Commissioner for Fair Trading v Pobjie Agencies Pty Ltd & ors.

The Relevant Legislation 6 Two statutes require some consideration: the Fair Trading Act; and the Home Building Act 1989 (NSW), hereinafter "the Home Building Act"). 7 The Fair Trading Act received the Royal Assent on 10 June 1987 and commenced, speaking practically, on 1 September 1987. It has been repeatedly amended during the years since its original enactment. 8 The long title of the Act describes it as an Act "…… to regulate the supply, advertising and description of goods and services and, in certain respects, the disposal of interests in land; to repeal the Consumer Protection Act 1969 and certain other Acts; and for other purposes". 9 The Act contains no "objects" clause of the kind frequently encountered in contemporary legislation; but it does contain, in section 9, a definition of the statutory functions of the Commissioner. Those functions, so far as is now relevant are: "(a) (to) advise persons in relation to the provisions of this Act, and of any other legislation administered by the Minister, and take action for remedying infringements of, or for securing compliance with, those provisions, whether on complaint or otherwise, (c) (to) receive complaints from persons on matters (including fraudulent or unfair practices) relating to the supply of goods or services, or the acquisition of interests in land, and deal with any such complaint (whether or not under paragraph (d)) in such manner as the Director-General considers to be appropriate, (d) (to) investigate the matter the subject of a complaint received under paragraph (c) or refer the complaint to a public authority, or any other body, that the Director-General considers to be best able to take action, or provide advice, in relation to the complaint." 10 Sections 65 and 72 of the Act, upon which the Commissioner now relies, appear in Part 6 of the Act. That Part is headed: "Enforcement and Remedies". 11 Section 65 empowers the Commissioner, among other nominated persons, to seek from this Court injunctive relief as a means of preventing certain types of commercial conduct. Sub-sections (3), (8), (9) and (10) do not call for any extended present consideration, and I do not therefore reproduce them. The remainder of section 65 provides: "(1) Where, on the application of the Minister, the Director-General or any other person, the Supreme Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute: (a) a contravention of a provision of Part 3, 4, 5, 5A, 5B, 5C, 5D or 8, (b) attempting to contravene such a provision, (c) aiding, abetting, counselling or procuring a person to contravene such a provision, (d) inducing, or attempting to induce, whether by threats or promises or otherwise, a person to contravene such a provision, (e) being in a way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision, or (f) conspiring with others to contravene such a provision, the Court may grant an injunction in such terms as the Court determines to be appropriate. (2) Without prejudice to the generality of subsection (1), an injunction granted under that subsection may be, or include, an injunction restraining a person from carrying on a business of supplying goods or services (whether or not as part of, or incidental to, the carrying on of another business): (a) for a specified period, or (b) except on specified terms and conditions. (4) Where in the opinion of the Supreme Court it is desirable to do so, the Court may grant an injunction pending determination of an application under subsection (1). (5) The Supreme Court may rescind or vary an injunction granted under subsection (1), (3) or (4). (6) The power of the Supreme Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind, (b) whether or not the person has previously engaged in conduct of that kind, and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind. (7) The power of the Supreme Court to grant an injunction requiring a person to do an act or thing may be exercised: (a) whether or not it appears to the Court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing, (b) whether or not the person has previously refused or failed to do that act or thing, and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person refuses or fails to do that act or thing." 12 Of the various Parts nominated in section 65(1)(a), only Part 5 is at present relevant. Part 5 is headed: "Fair Trading"; and it embraces sections 41 through 60 of the Act. In the present proceedings sections 42, and parts of sections 43 and 53 are relevant. The relevant provisions are: " 42. Misleading or deceptive conduct (1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1) 43. Unconscionable conduct (1) A supplier shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a consumer, engage in conduct that is, in all the circumstances, unconscionable. (2) Without limiting the matters to which the Supreme Court may have regard for the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services, the Court may have regard to: (a) the relative strengths of the bargaining positions of the supplier and the consumer, (b) whether, as a result of conduct engaged in by the supplier, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier, (c) whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services, (d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer (or a person acting on behalf of the consumer) by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services, and (e) the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the supplier. (4) For the purpose of determining whether a supplier has contravened subsection (1) in connection with the supply or possible supply of goods or services to a consumer: (a) the Supreme Court shall not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention, and (b) the Court may have regard to conduct engaged in, or circumstances existing, before the commencement of this Act. 53 Accepting payment without intending or being able to supply as ordered A person shall not, in trade or commerce, accept payment or other consideration for goods or services where, at the time of the acceptance: (b) there are reasonable grounds, of which the person is aware, or ought reasonably to be aware, for believing that the person will not be able to supply the goods or services within the period specified by the person or, if no period is specified, within a reasonable time." 13 Section 72 provides a battery of orders which may be made in addition to any order(s) made under, relevantly, section 65. Sub-sections (2), (4), (6) and (7), and parts of sub-section (5) are relevant to the present proceedings. Those provisions are: "(2) Without limiting the generality of section 65, the Supreme Court may on the application of a person who has sustained, or is likely to sustain, loss or damage by conduct of another person that contravened a provision of Part 3, 4, 5, 5B, 5C, 5D or 8 or on the application of the Director-General in accordance with subsection (4) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders specified in subsection (5)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, wholly or in part for the loss or damage or will prevent or reduce the loss or damage. (4) Where, in a proceeding instituted for an offence against Part 3, 4, 5, 5B, 5C, 5D or 8 or instituted by the Minister or the Director-General under section 65, a person is found to have engaged in conduct in contravention of a provision of Part 3, 4, 5, 5B, 5C, 5D or 8, the Director-General may make an application under subsection (2) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but the Director-General shall not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made. (5) The orders referred to in subsections (1) and (2) are: (e) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage, (6) An application under subsection (2) may be made at the time within 6 years after the date on which the cause of action that relates to the conduct accrued. (7) For the purpose of determining whether to make an order under this section in relation to a contravention of section 43, the Court may have regard to the conduct of the parties to the proceedings since the contravention occurred." 14 As will be seen later when the plaintiff's case outline is discussed, the plaintiff makes in part his case under the Fair Trading Act by alleging breaches by the second and third defendants of various of the provisions of the Home Building Act. 15 That Act was originally known as the Building Services Corporation Act 1989 (NSW). In that guise, it received the Royal Assent on 22 June 1990. It, too, has been repeatedly amended over the supervening years. Its long title describes its purpose as being: "…………… to make provision concerning the residential building industry and certain specialist work and for other purposes". 16 The notion of "residential building work" is fundamental to the operation of the Home Building Act; and is defined thus: " residential building work means any work involved in, or involved in co-ordinating or supervising any work involved in: (a) the construction of a dwelling, or (b) the making of alterations or additions to a dwelling, or (c) the repairing, renovation, decoration or protective treatment of a dwelling. It includes work declared by the regulations to be roof plumbing work or specialist work done in connection with a dwelling and work concerned in installing a prescribed fixture or apparatus in a dwelling (or in adding to, altering or repairing any such installation). It does not include work that is declared by the regulations to be excluded from this definition." 17 Of the other provisions contained in the Home Building Act, only those contained in sections 8 and 92 are specifically called in aid by the Commissioner. Those two sections provide relevantly: " 8 Maximum deposits (1) A person must not: (a) demand or receive a payment on account before work is commenced under a contract to do residential building work, or (b) enter into a contract under which the person is entitled to demand or receive a payment on account before residential building work is commenced, if the amount of the payment is prohibited by this section. Maximum penalty: 40 penalty units. (2) The amount of the payment is prohibited if: (a) the contract price is more than $20,000 and the payment is more than 5% of the contract price (or, where another percentage is prescribed by the regulations in respect of a particular kind of work, the percentage so prescribed), or (b) the contract price is $20,000 or less and the payment is more than 10% of the contract price (or, where another percentage is prescribed by the regulations in respect of a particular kind of work, the percentage so prescribed)." " 92. Contract work must be insured (1) A person must not do residential building work under a contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty: 200 penalty units. (2) Except as provided by section 94 (1A), a person must not demand or receive a payment under a contract for residential building work (whether as a deposit or other payment and whether or not work under the contract has commenced) from any other party to the contract unless: (a) a contract of insurance that complies with this Act is in force in relation to that work in the name of the person who contracted to do the work, and (b) a certificate of insurance evidencing the contract of insurance, in a form prescribed by the regulations, has been provided to the other party (or one of the other parties) to the contract. Maximum penalty : 200 penalty units. (3) This section does not apply if the contract price does not exceed $12,000 or (if the contract price is not known) the reasonable market cost of the labour and materials involved does not exceed $12,000 (4) If the same parties enter into two or more contracts to carry out work in stages, the contract price for the purposes of subsection (3) is taken to be the sum of the contract prices under each of the contracts." 18 It is useful to note that the enforcement by the Commissioner of the requirements of the Home Building Act is limited, in practical terms, to the taking in a Local Court of summary proceedings in connection with offences against a provision of the Act; and to the seeking of an injunction. The latter type of proceeding is governed by section 138 of the Home Building Act which provides: "(1) If, on the application of the Director-General made with the consent of the Minister, the Supreme Court is satisfied that a person has engaged in conduct that constitutes or would constitute: (a) an offence against a provision of or made under this Act or any of the Acts referred to in section 135, or (b) attempting to commit any such offence, or (c) aiding, abetting, counselling or procuring a person to commit any such offence, or (d) inducing or attempting to induce a person to commit any such offence, or (e) being in any way, directly or indirectly, knowingly concerned in, or a party to, the commission by a person of any such offence, or has persistently entered into contracts in contravention of a requirement made by or under this Act, the Court may grant an injunction in such terms as the Court determines to be appropriate. (2) Without affecting the generality of subsection (1), an injunction granted under this section may restrain a person from: (a) committing an offence against, or against a statutory instrument made under, any of the Acts referred to in section 135, or (b) entering into contracts in contravention of a requirement made by or under this Act. (3) An interim injunction may be granted under this section without an undertaking being required as to damages or costs or may be so granted as a permanent injunction."

The Orders Sought by the Commissioner 19 Insofar as he proceeds pursuant to section 65 of the Fair Trading Act, the Commissioner asks that the second and third defendants be restrained for a period of 10 years from doing any of a number of particularised things. Twenty individual activities are thus particularised, and some of them are, so to speak, sub-particularised. Put very simply, the orders sought would bar the second and third defendants from holding, or from applying for, "any licence (either for himself or itself or for another person) issuable pursuant to the Home Building Act 1989"; and would bar them in the most comprehensive terms from doing in any way, at any level, or within the parameters of any commercial arrangement, virtually anything and everything to do with residential building work. 20 Insofar as he proceeds pursuant to section 72 of the Fair Trading Act, the Commissioner asks that the Court approve the setting up of a trust fund with the Commissioner himself as sole trustee; that the second and third defendants "pay such money as the Court may determine" from time to time into the fund; and that the fund be administered as a source of liquid funds from which amounts determined by the Commissioner may be paid by the Commissioner to "consumers" identified by the Commissioner as "persons who have suffered loss as a result of the defendants' conduct in trade or commerce". 21 The Commissioner seeks, additionally, coercive orders for the supplying to him by the second and third defendants of all such information as the Commissioner "may reasonably require" respecting: first, "the purpose of identifying persons to whom payment might be made" out of the trust fund; and secondly, "the purpose of identifying assets from which the defendants might obtain money to make the payments" which they have been ordered to make into the trust fund. 22 The Commissioner seeks, finally, a costs order to cover what is described in the summons as: "the investigative and legal costs of the plaintiff in respect of this action and the matters upon which it is based". 23 The scope, overall, of the relief thus claimed by the Commissioner is truly daunting. The section 65 orders, if made, would strip the defendants comprehensively of any right to continue lawfully the commercial activities from which they have earned their living for some years. The section 72 orders, if made, would expose the defendants for as long as the Court might be persuaded from time to time at the instance of the Commissioner, to potentially very burdensome financial penalties. The Commissioner's written submissions actually mention a figure in the order of $2 million as indicative of what might be entailed, initially, in constituting the trust fund and in providing for its funding by, relevantly, the second and third defendants. The coercive ancillary orders, if made, entail in effect that the Commissioner gets inquisitorial powers akin to those of the Commissioner of Taxation and similar revenue authorities. And the proposed costs order conflates the costs of litigation and the costs of pre-litigation administrative investigation. 24 In the face of claims of so widely cast an ambit, it is timely to note at once: first, that the Commissioner carries throughout the onus of proving his entitlement to the orders that he seeks; secondly, that the standard of proof is the civil standard of proof on the balance of probabilities, and thirdly, that the application of that standard in a particular case requires "…….. that the affirmative of an allegation is made out to the reasonable satisfaction of the Tribunal. But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved. The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the Tribunal. In such matters 'reasonable satisfaction' should not be produced by inexact proofs, indefinite testimony, or indirect references." Briginshaw v Briginshaw (1938) 68 CLR 336 per Dixon J at 362.

