumer and trader dispute?
(1) In this Chapter a consumer and trader dispute is a dispute or claim arising between a purchaser or possible purchaser of goods or services and a supplier or possible supplier of goods or services in relation to a supply or possible supply of goods or services.
(2) For the purposes of subsection (1), a dispute or claim includes any dispute or claim in negligence, nuisance or trespass that relates to the supply or possible supply of goods or services but (except as provided in subsection (3)) does not include a dispute or claim related to a personal injury.
(3) For the purposes of subsection (1), a dispute or claim includes a claim related to personal injury if -
(a) the claim is for an amount not exceeding $10 000; and
(b) the claim relates to a supply or possible supply of goods or services; and
(c) the supply or possible supply of goods or services is the subject of a related consumer and trader dispute.
Settlement of consumer and trader disputes or small claims
(1) VCAT may hear and determine a consumer and trader dispute.
(2) VCAT may do one or more of the following in relation to a consumer and trader dispute -
(a) refer a dispute to a mediator appointed by VCAT;
(b) order the payment of a sum of money -
(i) found to be owing by one party to another party;
(ii) by way of damages (including exemplary damages and damages in the nature of interest);
(c) vary any term of a contract;
(d) declare that a term of a contract is, or is not, void;
(e) order the refund of any money paid under a contract or under a void contract;
(f) make an order in the nature of an order for specific performance of a contract;
(g) order rescission of a contract;
(h) order rectification of a contract;
(i) declare that a debt is, or is not, owing;
(j) make an order for the possession of land;
(k) order a party to do or refrain from doing something.
Example
If the supplier has default listed the purchaser with a credit reference agency in relation to a perceived debt owing, VCAT, in addition to declaring that there is no debt owing, may order the supplier to contact the credit reference agency and have the default listing removed from the purchaser's credit record.
(3) The power to make an order under subsection (2)(j) may only be exercised by a judicial member of VCAT.
(4) In awarding damages in the nature of interest, VCAT may base the amount awarded on the interest rate fixed from time to time under section 2 of the Penalty Interest Rates Act 1983 or on any lesser rate it thinks appropriate.
32 The grounds on which the Tribunal may make an order under s 184 are diverse. They include contract, tort, and equity.[20] They extend to breach of an applicable statutory provision, including provisions of the ACL.
33 The ACL is Schedule 2 to the Competition and Consumer Act 2010 (Cth). Chapter 2 of the ACL provides general protections against misleading and deceptive conduct, unconscionable conduct, and unfair contract terms. The ACL applies as a law of Victoria, by virtue of the Fair Trading Act.[21]
34 The Tribunal's jurisdiction to hear and determine a consumer and trader dispute is concurrent with the jurisdiction of Victorian courts in commercial and consumer matters. In many respects, the Tribunal is the primary forum in Victoria for adjudicating consumer and trader disputes. Once an application has been made to the Tribunal in respect of such a dispute, the issues in dispute are not justiciable by a court, except in limited circumstances.[22] The Tribunal's jurisdiction to hear and determine consumer and trader disputes is limited by the fact that, not being 'a Court of a State', it cannot exercise federal jurisdiction.[23]
35 While Chapter 7 of the Fair Trading Act confers very broad powers on the Tribunal in respect of a consumer and trader dispute, it provides little guidance as to the circumstances in which those powers may be exercised. Section 186 provides that the Tribunal can only make an order to resolve a consumer and trader dispute on the application of a party to the dispute, or the Director of Consumer Affairs Victoria. Otherwise, it may appear as though there are no legal criteria that govern the exercise of the Tribunal's powers under s 184.
36 Additional powers are conferred on the Tribunal by s 185, in relation to a 'consumer dispute' and a 'trader-trader dispute'. Those powers include a power to make any order the Tribunal considers fair. At one time, a power in these terms was thought to enable the power to be exercised by reference to 'the general principle of fairness', guided but not confined by statute and the common law.[24] It is now clear, however, that the power is more constrained.
