Ferraro v DBN Holdings Aust Pty Ltd T/As Sports Auto Group

Applicable Law 7 On 1 July 2015, the applicant filed an originating application and statement of claim in this Court claiming that the respondent had breached the guarantee in s 56 of the Australian Consumer Law ("the Act"), being Schedule 2 to the Australian Competition and Consumer Act 2010 (Cth), that goods supplied by a person, in trade or commerce, must correspond with their description. The applicant seeks to invoke the remedies set out in Part 5-4 of the Act. 8 The remedies available to a consumer in respect of a failure to comply with the guarantee depend on whether the failure is a "major failure". Section 260 sets out the definition of "major failure" and provides as follows: Section 260 When a failure to comply with a guarantee is a major failure A failure to comply with a guarantee referred to in section 259(1)(b) that applies to a supply of goods is a major failure if: (a) the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure; or (b) the goods depart in one or more significant respects: (i) if they were supplied by description - from that description; or (ii) if they were supplied by reference to a sample or demonstration model - from that sample or demonstration model; or (c) the goods are substantially unfit for a purpose for which goods of the same kind are commonly supplied and they cannot, easily and within a reasonable time, be remedied to make them fit for such a purpose; or (d) the goods are unfit for a disclosed purpose that was made known to: (i) the supplier of the goods; or (ii) a person by whom any prior negotiations or arrangements in relation to the acquisition of goods were conducted or made; and they cannot, easily and within reasonable time, be remedied to make them fit for such a purpose; or (e) the goods are not of acceptable quality because they are unsafe. 9 Section 259(3) of the Act provides that if a failure to comply with a guarantee is a major failure, the consumer can either recover compensation for any reduction in value, or reject the goods. Under s 262, a consumer is not entitled to reject goods unless the rejection is made within a reasonable time of the failure becoming apparent, if the goods were damaged after the consumer took possession for reasons not related to the failure, or if the goods have been lost, destroyed or disposed of by the consumer. In assessing whether the goods were rejected within a reasonable time, the court is to have regard to the type of goods, the use to which a consumer is likely to put them, the length of the time for which it is reasonable for them to be used, and the amount of use to which it is reasonable for them to be put before such a failure becomes apparent. 10 The consequences of electing to reject the goods under s 259(3) of the Act are set out in s 263 of the Act. That section provides as follows: Section 263 Consequences of rejecting goods (1) This section applies if, under section 259, a consumer notifies a supplier of goods that the consumer rejects the goods. (2) The consumer must return the goods to the supplier unless: (a) the goods have already been returned to, or retrieved by, the supplier; or (b) the goods cannot be returned, removed or transported without significant cost to the consumer because of: (i) the nature of the failure to comply with the guarantee to which the reject relations; or (ii) the size or height, or method of attachment, of the goods. (3) If subjection (2)(b) applies, the supplier must, within a reasonable time, collect the goods at the supplier's expense. (4) The supplier must, in accordance with an election made by the consumer: (a) Refund: (i) any money paid by the consumer for the goods; and (ii) an amount that is equal to the value of the same type, and of similar value, if such goods are reasonably available to the supplier. (5) The supplier cannot satisfy subsection (4)(a) by permitting the consumer to acquire goods from the supplier. (6) If the property in the rejected goods had passed to the consumer before the rejection was notified, the property in those goods revests in the supplier on the notification of the rejection. 11 The applicant contends that the respondent's failure to comply with the guarantee in s 56 of the Act is a major failure as the applicant, and any reasonable person in the sports car market, would not have purchased the vehicle if fully informed of the defects. The applicant also contends that the failure is a major failure as the vehicle departed significantly from the respondent's description. 12 By letter dated 9 June 2015, the applicant gave notice that he rejected the vehicle under s 259(3) of the Act and particularised the grounds for the rejection. The applicant further advised that he elected for a complete refund of the purchase price. 13 The applicant submits that he is relieved from returning the vehicle to the respondent by operation of s 263(2)(b) of the Act as the applicant is unable to afford the cost of transporting the vehicle to the respondent's premises in Concord, New South Wales. Furthermore, he contends that parting with possession of the vehicle would be in breach of the General Terms and Conditions of the applicant's loan with St George Bank. That document was exhibited to an affidavit affirmed by the applicant on 19 August 2015 and provides, relevantly, as follows: Dealing with Goods You must get our written consent before you: (a) sell or part with possession of the goods; or (b) create another security interest over the goods or allow one to arise (including a lien for repairs or storage); (c) alter any identifying marks (such as a serial number of identifying plates); or (d) deal in any other way with the goods, this goods security or interest in them. … 14 On 17 August 2015, the applicant telephoned St George Bank to ask whether the Bank would consent to the applicant returning the vehicle to the respondent. The applicant was informed that the vehicle must remain in his possession at all times until the loan is repaid in full.

