Commissioner for Consumer Protection v Unleash Solar Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 36 of 2015

JUDGE: MCKERRACHER J DATE: 15 APRIL 2015 PLACE: PERTH

REASONS FOR JUDGMENT 1 The Commissioner seeks leave to commence proceedings against Unleash Solar Pty Ltd (in liquidation) pursuant to s 471B of the Corporations Act 2001 (Cth) (CA). That provision is in the following terms: 471B Stay of proceedings and suspension of enforcement process While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. 2 In support of the application there is a detailed draft statement of claim to be filed in the substantive proceedings. 3 In the Substantive Proceedings, the Commissioner seeks relief, including an injunction pursuant to s 232 of the Australian Consumer Law (Cth), being Sch 2 to the Competition and Consumer Act 2010 (Cth) (ACL). Section 232(2) ACL provides that the Court may grant an injunction 'on application by the regulator or any other person'.

DOES THE COMMISSIONER HAVE STANDING? 4 Although the Commissioner is a regulator for the purpose of state legislation, namely, the Fair Trading Act 2010 (WA) (FTA), which applies the ACL as a law of the state of Western Australia, the Commissioner is not a regulator as such for the purpose of the ACL. Section 2 of the ACL defines the regulator in these terms: regulator: (a) for the purposes of the application of this Schedule as a law of the Commonwealth - means the Commission; or (b) for the purposes of the application of this Schedule as a law of a State or a Territory - has the meaning given by the application law of the State or Territory. (emphasis added) 5 Accordingly, in the Substantive Proceedings, the Commissioner seeks the injunctive relief in this Court in her capacity as 'any other person'. 6 A similar issue arose before Marshall J in Director of Consumer Affairs, Victoria v Dimmeys Stores Pty Ltd (2013) 213 FCR 559. In Dimmeys, the director sought a range of relief under the ACL and the Victorian version of the FTA, including injunctive relief under s 232 ACL. There was a challenge to the authority of the director to institute proceedings seeking injunctive relief on the basis that the director was not a person who falls within the definition of 'any other person' for the purpose of s 232(2) ACL. 7 In rejecting the submissions for the respondent that the proceedings should be dismissed on account of the director's lack of authority, Marshall J nevertheless noted that while the director was not the regulator, there was no reason why the relief could not be sought as 'any other person'. His Honour said (at [14]): The intergovernmental agreement was designed to effect a national approach to consumer protection laws. It is not inconsistent with such an approach for a state regulator to commence a proceeding relying on the ACL in respect of matters which primarily concern that state but also affect consumers in other states. The current proceeding is a typical example which mainly concerns conduct in Victoria but also to a lesser extent in neighbouring states. The intergovernmental agreement also provides for shared enforcement functions between federal, state and territory regulators. It is consistent with such a shared scheme for the Director to be considered to be "another person" for the purposes of the ACL. The intergovernmental agreement does not govern the resolution of that issue. However, there is no contrary intention expressed in the intergovernmental agreement which would support the conclusion that the Director would not be entitled to bring this proceeding. 8 I would respectfully agree that there is no reason to conclude that the Commissioner (like the director in Dimmeys) is 'any other person' for the purposes of the provision. 9 There is an obvious practical benefit in the Commissioner bringing a proceeding which collects many relatively small contraventions in circumstances where it is improbable that individuals could economically pursue such proceedings themselves. The Commissioner recognises, of course, that leave is required because of the safeguard that protects a company in litigation from being subjected to a multiplicity of actions which would be time consuming and expensive. The purpose of the application is to ensure that the assets of the company in liquidation are dealt with in accordance with the legislation so that no person derives an advantage inconsistent with the legislative scheme: see Ogilvie-Grant v East (1983) 1 ACLC 742 (at 744); Re Sydney Formworks Pty Ltd (in liq) (1965) 82 WN (Pt 1) (NSW) 558 per McLelland CJ in Eq (at 562).