In my opinion, although the matter is not free from difficulty, the tribunal is required, when deciding the merits of a case, to apply the law and not merely be guided by it. Any flexibility relates only to the form of the order and of course, to procedural and evidential matters. If this was not the case absurd results could follow. To the extent that the Supreme Court of Victoria has concurrent jurisdiction different results could follow. The court, not having the benefit of s 109, would have to apply the law while the tribunal could do what it considered fair even if the law was to the contrary. Further, such a result would encourage idiosyncratic notions of fairness and justice. If the intention was to exclude the operation of the law (as a matter of substance and not merely procedure or form) a specific section to such effect, clear and unambiguous, should have been inserted.
38 This approach has since been taken by other judges of this Court, in relation to similarly broad powers conferred on the Tribunal by other enabling legislation.[27] A power to make any order the Tribunal considers fair must be exercised in accordance with law.
39 In my view, the same constraint applies to the Tribunal's powers under s 184 of the Fair Trading Act, for the reasons given by Sifris J in Bosnich. While the Tribunal has very considerable flexibility as to the form of its orders, it may only make an order under s 184 where there is some legal basis for doing so.
40 This poses some challenges for members of the Tribunal sitting in its Civil Claims List. They are required to act fairly and in accordance with the rules of natural justice, and to conduct each proceeding with as little formality and technicality, and as much speed, as proper consideration of the matter permits.[28] They are able to make a broad range of orders on a broad range of grounds, some of which are highly technical. The parties may not have identified with any precision the legal basis for the relief that is sought. Very often, at least one of the parties to a dispute is not legally represented. In these circumstances, it can be difficult to strike the right balance between fairness, informality, speed, and legal principle.
Natural justice - Determination of unconscionable conduct
41 It is not controversial that a question whether the Tribunal has denied natural justice or procedural fairness to a party is a question of law.[29] Nor is it controversial that it is a denial of natural justice for the Tribunal to decide a case on a ground that has not been raised by the parties, without drawing it to their attention and inviting submissions about it.[30]
42 Teen submitted that the Tribunal's finding that it had engaged in unconscionable conduct was unfair, because the Natoli companies had not made a claim of unconscionable conduct in their points of claim, in their oral opening submissions, or in their written closing submissions. The word 'unconscionable' was mentioned only three times in the hearing, which was not enough to put Teen on notice that the Tribunal might decide the case under ss 20 or 21 of the ACL. If the Tribunal proposed to decide the case on a ground not raised by the parties, it should have notified the parties of its intention and invited submissions concerning that ground. The questions that the Tribunal directed the parties to address in their written closing submissions did not include whether Teen had engaged in unconscionable conduct. As a result, Teen was denied an opportunity to present evidence on the question of unconscionability by reference to the considerations identified in s 22 of the ACL, and to make submissions as to whether its conduct was unconscionable.
43 The submission for the Natoli companies was that the April 2018 agreement was totally unfair to them, and that the overall unfairness of the arrangement with Teen was the focus of the entire hearing. They identified a number of references to unconscionable terms or conduct in correspondence, during the hearing, and in their final submissions, that they submitted were sufficient to put Teen on notice that unconscionability was an alternative basis for their claim.
44 I have examined the correspondence on behalf of the Natoli companies, the pleadings in both proceedings, the transcript of the hearing, and the closing submissions. Having done that, I accept Teen's submission that the Natoli companies did not advance a claim of unconscionable conduct before or during the Tribunal hearing. Their claim for relief was based on their contention that the April 2018 agreement was an unfair contract for the purposes of the ACL. I note in particular the following:
(a) No allegation of unconscionability was made in the termination letter of 18 May 2018.
