Hurley v McDonald's Australia Ltd

BACKGROUND 2 McDonalds operates a restaurant chain throughout Australia. In May 1999, McDonalds commenced to advertise and promote a competition known as "Monopoly McMatch and Win Competition" ("the 1999 Competition"). The 1999 Competition was based on the well known game of Monopoly. That game involves players moving around a board on which there are marked various items of real estate that represent parts of a well known city or cities. Items are grouped together in different colours. Items of the same colour are generally found within close proximity to each other in the real world. Each colour group has a different value from other colour groups. The aim of the game is to acquire as many items as possible. There are advantages for a player in securing all of the items in a particular colour group because a player who does so may then "develop" the sites within that group. 3 Under the 1999 Competition, customers of McDonalds were to be given "game stamps" upon purchase of certain food products. The form of Monopoly board most commonly found in Australia is one in which the items of real estate are located in London. Game stamps were to correspond with items of real estate on the London Monopoly board. The object of the 1999 Competition was to obtain game stamps that correspond with all of the items in a particular colour group. Upon doing so, and complying with the procedural requirements of the 1999 Competition, a customer would be entitled to a prize that corresponded with that particular colour group. 4 The promotional material relating to the 1999 Competition specified the prizes, and the number of prizes of each description, that were available to be won. For example, the most valuable set on the London based board are Mayfair and Park Lane. The prize which corresponded with the Park Lane and Mayfair group was a motor vehicle. Other prizes corresponded with other colour groups. The prizes and the numbers available were stated to be as follows:

Prize Number of Prizes To be Won · Honda HR-V Sport motor vehicle 8 · Aussie Home Loans - $50,000 cash 1 · Aussie Home Loans - $200 cash 800 · Playstation Platinum Pack 75 · Disneyland Holiday with Air New Zealand 25 · Samsung Television and DVD Player 30 · Samsung Camcorder 40 · Toys "R" Us $200 Voucher 100 · IBM Aptiva Home Computer 25 · Hasbro Classic Games Pack 500 5 Under the 1999 Competition, customers at restaurants operated by McDonalds were to be handed a tray mat that showed the coloured groups of items on the London Monopoly board. Customers were required to affix each game stamp to that part of the tray mat that corresponded with the particular game stamp. If a customer acquired a complete set of game stamps, the tray mat with the stamps attached was to be submitted to McDonalds by 15 August 1999. 6 The Applicant claims to represent a group of identified and unidentified customers of McDonalds who claim to have won prizes in the 1999 Competition. McDonalds has rejected their claims. McDonalds contends that the rejected claims are based on game stamps that were not applicable to the 1999 Competition, they having been issued in 1998 in connection with an earlier competition of a similar kind. Alternatively, McDonalds says that, if the game stamps in question were in fact issued in 1999, they were issued as a result of a mistake. If the rejected claims were accepted, McDonalds will be faced with having to provide for more prizes than they had announced. For example, they would be required to provide in excess of 1000 motor vehicles by way of prizes, in lieu of the intended 8 motor vehicles. 7 The game stamps intended to be issued in connection with the 1999 Competition differ in material respects from those that had been issued in connection with the competition conducted in 1998. Thus, there can be no doubt that the rejected claims are based on game stamps that were not intended to be applicable to the 1999 Competition. The difficulty has arisen because the same general format has been adopted for the 1999 Competition, but the relative numbers of winning game stamps have been altered. Thus, in connection with the earlier competition, the number of Mayfair stamps issued corresponded with the number of prizes in the relevant category that were available to be won. However, there were very many (some millions) Park Lane stamps issued. On the other hand, in connection with the 1999 Competition, the number of Park Lane stamps issued was limited to the number of motor vehicles available to be won (eight) and millions of Mayfair stamps were issued.

THE PROCEEDING 8 The Applicant has brought proceedings in the Court under Part IVA of the Federal Court of Australia Act 1976 (Cth). Part IVA deals with class actions. The Applicant claims to represent all customers of McDonalds whose claims have been rejected. By her further, further amended application filed on 23 August 1999, the Applicant claims: (a) a declaration that McDonalds engaged in misleading and deceptive conduct; (b) damages pursuant to section 82 or section 87 of the Trade Practices Act 1974 for misleading and deceptive conduct contrary to the provisions of section 52 of that Act; (c) damages for negligence; (d) damages for breach of contract; (e) a declaration that the Applicant and the group members are entitled to the prize or prizes they claim to have won in the 1999 Competition; (f) exemplary damages.

