These are my reasons on a preliminary issue that I directed yesterday be determined immediately upon the commencement of the trial in this case. The issues to be determined arise from paragraphs 4(c) and (e) and paragraph 7 of the defence filed by the first and second respondent on 24 May, 2012. It was necessary to take some evidence from a witness for the first respondent - Mr Hegarty. He was cross-examined by Mr Craven who is appearing for himself in this application.
The principal application arises from an online internet retailing business whereby flowers are sold to consumers. Mr Craven brings the principal application alleging that the respondents have breached the relevant State and Federal consumer protection laws.
The claim in this case is articulated in an amended statement of claim filed on 20 April, 2012. By the amended statement of claim the applicant alleges that he has an entitlement to sue and that the first respondent is capable of being sued.
The claim against the first respondent is one based upon representations said to have been made by the first respondent to "an average consumer". Paragraph 1 and its subparagraphs in the statement of claim allege that there are misrepresentations or false representations made by the first respondent to consumers in respect of contracts that have arisen between the first respondent and its consumers from 2006 "to current".
The allegations in paragraph 1 of the amended statement of claim are ill formed and not well particularised but the basal allegation in paragraph 1.1(e) is that, because of a substantial amount of false representations, the Court is asked to infer that the first respondent's false representations form an integral part of its business model and every contract entered into between the first respondent and one of its customers is "tainted with a false representation".
The claim against the second respondent alleges that he is a person who has carried on and carries on an internet business in Queensland. There are some other allegations about things that he has done in other countries.
Paragraph 2 through to paragraph 5 of the amended statement of claim essentially deals with misrepresentations to consumers. The allegations in paragraph 2 and its subparagraphs deal with what is alleged to be misrepresentations arising out of the description of goods on certain websites and the conformity of goods delivered to people who order from the website compared with the description of the goods on the website. That is, it is said that in a substantial number of cases the goods delivered do not conform with the description on the website and that therefore, it is said, leads to a conclusion that the relevant Acts have been contravened.
Paragraph 3 deals with representations as to location of florists and in particular, "our florists", or, "our local florist", which representations are said to have been made by the first respondent to people dealing with the first respondent via its websites. It is alleged that the representations about location are false, misleading and deceptive and the relevant Acts have been contravened.
Paragraph 4 deals with representations about "delivery" and "same day delivery". The pleading asserts that the representations are false and that there has been a breach of the relevant legislation.
Paragraph 5 deals with what is described in the pleading as a "customer satisfaction guarantee". It follows a similar pattern to the rest of the pleading, namely that it is alleged that the representation is false and thereby, the relevant Acts have been contravened.
Paragraph 6 deals with representations to both "supplier florists" so described in the pleading and consumers and it essentially concerns the price that is charged for the product sold by the proprietor of the website, to use as neutral a term as I can think of, to the relevant consumer and the amount paid by the proprietor of the website to the supplier florists for supplying the product to the consumer.
The plea is difficult to understand and it is difficult to see the allegations of falsity and how they arise. But for present purposes, the pleading asserts that there is misleading and deceptive conduct in respect of the way in which the first respondent, according to the pleading, has structured its business arrangements as between itself, its suppliers and its customers.
Paragraph 7 of the pleading deals with false representations said to have been made about the description of the proprietor of the relevant internet website. It is said that the first respondent has represented, either expressly or by implication, that the first respondent is an Australian public company when it is not an Australian public company. That allegation rests on two matters. The first is an assertion, perhaps by implication, that the relevant websites are conducted by the first respondent and secondly, that the first respondent has represented via the websites that it is in fact called Ready Flowers Limited rather than Ready Flowers Pty Ltd or Proprietary Limited.
Paragraph 8 of the pleading relates to certain representations said to have been made by the first respondent in relation to the application of GST on orders received by the first respondent from Australian citizens and fulfilled in Australia.
Paragraph 9 deals with the publication of what is said to be false testimonials and the representations conveyed by them.
Paragraph 10 talks about false representations made by the first respondent in February, 2012 to Fairfax Media. The representations are said to arise in response to an article published by Fairfax Media in, amongst other places, the Sydney Morning Herald.