An Overview of the Competing Cases as Outlined in the Respective Written Case Outlines 25 It is not controversial that at all material times the company carried on business under the name: Prouds Home Improvements; or that the company's business was that of the building of renovations of, and of extensions to, existing buildings. 26 Neither is it controversial that the second defendant became, on 4 July 1978, a director of the company; and that he was at all material times the company's Managing Director and its effective principal. 27 The third defendant was a director of the company from 27 February 2004 to 30 June 2004. There is some controversy about his effective standing in the company, but I am satisfied that he was, at all material times, active in connection with the conduct of the business of the company. 28 The Commissioner's first point of attack is the company's advertising practices. The Commissioner points to such statements, made in company advertisements, as that "free consultations, quotations, measurements and design" were available; or that certain responses to certain advertisements would be recognised by certain free benefits; and, in particular, that company projects would take "weeks to build - not months". Of such advertising statements the Commissioner alleges that they were "misleading and deceptive and likely to mislead and deceive". As such, they were breaches of section 42(1) of the Fair Trading Act. 29 The Commissioner points, next, to a miscellany of business practices, each of which is alleged to have contravened some provision(s) of either or both of the Fair Trading Act and the Home Building Act. The plaintiff's written outline summarises as follows this group of allegedly impermissible practices: "…………… . Significant features of the operation of the first defendant (under the management of the second and third defendants) were: · It took advance payments (being deposits 'due' under execution of contract and payments 'due' upon 'check measurement') of a size in breach of s. 8 of the Home Building Act 1989. · It contracted with customers in a manner which it claimed involved more than one contract, and claimed that the contract for building work involved a charge of one amount of money and a separate contract involved a charge for administration, design etc, this arrangement being calculated to avoid requirements of the Home Building Act. · It gave assurances that the work involved could and would be completed by particular times (suitable to the customers), when it knew (or ought to have known) that it could not satisfy those assurances. · It failed to complete the necessary work in the time specified or at all, or in some cases abandoned unfinished jobs. · It charged customers for a so-called 'Statutory Government Charge' which no statute or government required. · It failed to inform customers of the need to obtain home warranty insurance for all residential building work worth more than $12,000. · It accepted payments when no home warranty insurance certificate had been provided to the customer (contrary to par. 92(2)(b) of the Home Building Act). · It commenced building work when no home warranty insurance certificate had been provided to the customer (contrary to par. 92(1)(b) of the Home Building Act. · It failed to deal promptly - or sometimes at all - with customers' complaints and requests for information or action." 30 That summary of breaches is preceded in the written outline by a paragraph which it is useful to reproduce, since the paragraph encapsulates a central proposition of the Commissioner's overall case: "The key feature of the business was that it had a serious cash flow problem. In order to fund building work for which it had contracted in the past (for example by buying materials) it found it necessary to secure new contracts and the deposits and other advance payments required by those new contracts. Because those deposits were not sufficient to meet the whole of the first defendant's need for cash flow, because the number of new contracts being signed was greater than the first defendant could sustain, because money paid by one customer was being used for the project ordered by another customer, and perhaps for other reasons, customers regularly found that their projects were subject to gross delays or were not completed at all. Also, design and construction errors occurred (perhaps due to haste). 31 The second and third defendants, in their responding written outline, do not dispute that the company advertised from time to time; and that from time to time statements such as those to which the Commissioner points were made as part of that advertising. The second and third defendants assert, however, that no one advertisement carried all of the impugned statements; and that not all advertisements carried any of the statements. The second and third defendants put in issue, of course, that the impugned statements were misleading or deceptive, or even that the statements were capable of misleading or of deceiving. 32 Insofar as the Commissioner alleges contracting practices, and in particular the practice of contract-splitting, contravening and intended to contravene, the Home Building Act, the second and third defendants respond with a number of contentions, the substance of which is:

[1] The amounts taken were not "deposits" in respect of "building work" and the Home Building Act did not therefore apply;

[2] The use of dual contracts was wide-spread; was known to the Commissioner and his officials; and was either approved by them, or was treated by them in such a way as now estops the Commissioner from contending that the use of two contracts, or payment for works preliminary to actual building works, contravened any provision either of the Fair Trading Act or of the Home Building Act ;

[3] The use of dual contracts, so far from having been a device to circumvent the proper operation of the Home Building Act , actually reflected the proper construction and intended effect of that legislation. 33 As to the Commissioner's allegations in connection with completion times, the second and third defendants respond: "a. time projections given were estimates, save to the extent they were warranted by the First Defendant. The time estimates apparently referred to in the outline of case were not warranted by the First Defendant, were, in some cases, expressly disavowed by the first defendant when made aware of them, were made by a person apparently on a frolic of their own, and were expressly qualified as estimates and subject to vicissitudes in the "Promise Sheet" and in the circumstances not false or misleading; b. any delay in completing such jobs as were the subject of delay was essentially caused by the vicissitudes of the building industry and its related industries, such as insurance, and therefore, is or are not unreasonable delay;" 34 As to the Commissioner's allegation in connection with the so-called "statutory government charge", the second and third defendants respond: "c. the "statutory Government charge" to the knowledge of the Plaintiff (by the statement of Mr. Loveday to the Plaintiff's officers), related to Council fees, charged in relation to approvals sought by reason of their statutory authority to charge for services, and similar levies and imposts and was a proper charge to the consumer's account in dealing with the First Defendant, if it was made in a particular case;" 35 As to the Commissioner's allegations in connection with home owner warranty insurance, the second and third defendants contend: "d. the First Defendant had no duty, statutory or otherwise, to inform customers about HOWI; e. the form of contract used by the First Defendant in dealing with consumers referred in terms to HOWI; f. in further answer in relation to HOWI, it (sic) which matter had been introduced in 1997 and it was a matter of public notoriety, at least amongst home owners and persons of moderate sophistication." 36 The second and third defendants deal in a number of different ways with the "cash flow" hypothesis that the Commissioner advances in paragraph 6 of his written case outline. 37 In paragraph 3 of their written case outline, the second and third defendants say: "(a) It is denied that any cash flow "problems" as described in the Plaintiff's outline of case existed as a feature or characteristic ("key" or otherwise) of the business of the first defendant in whatever period of time the outline in fact refers to; (b) The Defendants admit that the First Defendant was dependent for cash flow on the continuation of its capacity to carry on business, including writing new business and collection of monies under existing contracts, in order to generate cash flows to maintain its general business operations, which operations included delivery of the services paid for by the customers in respect of new business and the performance of existing contracts; (c) Save as admitted above, the defendants deny that deposits on new contracts were needed in order to complete earlier contracts by funding the payment for goods or services, but say the monies so received were required as an aspect of the general cash flows of the first defendant as part of its general business operations, along with other cash flows from earlier contracts; (d) Admits that cash payments by customers contracted for in the dealings with consumers were required to be made and collected by the first defendant in order to meet the cash flow requirements of the First Defendant in relation to its business as a whole; (e) Admits that time passed after the making of contracts before completion of contracts on particular jobs which passage of time resulted by reason of various causes and vicissitudes, expected and unexpected, such as the time to obtain council approval to build, and, in relation to contracts with a face value over $12,000, from delay after submitting applications for certificates of insurance in obtaining insurance certificates from an insurer willing to write the business of HOWI insurance, and from a limitation in the number of certificates issued by reason (of) a wrongful inclusion by the insurer, in calculating use of insured limits by the first defendant, of the value of non-building work in the sum insured." 38 Later, and in paragraph 9 of the outline, the second and third defendants make additional responses, the detail of which it is not necessary to reproduce at the moment. 39 From the foregoing overview, - and it is very much a summary of the two case outline documents, - it is possible to distil a number of issues for present resolution. I propose to take as a working structure of those issues the structure of the plaintiff's written submissions. On that approach the questions to be decided can be summarised thus:

[1] Did the company's advertising contravene section 42 of the Fair Trading Act by reason of its having constituted commercial conduct that was misleading or deceptive or likely to mislead or deceive?

[2] If so, how serious was the culpability of the offending conduct?

[3] Did the company systematically contravene section 53 of the Fair Trading Act by accepting payments for goods or services when, at the time of accepting the payments, the company either was aware, or ought reasonably to have been aware, that there were reasonable grounds for believing that the particular goods and services could not be supplied by the company, either within a specified period, or within an unspecified but reasonable time?

[4] If so, how serious was the culpability of the offending conduct?

[5] Did the company contravene in other ways than in connection with its advertising, either section 42 or section 43 of the Fair Trading Act ?

[6] If so, how serious was the culpability of any offending conduct?

[7] Did the company contravene the provisions of the Home Building Act ?

[8] If so, is the Commissioner entitled to rely upon such breaches in aid, not of proceedings brought pursuant to the enforcement provisions of the Home Building Act , but of proceedings brought pursuant to the enforcement of different legislation, that is to say the Fair Trading Act ?

[9] If, and insofar as, the answers to questions [7] and [8] are: yes, then how serious was the culpability of the offending conduct?

[10] Insofar as the Commissioner makes out his case on any of the foregoing topics, what relief, if any, is appropriate, bearing in mind that the principal relief claimed is: (a) claimed only pursuant to sections 65 and 72 of the Fair Trading Act ; and (b) is, in either of those cases, discretionary?

