Director of Consumer Affairs v AAPT Ltd

Director of Consumer Affairs v AAPT Ltd - [2006] VCAT 1493 - VCAT 2006 case summary — Zoe

[7]

4 Two of the telephony services provided by AAPT are a mobile phone service and a prepaid mobile phone service. AAPT does not actually provide the infrastructure for the delivery of the service, but on-sells services provided by companies known as Telstra, Optus and Vodaphone. There are over 16 million mobile phone services in use in Australia. AAPT has a market share of about 2%: which would mean that the number of its subscribers runs well into six figures.

5 In order to inform its customers and potential customers, AAPT publishes on its website detailed terms and conditions in relation to its services. In November 2004 an officer of the Director downloaded the terms and conditions applicable to AAPT's mobile and prepaid mobile services; and on 23 December 2004 she was told by an AAPT sales assistant that the terms and conditions were available on the AAPT website.

6 The AAPT website also makes reference to residential and business solutions which it makes available to customers. Mobile services are advertised as one of the services available under the heading of residential services. AAPT also provides the option of bundling a home phone with a mobile phone on the one account. AAPT uses the comedienne "Effie" to promote its products. For example, one brochure, published in August 2004, has a picture of Effie on the phone with the caption "If you're smart and you like to chat, you should switch to AAPT smartchat".

7 Although there is a paucity of specific evidence concerning mobile phone contracts entered into by AAPT (including prepaid mobile contracts), I infer from the evidence before me that AAPT entered into both mobile and prepaid mobile phone contracts pursuant to the terms and conditions which were published on its website in November 2004. Further, having regard to the total number of mobile phone services provided by AAPT, the nature of mobile phone use in the community generally[1] and the content of AAPT advertising, I also infer that AAPT entered into mobile and prepaid mobile contracts pursuant to the terms and conditions contained on its website in November 2004 with persons who intended to use the service for domestic or personal use.

8 The Director brought the present proceeding on 13 December 2004. AAPT had in fact commenced to review the terms and conditions of its mobile phone contracts several months earlier. As part of the review process several meetings were held with the Director and his staff in the period December 2004 to March 2005. Further, AAPT prepared a series of new terms and conditions, which came into force on 1 May 2005. The new terms and conditions were no doubt intended to address the concerns held by the Director. All contracts entered into since 1 May 2005 - in relation to both the consumer and small business customers of AAPT - have been pursuant to the new terms and conditions. Further, the new terms and conditions wholly replace the terms and conditions previously in place between AAPT and customers (which I take to be both consumer and small business customers) where the contract had been entered into before 1 May 2005. These customers have been advised that if they can identify a situation or event that occurred prior to May 2005 in which they would have received a more favourable outcome had the new terms and conditions applied to that situation or event, then, as long as it is practicable, the new terms and conditions will apply to that situation or event. According to AAPT, these changes mean that any declarations or injunctions in relation to the terms and conditions in force prior to 1 May 2005 will have no practical effect and would be purely hypothetical.

[56]

25 I also find that the second limb of the definition of "consumer contract" is satisfied. In particular, I find that in or about December 2004 AAPT agreed to supply a mobile phone service (and a prepaid mobile phone service) to a consumer for the purposes of the ordinary personal, domestic or household use or consumption of that service.

26 It is true that there is a paucity of direct evidence about the purpose of the supply of the mobile phone services in issue. But is it possible to draw inferences; and it is proper that I do so, especially in the absence of any contrary evidence.

27 The purpose of the supply of a good or service will be the outcome sought to be achieved by the supply of the good or service.[6] But it is not necessary that there be just one outcome; a good or service will be supplied for a specified purpose if it is substantially supplied for that purpose.

28 Counsel for AAPT submitted that, in applying the second limb, the focus must be on the supplier's subjective intention at the time of the agreement to supply. It was said that the evidence did not establish that any concluded agreement was entered whereby it was AAPT's purpose that a mobile phone service be used for ordinary personal use. I cannot accept this submission for two reasons.