DOES THIS COURT HAVE JURISDICTION? 10 As to jurisdiction, the Commissioner explains that she has chosen or needs to seek relief in this Court rather than the Supreme Court of Western Australia in view of this Court's more expansive overseas service provisions. The Supreme Court's long arm jurisdiction is apparently inapplicable to causes of action arising out of Commonwealth legislation, such as the ACL. 11 In Kent v Lechmere Financial Corporation [2002] WASC 75, Pullin J considered the requirements regarding service on persons outside the jurisdiction under the Rules of the Supreme Court 1971 (WA) (RSC). In particular, his Honour said (at [5]): … The rules made pursuant to s 167(1)(i) of the Supreme Court Act 1975, namely O 10 r 1(1), permit service on a defendant outside the jurisdiction. This is called "long arm" jurisdiction: Australian Securities & Investments Commission v Edensor Nominees Pty Ltd [2001] HCA 1 at [2]. The court, by these rules, has decided to supervise the extension of its jurisdiction and to ensure that only in appropriate cases will a writ issue for service outside the jurisdiction. Thus, O 5 r 9 requires an application to be made to the court for leave to issue a writ which is to be served out of the jurisdiction. The court has to grant leave before the proper officer seals the writ, whereby the writ "issues" (see O 5 r 6). Order 5 r 9 does not permit an order nunc pro tunc. Then, before service is effected, it is necessary to obtain the leave of the court to serve out of the jurisdiction, by showing that the subject-matter of the action falls within the description of one of the sub-paragraphs of O 10 r 1(1)… (emphasis added) 12 Relevantly, O 10 r 1(1) of the RSC does not appear to provide for service on persons outside the jurisdiction with respect to causes of action arising out of Commonwealth legislation, such as the ACL. On the contrary, a cause of action arising from a breach of the ACL which occurred in Australia has been held to fall under item 12 of r 10.42 of the Federal Court Rules 2011 (FCR) as a 'proceeding based on a contravention of an Act committed in Australia': see Perdaman Chemicals & Fertilisers v Griffin Coal Mining Company Pty Ltd [2011] FCA 1425.

IS THERE A SERIOUS QUESTION IN DISPUTE? 13 Leave will only be granted where the applicant has established that there is a serious question in dispute: Ogilvie-Grant (at 671). This does not mean that a prima facie case in the technical sense of that expression must be established, but rather that there is a solid foundation for the claim: Vagrand Pty Ltd (In Liq) v Fielding (1993) 41 FCR 550 per Wilcox, Burchett and Beazley JJ (at 556). 14 Substantial affidavit evidence in support of the application was provided by a senior investigator for the Commissioner, Mr Prout, who also briefly gave oral evidence at the hearing of the application. 15 I am satisfied that the totality of that material establishes, by reference to the draft originating application and amended draft statement of claim in the Substantive Proceedings, that there is a serious question in dispute as to a number of potential contraventions by Unleash Solar prior to its winding up. Mr Prout's affidavit of 5 February 2015 goes into some detail, annexing documents the Commissioner would tender in support of the allegations, and describes evidence the Commissioner proposes to lead in support of those allegations. In a supplementary affidavit affirmed on 6 March 2015, Mr Prout deposes to his belief as to the evidence the Commissioner will adduce and refers to several witness statements, draft witness statements and further documents in support. Essentially the complaints concern allegations of: (a) misleading conduct; (b) accepting payment and failing to supply; and (c) offering a gift and failing to supply. 16 The provisions of the ACL which it is alleged will be contravened are ss 18, 29(1)(g) and (m), 32(2) and 36(4). 17 It is unnecessary to go into detail in relation to the evidence in support, but a key item containing certain representations is a standard 'Feed in Tariff Letter' (FIT Letter). The FIT Letter contains statements which the Commissioner alleges conveys the relevant representations (FIT Representations). Those FIT Representations concern the effect of changes to the Western Australian government Feed in Tariff Scheme (FIT Scheme) on consumers who had ordered an Unleash Solar photovoltaic system, but who had not yet received it. Mr Prout also annexes a series of documents that explain the effect of the relevant changes to the FIT Scheme. Those documents explain that, contrary to the FIT Representations, consumers who installed a System after 30 September 2011 would receive a lower rate for energy they exported to the grid, with the effect that delays in installing Systems would potentially cost those consumers substantial amounts on an ongoing basis. 18 In relation to allegations concerning accepting payment, but failing to supply goods and services within a reasonable time in contravention of s 36(4) ACL, Mr Prout also outlines in his supplementary affidavit the facts, and deposes to his belief, in relation to the date and amount of the deposits paid to Unleash Solar, and the date of installation of any Systems supplied or, in some cases, of the fact that no System was ever supplied. 19 A complaint matrix has been prepared by the Commissioner, being her investigative record of the dates on which money was accepted by Unleash Solar from consumers, and the dates on which goods and services were provided, if ever. A copy of the enforceable undertaking given by Unleash Solar on 22 December 2011 is also annexed to the affidavit of Mr Prout. That Undertaking, in turn, annexes schedules which list consumers who paid a deposit for a System that had not been installed by Unleash Solar as at the date of the giving of the Undertaking. The Commissioner says that by giving the Undertaking, Unleash Solar admitted the date on which money was received from the persons named and that, at the date of the Undertaking, the relevant goods and services had not been provided. 20 Finally, there is evidence in the affidavits in support, (in particular the supplementary affidavit of Mr Prout), which supports the allegation of offering a gift and failing to supply. This information reveals the date of the offers of the gifts by Unleash Solar to particular consumers, and the date of supply of any gifts or the fact that no gift was ever supplied in some cases. 21 I am satisfied on the material in support that there is a serious question in dispute.