Questions 1 and 2 40 It is convenient to begin with the following affidavit evidence of Mr. D. R. Richardson. Mr. Richardson is a Senior Building Investigator within the Building Investigation Branch of the Home Building Service of the Office of Fair Trading. "The nature of the First Defendant's business is to offer residential building work, principally the renovation of and additions to existing dwellings. It promotes its services through various publications, including newspapers and catalogues. It also uses a promotional video and sales presentations. Mr. Tony Strahan, a customer of the First Defendant, described to me a sales presentation which took place at his home and which involved viewing a video tape. Mr. Strahan's description of these events is contained in his statement at Tab 11 of Exhibit DRR1. At Tab 12 of Exhibit DRR1 are copies of advertisements published by the First Defendant. Copies of promotional videos used by sales consultants are being copied onto Digital Versatile Disc (DVD) and will be made available in the proceedings." 41 The Tab 11 material of which Mr. Richardson speaks was not pressed by the plaintiff as part of the plaintiff's documentary tenders. 42 The Tab 12 material comprises eighteen pages of photocopied material. It is plain enough that each page is either the whole or a very substantial part of an advertisement. Only three of the eighteen pages identify when and where each of the three was actually published. One, which seems to be some part or parts of a larger page, carries in the normal way the identification: "February 29, 2004. The Sun-Herald". A second is unidentified anywhere in its body; but somebody has written at the top of the page: "4/7/04"; and has printed at the foot of the page: "TV Guide Sun-Herald 4.7.04". The third contains a caption reading: "SYDNEY SHOPPERS CATALOGUE - SYDNEY WEST JUNE 2004". 43 The promised DVD to which Mr. Richardson refers did not find its way into evidence. 44 Exhibit P2 supplements the foregoing material. It is a full page colour advertisement taken from the Sun-Herald of 29 February 2004. Selected parts of the page are, I apprehend, the first of the three identified photocopies earlier mentioned. 45 Of all the material which I have previously described, the sheet that is Exhibit P2 gives by far the fairest idea of what some, at least, of the company's print-media advertisements would actually look like to an interested reader. 46 The body of Exhibit P2 contains eight photographs, each of which shows a particular kind of home renovation or improvement. The photographs are, of course, attractively styled. There is no evidence to suggest that the photographs are shams; or that the company had never carried out, or was incapable of carrying out, home improvements as thus depicted. 47 Underneath the collection of photographs is a photograph of a young-looking couple who are said to be: "Chris and Leanne NSW". They are quoted as saying: "We saved tens of thousands by not moving and added value to our home - thanks Prouds". There is no evidence to suggest that any part of that presentation is not an authentic and genuine recommendation. 48 The Commissioner points, however, to other features of Exhibit P2. 49 In the top left-hand corner of the page there are displayed in a prominent form the words: "Takes weeks to build - not months". A little further down the page, and on the right-hand side of the page, is a prominent circle containing the words: "FREE quality design, measure and quote". Still further down the page is a check-list headed: "Renovation Pack includes: …..", and containing five ticked items: "Free demolition"; "Free delivery"; "Free architectural plans"; "$1,000 factory cash-back"; "Free barbeque RRP $400". This material is supplemented by material contained in a prominent triangular area occupying the bottom right-hand corner of the page. The triangle is in fact a coupon, and a "customer" is invited to cut out the coupon "for $1,000 renovation cash back" plus "a free barbeque". Conditions apply, and they are stated simply and clearly. 50 The Commissioner submits that "given that a customer's interest is in having a building job done, the statement 'takes weeks to build - not months' had a tendency to be misleading because it tended to suggest that "……(the company) …… would be timely in its work; it was not". 51 The Commissioner submits, further, that the representation as to free quotations, measurements and the like, either were, or tended to be, misleading or deceptive when taken in conjunction with the actual conduct of the company in connection with those matters. 52 The Commissioner raises similar complaints about similar advertising material in various parts of the Tab 12 material; but, as I have said, Exhibit P2 is the fair point of reference for a clear picture of what a prospective customer might actually have come across in a major newspaper advertisement of the company. 53 For the sake of completeness I refer to paragraph 17 of Mr. Richardson's affidavit. Part only of it was read. That part is: "The advertising publications at Tab 12 of DRR1 included promises of free trips to Fiji, payment-back of cash, free barbeques and free patio heaters to consumers who signed contracts. I was told by Mr. John David whose statement appears at Tab 17, that he had not received any such gift or cash as offered in the advertisements. From my reading Ms Melissa Rapmund's statement at Tab 23 and Ms Christine Hilder's statement at Tab 26, I am also aware that they did not receive gifts or cash as offered." 54 The material at Tabs 17, 23 and 26 were not pressed by the Commissioner as part of his documentary tenders. 55 The Commissioner read in his case a total of forty-four affidavits made by a total of thirty-seven deponents. Of the thirty-seven deponents twenty-three were customers of the company. Some of those deponents refer in terms to having been caused by promotional material of some kind or other to get in contact with the company. Five of them, Rapmund, Strahan, David, Collins and Hunt, speak in a more precise way about particular advertised factors that caught their attention. None of the customer deponents says in terms that he was induced by some particular advertised statement actually to sign a contract for the carrying out of particular work. None says in terms that he would not have actually signed a contract but for some particular advertised statement. 56 It is trite that: "…………whether or not conduct amounts to a misrepresentation is a question of fact to be decided by considering what is said or done against the back-ground of all surrounding circumstances": Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202 per Deane and Fitzgerald JJ. The test is an objective test for the Court: (ibid.). 57 In addition to those general propositions, various other guide-lines have been laid down by various decisions that are summarised helpfully in Miller's Annotated Trade Practices Act 25th Edition at [1.52.100] under the heading: "Advertising: General Principles". 58 The evidence which has been adduced in connection with the advertising practices of the company is, in my opinion, insufficient to establish a section 42 contravention by the company; and, by necessary extension, by either of the second and third defendants. I am unpersuaded that the advertising material which I have seen, contained misrepresentations. Had I thought otherwise, I would not have been persuaded that any such misrepresentation had caused, in the requisite legal sense, loss and damage apt to attract the provisions of either section 65 or section 72 of the Fair Trading Act.

Questions 3 and 4 59 In Holt v Bikora Pty Ltd (1988) 13 NSWLR 629, Kearney J upheld section 65 and section 72 claims by the then Commissioner, the claims being based upon contraventions of sections 42 and 53 by a company which was engaged in the business of house removals. His Honour described as follows his overall findings: "A review of the evidence in this matter presents a general picture that over a period of approximately four months' operations and despite due payment by some eleven customers, six of the first defendant's transactions had resulted in no house being supplied as undertaken, and in the other five transactions the houses being delivered late and in a damaged condition. As the defendants emphasise, no allegation is made of unconscionable conduct by them, but it is clear that the company's business in the relevant period was conducted so ineptly as to amount to irresponsibility. The company's activities seem to have been so confused and disorganised that it could not make the promises it did to the various customers with any reasonable expectation of fulfilling them. Consequently, in my opinion, it made the promises with reckless indifference as to whether they would be adhered to or not. This is borne out by the string of broken promises and excuses of a misleading and devious nature which are revealed in each of the above transactions. In this situation it seems to me the promises so made are sufficient to constitute misleading conduct under section 42:" [authorities omitted] (at 636,637) 60 Two things are at once apparent. First, Kearney J regarded it as obvious, as do I, that alleged repeated contraventions of either section 42 or section 53 have to be adjudicated, as to both proof in fact and consequences in law, in the light of the whole of the relevant commercial history of the alleged offender; and secondly, that important questions of degree are involved in that adjudication. In that latter connection Kearney J was called upon to consider eleven individual contractual transactions conducted over a period of four months; and to do so in the light of evidence which established a completely chaotic commercial enterprise that had not been able to fulfil reasonably even one of its eleven engagements. 61 In the present case, the allegedly offending company has a very different history which, unfortunately for the Court, cannot be reduced to a small handful of easily analysed transactions spread over as short a time as four months. 62 The company was originally registered on 22 December 1970. The company owns the business name "Prouds Home Improvements" which was registered on 29 March 1995. The company owned at all material times the premises at Wetherill Park from which Prouds Home Improvements carried on its business at the material times. 63 The company was licenced on 13 November 1987, and by the then Commissioner, to carry out and to contract for building work. The licence was suspended on 6 August 2004 with immediate effect and for a period of 60 days. On 13 August 2004 the plaintiff filed the summons with which I am now dealing, and a Notice of Motion. The Notice of Motion sought various interim orders; and on 27 August 2004 Levine J made the following orders: "1. Subject to Orders 3, 4 and 5 below, each defendant be restrained until further order from disposing or, attempting to dispose of, or otherwise dealing with or attempting to deal with, any of its or his interests in property. 2. Subject to Orders 3, 4 and 5 below, any person or entity served (by any means) with a copy of these orders be restrained until further order from disposing or, attempting to dispose of, or otherwise dealing with or attempting to deal with, any interest in property of any of the defendants. 3. The first defendant may meet such expenses as are properly incurred pursuant to Order 6 below. 4. Each of the second and third defendants may in any given week expend on living expenses for himself and any dependents of himself $1,200. 5. The first defendant may sell for a proper market price reached bona fide the property constituted by Lot 5 in Deposited Plan 739967 (at Wetherill Park in the Local Government Area of Fairfield, in the Parish of St. Luke and in the County of Cumberland) and the proceeds of any such sale shall be applied as follows: (a) any money owed to Orix Australia Corporation Limited and secured by registered mortgage over the said property may be paid to Orix Australia Corporation Limited; (b) any reasonable fees bona fide due to solicitors or real estate agents may be paid to them on account of their work on the sale of the said property; (c) any other proceeds shall be subject to Order 1 herein. 6. If any defendant has, before the making of these orders, already lawfully entered a contract that would be valid and executable but for Order 1, the defendant may honour such contract provided that the defendant: (a) does so in compliance with s. 47A of the Home Building Act 1989; (b) provides to the plaintiff the names, addresses and telephone numbers of persons who have contracted with any of the defendants (or another person associated with any of the defendants); (c) provides to the plaintiff the names, addresses and telephone numbers of all subcontractors retained with respect to each contract; (d) provides to the plaintiff names, addresses and telephone numbers of all subcontractors who or that have been engaged by any of the defendants since 1 July 2004 or whom or which any of the defendants intends, has contracted or has negotiated to engage in future; (e) provides to plaintiff names, addresses and phones of any new subcontractors from time to time engaged by any of the defendants. 7. Each of the second and third defendants shall by 3 September 2004 depose to, file and serve an affidavit setting out the following: (a) the amount of money he needs each week (or other regular period) in order to meet the reasonable living expenses of himself and any dependent of him (taking into account any money which any other person is in a position to contribute to the meeting of those expenses); (b) the matters constituting the said reasonable living expenses; and (c) his best estimate of the cost of each of the matters constituting the said reasonable living expenses. 8. Prayers 5 and 7 of the Notice of Motion filed 3 August 2004 are stood over for mention in the Registrar's List at 9.00 a.m. on 6 September 2004." 64 On 27 August 2004, also, the company was put into voluntary administration. 65 From time to time since 27 August 2004 these interim orders made by Levine J have been amended. The detail of the successive amendments is not of present importance. What is of present importance is that since 27 August 2004 the assets of the company, and of each of the second and third defendants, have been effectively frozen; and that the company and the second and third defendants have been effectively excluded from the home building industry. 66 The bulk of the evidence which was adduced at the recent hearing had to do with the business affairs of the company in the period from 1 July 2002. There is no analysis of the company's pre-July 2002 history, notwithstanding that by 1 July 2002 the company had been licenced by the Commissioner for some 14-1/2 years. 67 In paragraph 12 of his affidavit of 19 August 2004 Mr. Richardson, earlier herein mentioned, deposes to the fact of there having been thirty-eight complaints against Prouds Home Improvements received by the Fair Trading authorities "since May 2004". The affidavit does not identify the complainants; the nature of the grievances of each complainant; what investigation of each complaint was made; and with what result. 68 Among the materials exhibited to Mr. Richardson's affidavit is an exchange of emails between the Office of Fair Trading and the Consumer Trader and Tenancy Tribunal. It appears from that correspondence that the CTTT, as at 2 August 2004, had received 179 claims against the company, since 1 July 2002; and that of those 179 claims, 29 were said to be "currently before the Tribunal", and the remaining 150 were said to have been finalised. There is no information as to the dating of the claims; as to the nature of the claims; as to when and upon what basis the 150 had been finalised; and as to when it was expected that the current 29 claims, also wholly unparticularised, might be expected to be finalised. 69 Some more helpful insight into the operations and finances of the company can be gleaned from accounting information that is scattered here and there among the many hundreds of pages of affidavit, and accompanying exhibit, material. I concentrate for the moment upon the material tabbed 32 and 33 in the Exhibit DDR 1 - Vol. 1, that accompanies Mr. Richardson's affidavit of 19 August 2004. 70 The material at tab 32 is a photocopy of a facsimile transmission from the second defendant to an officer of the Office of Fair Trading. It is dated 28 July 2004, and it refers to there then being in hand 482 jobs. 71 The material at tab 33 is voluminous and is not easily summarised. It was produced to Mr. Richardson on 4 August 2004 by the third defendant. It contains an organisational chart in the usual diagrammatic form. The chart shows the second defendant at what might be called the apex of the management pyramid. He is styled Managing Director. Immediately beneath him in the hierarchical chain is the third defendant. He is styled General Manager. 72 The balance of the material is accounting and financial documentation of various kinds. I select for the moment only some broad indicators. Thus: · For the year ended June 2004 the company accounts show gross sales of $9,518,266.54 · Against that figure are off-set two amounts. One is an amount of $6,428,117.84, being the cost of goods sold. The other is an amount of $510,118, representing refunds to customers. · The latter item is actually entered in the accounts as "Refunds given - Dishon. Chqs". It is not clear quite whose cheques were dishonoured, i.e. whether they were the company's cheques in connection with which rectifying refunds were made; or whether they were customer cheques stopped by dissatisfied customers prior to payment. Nothing turns, for the moment, on the point. · The gross profit then resulting is $2,580,030.70 · Various other income items take that figure up to $2,771,641.99 · Operating expenses are brought to account in an amount of $2,692,646.57, for a net profit of $78,995.42. · That net profit, when carried to retained profits brought forward, produces retained profits carried forward in the sum of $815,104.73. · The company balance sheet shows total assets of $3,499,511.76 and net assets of $134,373.69.