9 The current statement of claim alleges causes of action that might be summarised as follows:

Contravention of Trade Practices Act · McDonalds made the following representations ("the Representations") to the Applicant and group members:

• that game stamps distributed by McDonalds on or after 4 June 1999 were valid for use in the 1999 Competition;
• that by collecting game stamps distributed by McDonalds on or after 4 June 1999 and complying with the other terms and conditions of the 1999 Competition, the claims for prizes by customers would be accepted by McDonalds who would allot to customers the prizes relevant to the matched game stamps. · Acting upon the faith of the Representations and induced thereby the Applicant and the group members collected the appropriate game stamps; · Contrary to the Representations, the stamps collected by the Applicant and the group members in the course of the 1999 Competition have not been treated by McDonalds as valid stamps;

Negligence · McDonalds knew or ought to have known that the Applicant and the group members would rely upon the Representations and, accordingly, McDonalds owed the Applicant and group members a duty to take care in the making of the Representations; · The Applicant and the group members relied upon the Representations; · In breach of the duty of care, the stamps collected by the Applicant and the group members in the course of the 1999 Competition have not been treated by McDonalds as valid stamps.

Contract · There came into existence contracts between McDonalds, on the one hand, and the Applicant and each of the group members, on the other hand, pursuant to which the Applicant and each of the group members were entitled to receive a prize upon compliance by them with the conditions of the 1999 Competition or taking all reasonable steps to comply with such conditions; · In breach of such contracts, the stamps collected by the Applicant and the groups members in the course of the 1999 Competition have not been treated by McDonalds as valid stamps.

10 Substantial issues arise in the proceedings as to whether or not there was misrepresentation by McDonalds and what, if any, damage was suffered by such conduct. There are also issues as to whether or not, in the circumstances, McDonalds owed its customers any relevant duty of care and whether there was a breach of such duty. The same questions arise as to whether any groups suffered any damage. Those issues are not presently relevant and it is not appropriate to make any comment on them.

11 The matter presently relevant concerns the claims in contract. In its defence filed on 26 July 1999, McDonalds relied on certain conditions of entry in the 1999 Competition as being an answer to the whole of the claims. The relevant conditions can be summarised as follows: · all prize claims would be subject to security and verification checks at the absolute discretion of McDonalds and claims made in the competition would be ineligible if they failed any of McDonalds' security and verification checks. · McDonalds' decision on all matters pertaining to the 1999 Competition would be final. 12 McDonalds filed an amended defence on 25 August 1999. In the amended defence, McDonalds also relied upon an additional condition of entry in the 1999 Competition as being an answer to the whole of the claims. That condition can be summarised as follows: · to the extent permitted by law, McDonalds would not be liable for any claims, losses, damages, injuries, costs and expenses suffered, sustained or incurred (including, but not limited to indirect or consequential) as a result of, or arising out of, or in any way connected with the 1999 Competition and/or its prizes. 13 It appears to be common ground that the conditions relied on formed part of any contract that came into existence between McDonalds on the one hand and the Applicant and group members on the other hand. Questions may arise as to whether or not, on the proper construction of the conditions, they would in fact be an answer to the claims. That is not presently an issue. For present purposes, it must be assumed that the conditions relied on by McDonalds would be an answer to the contractual claims made in the proceeding.

THE PROPOSED AMENDMENTS 14 The trial of the proceedings began before Dowsett J on 4 October 1999. His Honour had ordered that evidence in chief of the Applicant's and McDonalds' witnesses be given by affidavit. On 13 October 1999, the Applicant sought leave to file the fifth amended statement of claim. By that stage, some thirty claimants had already given evidence and many witnesses had already been called on behalf of McDonalds. 15 By the proposed fifth amended statement of claim, the Applicant seeks to raise claims against McDonalds under section 51AB of the Trade Practices Act, based on McDonalds' reliance upon the conditions referred to in its defence. No explanation has been offered as to why these claims were not made when McDonalds filed its defence and its amended defence. 16 The new causes of action may be summarised as follows:

Security Checks · McDonalds has asserted that it relied on conditions of the 1999 Competition that all prize claims would be subject to security and verification checks and that the claims made in the 1999 Competition would be ineligible if they failed any of the security and verification checks. · The security and verification checks were designed to lead to the rejection of claims based on game stamps which did not have certain markings on them, led to the rejection of the claims based on such stamps and were not described in any way to the Applicant or group members in the conditions of the 1999 Competition. · The rejection of the claims of the Applicant and each of the group members in reliance on those conditions constituted unconscionable conduct by McDonalds in connection with the supply of goods or alternatively in connection with the supply of a service in contravention of section 51AB of the Trade Practices Act, in that the rejection of each of the claims constituted an unfair tactic, namely, the reliance upon the conditions to deny the otherwise existing contractual entitlement for prizes.