EXERCISE OF DISCRETION 22 The final question is whether I should grant the statutory relief sought in accordance with the exercise of discretion. There are a number of factors which may be relevant to the exercise of discretion to give leave under s 471B CA, including: (a) the amount and seriousness of the claim; (b) the degree and complexity of the legal and factual issues involved; (c) the stage to which the proceedings, if commenced, may have progressed; (d) whether a cross-claim arises out of the same factual matrix as the claims made in the primary proceedings; (e) the risk that the same issues would be re-litigated if the claims were to be the subject of a proof of debt; (f) whether the claim has arguable merit; (g) whether proceedings are already in motion at the time of liquidation; (h) whether the proceedings will result in prejudice to the creditors; (i) whether the claim is in the nature of a test case for the interest of a large class of potential claimants; (j) whether the grant of leave will unleash an 'avalanche of litigation'; (k) whether the cost of the hearing will be disproportionate to the company's resources; (l) delay; and (m) whether pre-trial procedures, such as discovery and interrogatories, are likely to be required or beneficial. 23 Other relevant factors include: (a) whether the action would interfere with the orderly winding up of the company; (b) whether the action would serve any sufficient purpose; and (c) whether the action would have any adverse effect upon the respondent and its shareholders. (See generally Swaby v Lift Capital Partners Pty Ltd [2009] FCA 749 per Gilmour J (at [29]) and Commonwealth v Davis Samuel Pty Ltd (No 5) (2008) 68 ACSR 336 per Refshauge J (at [30])). 24 It is unnecessary to consider every one of those factors, but there are some key issues.

Amount and seriousness of the claim 25 The first of these is that the Substantive Proceedings would involve allegations of multiple related contraventions of the ACL with substantial consequences for individual consumers. Notwithstanding those substantial consequences, it is improbable that any of those consumers would seek leave and, if leave were granted, pursue proceedings against Unleash Solar. In a general sense, the failure to provide promised goods and services within a reasonable time, or at all, is a fundamental breach going to the essence of the relationship between supplier and the consumer, so as to affect the daily dealings between supplier and customer. A failure to honour basic promises of this nature has the capacity to undermine the commercial relationships and trust on which the community depends. Misleading consumers about the effect of delay in supply also aggravates such a breach because it may cause consumers to accept a delay when they might otherwise have acted differently. Misleading consumers in relation to the effect of a government program is also likely to interfere with the effective administration of that program. All of those factors tend towards the conclusion that the alleged contraventions of the ACL are not trivial. Rather, to the contrary, the claims raise significant issues.