29 First, I would find that in December 2004 AAPT did have the purpose of supplying mobile phone services for ordinary personal use. In this respect, I do not accept that AAPT advertisements - that are clearly directed towards the personal consumer - are irrelevant. Even if the advertisements are only directly relevant to what was promoted by AAPT (rather than what it agreed to supply), I would infer from the advertisements that a substantial purpose of the supply of the service was for personal use.

30 Second, I do not agree that, in applying the second limb, the subjective intention of the supplier is determinative. Rather the definition of "consumer contract" requires the ascertainment of the purposes of the "agreement", not the supplier.[7] This is to be ascertained by reference to the terms of the agreement, which will reflect the intention of all of the parties to the agreement. The terms of the agreement relied upon by the Director support the finding that a substantial purpose of the parties was the supply of a mobile phone service for personal use. The application form seeks personal information about income, residential address, date of birth and home phone number. The types of plans available are given names directed at personal use: for example, "MY CALL 30". And there is nothing in the application form or the agreements which suggest the contrary.

[58]

32 It is apparent that a term in a consumer contract is to be regarded as unfair if it causes a significant imbalance in the parties' rights and obligations arising under the contract. It is apparent that the significant imbalance must be to the detriment of the consumer. And it is apparent that in determining whether a term causes a significant imbalance in the parties' rights and obligations one must have regard to all the circumstances. What is less apparent is: what is meant by a "significant" imbalance? And what is the role to be given to the words "contrary to the requirements of good faith"?

33 The word "significant" simply means "important" or "of consequence". It does not mean "substantial". It is not a word of fixed connotation and besides being elastic is somewhat indefinite.[9] However, in its context, it is designed to identify an imbalance, to the detriment of the consumer, which should be regarded as unfair. In this sense the definition is circular. But it is impossible to avoid the notion of fairness in determining whether a term causes a significant imbalance, even though this exercise is designed to ascertain whether a term is unfair.

34 The manner in which the Parliament has referred to the requirements of good faith is curious. The Parliament has not said that a term is to be regarded as unfair if the term is contrary to the requirements of good faith. Rather the manner of expression suggests that if a term causes a significant imbalance in the parties' rights and obligations arising under a consumer contract, to the detriment of the consumer, this would be contrary to the requirements of good faith. Thus the manner of expression suggests that the phrase is either surplusage or simply performs an adjectival role, designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is "significant". It is unlikely that the Parliament intended the words to be surplusage.[10] Hence it is likely that the Parliament intended that the reference to the requirements of good faith play a role in determining whether the nature, or extent, of an imbalance should be regarded as significant.

35 Insofar as the reference to the requirements of good faith performs a role (whether adjectival or substantive), it will be necessary to identify the content of these requirements. It is likely that it will have both a procedural and a substantive component. However I propose to defer this for the moment to see if the history of the provision, or any relevant authorities, suggest that a different meaning to that indicated by the language used.

[93]

44 The history of the FTA and the decisions of the House of Lords in the First National Bank case confirm my view that the expression "contrary to the requirements of good faith" in sections 32W of the FTA performs an adjectival role and is designed to assist in the assessment of whether a term in a consumer contract causes an imbalance which is "significant". As I have indicated, the definition of an unfair term might be thought to be circular, as it is impossible to avoid the notion of fairness in determining whether a term causes a significant imbalance in the parties' rights and obligations. However, if the balance of the parties' rights and obligations is thought to be contrary to the requirements of good faith this would be indicative of a significant imbalance. There is no separate requirement of "good faith" in consumer contracts; rather "good faith" is a touchstone which might be employed in determining whether a term in a consumer contract is an unfair term.

45 It may be that, in practice, the concept of "good faith" provides limited assistance. If it is a principle of fair and open dealing, it provides direction; but it is not a roadmap to a destination. The same goes for the colloquialisms of "playing fair" and "coming clean". In the Interfoto case Bingham LJ also suggested that good faith was conveyed by the colloquialism of "putting one's cards face upward on the table"; but, frankly, I think this takes the concept too far.