Procedural History 15 This proceeding was set down for a first case management hearing on 17 July 2015. Prior to that hearing, the applicant filed affidavits verifying that the respondent was served of the originating process, statement of claim and the genuine steps statement on 7 July 2015. An email was also sent to Mr Agar on 15 July 2015 advising that if the respondent did not file a notice of address for service prior to the first case management hearing, the applicant would bring an application for default judgment. The respondent did not appear at that hearing or file a notice of address for service and the applicant made an application for default judgment. I made orders listing the application for hearing and directing the applicant to advise the respondent of the date and time of the hearing. 16 The hearing of the interlocutory application proceeded on 7 August 2015 and 21 August 2015. There was no appearance by the respondent on either occasion. There is affidavit material before me indicating that the applicant sent letters to Mr Agar advising him of the hearing dates, and attached to those letters affidavits of the applicant, and an outline of submissions that the applicant intended to, and ultimately did, rely on in support of the application. 17 At the hearing, counsel for the applicant asked that I make the following orders: 1. Judgment be entered against the respondent in the sum of $111,900.06. 2. The applicant shall retain possession of the vehicle until the respondent has satisfied payment of the judgment debt in full on the applicant's undertaking that the applicant will: A. Keep the vehicle stored under lock at his residence; B. Continue to keep the vehicle comprehensively insured; C. Not use the vehicle; D. Apply any payment by the respondent for the judgment debt in the first priority towards discharging the vehicle finance advanced by St George Bank. 3. The respondent shall collect the vehicle from the applicant's residence at the respondent's sole cost within seven days of the judgment debt being paid in full. 4. The respondent pay the applicant's costs to be taxed or agreed. 18 The judgment debt of $111,900.06 consists of a sum of $107,740 in respect of the refund of the purchase price, and compensatory damages under s 259(4) of the Act for losses incurred in connection with the financing, insuring, transporting, and inspection of the vehicle on the basis that these amounts were reasonably foreseeable losses flowing from the respondent's conduct.

Application for Default Judgment 19 Rules 5.22 and 5.23 of the Rules deal with the making of orders on default. Those rules provide, relevantly, as follows: Rule 5.22 A party is in default if the party fails to: (a) do an act required to be done, or to do an act in the time required, by these Rules; or (b) comply with an order of the Court; or (c) attend a hearing in the proceeding; or (d) prosecute or defend the proceeding with due diligence. Rule 5.23 … (2) If a respondent is in default, an applicant may apply to the Court for: (a) an order that a step in the proceeding be taken within a specified time; or (b) if the claim against the respondent is for debt or liquidated damages - an order giving judgment against the respondent for: i. the debt or liquidated damages; and ii. if appropriate, interest and costs in a sum fixed by the Court or to be taxed; or (c) if the proceeding was started by an originating application supported by a statement of claim, or if the Court has ordered that the proceeding continue on pleadings - an order giving judgment against the respondent for the relief claimed in the statement of claim to which the Court is satisfied that the applicant is entitled; or (d) an order giving judgment against the respondent for damages to be assessed, or any other order; or (e) an order mentioned in paragraph (b), (c), or (d) to take effect if the respondent does not take a step ordered by the Court in the proceeding in the time specified in the order. 20 The principles to be applied in determining an application for default judgment are well-established and, with respect, are usefully summarised by Flick J in Speedo Holdings BV v Evans (No 2) [2011] FCA 1227 at [19]-[25]. Essentially, I must be satisfied on the face of the statement of claim that the applicant is entitled to the relief claimed: Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 at [3] per Heerey J; Australian Competition and Consumer Commission v 1Cellnet LCC [2005] FCA 856 at [14] per Nicholson J; Rathner v Bendigo Skyrider Pty Ltd [2011] FCA 626 at [9] per Gordon J. I must also be satisfied that each element of the action has been properly and discretely pleaded in the statement of claim: Macquarie Bank Ltd v Seagle [2005] FCA 1239 at [24]; (2005) 146 FCR 400 at 406-407 per Conti J; Macquarie Bank Ltd v Seagle [2008] FCA 1417 at [20] per Jagot J. 21 I am satisfied on the face of the statement of claim, treating the facts alleged as admitted as is appropriate in the case of an application for default judgment (Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd [2007] FCAFC 146 at [42]), that the applicant is entitled to a refund and damages under ss 263(4)(a)(i) and 259(4). I am further satisfied that each element of the cause of action has been properly pleaded, namely, supply of goods in trade or commerce, major failure to comply with the guarantee contained in s 56 of the Act, and rejection of the vehicle in accordance with s 259(3)(a). 22 I am satisfied that the applicant is entitled to judgment in the sum of $111, 900.06. I am satisfied that the vehicle cannot be returned, removed or transported to the applicant without significant cost to him because of the size of the goods within s 263(2)(b). That means that the respondent must collect the vehicle at its own expense (s 263(3)). The respondent must refund the amount by the applicant to him (s 263(4)). 