Degree and complexity of legal and factual issues 26 Notwithstanding this, the factual issues in the Substantive Proceedings are not particularly complex. The allegations under s 18 and s 29 ACL would appear to largely turn on a comparison between what is said in the FIT Letter, how the FIT Scheme actually operated at the relevant time, and how the FIT Scheme was intended to operate or known to be intended to operate at the time of the FIT Letter. The allegations under s 32(2) and s 34(6) would appear to turn substantially on evidence concerning when amounts were paid or when (or if) goods and services were provided. It is improbable that this evidence would be particularly extensive.

Prejudice 27 In relation to prejudice to the company or creditors, the Substantive Proceeding is effectively a regulator enforcement proceeding brought against Unleash Solar for the purpose of consumer protection (even though the regulator is, for present purposes, 'another person'). The proceedings do not represent a choice between an action and a proof of debt in the liquidation because the Commissioner seeks remedies that go well beyond those which would ordinarily be available in a liquidation. This is a factor previously taken into account, for example, in Australian Competition and Consumer Commission v Link Solutions Pty Ltd [2008] FCA 1790 per Bennett J (at [11]). 28 The Commissioner has undertaken to the Court not to take any step to enforce any order for the actual payment of money against Unleash Solar, whether by way of penalty, costs or otherwise without further leave of the Court. This undertaking by the Commissioner will sufficiently protect Unleash Solar and its creditors from the financial effect of the Substantive Proceedings, assuming that the liquidator does not expend inappropriately excessive resources in defending the proceedings.

Utility of proceedings and remedies 29 There is a question as to the utility of the Substantive Proceedings. The Commissioner stresses that the public interest in declarations and other orders sought by regulators against companies in liquidation is a relevant factor to the grant of leave: see Link Solutions per Bennet J (at [12]). Declarations are sought by the Commissioner in relation to contraventions of the ACL in order to: (a) record the Court's disapproval of the contravening conduct; (b) assist the Commissioner to carry out the duties conferred upon her by the FTA; (c) inform consumers of Unleash Solar's contravening conduct; and (d) deter other corporations from contravening the ACL. 30 Orders requiring the payment of pecuniary penalties, of course, if made, will emphasise the seriousness of the relevant conduct and serve as a general deterrent to others, even if the Commissioner does not proceed, with the Court's permission, to seek to enforce such orders.