By far the greater part of the liabilities is constituted by Loan Accounts. 73 The picture thus painted seems to me to be one of a family company trading successfully, but on an under-funded capital base. Indeed, the Managing Director's letter tabbed 32 speaks in terms of a perceived need for "a capital injection from the sale of our Wetherill Park building at the end of September 2004". 74 The foregoing analysis is not, I apprehend, controversial so far as it goes. The Commissioner points, however, to additional matters, three in particular, which he alleges to have been embedded features of the operations of the company; and, as such, to have been known to the second and third defendants as the real principals of the company and its operations. It is the Commissioner's case that such knowledge on the part of the second and third defendants justifies the proposition that the company's affairs involved what the Commissioner's written submissions describe as "systemic breaching" of section 53 of the Fair Trading Act. 75 The three embedded features to which the Commissioner points are: 76 [1] The fact that there were occurring regular delays in the completion of jobs, and that the delays were causing dissatisfaction among customers.

[2] The fact that there were occurring regular break-downs in marshalling the resources, both of labour and of materials, necessary to carry out promptly and efficiently at least a number of then current contracts.

[3] The fact that there were occurring regular impediments to securing home owner's warranty insurance, without which at least a number of contracts could not proceed lawfully, and otherwise promptly and efficiently. 77 The Commissioner contends that all three of these factors were inter-related, and that they were interacting in fact, and to the knowledge of the second and third defendants, to such an extent as to entail the "systemic breaches" upon which the Commissioner bases the section 53 part of his case. 78 In considering each of the foregoing factors, as I propose now to do, I bear in mind what I understand by the expression "systemic breach": that is to say, that the contravention of section 53 permeated the whole conduct of the company's business. It was submitted more than once during oral submissions by learned counsel for the Commissioner, and I accept, that were the Commissioner to establish even a single breach of a kind particularised in his case, he would be entitled to approach the Court for relief. It would not follow, of course, that the Commissioner could fairly expect, the most exceptional case apart, that he would be granted, as a remedy for a single breach of the Fair Trading Act, the sort of draconian injunctions that he is now actually pressing to have. It is, I imagine, a recognition of that proposition which explains the Commissioner's present emphasis upon the allegedly "systemic" breach of section 53. 79 Before looking at the allegedly systemic features nominated by the Commissioner, it is time to take note of the fact that neither the second nor the third defendant gave evidence, either oral or by affidavit. Insofar as adverse inferences are available to be drawn against them, or either of them, upon the basis of the evidence in hand, the question whether any such available inference should be drawn in fact, will have to be answered in the absence of evidence from either of those defendants. 80 It is convenient to begin the present canvass by reference to a document issued on 14 October 2002 on the letterhead of Prouds Home Improvements and over the signature of the second defendant. The document is a memo addressed to "All Shelter Personnel". It reads: "It has come to my notice that undue delays are occurring in every aspect of the operation. Please be advised that under no circumstances should a job take any longer than 14 days from the date of sale. Time frames are as follows: 1. Salesmen to have job into the office within 48 hours. 2. Check measure to do the check measuring within 72 hours. 3. Costing and commissions within 48 hours. 4. Plans to be drawn and into council within 1 week. It is hard enough to get the business let allow losing it because people are not doing their job on time. We are receiving numerous complaints due to delays. Get it done and get it done on time. Maximum time of 14 days from sale date to into council." 81 That memorandum is part of a collection of company documents which are to be found at tab 8 of Exhibit DRR-A1. The documents are, broadly speaking, copies of minutes kept of management meetings held, and copies of management memoranda issued, between 8 January 2002 and 8 July 2004. A fair reading of this documentation suggests to me that throughout the period the operations of the company were constantly encountering problems of delay, and problems about the efficient supply of needed building materials and labour. It is fair to add that the documentation records ongoing attempts to grapple effectively with the problems; but the existence of the problems as constantly recurring operational headaches is made crystal clear. Both the second and third defendants are throughout active in connection with the attempted rectification of the various operational problems. 82 There is, next, a body of evidence, in part oral and in part documentary, coming from three men who had particular connections of various kinds with the operations of the company: Messrs. Loveday, Wicks and Martinez. 83 Mr. Loveday first had contact with the company and with the second and third defendants through a certain business mentoring scheme. He became gradually more and more involved in attempting to advise the company and the second and third defendants about what practical problems they were facing; and about what, in his view, needed to be done in order to deal properly with those problems. 84 In paragraph 15 of an affidavit sworn on 1 November 2004 Mr. Loveday says, under a heading: "Customer complaints about delay": "Almost all the customer complaints were complaints about delays. There were very few complaints about the quality of the building work. It became apparent to me that there was no consolidated information readily available for the management of customers' situations (in particular delays), even though individual records were held on the computer and in customer folders." 85 Mr. Loveday goes on to explain particular recommendations made thereupon by him. His analysis, (see paragraph 17 of his affidavit), was that "as at October 2003, a huge number of jobs involved unacceptable delay". He was cross-examined about this statement; and he conceded that he could not quantify the description "huge"; but he said that the total number of jobs in the company's system was about 500; and that of those "quite a number were unacceptable delay", but, again, with no quantification of "quite a number". At paragraphs 18 through 20 of his affidavit, and under the heading: "Short deliveries", Mr. Loveday deposes: "18. The term 'short deliveries' refers to the delivery to a customer's premises of insufficient materials. Most materials were supplied by the materials suppliers to Prouds and passed through Prouds' premises at Wetherill Park. Some materials were delivered directly to the customer by the materials supplier. The standard customer contract contained a requirement for a payment at the time materials were delivered to the customer's premises. Thereafter, a fitter (a tradesman) would attend to begin work, and would at that time collect a further payment. If the materials delivered were not complete the building work would often (often could not) begin, but the fitter would nonetheless take the further payment. 19. I therefore established - that is, after appropriate planning and consultation, I documented and secured management approval for - a process designed to ensure that there would not be further short deliveries. The essential point of that process was that deliveries had to be checked for completeness before being despatched and no despatch would proceed unless it was complete or, in exceptional cases, Michael had approved a documented decision to despatch an incomplete delivery. 20. Unfortunately, at subsequent management meetings those responsible for the building work (e.g. Mark Waters and Rod Rogers) continued repeatedly to raise the issue that short deliveries were causing problems. I repeatedly asked why deliveries were being despatched contrary to the process I had established. Repeatedly it was said (typically, e.g. by Mark Waters) that the issue would be examined, but the problem was never fixed." 86 Later, under a heading "Prouds' financial difficulties, 2003-2004", Mr. Loveday deposes: "25. In late 2003 I completed an analysis that showed that whilst sales were increasing dramatically the business's revenue was increasing only marginally. Prouds were getting the deposit due at time of contract and at time of check measure, but not getting the subsequent payments due under each contract. The reasons Prouds were not getting the subsequent payments included Prouds' inability to obtain home owners' warranty insurance (in part because they did not have the funds to pay the premiums), councils' refusal to approve unacceptable designs, the check measurers' inability to design more difficult jobs (for more difficult jobs the check measurers would leave to someone else the design and measuring work which they would ordinarily do, but the work would not get done by anyone) and Prouds' inability to secure delivery of materials (in part because of their inability to pay for them)." 87 Mr. Loveday presented as a man who was confident in his business judgments based upon his own business qualifications and experience. The picture that emerges from the whole of the evidence in the case is one of the second and third defendants, but especially the second defendant, as businessmen with no less confidence in their very different approaches to running what was, essentially, a family business. It cannot have been always a comfortable relationship; and it is easy to criticise Mr. Loveday as now expressing views that are coloured by the fact that so many of his recommendations were either rejected, or were accepted but never implemented. Having seen and heard Mr. Loveday, and especially having seen and heard him carefully and closely cross-examined, I accept the general thrust of his evidence. 88 Mr. Wicks became associated with the company's business as part of an attempted management shake-up resulting from Mr. Loveday's activities. He describes his retainer as having been, at least initially, "to assist with the Computer system, information management, and to manage complicated jobs and general assistance to customers if they contacted". 89 In a statement given to investigators from the Office of Fair Trading, Mr. Wicks makes these observations: "12. In my time with Prouds it became obvious to me, based on my experience in the building industry, that jobs were often sold for too low a price. That is the job was done for a price, which meant the company could not possibly make a profit. The facts were a lot of prices were looked at and it was obvious we could not do the jobs for the quoted price. It was considered or suggested both by me and others including Michael Pobjie that we should give the customer back their money but that simply didn't happen because in most cases the money was simply not available so we were forced to battle on. Tom was well aware of this inability to pay suppliers, I raised many times, but Tom simply would not discuss that . I probably should say here that I never thought the business would fail, they were very good at generating leads, they simply needed a strategy to turn it around which I could have put in place had I been allowed to do it. I believe the business could have been turned around but it would have needed time and for Tom to put in some extra funds. 14. ………. Had I had the opportunity to put in place the appropriate strategies this may never have happened. Even when I pointed out the unprofitable jobs which would not make money they still continued to take on new work at the same selling prices. 15. One of the other reasons this happened was Prouds couldn't start jobs was because they couldn't get the plans out of Council because they couldn't get Home Owner's Warranty Insurance. It was just a vicious circle." 90 Mr. Wicks, in his cross-examination, expanded as follows on some of those themes: "Q. Did the relative location of those offices give you the opportunity in a general way to observe what was going on in the other two offices? A. Yes, it did and I was involved in quite a lot of the discussions as to what's happening, what's good, what's bad, what needs to be changed et cetera. So I was involved in the discussions directly and I was also involved in the discussions because I was sitting right beside the offices. Q. Were those discussions, discussions in addition to, and distinct from, the meetings that were happening on a weekly basis that you mentioned? A. I would say discussions to do with problems and issues and things that had to happen, took place two or three times every day. Not in a formal meeting situation though. Q. What were some of the main topics of those discussions? A. Main topics were initially number 1 was responding to customer complaints and customers who were taking their complaints further, because they figured they weren't having a response. Then the discussions were always: well, we are resolving those complaints but how can we resolve them better and then the discussion moved to what things do we have to do to resolve the issue, as opposed to just ringing the customer back. Initially it was calling the customer back and keeping them involved. Then after that, it was more, having rung the customer, what can we do to make the customer happy? So the discussions later were to do with that. Q. What were the types of things that needed to be done to make the customer happy? A. Just slow actions on jobs; jobs that maybe weren't quite complete; people who were waiting for materials, people who were waiting just a long time to have their job done. Q. Was that, what you just said, a description of the problems that were being faced? A. Mm. Q. The jobs were being too slow, the delivery of materials wasn't done properly and the other things you mentioned were problems? A. The problems that we identified as being the things that had to be fixed. Q. What were the solutions to those problems that were being advanced in the early period of your time at Prouds? A. The solution, we were trying to keep more stock, so the stock was available to send to jobs when the deliveries were ready. We tried to have fitters trained more regularly so that the fitters weren't having problems on jobs, et cetera. One of the big ones was deliveries being short delivered to jobs, so there was a pretty big exercise in trying to make sure that the materials that were delivered to jobs were never delivered, unless there was - unless the complete order was there. I guess attending to people's work earlier. We had situations where there were jobs that were not terribly desirable to fitters, so they would choose the desirable jobs and the undesirable job would sit there for another couple of months and those customers became more aggravated. A lot to do with timing and a lot to do with the provision of materials to the site. Q. Taking some of those issues one at a time, was the proposed solution for short delivery of materials, or inadequate delivery of materials, carried out? A. Not really. The stock level didn't change. We had - we went through an exercise of trying to eliminate stock that was in the factory that was redundant, would never be used, but the levels of stock didn't really increase to the point where the complete delivery could be made to a job. So the issue of fitters being short of materials was never really resolved. Q. Did you ascertain why that problem was never resolved? A. In keeping stock, the problem was the suppliers, we could never get the suppliers to commit to provide enough product to put it in the factory. The suppliers were generally saying to us "Well, we can't supply at the moment, we need the previous cheque and then we will supply the next job" et cetera. So there really wasn't enough capacity in the place to be able to order stock to keep it in the factory and have, maybe you know a month or two worth of stock. Q. What did you mean by your reference to the "previous cheque"? A. If a supplier was supplying gutters, for example, and we had orders in to the supplier for six more job lots of gutter, they were saying "Well, give us, pay us four our previous lot or previous invoice" or whatever and then we will supply it and that was creating problems. We identified that as being some issues early in the piece, I guess, where we couldn't simply order and have product delivered and be confident that the supplier was going to supply, because in a lot of cases we were on hold. Q. Apart from the failure to pay previous bills to suppliers, did you identify any other reasons why suppliers were not delivering the products or supplying products to Prouds? A. No, I don't believe. Q. Apart from the failure of suppliers to deliver to Prouds, did you identify any other reason why materials weren't being delivered to the customers? A. Some problems occurred with ordering materials. Some items weren't ordered correctly. Some items were non-standard items that were complicated and had to come from suppliers who weren't known to the company. I suppose there was probably a range of those things. Not being able to get stock, there were mistakes sometimes made where white posts were ordered and cream posts were required. Those problems were - they were problems but they weren't many of them, there weren't many of them. Q. Another problem was to get the jobs moving. I think you indicated that some of the jobs were being done too slowly? A. (No verbal reply) Q. What solution was put in place, if any, to deal with that? A. Increasing the number of fitters; that there were a couple of supervisors were trying their best to increase the number of fitters. The problem associated with that was that finding fitters who were experienced who you could leave and manage the work and get the job done. They just didn't exist. So there was quite a lot of work done to increase the number of fitters who weren't trained but then train them. Now, the problem then is I guess the training the fitters on-site meant that the supervisor had to be there with them so that took them off the availability if you like of being able to look after other jobs." 91 It is true that Mr. Wicks, when cross-examined, agreed, in my paraphrase, that it was not necessarily the fault of the company that there were serious delays in obtaining insurance cover without which particular contract work could not lawfully be carried out; and that, again in my paraphrase, there were practical business considerations needing to be balanced in connection with the supplies of materials: e.g. the need not to hold for lengthy periods store-room stock which was effectively costing money while it lay idle. I do not see, however, that those qualifications weaken the essential thrust of Mr. Wicks' evidence, that there were in fact problems of delay, of supply, and of essential insurance cover; that the problems were known to exist and to be causing project delays which were accepted as requiring correction; that the company nevertheless went on undertaking large numbers of new jobs, and accepting advance payments in connection with them. 92 Mr. Martinez is a draftsman who was employed for a time as such by the company. Mr. Martinez said in cross-examination, and concerning the problems of delay: "Q. In terms of the ordinary cycle of work through Prouds, it would be right that you would expect a job to be within Prouds for at least up to three or four months? A. Yeah, that sounds right, yes. Q. In the cycle through the initial processing period, council application and approval, any re-submission or clearing up difficulties with council and then getting the work done could take between three and four months? A. That's right. Q. So that I take it, it would simply be an ordinary circumstance of the business that the work on hand at any given point in time would be in the order of about 400 contracts? A. Yes, that's right, yeah. Q. And that's leaving aside of course the problem that emerged in relation to the large scale contracts where insurance was required where the difficulty in getting insurance certificates emerged? A. Yeah, that was a big problem for us, with the council as well. They always asked for the insurance before they could approve the job." "Q. When you arrived full-time at the office in January 2004 there was a hold up for a body of contracts in relation to insurance at that time, is that your memory? A. I don't remember to be honest. Q. In any event, after you'd been there a relatively short time I take it, it became apparent that there was a problem with getting certificates issued? A. That's right. Q. And that problem persisted then through until the administrator was appointed? A. That's right, all the way through. Q. Is it right that all that happened in your observation was either customers cancelled and the contracts became irrelevant for one group of customers where home warranty insurance was a problem? A. Yeah, a lot of them did try to cancel because it just took too long. Q. Another group persisted and policy certificates did issue in clumps from time to time? A. I never saw any insurance certificate. Q. I see. Did you see some of the files that had been held up waiting for insurance certificates then start to move on through the system? Was that something you observed? A. I did see a few jobs built, but I never saw an insurance certificate." 93 A consideration of the whole of the foregoing evidence leaves me comfortably persuaded that the company, under the effective direction of the second and third defendants, did contravene on a number of occasions the prohibition established by section 53(b) of the Fair Trading Act. It is not to that point to object that it might be thought not to have been entirely the fault of the second and third defendants that problems of delay, of supply and of insurance kept cropping up. The fact is that those related problems did keep cropping up; and they entailed that there were reasonable grounds for believing that the company, by continuing to accept new jobs and new advance payments for those jobs, would be unable to deliver, whether within an agreed time or within a reasonable time, some at least of the works and services that it was thus contracting to provide. 94 That the second and third defendants are involved in any such section 53 contravention seems to me to be plainly established upon the basis provided by section 62(c) of the Fair Trading Act. The defendants, but especially the second defendant, were in every practical sense the hands-on managers of the affairs of the company's relevant business. They cannot be heard to say, on any sensible appraisal of the evidence, that they did not know, or cannot be expected reasonably to have known, of the problems which I have been discussing; or of the likely practical consequences of those problems in connection with new business commitments undertaken while those problems persisted. 95 That there were contraventions of section 53 as alleged by the Commissioner is, in my opinion, established. That the second and third defendants are answerable for them is also, in my opinion, established. How serious the contraventions should be held to have been is not so readily determined. 96 It can be found fairly on the probabilities that there was a number of such contraventions. Exactly how many, it is impossible to say on the evidence as it stands. It is clear that in many cases the company did fulfil its contractual obligations; but it is, again, impossible to say in any precise way what percentage of its jobs in hand at any given time were jobs involving a contravention of section 53. 97 The evidence does not establish, and the plaintiff does not in any event allege, fraud. The real kernel of any section 53 contravention was obstinacy, especially on the part of the second defendant. A period of patient reconstruction could have, and probably would have, overcome the problems which were causing persistent delays in carrying out contracted works, and in providing contracted services. In July 2004, but far too late in the day, the second defendant himself actually suggested how things might be properly rearranged: see at tab 32, Exhibit DRR 1 - Vol 1. 98 How all of those considerations should be factored into appropriate orders must abide the resolution of the remaining questions for present decision.