The pleading then goes on to deal with the applicant's claim against the second respondent insofar as it is asserted that certain conduct on the part of the second respondent should also be seen as conduct of the first respondent and then further, claims against the second respondent as principal.
As against those claims in the amended statement of claim, the first respondent pleads that it was responsible for the business known as "Ready Flowers" up until 1 February, 2009 or perhaps 31 January, 2009 but thereafter, it was no longer the owner nor the operator of that business, it having been sold to a company formed and registered in Hong Kong, Ready Flowers Limited. Those matters appear from paragraphs 4(c) and 4(e) and paragraph 7, in particular (c) and (d), of the defence. Essentially, the first respondent's case is that if it is to be liable for anything it ought only be liable for any acts, omissions or other conduct said to contravene the relevant Acts up to and including 31 January or perhaps 1 February, 2009. Anything after that should fall at the feet of Ready Flowers Limited, a company which is not a respondent to these proceedings.
The reply to those pleas is essentially, that the first respondent ought not be allowed to depart from what the applicant says is an assumption properly made from all of the facts and circumstances, namely that the first respondent is responsible for all of the representations about which he complains, irrespective of when they were made. He says that for all intents and purposes the Court should act on the basis and the first respondent should not be allowed to depart from the basis that it is the owner and operator of the relevant business. He says an estoppel operates against the first respondent to prevent it from denying that it is the owner and operator of the relevant Ready Flowers business. The purpose of that will be to fix the first respondent with liability for the impugned conduct.
There were two other bases advanced by the applicant at the commencement of the hearing of this preliminary issue in answer to the first respondent's claim that it no longer owns the business. The first was that there was in fact no sale, as the first respondent alleges. Secondly, that, if there was a sale, it ought to be seen as a sham and given no effect. In submissions at the conclusion of the evidence on this issue the applicant abandoned those two grounds. That abandonment and those concessions were properly made, in my view, because the evidence clearly establishes that there was a sale and there is, in my view at least, no evidence to suggest that there was a sham.
The evidence then consists of the affidavits relied upon by the applicant, Mr Craven, and the documents that have been tendered and which have formed exhibits in this case. There was a bundle of documents handed up during the course of this morning's argument, most of which were not controversial but some of which were controversial. Those that have been handed up have been clearly headed with the question number to which they relate and that question number itself relates to a list of questions asked by Mr Craven during the course of his cross-examination of Mr Hegarty.
The list forms something of a key and the heading on each of the documents draws the reader's attention to the relevant question in the key. By that means, one will be able to identify the relevant passages in the evidence where relevant documents are being asked about. The bundle of documents which was handed up and which are non-controversial will be admitted and marked as exhibits in these proceedings, commencing with exhibit 5 and marked sequentially. I have not bothered to figure out where the numbering will end. The key itself will be marked as an aide-memoire and given the letter "A".
There are some documents which were sought to be tendered which are controversial, and I admitted them provisionally so that I could form a view about their admissibility. Of those documents, three of them are decisions of the Federal Court of Australia and one is the decision of the High Court. They are authorities - decisions of courts made in other cases which are publically available documents and ordinarily do not form exhibits in proceedings. I reject the tender of those documents. That is not to say that I have rejected the cases. They are what they are: authorities to which I shall, at least in part, refer shortly. But they are not evidential documents that need to be tendered and admitted. As such, I return them.
The balance of the documents - there are five of them - are documents about which the witness was not cross-examined. They form part of the evidence in the sense that I understand them to be part of the compact disc documents, or the electronic copies of documents attached to Mr Craven's affidavit. Having read those documents for the purposes of determining whether they are relevant for these proceedings, the conclusion I have come to is that presently they are not relevant, and I reject their tender.
The issue then to be decided is whether an estoppel operates against the first respondent to prevent it from denying that it was carrying on the relevant business during the pleaded periods set out in the amended statement of claim. A convenient starting point is the judgment of Dixon J in Thompson v Palmer[1933] HCA 61; (1933) 49 CLR 507. At page 547, his Honour says this:
The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other's detriment. Whether a departure by a party from the assumption should be considered unjust or inadmissible depends on the part taken by him in occasioning its adoption by the other party.
He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct, as in Yorkshire Insurance Co v Craine -
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His Honour gives some other authorities and then goes on:
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...or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption.