(b) The Natoli companies' particulars of claim filed with the Tribunal on 13 June 2018 did not allege that Teen had engaged in unconscionable conduct, and did not refer to ss 20 or 21 of the ACL. The particulars to paragraph 7 stated:
At the hearing of this Application, the Applicants will rely on the full terms of the Agreement to demonstrate it is an unfair contract within the provisions of the Competition & Consumer Act 2010 (Cth), Schedule 2 of Australian Consumer Law and the _Treasury Legislation Amendment (Small Business & Unfair Contract Terms) Act 2015 (_Cth).
(c) On 23 July 2018, Mr Spaleta emailed Mr Karvela, seeking particulars of that paragraph. He asked the Natoli companies to specify which provisions of the legislation they relied on and alleged had been breached. Mr Karvela replied 'We have no obligation to do so'.
(d) The Natoli companies' defence to Teen's counterclaim, dated 14 November 2018, did not allege that Teen's conduct was unconscionable.
(e) Their opening submission at the hearing on 18 February 2019 did not include an allegation of unconscionability.
(f) The written closing submissions of the Natoli companies put their case squarely on the basis that the April 2018 agreement was an unfair contract, by reference to ss 23, 24, and 27 of the ACL. There was also reliance on s 18, in relation to the allegation that Teen had misrepresented the expertise of Mr and Mrs Spaleta. There was no mention of ss 20, 21, or 22 of the ACL.
45 There were some scattered mentions of unconscionability leading up to and during the hearing:
(a) In a letter to the Registrar of the Tribunal dated 4 February 2019, seeking to vacate the hearing date of 18 February 2019, the Natoli companies' solicitors said that 'the primary argument of the Natoli Group is that the agreement dated 4 April 2018 is void for uncertainty and is void on the grounds of unconscionability.'
(b) During the first day of the hearing, while Mr Spaleta was cross-examining Mr Natoli, the Tribunal member queried the relevance of a question. In the course of discussion she said:[31]
And how does that have a bearing on the question of whether the contract that was signed was unconscionable or the question of whether you have an entitlement to damages under the contract? There may be an answer to that, but I don't see it yet.
(c) On the third day of the hearing, there was discussion of a number of summonses for the production of documents, one of them addressed to St Vincent De Paul, and whether the documents were relevant to any issue in the proceeding. Mr Spaleta maintained they were relevant to Teen's counterclaim, and its allegation that the Natolis were not impoverished at the time they signed the April 2018 agreement. The Tribunal member referred to arguments put by Mr Karvela about whether the agreement 'falls within the category of a contract of unfair terms or ... unconscionable conduct'.[32] There followed a discussion of the legal basis of the Natoli companies' claims, during which Mr Spaleta said that he had read the ACL and understood that 'in essence they're saying it's unfair or it's a standard form contract'.[33]
(d) On the final day of the hearing, while Mr Karvela was cross-examining Mr Spaleta, he asked some questions about the basis on which the April 2018 agreement could be terminated. Part of that exchange was as follows:[34]
MR KARVELA: I should go back, under 4 April agreement 2018. Apart from relying upon unconscionable provisions, can I terminate this agreement under a specific provision? Can you take me to - - -
MR SPALETA: Yes you can. The last, you could either do what your client has done - - -
MR KARVELA: No, no, no, answer the question, please.
MR SPALETA: Yes.
(e) The Natoli companies' written closing submissions used the words 'unconscionable' and 'unconscionability' in two places. The paragraphs in which those words appear were, however, addressing the contention that the April 2018 agreement was unfair, within the meaning of s 24(1) of the ACL.
46 None of this was sufficient, in my view, to put Teen on notice that the claim against it might be decided on the basis of unconscionable conduct, contrary to s 21 of the ACL.
47 There may be an overlap between an unfair contract for the purposes of Pt 2-3 of the ACL and conduct that is unconscionable within Pt 2-2. Evidence as to whether a contract is unfair and in a standard form, by reference to the matters listed in ss 24(1) and 27(2), may also be evidence of unconscionable conduct, by reference to the matters listed in s 22. However, the protections provided by Pt 2-2 and Pt 2-3 are conceptually distinct, and the provisions of each Part direct attention to different sets of considerations. A person who is defending an allegation that a contract is unfair cannot be expected to intuit that they must also meet an alternative claim of unconscionable conduct.