Questions 5 and 6 99 I have stated these as distinct questions because of what is contained in a section of the written submissions of learned counsel for the plaintiff, which section is headed: "Other breaches of the Fair Trading Act". The section lists, in paragraph 39, eight instances in connection with each of which it is alleged that some statement was made as to a time within which a particular job would be done, and that each such statement evidenced conduct contravening section 42 of the Fair Trading Act. The section lists, in paragraph 40, a further seven instances of conduct said to have "involved false, misleading or unconscionable conduct". 100 In an earlier paragraph of those written submissions, - paragraph 7 on page 3, - it is said: "The plaintiff also alleges that relevant breaches of s. 42 (false and misleading conduct) and s. 43 (unconscionable conduct) occurred, although it may be fair to describe such breaches as incidents of the systemic breaching of s. 53." 101 I apprehend that the "relevant breaches" there referred to are those to which later reference is made in paragraphs 39 and 40. I do not regard the allegations made in paragraphs 39 and 40 as merely incidental to the section 53 breaches with which I dealt in the preceding section of this judgment. I propose, therefore, to deal separately with the contents of paragraphs 39 and 40. 102 The representation made on each of the occasions which are particularised in paragraph 39 of the written submissions was made by a selling agent of the company. The question now to be decided is whether the second and third defendants are answerable for any such representation. I should say in that connection that I am satisfied that in fact the alleged representation was made in each case; and that representation was, at the very least, liable to mislead the particular customer or prospective customer of the company. 103 It seems to me that the plaintiff, is he to succeed in fixing either or both of the second and third defendants personally with liability for contraventions of section 42 by company agents, must bring the defendants within one of the four accessorial categories for which section 65(1) provides; or within section 70(4). 104 The section 70 option is, I think, readily disposed of. There is no evidence whatsoever to establish on the probabilities that any of the relevant selling agents was "engaged in or on behalf of" either the second or the third defendant as distinct from the company. 105 The plaintiff's case as to section 65(1) is that the second and third defendants, but especially the second defendant, were so dominant in the conduct of the company's business affairs that it follows almost as a matter of course that any section 42 or section 43 contravention by a sales representative who was formally an agent of the company, must be taken to have been so related to things said and done by the second and third defendants as would bring them within one or more of paragraphs (c)-(f) of section 65(1). Those paragraphs refer to: "(c) aiding, abetting, counselling or procuring a person to contravene such a provision, (d) inducing, or attempting to induce, whether by threats or promises or otherwise, a person to contravene such a provision, (e) being in a way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision, or (f) conspiring with others to contravene such a provision. 106 As to the matters particularised in paragraph 39 of the plaintiff's submissions, it is true that the evidence shows the second defendant in particular as having been largely preoccupied with the making of sales; and with the selection and training of sales representatives. I do not see, however, that any of the available evidence could establish, in the Briginshaw sense, that the second defendant, and still less the third defendant, had actually done, or omitted to do, something falling within any of the accessorial categories defined in section 65(1)(c)-(f), 107 Turning to the matters particularised in paragraph 40 of the plaintiff's submissions, I come to the same conclusion as to all but the third and the seventh of the itemised incidents. 108 The third incident concerns a press release purporting to come from the Minister for Fair Trading. Copies of the purported release were undoubtedly circulated to various then customers of the company. They were so circulated under cover of a letter on the letterhead of Prouds Home Improvements. The letter was dated 23 April 2004. The letter was initialled; but the evidence does not identify the signatory. 109 The fact is that on 21 March 2003 the then Minister, Mr. Aquilina, did issue a Press Release on the topic: "Government moves to improve home warranty insurance". The copy Release, as circulated, bears no date; but is otherwise unaltered. There is no evidence as to who caused the original date not to be reproduced; or when; or how; or in what precise factual context. 110 The plaintiff submits that it was misleading, unconscionable, or both, to have circulated the undated copy of the Press Release because "simply to say there was a problem with the insurance in April 2004 was misleading when the real problem was that the company was unable to persuade the insurance company to give it a particular builder, insurance cover, and when there were so many other problems". [T 454 (100] 111 It is not controversial that, as the Minister says in the Press Release, the collapse two years previously of HIH, coupled with global uncertainty in the insurance industry, had indeed made it necessary for there to be a wholesale re-building of the home insurance industry. 112 Neither is it, I apprehend, controversial that, whatever other causes were contributing at material times to the company's insurance cover difficulties, the drastic occurrences of which the Press Release speaks had created an insurance market atmosphere which had contributed, at least to some extent, to those problems. 113 I do not think that the brief covering letter, read fairly as a whole, suggests anything substantially different. 114 As to the seventh incident, it is convenient to note the following oral submissions of learned counsel for the plaintiff: "A similar, but different, example from the last one; at the end of paragraph 40, at page 22, there are several affidavits which speak of the forging of a certificate of insurance which was submitted to Bankstown City Council. The evidence seems very clear as to what occurred. Ms Donnelly, the insurance broker, faxed a set of certificates of insurance to a first defendant's officer. There were three copies for each job; the owner, the builder and one for the government authority. But, there were three copies. Page 8 of that fax was one of the certificates, the builder's copy of the certificate for the job of Collins. Mr. and Mrs. Collins' details were removed and the other details were inserted and submitted to the council. We draw attention to the fact that Exhibit P1 contains a set of blank Collins' certificates, that is, there is a set of insurance certificates which can be seen to have come from the Collins certificates, but with their details removed and with nobody's details inserted. We submit it is certainly unconscionable for the company to do this. We submit that on the whole of the evidence, your Honour would be satisfied that the defendants were running the business in a manner that impressed upon its employees the need to do whatever it took to keep money coming in and that this was a natural, or foreseeable, result of that business environment. It is certainly relevant to your Honour's discretion, if the legal requirements for section 65 or 72 are made out. It is certainly relevant that they ran a business in which this sort of thing could happen, and did happen." 115 There can be no disputing the proposition that whoever forged the relevant insurance certificates committed a serious criminal offence. It appears from the letter written to Mr. and Mrs. Bucci by the insurer that the insurer had reported the fraud to the police for the taking by the police of appropriate action. I was not referred to any evidence of what police investigation, if any, had been carried out; and what, if any, light had been shed upon the identification of the forger(s) and of the circumstances in which the forgery had been carried out. 116 Even if it be inferred that some servant(s) or agent(s) of the company carried out the forgery in order to placate Mr. and Mrs. Bucci, it would not follow thereupon, and more or less as of course, that either or both of the second and third defendants could fairly be branded as accessories to forgery in any of the senses contemplated by section 65(1)(c)-(f). To imply, as the submissions rather do, that the second and third defendants virtually signalled to company employees that even a criminal offence was not beyond the pale if it kept money coming in, is, to say the least, to make a very serious allegation of serious and deliberate wrong-doing. No Court can properly accept and act upon such a suggestion in the absence of clear evidence of appropriate weight; and I apprehend that there is no such evidence. 117 In my opinion none of the complaints made against the second and third defendants, and itemised in paragraphs 39 and 40 of the plaintiff's written submissions, has been made good.