But in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted. To satisfy this requirement the appellant must establish that she or her husband believed that Clegg had paid or accounted for the consideration money to the trustees and upon the faith of that belief that she, or he on her behalf, took a course, either of action or inaction, which would enure to her detriment.
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In this case, the applicant says that there is an assumption upon which both he and consumers generally would act, and that is that the company with which they are dealing when they ordered flowers from the Readyflowers.com.au website was an Australian company and was Ready Flowers Proprietary Limited. He says that the estoppel arises because first of all, Ready Flowers Proprietary Limited carried on that business until at least February, 2009. He says further that the current websites make it clear that the business which is constituted by the name Ready Flowers purports to be an Australian business. Mr Craven argues that:
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Websites such as Readyflowerssydney.com.au and Readyflowersperth.com.au indicate in terms that the company or the business is 100 per cent Australian owned and operated by a 100 per cent Australian family company. He says that those things matter, and that they are important.
2. The Hong Kong company carries on business in Australia. It receives orders from Australians, it organises for those orders to be fulfilled by Australian florists using Australian flowers and delivered to the customers using Australian delivery drivers - it carries on business in Australia.
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But yet it is not registered as a foreign company in Australia pursuant to Part 5.2B of the Corporations Act2001 as it is required to be, and therefore it cannot be carrying on business in Australia.
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Therefore, the business must be carried on by Ready Flowers Proprietary Limited.
Further, he says that the first respondent did not publish, did not tell or did not inform any of its customers or suppliers that the business had been sold to a Hong Kong-based company or to a foreign company, and its failure to do so no doubt would have caused consumers to continue their assumption that they were dealing with an Australian business - an Australian registered company.
There are a number of other matters pointed to by the applicant, and they are set out in paragraph 2 and the particulars to paragraph 2 of the reply. He says that there are a great many number of web pages, home pages - I have given the URLs for some - and other subpages such as the pages entitled "About Us" which clearly are intended to give the impression that the business is carried on by the first respondent, Ready Flowers Proprietary Limited.
There is, however, in my view no estoppel by convention. The evidence does not establish that, in terms of Thompson v Palmer, any conventional basis upon which anybody has habitually dealt with the first respondent. There is nothing from the applicant which would suggest that he knew that the assumptions, about which he says so much, were made by him. Indeed, his case is that he knows that the assumptions are not true. There is nothing to suggest that consumers generally have dealt with this company on any conventional basis.
There is no evidence of any repetition of business in the sense that is required to form a conventional basis of dealing between parties. There does not seem to me to be any basis upon which one could conclude that there was an estoppel by convention. The evidence does not permit of a finding that the first respondent has made any representations expressly that it carries on the business in Australia. The evidence, particularly that of Mr Hegarty, demonstrates that when the business was sold in February, 2009 the things that go to make up for business - the assets, the intellectual property, the trademarks; all of those matters which comprise a business - were sold to the Hong Kong company, and since that time the Hong Kong company has carried on the business.
It is not in dispute that Peter Hegarty, who gave evidence before me, is one of the two directors, of Carlington Pty Ltd, which company is the shareholder, perhaps the only shareholder, in Ready Flowers Pty Ltd. He is also a director of Ready Flowers Pty Ltd and, according to his own evidence, was in a position to make decisions for Ready Flowers Pty Ltd in his role as a director. No doubt, in his role as a director of Carlingford, he was also empowered to make decisions for Carlingford.
The evidence suggests - and it did not seem to be in dispute from either the applicant or Mr Hegarty - that Carlingford was the trustee of the Hegarty Family Trust. The trust deed is not in evidence. I have no idea what the terms of the trust are, but to the extent that the shares owned by Carlingford in Ready Flowers Pty Ltd are owned by it as trustee for the Family Trust, then Carlingford's obligations in terms of those shares fall to be determined according to its rights and obligations, its responsibilities as spelt out in the trust deed - that is, it is a trustee; it probably owns the shares as trustees - and Mr Hegarty agreed with that proposition when I suggested it to him - and to that extent it must exercise its powers in accordance with its obligations as a trustee as defined in the trust deed.