48 After the evidence had been completed, the Tribunal identified for the parties the issues to be addressed in their written closing submissions, as follows:
(a) Whether, as at 18 April 2018, there was a legally enforceable agreement between the parties?
(b) If there was a legally enforceable agreement, what were the terms and conditions of that agreement?
(c) If there was a legally enforceable agreement, what were the entitlements of Teen Entertainment Enterprise Network Pty Ltd under that agreement?
(d) Did any aspect of the agreement or circumstances affecting the agreement cause the agreement to be void or voidable?
49 It might have been open to the Tribunal at that point - or at any time before publishing its decision - to have asked the parties to make submissions about whether a finding of unconscionable conduct was open on the evidence. That did not occur, however, and neither party made submissions that addressed that issue.
50 The Tribunal erred in deciding the case on the ground that Teen had engaged in unconscionable conduct, when Teen did not have an opportunity to present evidence or make submissions in relation to that ground. Teen's first ground of appeal is established.
51 The appeal could be allowed on this ground alone. However, it is necessary to consider Teen's second ground of appeal in order to determine what orders should be made on the appeal. That is because not all departures from the rules of natural justice will necessitate a new hearing. There are cases in which an opportunity to be heard on an issue could have made no difference to the outcome, so that it would be futile to order a new hearing.[35]
52 The Natoli companies submitted that this was such a case, because the April 2018 agreement was so manifestly one-sided that there was no prospect of the Tribunal reaching a different decision. Teen's response was that it had no opportunity to address the considerations set out in s 22 of the ACL, in either its evidence or its submissions. It also complained that it was prevented from pursuing its case that the Natoli companies were not in a weaker bargaining position. This complaint is the subject of the second ground of appeal.
53 Orders for discovery were made in the Natoli companies' proceeding, as follows:
(a) On 18 June 2018, the Tribunal ordered each party to file and send to each other, by 30 August 2018, a list of documents relating to the questions in the proceeding. The order required discovery of any document on which a party relied, that adversely affected the party's own case or the other party's case, or that supported the other party's case.
(b) On 13 August 2018, the Tribunal ordered the parties to send to each other a list of all documents in their possession or control, or in the possession or control of an agent, relevant to the proceeding, and to make those documents available for inspection and copying on 24 hours written notice. This was to occur by 20 September 2018.
54 The Natoli companies did not file and serve a list of documents in response to either order. During October 2018, Teen requested them to provide discovery as ordered, to no avail.
55 The hearing of both proceedings was listed to start on Monday 18 February 2019. On 12 February 2019, Mr Spaleta wrote to Mr Karvela, identifying a number of categories of documents that he said should have been discovered by the Natoli companies. Mr Karvela responded that the documents were not relevant to his clients' points of claim. Later on 12 February 2019, Mr Spaleta wrote to the Tribunal, outlining the Natoli companies' failure to provide discovery and seeking an adjournment of the hearing. On the Friday afternoon before the hearing, Mr Karvela emailed a number of documents to Mr Spaleta, including the lease, the April 2018 agreement, the May 2018 charge, and the termination letter of 18 May 2018.
56 At the commencement of the hearing on 18 February 2019, Mr Spaleta applied for an adjournment because the Natoli companies had not made discovery of documents. He had prepared an affidavit that set out the background to the application, the order for discovery, and his attempts to obtain discovery from the Natoli companies. The affidavit included a detailed explanation of what additional documents Teen sought from the Natoli companies and why he said they were relevant to the issues in the proceedings:
The Applicants allege elements of criminal conduct relating to the general conduct in relation to the circumstances which led to the purported execution of the Agreement and the Charge (paragraph 11. of the letter dated 18 May 2018, upon which the Applicants rely in paragraph 8 of their Points of Claim).