Questions 7, 8 and 9 118 On 26 February 2004 a meeting was held at the Parramatta premises of the Department of Commerce, of which department the Home Building Service was then a part. The business of the meeting was to consider "show cause" notices that had been issued by the Service and addressed variously to the Board of Directors of the company; to the second defendant; and to Mr. Rogers who was, in his own words, "Nominated Supervisor for Prouds Home Improvements". Present at the meeting and in addition to Mr. Rogers were Mr. Lindsay Le Compte, General Manager of the Home Building Service; Mr. Michael Cooper, then Manager of the Regulatory Analysis and Assessment Branch of the Home Building Services; the second and third defendants; Mr. Wicks; and Mr. Loveday. 119 This meeting was something of a water-shed in the practice of the company in the matter of the drawing up of contract documents. Of the twenty-three customers whose affidavits were read by the plaintiff in his case, eighteen signed contracts according to the pre-2004 practice; and the remaining five signed contracts according to the post-2004 practice. 120 The form in which the company cast its contracts pre - and post - 2004 is not a matter of merely technical interest; but is a matter going to the heart of the alleged breaches by the company of the Home Building Act, both as to the taking of deposits; refer section 8; and as to the provision of home owner's warranty insurance: refer section 92. 121 Pre-2004 the standard form of contract was one document headed: "Memorandum of Contract". It was expressed to be a contract "to supply all necessary labour and materials and to install same according to the following Schedule of Works ……………. ". It contained immediately thereafter a standard section that was laid out thus: "In consideration I/We agree to pay to the Contractor the contract price of $ including GST. (1) $ Deposit on signing this Agreement (2) $ On Check Measure …………… (3) $ Delivery of materials (4) $ On commencement of work (5) $ On completion" 122 Of the eighteen contracts which are in this form and as to each of which there is particular evidence in the present proceedings, there are, not surprisingly, variations in the details that have been written into the basic template; but the essential structure of the contract document is the same in all eighteen cases. 123 The "Check Measure" item is of cardinal importance to the section 8 case now made by the plaintiff; and so it is important to be clear about what that item actually describes. The following evidence given in cross-examination by Mr. Wicks is as convenient a description as any: "Q. Again within the limits of human frailty, the systems that were there to identify - let's go back two steps - the flow of work was that the salesman had identified in broad terms what the customer wanted and had material selection and things like that done by the customer? A. Yes, colours and size and shape and so forth, yes. Q. Had done rough sketches and indicative measurements of what was involved? A. Yeah, just very rough line sketches, dimensional sketches, I call them. Q. That work had then been brought up to a much higher level of specificity by the check measurers? A. Yes, they needed to then convert what the salesman was saying to what was buildable. Q. Quite. So they go to the site, remeasure, check the design features that the salesman has described, decide what material was needed - first of all whether it was doable in that form, debate with the customer any modification that was necessary? A. That's true. Q. Determine what the scope of work in fact was, whether any special trades were required or special requirements? A. Yes, and point that out. Q. Scaffolders and matters of that sort? A. Yeah. Q. And then seek to identify what the scope of materials required to do the job would be? A. Yes. They'd provide a measure sheet, if you like, which was converted into what materials would be needed. Q. So that the end result of the check measure process was effectively a bill of quantities and a set of drawings and measurements which were capable of being converted into something buildable? A. That's right. Q. So when it came back to the office, I take it the work then split into two streams : design department or drawing department would be attending to doing what was necessary to submit to council and so forth and for later use with your fitters? A. That's true. Q. And the bill of quantities would then go for costing and checking as to whether the pricing had been done correctly? A. Yeah, that was converted into another independent little database to check and add up so many bolts and so many nuts, et cetera." 124 The plaintiff's case is summarised in paragraphs 44 through 46 of the plaintiff's written submissions. Paragraph 44 tabulates helpfully each of the eighteen cases, as to contract price; deposit; Check Measure payment; and the percentage of the contract price that is represented by the combined amounts of the deposit and the Check Measure payment. The details need not now be reproduced. 125 Paragraphs 45 and 46 put the following submissions: "45. In each of the cases summarised in the table above at par. 44, no residential building work had begun before the second payment was received or taken by the first defendant. It follows that if the construction of par. 8 (1) (a) of the Home Building Act advanced above at par. 14 (that the reference to not receiving money 'before work is commenced' is a reference to not receiving money before residential building work is commenced) then in each case par. 8 (1) (a) was breached on the occasion of the first defendant's receipt of the second payment. (If check measuring were held to be residential building work then the defendants were regularly commencing building work without insurance being in place and thus were regularly breaching s.92). 46 Furthermore, in each of these cases, the contract provided for immediate payment of a deposit and a further payment at check measure. If it is accepted that doing a check measure is not residential building work then it follows that each entry into a contract with customers in the first category was a breach of par. 8 (1) (b) of the Home Building Act. 126 It is convenient to re-state the terms of section 8(1) and (2): " 8 Maximum deposits (1) A person must not: (a) demand or receive a payment on account before work is commenced under a contract to do residential building work, or (b) enter into a contract under which the person is entitled to demand or receive a payment on account before residential building work is commenced, if the amount of the payment is prohibited by this section. Maximum penalty : 40 penalty units. (2) The amount of the payment is prohibited if: (a) the contract price is more than $20,000 and the payment is more than 5% of the contract price (or, where another percentage is prescribed by the regulations in respect of a particular kind of work, the percentage so prescribed), or (b) the contract price is $20,000 or less and the payment is more than 10% of the contract price (or, where another percentage is prescribed by the regulations in respect of a particular kind of work, the percentage so prescribed)." 127 During the course of oral submissions I was referred to a decision of Wood CJ at CL in Provincial Houses v Doyle & ors. [2004] NSWSC 624. The critical issue in that case concerned the jurisdiction of the CTTT; but it was necessary for his Honour to consider in that connection the correct interpretation of the concept of "residential building work" as defined in section 3 of the Home Building Act. His Honour concluded: "60. I do not consider that the words 'supplied for or in connection with ' the carrying out of residential work, can properly be regarded as extending jurisdiction to claims that arise in relation to services that were supplied in relation to feasibility, design, procurement of approvals, and similar preliminary work, prior to the commencement of building. The legislative intent, in my view, was to regulate the building or construction phase and those services which are directly supplied for or in connection with its performance." 128 I respectfully agree with that analysis; but for present purposes it is necessary to look more closely at the way in which section 8, rather than section 3, ought to be interpreted. 129 That question is answered correctly, in my opinion, by reading section 8(1) as though it read thus: "(1) A person must not: (a) demand or receive a payment on account of residential building work before that work is commenced under a contract to do that work; or (b) enter into a contract under which the person is entitled to demand or receive a payment on account of residential building work before that work is commenced, if the amount of the payment is prohibited by this section." 130 Such a construction seems to me best to accord with the legislative intent as discerned by Wood CJ at CL. I take the legislative intent to have been to catch by sub-section 1(a) a payment demanded or received independently of some specific contractual entitlement to the payment; and to catch by sub-section 1(b) a payment demanded or received pursuant to some specific contractual entitlement to the payment. 131 If that approach be correct, then any breach in each of the present eighteen cases would be a contravention of sub-section (1)(b). That raises the question: Is each of the "On Check Measure" payments a payment on account of residential building work? It seems to me that while ever the reasoning of Wood CJ at CL stands as good law, the answer must be: no. 132 For the foregoing reasons I am of the opinion that the plaintiff has not established, as to this group of eighteen contracts, any contravention of section 8 (1) of the Home Building Act. 133 Post-February 2004, the company changed significantly its contractual documents. The changes thus made derived, at least in significant measure, from the "show cause" meeting earlier herein mentioned. 134 The transcript of the proceedings at that meeting is in evidence as Exhibit P7. It is not easy to analyse the proceedings because from time to time participants in the meeting talked across each other or across one another; and because the procedure adopted was to consider seriatim a number of individual customer case files. It is, however, clear that Mr. Loveday, at any rate, raised in terms the need for clarification of what the Office of Fair Trading regarded as building work as distinct from ancillary services. 135 Mr. Cooper gave oral evidence at the hearing. His cross-examination sheds further and useful light on this topic: "COTMAN: Q. And is it your recollection that the same issue had been raised as to when it was that work was being taken as having started back in the meeting in February? A. That's correct. Q. Because it was both a matter of regulatory importance and a matter apparently also of importance in relation to obtaining insurance? A. Yes. Q. Looking at it from the point of view of regulatory importance, the view was being expressed back in February 2004 that the check measure work that was being undertaken was in relation to the design and specification aspect of the work and not the building work, wasn't it? A. Yes. Q. And so that not only was it not within the monetary constraints of the Act in relation to receiving payment; it wasn't within the work constraint either? A. That's right. Q. * I don't want to suggest for a moment that you were suggesting to the contrary, but the views that were being expressed to you by the various people from Prouds, Mr. Loveday and Mr. Pobjie, the Pobjies and so forth were, as you understood it, genuinely held beliefs as to what the proper analysis of the situation was? OBJECTION QUESTION PRESSSED HIS HONOUR: Why is he not entitled to tell us what his perception was? Everything to do with the perception and judgment of the relevant officers of the Department is relevant, surely - not determinative but relevant. SINGLETON: The difficulty is with the judgment of the officers, the bona fides of the defendant is not relevant. HIS HONOUR: But surely it is relevant. It goes, doesn't it, to the forming of an overview of the entirety of the dealings between the company and its officers on the one hand; the Department and its officers on the other which had issued in the claims for discretionary relief with which I am now dealing. SINGLETON: In my respectful submission the Court determines in its discretion whether to grant injunctions on the basis of the evidence of what the defendants did. HIS HONOUR: I quite agree, but what the defendants did and how that ought to be assessed is bound up in a case of this kind, isn't it, in part at least, with what the perceptions were, what the motives were that informed the decisions that were taken and the action that was taken in the wake of those decisions. That's the view I have. There is no jury to complicate the matter. If what I have said is wrong, I will disregard it, but I think at the moment it has a very real potential relevance and I would like to hear what the answers are. SINGLETON: The other limb to the objection is one of qualifying the witness, that is, with preliminary questions as to how he can judge the question. HIS HONOUR: But his affidavit does that. Mr. Cooper is a senior public servant with managerial control of this area of the operations of the Department. SINGLETON: Not so much in terms of his qualifications in the building industry, but his knowledge of the defendants to make a judgment as to whether they are being honest with him. HIS HONOUR: But he was put in the position of having to make a judgment about them. SINGLETON: May it please your Honour. HIS HONOUR: And did in fact make a judgment about them. What comes of it is a different question, but I would like to know the process of reasoning that he went through in those respects. (His Honour addressed Ms Donnelly, in the well of the court, regarding anticipated time at which she would be called to give evidence; Ms Donnelly was released until 2.15 p.m.) COTMAN: Q. Do you recall the question? A. No, could you repeat it please? QUESTION MARKED * READ WITNESS: I find that a confusing question, I'm sorry, could you rephrase it for me, sir? HIS HONOUR: Q. It need not confuse you. What you're being asked is this: was it your perception that the things that you were being told by principally the Pobjies about their cash-flow problems and so forth, as set out in your affidavit, were genuine, according to their rights? A. Yes, I think they were. Q. COTMAN: Q. Likewise, the propositions that were being put at the meeting in February, for example, about the operation of the Act and the way in which Prouds carried on its business and the application of the Act to that business, again were genuinely held views and opinions that were being expressed to you on that occasion? HIS HONOUR: As you perceived it? A. Yes, their opinions, their view of the Act, they may well have believed it. COTMAN: Q. Let's start with this proposition: what they were saying about design, for example not being part of building and therefore charges in relation to it not being charges for building work, made perfectly good sense, didn't it? A. That information come from Mr. Le. Compte. He told them to remove the design aspect of their work out of their contracts. Q. Yes, but that was because the Pobjies had raised the problem as to it being one contract with everything in it; the whole process was getting skewed, so to speak? A. I don't recall them raising that aspect. I thought as Mr. Le Compte had raised those aspects on a request from Tom and Michael for advice or information. Q. Well, advice because they flagged to you and Mr. Le Compte how the business was being conducted and what the contract included? A. Mm, yes. Q. That gave rise to a perception at the meeting as to what the problem was about the interaction of the Act and their contracts? A. Yes. Q. That also gave rise to an appreciation of how that impacted on the insurance issue? A. Yes, yes. Q. And the reaction from Mr. Le Compte was: well look, the obvious solution is to divide up your contracts into the different elements of work that you are performing for your customers? A. It wasn't so much divide, it was just remove those sections that were not considered to be residential building work, from the contract. Q. Thank you. But not "Don't do the other work"? A. No, no. Q. So as you understood the practical effect of what was being suggested by Mr. Le Compte or discussed by Mr. Le Compte at that meeting was you would end up with at least two contracts, if not three - two entities doing different aspects of what Pobjies presently were doing as one, under one contract? A. Yes, I think that's a natural conclusion, yes. Q. And as I say, whether it be one or two entities certainly there are going to be two engagements, one for the design and so forth work and the rest for the building work? A. That's right." 136 The revised practice of using two contract documents is conveniently illustrated by the case of White. Attached to an affidavit sworn by Mr. Peter White on 22 October 2004 and in connection with the present proceedings, is what I apprehend to be a representative set of revised contract documents. 137 The first such document is entitled: "Memorandum of Contract for Design and Certification". It is expressed as a contract: "to carry out design and certification work in accordance with the following Schedule of Requirements and in accordance with the terms and conditions of this Contract ……. …….". 138 The consideration for this contract is expressed thus: "In consideration I/We agree to pay to the Contractor the contract price of $10,666 inc. GST as follows: (i) Deposit on the signing of this Agreement: $2,670 (ii) Balance on site check and detailing: $7,996" 139 The item (ii) is followed by twelve items that are arranged into three columns, each item being preceded by a bullet point. The items are: · Site Check and detailing · Water Board check · Engineering specifications · Home Owners Warranty Insurance