The Hong Kong company was set up, according to the evidence, following Mr Hegarty taking some advice from his accountant and others about the advantages of setting up a company offshore. He gave a brief explanation about that, suggesting that the volume of business offshore justified the move offshore for a range of purposes, not the least of which was taxation. He says that the business was sold to the Hong Kong company, and at that time he remained a director of the Hong Kong company - he was the founder of it and he was the main shareholder, if not the only shareholder.
The documents in evidence tendered by Mr Craven confirm that to be the case, and the most recent documents in evidence from the relevant registration authority in Hong Kong confirm that Mr Hegarty was a director and shareholder - perhaps the only director and shareholder - of the Hong Kong-based company. That changed this year. I accept Mr Hegarty's evidence when he suggested that his shareholding was sold and he ceased to be a director of the Hong Kong company.
His son Thomas is the director of the Hong Kong company now, and apparently now owns all the shares in the company. Mr Craven attempts to make out a case that the underlying ownership of this business rests with Mr Hegarty, or the Hegarty family, and that may be true. It may be that when one traces through the shareholdings - through the family trust and into the beneficiaries who might be set out in the trust deed - if it is a discretionary trust, the classes of beneficiaries set out in the trust deed; if it is a fixed trust, the beneficiaries of the trust - and tracing it through the shareholdings in the Hong Kong company, it may be that if there is any property at all then the Hegarty family, or members of the Hegarty family, are entitled to that property.
But that is a completely different thing to saying that it is the Hegarty's that are carrying on the business, and it is Ready Flowers Pty Ltd which is carrying on the business. The whole purpose of companies, and incorporation, is to permit the carrying-on of businesses in a way in which risks can be minimised and capital can be raised and deployed. The law has for a long time been very keen to make sure that there is a distinction drawn between corporate entities and those that carry them on.
It is the case that in certain circumstances the law will look behind the corporate veil to those that are carrying on the business, but in my view this is not one of those cases. The legal entities are clearly defined and, as I have said, there is nothing in the evidence which would suggest that the use of corporate entities is in this case a sham.
In my view, no estoppel can be made out. There is no representation by the first respondent that it is carrying on the business; any representations that exist on the websites at the moment are representations made by the Hong Kong company.
To the extent that it might be suggested that Mr Peter Hegarty - and for that matter, his wife - might in some way be seen to be tacitly approving the representations made by the Hong Kong company by taking no action to have them changed or taken down - it may be the case that complaint can be made about that; it may be the case that through their inaction the representations by the Hong Kong company could be in some way brought home to rest at their feet. But they are not parties to these proceedings; they have not been sued in this case, and so any attempt to make out a case that ultimately responsibility for all of this rests at the feet of Mr Hegarty or his wife, or perhaps even his son, is not to the point, because they are not parties to these proceedings. Nor is the Hong Kong company.
Mr Craven suggested that the Hong Kong company could not have been a party to these proceedings. I do not accept that the Hong Kong company could not be a party to these proceedings - in my view, it clearly could. This court applies the Federal Court Rules where the rules of this court are otherwise inadequate. The Federal Court Rules provide for the service of proceedings outside the Commonwealth of Australia. The Hong Kong company could have been a party to these proceedings and served with them outside of the Commonwealth of Australia. Moreover, the individual people, the Hegarty's, could have been joined to these proceedings, just as Mr Owen was.
Even if I am wrong about all of that, even if it is the case that there is something that has been done by the first respondent, either expressly or by implication, which makes it somehow responsible for the suggested assumption drawn by either the applicant or consumers generally, there is nothing to suggest, at least in my view, detriment on the part of the applicant to these proceedings in the sense necessary and spoken of by Dixon J in Thompson v Palmer.
It is the case that the Hong Kong company could have been joined to these proceedings; it is the case that the Hegartys could have been joined to these proceedings. The assumption which the applicant says ought to be drawn is an assumption which the applicant, by his own statement of claim, has known to be false for at least a considerable part of this action, if not since the very beginning. In those circumstances, I am not satisfied that an estoppel operates.
That means that the pleas made in paragraph 4(c) and 4(e) and 7 of the defence are made out, and to the extent that the business was sold, with effect from 1 February 2009, it seems that any representations or conduct relied upon after that date is not conduct for which the first respondent is responsible.
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I certify that the preceding forty-three (43) paragraphs are a true copy of the reasons for judgment of Jarrett FM