Records of communications between the Applicants and the Respondent are discoverable;
The Applicants' and their representatives' banking records, the businesses' records of receipts and payments from 4 April 2018 and 18 May 2018, all NatPOS data, EFTPOS, Merchant Account statements and supplier orders, supplier invoices and supplier account statements sent/received via email and email correspondence with suppliers are discoverable.
(a) payment of a salary to Tony Natoli (paragraphs 22 and 23). Tony Natoli's bank account records are discoverable;
(b) financial mismanagement by the Applicants (paragraph 23, 31 and 32). The full banking record of the businesses and Tony and Helen Natoli, and the businesses' full NatPOS record is discoverable for the period April 2012 to 4 November 2018;
(c) 48,214 instances of "voids" and "no sales-open drawer" from the tills performed by Helen and Tony Natoli. The electronic records of the tills (the complete NatPOS record) are discoverable, as are the Tax Returns and BAS Statements of the Applicants for the period April2012 to date;
The affidavit ended with a request that the Tribunal make a self-executing order for discovery of documents.
57 The Tribunal member asked Mr Spaleta for the reason for seeking an adjournment. The following exchange took place:
MR SPALETA: That is the basis of the Affidavit.
MEMBER: Tell me about it, rather than making me read it.
MR SPALETA: It is, Member, there were orders made by the tribunal on 13 August for lists of documents to be prepared by the parties and filed and served on the 20 September. If I may take you to paragraph 10, Member of the Affidavit.
MEMBER: Well, perhaps just tell me in a few sentences why it is that you say now an adjournment is required.
MR SPALETA: So in essence, when the order was due, Teen filed and served its list of documents, Natolis did not.
MEMBER: Yes.
MR SPALETA: Natolis was put on notice by Teen on numerous occasions, on at least 4 occasions, to produce a list of documents - - -
MEMBER: Mmm-hmm.
MR SPALETA: - - - which they, including before Member Wilson at hearing on 15 October, and to date they have not produced this list of documents.
MEMBER: Mmm-hmm.
MR SPALETA: By not producing its list of documents it hasn't fulfilled its discovery obligation and this case is subject to, I'm sure Mr Karvela will have something different to say, it's subject to much evidence, and the, Teen is prejudiced by not having the opportunity to look at discovery made by the Natolis.
MEMBER: Very well, I will indeed ask Mr Karvela about his views on that, and then give you my [decision].
58 Mr Karvela made a submission to the effect that the only documents that were relevant were the April 2018 agreement and the May 2018 charge. He submitted:
We don't need to look at anything else, we don't need to go back and try and imply terms and make it into a, you know, allow parole evidence. It's not that sort of case. Teen has made this an absolute nightmare in terms of what they expect to see. It's not relevant, your Honour.
59 Without hearing further from Mr Spaleta, and apparently without reading his affidavit, the Tribunal member refused Teen's application for an adjournment. She identified that there was a claim by the Natoli companies and a counterclaim by Teen, and continued:
And so the situation before this tribunal is that it's for each of the applicants to prove their case and the burden of proof lies on each of the applicants and the, each party to the extent that it makes less of discovery than perhaps the other side might have thought was appropriate, the consequence of that is that the applicant relies only on the documents that have been discovered. Excuse me, in the tribunal any inadequacy of discovery leads to a potential inadequacy of the case.
That's not a matter that the tribunal makes any further orders in relation to. So the choice that's made by each party about the discovery, and yes the directions were given by the tribunal are to discover all the documents, but if that has not happened, it is still incumbent upon you to make out your case, and incumbent upon them to make out their case. So the consequence of that may be that there's a need for, if the discovery is inadequate, then it, if it turns out there may be a need for adjournment because there is no evidence or evidence is not before the tribunal it needs to be adjourned for that, then the party whose failed to make discovery will wear the consequences of that, because they will be a party who may under section 109 have behaved in a way that warrants there orders being made in relation to costs. So under the circumstances I don't see any reason, there's been plenty of notice this is the hearing date going ahead, the explanation for the discovery that's been made has been given and [they] have chosen to take their chances and rely upon and accept the consequences. So on that basis I propose that we continue, I'm not proposing to make any orders adjourning it. That's my decision.