46 In Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL (Receivers and Managers Appointed) (Administrators Appointed)[23] the Victorian Court of Appeal was reluctant to conclude that commercial contracts were of a class that carried an implied term of good faith as a legal incident, although it observed that it may be sometimes appropriate to import such an obligation to protect a vulnerable party from exploitive conduct which subverts the original purpose for which the contract was made.[24] In this context Buchanan JA briefly touched on what might be the content of an implied contractual duty of good faith. This included acting reasonably, not acting capriciously, not seeking to prevent the performance of a contract or withholding its benefits, and not seeking to further an ulterior purpose for that which a contractual right or power is conferred. Frankly these examples of what might be the content of a duty to show good faith are of limited assistance. This is especially so in light of the detailed guidance provided by section 32X of the FTA, where a host of specific matters are set out which are designed to, and do, guide a court or the tribunal in determining whether a term of a consumer contract is unfair.

47 Sir Anthony Mason has said that he thought it probable that the "concept of good faith" embraced no less than three related notions:

[123]

55 In an ironic twist, AAPT argued that none of the express terms of its agreements could be regarded as an unfair term because the agreements were subject to an implied term that the parties would act in good faith. AAPT maintained that there was a contractual concept of good faith in Australia, the effect of which was that AAPT was required to act reasonably in exercising its contractual rights. According to AAPT, this meant that none of the express terms, which might otherwise seem to be unfair terms, could actually operate unfairly.

56 But, as I have previously observed, it is not yet Victorian law, if it ever will be, that consumer contracts are generally subject to an implied term of good faith. I hold that no such term is implied into the contracts in question in this case. The contracts are typical of consumer contracts generally. And there is no evidence that particular consumers are, or were, vulnerable, other than in the sense that they are, or were, consumers.

57 Further, even if a requirement of good faith was implied into the agreements the subject of this proceeding, I would not be satisfied that any of the terms I have identified as having been unfair terms would be rendered fair. An imbalance in parties' rights and obligations may arise under a contract if one of the parties is unaware of a term that might be in its favour. This is because the other party would then be in a position to refer to, or ignore, that term at its discretion. Thus a consumer contract may create a significant imbalance in the parties' rights and obligations, to the detriment of the consumer, even if a comprehensive analysis of the parties' rights and obligations, including implied obligations, might not support this conclusion. This is because an imbalance may arise by reason of an information imbalance. A term which is written in fine print, or in a schedule, or in Latin, might easily be overlooked or misunderstood by the consumer (or, indeed, those administering the contract on behalf of the supplier) such that other terms - which are unfair when standing alone - prevail. This conclusion is more readily reached in the case of an implied term, especially one as vague and indefinite as that of "good faith".[29]

58 Another problem which may arise if the AAPT argument is correct is whether this would involve a breach of section 163 of the FTA, which requires a consumer contract to be clearly expressed. If a consumer contract gives a supplier express powers which are on their face unfair - yet these express powers are negated or mitigated by some implied obligation - it may well be the case that the contract would not be regarded as being "clearly expressed". However it is unnecessary to pursue this as I am not satisfied that any implied obligation of good faith would avoid a significant imbalance being created by the express terms about which I have made findings.

[136]

In the same case French J observed that there is room within the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. He observed that deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court.[41]

67 The Director also pointed to a number of decisions where the Federal Court had granted relief to the Australian Competition and Consumer Commission even though undertakings had been given that the conduct in question would not be repeated.[42] However it should not be thought that relief is automatic in such cases, as there are plenty of examples where an injunction has been refused where the offending conduct has ended and a compliance program had been undertaken.[43]