· Measurement of existing structure · Electricity Authority check · Architectural specification · Local Government approval · Property detail (land) · Electronic plans · Local Government Requirements · Administration 140 There follow three printed pages containing thirty-one separate conditions. Condition 2 requires, inter alia, payment of progress payments "as shown in the Payment Schedule". 141 The Payment Schedule appears as part of a separate contract document. This document is divided into two columns. The left hand column contains personal and site identification particulars and a nominated "Completion period". The right-hand column is headed: "Description of work/materials". Beneath that heading is written "As per contract No. 20822", that being the contract number shown as such in the design and certification contract. Certain works are then summarised (two further documents, which can be thought of conveniently and sufficiently for present purposes as detailed specification documents, are part of the total package of contract documents), 142 There then follows the "Payment Schedule". As extracted from the White documents, this material reads: " Payment Schedule Deposit by law cannot exceed 10% if contract price is $20,000 or less, or 5% if contract price exceeds $20,000. Deposit (if any) $ Progress payments (on completion of) On delivery $6,665 On commencement of works $6,664 On completion of job and removal of garbage $2,670 Contract price (including GST) $15,999. Warning: The contract price may vary in accordance with contract conditions. The reasons for possible increases include variations, prime cost items and provisional allowances." 143 All of the figures, and the stipulated items attracting progress payments, are in hand writing. The balance of the extract is printed. 144 The remaining four post-February 2004 contracts, that is to say those involving customers David, Hunt, Smith and Munday, are not identical in all respects with the White documents. In some of those four cases some part of the relevant documents is difficult to decipher. In those circumstances I propose to treat the White documents as fairly representative of the post-February 2004 forms adopted by the company. That was, in practical terms, the way in which the present part of the proceedings was conducted at the hearing. 145 The plaintiff's written submissions put that "there are signs that the introduction of a two-contract approach was not without confusion and not accompanied by any thoroughness or change of substance in thinking". Apart from the "change of substance in thinking" element, I agree with the substance of that criticism. I think that the generally messy way in which the relevant documents are filled out in each of the five cases in point, tends to support the criticism. That criticism is not, however, the gravamen of the case that the plaintiff now seeks to prove. That gravamen is put with complete clarity in paragraph 61 of the written submissions: "The plaintiff contends that while 'contract splitting' can be legitimate, the stratagem was abused by the defendants in order that they could secure deposits greater than properly due taking into account section 8 of the Home Building Act." 146 In my opinion that submission has not been made good by the plaintiff. 147 If the construction of section 8 which I have previously propounded be correct, then in the White case, the residential building work component of the total contractual engagement constituted 60 percent of that total, and no deposit was taken in respect of it; while the ancillary services component constituted the remaining 40 percent of that total and the deposit taken for it was not governed by section 8. 148 I do not overlook the plaintiff's contention that, again taking the White case as typical, an apportionment that attributes to ancillary services 40 percent of the total cost to the customer, is on its face indicative of, in effect, a deliberate sham designed to circumvent the requirements of the section. 149 The first thing to be said about that submission is that it does not seem to me to sit comfortably with Mr. Cooper's evidence as I have quoted it earlier herein. It is true that Mr. Cooper gave other evidence that, in his opinion, the ancillary services component charged in particular cases was excessive having regard to the nature and scope of the services for which that charge was being made. It does not follow, however, that simply because that happens to be Mr. Cooper's opinion, the charge made in the particular case can fairly be inferred to have been, to put the point plainly, a fraudulent "stratagem". 150 It needs to be kept sensibly in mind that each of the relevant customers seems both to have read, and to have signed voluntarily, the relevant documents. Any one of those customers who wished to charge that he or she had been drawn unfairly into an unfairly lopsided contract, could have obtained ample redress pursuant to the Contracts Review Act 1980 No. 16. The present part of the plaintiff's case is not one of unfairness in that sense. It is a case of deliberately sharp practice intended to defeat section 8. In my opinion that case has not been established on the Briginshaw probabilities. 151 The next aspect of the plaintiff's case for present consideration concerns the plaintiff's allegations of breaches of section 92 of the Home Building Act. That section has been reproduced earlier herein at paragraph 17. 152 The plaintiff relies in significant part, and especially from the point of view of the provisions of section 92(3), upon the statutory definition of "contract price", which is, relevantly: " contract price means the total amount payable under a contract to do work……….. and includes: (a) the amount that the person contracting to do the work ………. (b) the amount that the person is to receive under the contract for payment to any other person, and (c) the amount any third person is to receive (or it is reasonably estimated will receive) directly from the person for whom the work is done …………………, under the contract: (i) for conveying to the building site or connecting or installing services such as gas, electricity, telephone, water and sewerage, or (ii) for the issue of development or building consents." 153 It is certainly the case that "the contract price" as thus defined picks up certain types of payments over and above payments for "residential building work", understanding that latter expression in the way analysed at paragraph 127 of this judgment. 154 I am not persuaded, however, that the extended definition is intended by the Legislature to apply in section 92, and in particular in section 92(3). The clear focus of section 92(1) and (2) is the insuring of residential building work carried out pursuant to a contract. The extended definition apart, an ordinary and grammatical construction of section 92(3) in the context of which it forms a part, would entail, it seems to me, that the expression "contract price" should be understood as meaning "contract price for the said residential building work". The reference in section 92(3) itself to "labour and materials" would seem to me to strengthen that construction. 155 Should such a construction of section 92(3) yield to the section 3 extended definition? In my opinion it should not: first because of the general rule of construction that is expressed in section 6 of the Interpretation Act 1987 (NSW); and secondly, because of the common law rule of construction that is expressed conventionally in the maxim: generalia specialibus non derogant. 156 The plaintiff alleges contraventions of section 92(1) in each of nine nominated cases: see paragraph 63 of the plaintiff's written submissions. Upon the construction that I regard as a correct construction of section 92(3), the cases of Foreman and Rapmund would be excluded. 157 I am satisfied that the available evidence does demonstrate a section 92(1) contravention in the seven remaining nominated cases. 158 The plaintiff alleges contraventions of section 92(2) in each of seventeen nominated cases: see paragraph 64 of the plaintiff's written submissions. My preferred construction of section of 92(3) would exclude the cases of Rapmund and Warden. I am satisfied that the available evidence does demonstrate a section 92(2) contravention in the fifteen remaining nominated cases. 159 I point out for greater clarity that, in order to determine whether or not the contract price for residential building work exceeded in a particular case $12,000, I have used the table in paragraph 44 of the plaintiff's written submissions, subtracting the stated check measure figure from the stated contract price figure. 160 It is no easy task to make a fair assessment overall of the culpability of these breaches. That is so because the relevant insurance history is something of a mess. As best I can disentangle the evidence, that history is as follows. 161 On 13 June 2003 an insurer issued to the company a Certificate of Eligibility complying with the requirements of the Home Building Act. The Certificate provided, relevantly, for a maximum total value of $500,000 for all residential building works in any 12 month period. 162 What that actually entailed was described as follows, and in his re-examination, by Mr. Paul Hague, an underwriting manager for Vero Insurance Ltd., the commercial successor of the actual insurer under the Certificate: "SINGLETON: Q Mr. Hague, could I just ask you to go to page 8 of your affidavit, which is the certificate of eligibility issued on 13 June 2003. I just want to have my own crack at ensuring I understand point 2, which reads "maximum total value of all residential building works in any 12 month period". Firstly, that is a reference only to building works worth more than $12,000 per job, is that correct? A. Correct. Q So that one could have an unlimited number of building works, each of which was less than $12,000? A. Yes. Q. And not reach the $500,000 limit, is that correct? A. Yes, that is correct. Q. If, taking this as a date of 13 June as an example starting point, if in June Pobjie Agencies had hypothetically contracted to build $100,000 worth of home improvements and extensions, it would be within the limit prescribed by point 2, correct? A. Yes, correct and just let me make sure I understand your question. You are referring to building works above $12,000, because that's all that concerns Vero? Q. Yes, building works each of which is worth more than $12,000, amalgamated to a total of $100,000, all signed up in July 2003. That wouldn't breach the $500,000 limit, correct? A. That's correct. Q. If a similar occurrence occurred in each of the next few months, such that by the end of the year $500,000 worth of jobs worth more than $12,000 each had been signed up by Pobjies, they would have reached the $500,000 maximum? A. Yes. Q. Even if half of those jobs had been completed by, say November, they would not be allowed to continue into the New Year doing further building works, without applying for a new certificate of eligibility, is that correct? A. That's correct. Q. However, if they stop work for another six months and came back, at that point some of those first jobs would have past the 12 month limit? A. Yes." 163 It seems to me to be common sense that a builder such as the company could not simply shut down every so often while the 12 month period of insurance eligibility adjusted itself, so to speak, in the way outlined by Mr. Hague. No doubt that triggered subsequent applications by the company for expanded insurance limits. 164 On 29 January 2004 a fresh Certificate of Eligibility issued. Its maximum works value was $1 million. 165 On 11 May 2004 there was an agreed further expansion to $1,500,000 of the maximum works value; but according to Mr. Hague, no new Certificate of Eligibility issued. I am unable to discern why not. 166 According to Mr. Hague's evidence, which I accept on the point, forty-five individual Certificates of Insurance issued to the company from its insurer between July 2003 and September 2004. Of the forty-five Certificates: · 11 issued on 8 July 2003 · 1 issued on 15 September 2003 · 3 issued on 20 October 2003 · 3 issued on 3 November 2003 · 7 issued on 12 February 2004 · 2 issued on 18 February 2004 · 4 issued on 3 March 2004 · 1 issued on 8 March 2004 · 5 issued on 16 March 2004 · 1 issued on 17 March 2004 · 5 issued on 12 May 2004 · 2 issued on 13 May 2004 167 It is clear from the documentary evidence that prior to 14 April 2004 there were negotiations for an increase to $2,500,000 in the amount of maximum insured work value; and that the insurer approved the proposed increase but required as a condition of it the lodging by the company of a bank guarantee for $225,000. 168 Exhibit D6 is a minute kept by Mr. Hague of a very brief meeting held between 10.30 a.m. and 10.50 a.m. on 27 August 2004, the very day on which Levine J made the orders noted at paragraph 63 of this judgment. It is sufficient to note that two of the seven attendees were Mr. Hague and the third defendant. The body of the minute itself is brief and is better quoted than paraphrased: "Meeting held to discuss: · Release of the Bank Guarantee · Eligibility Situation: Pobjie has collected substantial deposits in excess of the norm for work which has not commenced. Vero reaffirmed position. i) No certificate to be issued as long as builders Licence is Suspended ii) Consideration of eligibility renewal would only take place upon suspended licence being Activated by OFT. iii) Vero will retain $225K Bank Guarantee for the duration of warranty liability period. Prior to BG received by Vero, we have processed approx. 8 certificates on the good faith that BG to be provided by Pobjie PL (Builder ultimately provided BG 3 months after Vero has requested it to support turnover) iv) Vero had extended invitation for OFT to come along to meeting, however none from OFT attended. v) Builder status is set on Monitor pending OFT uplifting their suspension. Meeting ended with Michael Pobjie walking out 10.50 a.m." 169 I take it to be clear from this Minute that the company did in fact provide the bank guarantee of $225,000; but that the insurer would neither issue ongoing Certificates of Insurance because the company's licence had been suspended; nor return the bank guarantee or any part of it. 170 Against such a background I am not persuaded that such contraventions of section 92(1) and (2) as have been established ought fairly to be judged as having been in contumelious disregard of the requirements of the Home Building Act. The company's insurance affairs look to have been disorganised, like much else in its business arrangements; but being shown to have been disorganised falls short of necessarily being shown to have been dishonest, or unconscionable, or contemptuous of the requirements of the Home Building Act, not all of which requirements could be said to have been drawn with complete clarity. The company was trying to run a high-turnover business. The relevant sector of the insurance industry was itself in disarray for at least part of the material times. At tab 4 of the plaintiff's exhibit P3 is a copy letter written on the Prouds letterhead to customers named Brucci. It is dated 19 February 2004. It advises that the company's insurer has changed its underwriting rules so as to require in the case of an application for a Certificate of Insurance, the support of a customer letter confirming that no work has yet commenced at the particular property. The letter continues: "We apologise for any inconvenience, we are governed by the Home Owners Warranty Insurance Company as there are only 2 companies that provide builders with this type of insurance. They have a monopoly over us and we have to abide by their changes and their lengthy delays in supplying us with your Certificate." 171 I see no evidence to suggest that this statement is inaccurate; and my view overall of the available evidence is that the statement was in substance accurate. 172 It remains to consider the question that I have numbered as question 8. 173 I have quoted above at paragraph 18 section 138 of the Home Building Act. It is not on all fours with section 65 of the Fair Trading Act, although there are some similarities between the two sections. One striking difference between the sections is that section 138 requires, and section 65 does not require, an antecedent consent of the relevant Minister of the Crown. 174 It is the plaintiff's contention that, in proceedings brought pursuant to section 65 of the Fair Trading Act, the Commissioner is entitled to base his claim for relief, in part at least, upon demonstrated contraventions of the provisions of the Home Building Act. I do not agree. 175 If the plaintiff's contention were correct, then there would be no logical reason why the Commissioner might not seek section 65 relief based wholly upon such contraventions of the Home Building Act. It seems to me that such a proposition could not be correct, for the simple and obvious reason that it would enable the need for Ministerial approval, a clear requirement of the Legislature respecting the enforcement by injunction of the Home Building Act, to be administratively avoided. Whether the point is correctly dealt with upon the basis that as a matter of law the Commissioner cannot proceed de facto for injunctions in aid of the enforcement of the Home Building Act by the method of proceeding under section 65 of the Fair Trading Act, it is unnecessary to decide. That is because in my opinion, even if the Commissioner be entitled as a strict matter of law to proceed by way of section 65 upon a basis that seeks, in truth, to enforce in whole or in part the Home Building Act, nevertheless the Court, as a matter of discretion, should not permit the Commissioner to step de facto around the section 138 requirement of prior Ministerial consent. I should add at once that I am in no way suggesting that the Commissioner has set out deliberately to do such a thing. I am saying only that the enforcement of the Fair Trading Act is not, so to speak, a simple and seamless whole with the enforcement of the Home Building Act: cf and ct section 138 (2) (a). 176 In framing final orders in the present proceedings, I have found it unnecessary to do more than to draw attention to the foregoing matters. As will appear presently, I would not grant the relief actually sought in the Summons, even taking into account, in accordance with the foregoing assessment of them, the alleged contraventions of the Home Building Act.