60 On appeal, Teen submitted that the Tribunal's refusal of an adjournment denied Teen an opportunity to call and give evidence that would have been disclosed by the financial records of the Natoli companies, and hence denied it the opportunity to contest the Natoli companies' contention that they were in financial difficulty when they entered into the April 2018 agreement. Teen further submitted that natural justice was denied in the way that the Tribunal dealt with the adjournment application, in particular because the Tribunal member did not read Mr Spaleta's affidavit in support of the application.
61 The Natoli companies' submission before me was the same submission it made to the Tribunal - that the additional documents sought by Teen were not relevant and that no adjournment was necessary. This submission was made without reference to the matters raised in Teen's points of defence or its counterclaim.[36]
62 I accept Teen's submission that the Tribunal's refusal of its adjournment application was procedurally unfair. Teen had a legitimate complaint that the Natoli companies had not complied with the Tribunal's orders for discovery. Mr Spaleta's affidavit carefully identified, by reference to the points of claim and defence, issues on which the additional documents sought were said to be relevant. It was unfair for the Tribunal to dismiss the application after hearing only briefly from Mr Spaleta, without reading his affidavit or considering the matters raised in it. The Tribunal's reasons for refusing the application suggest that the member did not engage with the scope of the Tribunal's earlier orders for discovery, the nature of the additional documents sought, or their significance for the issues in the proceedings.
63 The categories of documents sought by Teen were unhelpfully wide, and it is unlikely that everything it sought was discoverable. However, some of it clearly was. Most notably, the Natoli companies' financial records from 2017 and 2018 were relevant to the issues of whether they were in financial difficulty, whether there was a significant imbalance in bargaining power between the parties to the April 2018 agreement, and whether (as Teen alleged in its counterclaim) the Natoli companies were in breach of that agreement. As it turned out, the Tribunal made findings adverse to Teen on each of these issues,[37] in circumstances where the Natoli companies had not complied with the Tribunal's discovery orders and Teen had not had access to documents relevant to its defence and counterclaim.
64 I am satisfied that Teen did not have a fair hearing in relation to determinative issues. Teen's second ground of appeal is made out.
65 I am also satisfied that this is not a case in which the demonstrated procedural unfairness could have made no difference to the outcome. A finding of unconscionable conduct was open on the evidence before the Tribunal, although it was not a finding that was compelled by that evidence. If Teen had been on notice that it had to meet a claim of unconscionability, and if it had been able to test the Natoli companies' claims that they were in financial difficulty, the Tribunal may well have had different evidence to consider, and may have made different findings. Regretfully, I am persuaded that I should set aside the Tribunal's orders and remit the proceedings to be heard and decided again, by a different member of the Tribunal.
66 It is therefore not necessary to determine Teen's further complaints that it was denied natural justice in the conduct of the hearing generally.
67 Teen appealed against the Tribunal's orders setting aside the April 2018 charge and the May 2018 charge on the ground that one or more parties to each charge were not parties to the Tribunal proceeding. Mrs Natoli, Mr Spaleta, and Mrs Spaleta were parties to the April 2018 charge, but were not parties to the Natoli companies' proceeding. Mr Spaleta was a party to the May 2018 charge, but was not a party to the proceeding.
68 While I consider that this argument has substance,[38] it is not necessary to determine it given that I have decided to allow the appeal on other grounds. The proceeding will be remitted to the Tribunal for further hearing, and there will be an opportunity to ensure that the parties to each charge are joined as parties to the proceeding.