23 The orders sought by the applicant and, in particular, the second order seek to, in effect, link the payment of the monies by the respondents to the applicant and the return of the vehicle by the applicant to the respondents. He seeks orders of this nature because his loan agreement with St George provides that he is not to part with possession of the vehicle unless and until the cost is refunded in full. He may also have in mind the possibility of the vehicle being returned and the judgment sum being unsatisfied with the respondent going into liquidation. 24 The applicant's concerns are understandable, but I raised with the applicant's counsel whether I can make such orders in light of the terms of s 263 of the Act. Counsel submitted that I had the power to make such orders under s 237 of the Act which is in the following terms: Section 237 Compensation orders etc. on application by an injured person or the regulator (1) A court may: (a) on application of a person (the injured person) who has suffered, or is likely to suffer, loss or damage because of the conduct of another person that: (i) was engaged in a contravention of provision of Chapter 2, 3 or 4; or (ii) constitutes applying or relying on, or purporting to apply or rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term; or (b) on the application of the regulator made on behalf of one or more such injured persons; make such orders or orders as the court thinks appropriate against the person who engaged in the conduct, or a person involved in that conduct. Note 1: For applications for an order or orders under this subsection, see section 242. Note 2: The orders that the court may make include all or any of the orders section out in section 243. (2) The other must be an order that the court considers will: (a) compensate the injured person, or any such injured persons, in whole or in part for the loss or damage; or (b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the injured person or any such injured persons. (3) An application under subsection (1) may be made at any time within 6 years after the day on which: (a) if subsection (1)(a)(i) applies - the cause of action that relates to the conduct referred to in that subsection accrued; or (b) if subsection (1)(a)(ii) applies - the declaration referred to in that subsection is made. 25 Authorities on the interpretation of s 87 of the Trade Practices Act 1974 (Cth), which was the predecessor to s 237 of the Act, indicate that the section is to be given a broad interpretation. For example, in Awad v Twin Creeks Properties Pty Limited [2012] NSWCA 200 at [43], Allsop P (as his Honour then was) said: ... Relief under the TPA, s 87, should be viewed not by reference to general law analogues but by reference to the rule of responsibility in the statute that is directed against misleading and deceptive conduct: Marks v GIO Australia Holdings Ltd [1998] HCA 69; 196 CLR 494 at 503-504, 510 and 528-529; Henville v Walker [2001] HCA 52; 206 CLR 459; Murphy v Overton Investments Pty Ltd [2004] HCA 3; 216 CLR 388 at 407; and see generally Bullabidgee Pty Ltd v McCleary [2011] NSWCA 259 at [64]-[72] and Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 at 364-367. Involved in that rule of responsibility is the public policy of protection of people in trade and commerce from being misled, and the width of the powers given by the TPA that are apt to be employed in a manner conformable with the just compensation or protection of the representee. Whether or not to grant a form of rescission under s 87, or to limit a plaintiff to damages under s 82, is a question in the nature of a discretion to be approached by reference to the facts of the particular case, the policy and underpinning of the TPA and the evaluative assessment of what is the appropriate relief to compensate for, or to prevent the likely suffering of, loss or damage "by" the conduct: see Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; 184 CLR 281 at 298; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at 117-120 [19]-[29], 127-128 [52]-[57] and 142 [106]; and Akron Securities v Iliffe. (See also I & L Securities Pty Limited v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 at 143 [108] per McHugh J, and 179 [220] per Callinan J.) 26 Despite the breadth of the section, I am determining the rights and obligations as between the applicant and the respondent. I do not think I can make an order having regard to whatever rights the applicant's financier may have against the applicant or with respect to the vehicle. Nor do I think I can make an order that gives the applicant greater rights on the liquidation of the respondent (should that occur) than the Act appears to envisage. In the circumstances, I think it appropriate to indicate the orders which I would be prepared to make. They are as follows:

1. Judgment be entered against the respondent in the sum of $111,900.06.
2. Without prejudice to any rights and obligations which might arise or accrue or exist on liquidation of the respondent (should that occur): A. The applicant may retain possession of the vehicle until the respondent has satisfied payment of the judgment debt in full on the applicant's undertaking that the applicant will: (i) Keep the vehicle stored under lock at his residence; (ii) Continue to keep the vehicle comprehensively insured; (iii) Not use the vehicle; (iv) Apply any payment by the respondent for the judgment debt in the first priority towards discharging the vehicle finance advanced by St George Bank. B. The respondent shall collect the vehicle from the applicant's residence at the respondent's sole cost within seven days of the judgment debt being paid in full.
3. The respondent pay the applicant's costs to be taxed or agreed. 27 I will adjourn the applicant's application for judgment for a short time to enable the applicant to consider the orders I am prepared to make. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.