[1] I am satisfied that the plaintiff has established contraventions of section 53 of the Fair Trading Act and of sections 92(1) and (2) of the Home Building Act .

[2] I accept that any breach of either Act must be remedied with a proper firmness. Not to do so would undermine the efficacy of the legislation.

[3] I am not satisfied that any of the proved contraventions involved deliberate fraud or merely contumelious disregard for the relevant requirements of the law.

[4] I am satisfied that the contraventions involved slovenly and inflexible business administration in the context of an aggressively commercial, but seriously under-capitalised, family company.

[5] The proposition that in such a setting the second and third defendants should be comprehensively shut out of the business area in which they have earned a living for a long time, especially in the case of the second defendant, is in my opinion a proposition that goes far beyond what a reasonable mind would see as necessary in order to vindicate the law.

[6] Such an unacceptable result appears to me to be the unavoidable practical consequence of a 10 year ban as proposed in the Summons. I will not grant an injunction in such terms.

[7] I accept, however, that there is a need to continue the status quo for some sensibly calculated period: first in aid of the orderly and efficient completion of the formal administration of the company; secondly in aid of ensuring that if either of the second and third defendants wishes to re-commence licenced building work, then he will have to make a real effort to organise a proper application, supported by evidence of proper capitalisation and of properly disciplined business structures designed to avoid any repetition of the practices that lie at the heart of the problems disclosed by the present proceedings; and thirdly in aid of facilitating a prompt and fair adjudication of any outstanding claims for compensation by former customers of the company.

[8] I have, as matters stand, no reliable indication of how much time any or all of such matters might require for their final solution. I propose, therefore, to grant an injunction in terms of paragraph 1 of the Summons to and including 30 September 2005; and to continue to and including that same date the interim orders made by Levine J on 27 August 2004 as subsequently varied by amending orders of the Court. If, at the expiration of that period, there is cause to show for the further extension of the injunction and orders, then that can be done by an appropriate application.

[9] I refuse orders as sought in paragraphs 2 and 3 of the Summons. The proposed arrangement is cumbersome, harsh and effectively open-ended. Assuming that the proposed arrangement is within power, (a real question, but one as to which I have no need to express a present opinion), I would regard it as going far beyond what would be justified by the evidence in the present proceedings. There should be ample time between now and 30 September next for any application to be made in proper, and properly precise, form either by an individual claimant, or by the Commissioner pursuant to section 72(4) and with the prior written consent of identified complainants.

[10] I refuse an order that the second and third defendants pay "the investigative costs of the plaintiff in respect of this action and the matters upon which it is based" . First I have no idea of what is said to be embraced by the notion of "investigative costs" . Secondly I am unpersuaded by such evidence as is available on the point, that the second and third defendants or either of them has unreasonably impeded the investigation of their affairs. Thirdly I am wary, in the absence of some clear statutory warrant, - and I was not referred to any, - of making an order that travels so far beyond an appropriate conventional costs order in conventional adversarial proceedings.

[11] As to such costs in the present case, I accept that the plaintiff is entitled to an appropriate order; but I think that an appropriate order ought to recognise that the overall result is, if I may put the point thus, a very mixed bag of success and failure for the plaintiff. I think that an order that the second and third defendants pay one-half of the plaintiff's costs of the proceedings would be just.

[12] There is one final matter to which I should advert specifically.

There was a suggestion put by learned counsel for the plaintiff that I might consider publishing an interim judgment leaving the parties thereafter to bring in consent orders giving effect to the judgment; or leaving the parties, absent consent, to propound competing possible orders.

I thought at the time that there was something to be said for such an approach, and I have considered whether I might not in fact proceed in that fashion. In the end I have decided to make orders that will be, so far as the hearing before me is concerned, final orders. There are several reasons for that.

First the proceedings are in fact for final relief and I think that the Court should make up its mind as to the appropriate orders; make them accordingly; and leave the parties with a clear basis for any desired appeal.

Secondly any attempt to depart from that approach is practically certain to entail a further hearing. My own Court commitments are set for at least the next three months; and quite possibly, depending upon the duration of a very difficult complex fraud trial, for perhaps the next six months. In those circumstances I have thought it fairer to bring to conclusion now my views about what orders ought to be made in the present proceedings, rather than to be inconclusive about orders and then have the parties in the wholly impractical, and therefore unfair, position of trying to fit into that uncompromising schedule further oral and written argument, followed by a very lengthy delay until the making of final orders. Interest rei publicae ut sit finis litium.

[1] I grant an injunction in terms of paragraph 1 of the Summons to and including 30 September 2005,

[2] I extend to and including 30 September 2005 the current interim orders numbered 1 to 6 both inclusive made by Levine J on 27 August 2004, as varied by subsequent amending orders of the Court. I grant liberty to the parties to apply to the Common Law Division Duty Judge for the time being for any desired further amendment of those interim orders.

[3] I order the second and third defendants to pay one-half of the plaintiff's costs of these proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.