68 In my opinion, an application by the Director pursuant to section 32ZC of the FTA is an application of a public interest character. This follows, not only because the Parliament has given the power to make such an application to the Director (a public official), but also from the public policy character of the FTA[44] and the nature of the application itself (being to maintain proper standards and fairness in consumer contracts). The same applies in relation to an application for an injunction to prevent the continued use of unfair terms (section 32ZA) and an application that a provision of a consumer contract is not clearly expressed (section 163). The absence of any equivalent to sub-sections (4) and (5) of section 80 of the Trade Practices Act does not require a different conclusion, at least in relation to declarations.[45]

69 However the fact that present applications are brought in the public interest does not mean that the traditional equitable doctrines are irrelevant. This is underscored by the use of the words "if it is just and convenient to do so" in the Victorian Civil and Administrative Tribunal Act 1998 and the use of similar words in section 32ZA of the FTA; as these are traditional words that are used when invoking equitable principles.[46] In a nutshell, for declaratory or injunctive relief to be appropriate, it ought have consequences. A traditional consequence is that a declaration or injunction might force the cessation of particular conduct. If the offending conduct has already ceased, a declaration might facilitate a claim for damages in relation to that conduct[47] or an injunction might deter an offender from repeating the conduct by attaching to the repetition the range of sanctions available for contempt.

70 As I have found, on 1 May 2005 AAPT adopted new terms and conditions for its contracts in relation to mobile phone services. In itself, this would not render the Director's applications moot or hypothetical. This is so even though all existing consumers had their terms and conditions updated on 1 May 2005: in such circumstances a declaration might still be relevant to an issue which arose prior to 1 May 2005. However AAPT has also included in the updated terms and conditions, which came into force on 1 May 2005, a provision that gives consumers the benefit of the new terms and conditions retrospectively. Further, there is not the slightest hint that AAPT plans to revert to the terms and conditions which applied before 1 May 2005. Hence I am not satisfied that there remains any consequence of making a declaration or granting an injunction.

71 This analysis can be tested in the following way. Suppose that the tribunal was to declare that mobile phone contracts entered into by AAPT were consumer contracts which contained unfair terms. The effect of such a declaration would be to identify and officially proclaim terms as unfair and, consequentially, void. But, in the case of each term identified and declared as being unfair, that term is no longer part of mobile phone contracts entered into by AAPT; and, importantly, AAPT has undertaken that if a customer can identify a situation or event that occurred prior to May 2005 in which they would have received a more favourable outcome had the new terms and conditions applied to that situation or event, then, as long as it is practicable, the new terms and conditions will apply to that situation or event. In other words, AAPT has already brought about substantially the same consequence as would flow from the making of a declaration.

72 Counsel for the Director advanced other arguments in support of the tribunal making declarations or granting injunctions. It was said that such an outcome would "clarify the law" and would be of public benefit to regulators, service providers and the public. But those objectives are achieved by the reasons for my decision (and any reasons that may be subsequently given by an appeal court); it is not further, or better, achieved by the making of declarations or the granting of injunctions.

73 Another argument advanced by the Director was that the making of a declaration or the grant of an injunction would deter AAPT and like companies from including unfair terms in consumer contracts. In the case of AAPT there is no evidence that it needs to be deterred. On the contrary, it has "rolled over" - and, importantly, done so with a retrospective operation. Insofar as other companies are concerned, there is no need for the tribunal to make declarations or to grant injunctions in order for a signal to be sent that Part 2B of the FTA is an important and powerful tool that may be used to ensure that consumer contracts do not contain unfair terms.

74 It is also relevant that section 32ZD of the FTA enables the Director to refer a matter to the tribunal for an advisory opinion. This provision seems to be an acknowledgement of the limitation on the tribunal's power to make a declaration; and means that there is no need to over-reach in defining the ambit of the declaration power. Further section 32ZD is broader than section 32ZC and is not limited to the matters set out in paragraphs (a)-(c) of 32ZC(1).

75 It follows that this is not an appropriate case for the tribunal to exercise its powers to make the declarations sought or to grant injunctions.

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Judgment (182 paragraphs)

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Cases Cited (17)

Director of Consumer Affairs v AAPT Ltd (Civil Claims) [2006] VCAT 1493 (2 August 2006)