Delay 31 Against those factors, which are strongly in support of leave being granted, there has been a considerable delay between the dates the subject of the alleged contraventions and the seeking of leave to commence the Substantive Proceedings. Those proceedings are not yet commenced, which distinguishes these matters from others in which leave has been granted, for example, Link Solutions (at [15]). Nonetheless, it is clear that the Commissioner has committed significant resources to the litigation as is apparent from the number of complaints in the complaints matrix. 32 The first complaint was received in relation to Unleash Solar in February 2011. Unleash Solar was placed in liquidation in April 2013. It is apparent that such circumstances are somewhat out of the ordinary. 33 I requested further evidence to be adduced concerning the question of delay. Mr Prout gave some oral evidence at the hearing, but I requested further affidavit evidence as he had not had the opportunity to research the point prior to the hearing. From that further evidence, it has become apparent that, after receipt of the first complaint, attempts were made to resolve the initial complaints, but the complaints continued to arrive, such that by 3 November 2011 Mr Prout issued notices under the FTA and the ACL requiring Unleash Solar to produce information and documents relating to its operations in Western Australia, and to substantiate certain claims and representations (November Notices). 34 In that month and December 2011, the Department of Commerce, whom the Commissioner represents, wrote to all complainants to ascertain the outcomes that they desired and whether they wished to be considered in any representative action which may be taken by the Commissioner. At the same time, the Commissioner and her general counsel attended the South Australian offices of Unleash Solar to discuss the complaints which had been made by Western Australian consumers. At that meeting, Unleash Solar agreed to enter into an enforceable undertaking with the Commissioner. That Enforceable Undertaking was signed on 9 December 2011 and resigned on 22 December 2011 to correct several errors. 35 In December 2011 and the following month, Unleash Solar provided information and documents pursuant to the November Notices. 36 Part of Unleash Solar's response included a statutory declaration stating that copies of the emails requested by the Commissioner could not be provided as they were unable to be retrieved from Unleash Solar's server which had 'crashed'. This factor caused considerable delay. 37 Mr Prout also issued notices under the FTA requesting information and documents from: (a) the Sunday Times and The West Australian newspapers; (b) the ANZ Bank (c) Synergy and the Office of Energy; (d) EnergySafety and Western Power; and (e) electrical contractors who installed Systems for and on behalf of Unleash Solar. 38 Further notices were issued in February because Unleash Solar had only partially complied with the November Notices. 39 Throughout the investigation, the Department investigators liaised with prospective witnesses, including Unleash Solar's customers and employees from newspapers, the Public Utilities office and EnergySafety, to draft and finalise witness statements. 40 On 27 February 2013, Unleash Solar went into voluntary liquidation. On 12 April 2013, its creditors resolved to place it in liquidation. In May 2013, the Commissioner considered there was sufficient evidence to begin a criminal prosecution against Unleash Solar for breaches of approximately 14 provisions of the ACL. The Commissioner sought legal advice in relation to the issue. The Commissioner maintains her claim to privilege in relation to that advice. 41 In July 2013, the liquidator informed Mr Prout that, contrary to information provided by Unleash Solar, its server had not 'crashed' and that the Department could obtain copies of the emails requested pursuant to the November Notice and subsequent notice. In September 2013, the liquidator provided the Commissioner with an external hard drive containing internal communications of Unleash Solar totalling over half a million emails. 42 Mr Prout proceeded to analyse the emails and compiled a supplementary statement summarising his findings from the relevant emails. This analysis examined the evidence in relation to the director's knowledge of, and involvement in, Unleash Solar's alleged contraventions of the ACL. During mid-2014, the Commissioner considered the director's liability, the different jurisdictions available to the Commissioner, and whether the matter should proceed by way of criminal prosecution or pursue civil pecuniary penalties in the Supreme Court or the Federal Court. 43 As has been made clear in submissions before me, there were legal complications in that the Commissioner has never previously brought an action in this Court and had to be satisfied that there were grounds to do so. Secondly, the director concerned had relocated to the United States of America, which meant that the Commissioner would require the leave of this Court to serve that director outside the jurisdiction. Thirdly, Unleash Solar had been placed in liquidation which required analysis of the issues relevant to an application for leave under s 471B CA. 44 Legal advice was sought and received in relation to those issues, and the Commissioner has, again, maintained her claim of privilege in relation to that advice. 45 Counsel was briefed on 23 October 2014 and during the latter months of that year drafted the application for leave and the pleadings in the Substantive Proceedings. The application for leave was filed on 6 February 2015.

CONCLUSION 46 In light of all those matters, I am satisfied that there is an appropriate explanation for the delay. Additionally, I infer that the absence of the director concerned in the United States would not have facilitated the most expeditious resolution of the liquidation. Finally, I am informed that the liquidator has notice of this application and has raised no objection to it. In light of all those matters, I consider that the discretion conferred under the CA should be exercised. 47 The following orders are made:

1. Leave is granted to the Plaintiff to bring proceedings (Substantive Proceedings) against the Defendant as set out in the draft originating application and amended draft statement of claim annexed to the submissions of the Plaintiff filed on 10 March 2015.
2. Costs of this application be reserved to the Substantive Proceedings. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice McKerracher.