69 I propose to make orders granting leave to appeal, allowing the appeal, setting aside the Tribunal's orders, and remitting both proceedings to be heard and decided again, by a differently constituted Tribunal. Before I make those orders, I will invite further submissions from the parties as to any further orders that are sought, and the costs of the appeal.
[1] Victorian Civil and Administrative Tribunal proceeding No. C4877/2018.
[3] A&H Natoli Pty Ltd v Teen Entertainment Enterprise Network Pty Ltd (Civil Claims) [2019] VCAT 1305 (Reasons).
[9] BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20, 26.
[20] Tucci v Victorian Civil and Administrative Tribunal [2010] VSC 425, [41].
[21] Australian Consumer Law and Fair Trading Act 2012 (Vic), Pt 2.2.
[22] Fair Trading Act, s 187. See also ss 188 and 189, which provide for proceedings commenced in a court to be stayed or dismissed where the Tribunal is a more appropriate forum for a consumer and trader dispute.
[23] Commonwealth Constitution, s 75; Judiciary Act 1903 (Cth), ss 38-39; Lustig v Qantas Airways Ltd [2015] FCA 253; (2015) 228 FCR 148, [49]-[68]; Meringnage v Interstate Enterprises Pty Ltd [2020] VSCA 30, [78]-[98], [144]-[148].
[24] Re Law and MCI Technologies Pty Ltd [2006] VCAT 415; (2006) 24 VAR 225, [39]-[41], in relation to s 109 of the former Fair Trading Act 1999 (Vic).
[25] (2010) 34 VAR 23 (Bosnich).
[27] In relation to s 165 of the Owners Corporations Act 2006 (Vic), see Energy Technology Australia Pty Ltd v Owners Corporation PS 439401J [2017] VSC 145, [73]-[79]; Elwick 9 Pty Ltd v Freeman [2018] VSC 234, [56]; and Acapulco Gold Pty Ltd v Wallis [2019] VSC 414, [33]. In relation to s 53 of the Domestic Building Contracts Act 1995 (Vic) see Versa-Tile Pty Ltd v 101 Construction Pty Ltd [2017] VSC 73, [10]; Shen v Hatfield [2019] VSC 360, [11] and Eliana Construction and Developing Group Pty Ltd (in liq) v Ramani [2020] VSC 115, [54].
[28] Victorian Civil and Administrative Tribunal Act 1998 (Vic) (VCAT Act), ss 97-98.
[29] GLS v PLP [2013] VSCA 127, [7].
[30] Keller v Drainage Tribunal [1980] VicRp 43; [1980] VR 449, 457; Morris v Riverwild Management Pty Ltd [2011] VSCA 283; (2011) 38 VR 103, [30]; Norville Nominees Pty Ltd v Strathbogie Shire Council [2008] VSC 339, [24]-[36]; Commissioner of State Revenue v Oakbee Pty Ltd (2013) 96 ATR 619, [31].
[31] Tribunal transcript, 18 February 2019, 149.
[32] Tribunal transcript, 27 May 2019, 269.
[33] Tribunal transcript, 27 May 2019, 270.
[34] Tribunal transcript, 28 May 2019, 546.
[35] Stead v State Government Insurance Commission [1986] HCA 54; (1986) 161 CLR 141, 145-6.
[37] Reasons, [88], [105], [113], [118].
[38] Teen relied on the following authorities in relation to the need to join as a party a person whose rights or liabilities may be affected by an order sought in a proceeding: News Ltd v Australian Rugby Football League Ltd [1996] FCA 870; (1996) 64 FCR 410, 523-6; State of Victoria v Sutton [1998] HCA 56; (1998) 195 CLR 291, [76]-[81] (McHugh J); John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, [131].
Teen Entertainment Enterprise Network Pty Ltd
A&H Natoli Pty Ltd [2020] VSC 388
(1977) 52 ALJR 20
(2015) 228 FCR 148
(2011) 38 VR 103
(1986) 161 CLR 141
(1996) 64 FCR 410
(1998) 195 CLR 291
(2010) 241 CLR 1