McDonalds' Decision Final · McDonalds has asserted that it relies on the condition of the 1999 Competition that its decision on all matters pertaining to the 1999 Competition would be final. · The rejection of the claims of the Applicant and each of the group members in reliance upon that condition constituted unconscionable conduct by McDonalds in connection with the supply of goods or in connection with the supply of a service in contravention of section 51AB of the Trade Practices Act in that: - the Applicant and each of the group members had a contractual entitlement to a prize but for the reliance by McDonalds on the condition; - McDonalds based its rejection of the claims on its opinion that game stamps had not been collected during the Competition; - that opinion was wrong and McDonalds had no reasonable basis for the opinion.

McDonalds Not Liable for Loss · McDonalds has asserted that it relies upon the condition of the 1999 Competition that McDonalds would not be liable for any claims, losses, damages, injuries, costs and expenses suffered, sustained or incurred (including, but not limited to, indirect or consequential) as a result of, or arising out of, or in any way connected with the 1999 Competition and/or its prizes. · If, which is denied, that term has the effect of excluding the liability of McDonalds from the rejection by McDonalds of valid claims of the Applicant and the group members, reliance by McDonalds on the condition constitutes unconscionable conduct in connection with the supply of goods or in connection with the supply of a service in contravention of section 51AB of the Trade Practices Act in that reliance on the condition constitutes the use of an unfair tactic by McDonalds in using the condition to defeat an otherwise valid contractual entitlement. 17 Dowsett J rejected the application for leave to amend. His Honour did so for two reasons. First, his Honour concluded that the amendment would be futile because no arguable cause of action was disclosed by the pleading. His Honour also rejected the application on the ground that the case had progressed as far as it had on a particular basis and that it was likely that any substantial change in that basis would require further investigation and consideration and extend the length of the trial. His Honour considered, therefore, that it was inappropriate to allow the amendment at that stage in the proceedings. It is convenient to deal first with the futility ground.

SECTION 51AB 18 Sections 51AA, 51AB and 51AC of the Trade Practices Act are relevantly in the following terms: " 51AA (1) A corporation must not, in trade or commerce, engage in conduct that is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories.

(2) This section does not apply to conduct that is prohibited by section 51AB or 51AC. 51AB (1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.

(2) Without in any way limiting the matters to which the Court may have regard for the purpose of determining whether a corporation has contravened sub-section (1) in connection with the supply or possible supply of goods or services to a person (in this sub-section referred to as the 'consumer'), the Court may have regard to-

(a) the relative strengths of the bargaining positions of the corporation and the consumer;

(b) whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation;

(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 corporation or a person acting on behalf of the corporation 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 corporation. ……………………… 51AC (1) A corporation must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to a person (other than a listed public company); or

(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

(2) A person must not, in trade or commerce, in connection with:

(a) the supply or possible supply of goods or services to a corporation (other than a listed public company); or

(b) the acquisition or possible acquisition of goods or services from a corporation (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable. ………………………" [Emphasis added.] Section 51AC also contains a provision equivalent to section 51AB(2) although certain additional matters are set out that may be taken into account by the court. 19 Considerable debate took place before Dowsett J concerning the demarcation between the operation of section 51AA, on the one hand, and the operation of sections 51AB and 51AC, on the other hand. All of those provisions refer to conduct that is "unconscionable". In the case of section 51AA, however, it is only conduct that is unconscionable "within the meaning of the unwritten law" that is proscribed, whereas in sections 51AB and 51AC, it is conduct that is "in all the circumstances" unconscionable, that is proscribed. 20 Dowsett J concluded that, for present purposes, unconscionable conduct in sections 51AB and 51AC encompassed traditional equitable concepts together with the concept of undue influence. There is no suggestion of undue influence in the present case. His Honour preferred the approach of equating the concept of "unconscionable conduct" in section 51AA with the concept of "unconscionable conduct" in section 51AB and 51AC. His Honour's reasoning was that such an approach avoided the problem of what is meant by "unconscionable conduct" in sections 51AB and 51AC if it is not the meaning attributed to the expression under the general law, with the addition of the concept of undue influence. 21 While we should not be taken necessarily to be in agreement with his Honour's view, in the circumstances in which the question comes before this Full Court, it is unnecessary, and indeed undesirable, to attempt an exhaustive definition of the concept of "unconscionable conduct" as used in sections 51AB and 51AC. Nevertheless, it must be possible for the Applicant to demonstrate that the particular conduct alleged in the proposed new causes of action is capable of constituting unconscionable conduct, at least on some arguable construction of that expression. 22 For conduct to be regarded as unconscionable, serious misconduct or something clearly unfair or unreasonable, must be demonstrated - Cameron v Qantas Airways Ltd (1994) 55 FCR 147 at 179. Whatever "unconscionable" means in sections 51AB and 51AC, the term carries the meaning given by the Shorter Oxford English Dictionary, namely, actions showing no regard for conscience, or that are irreconcilable with what is right or reasonable - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262. The various synonyms used in relation to the term "unconscionable" import a pejorative moral judgment - Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 283-4 and 298. 23 It is clear that the game stamps in question were prepared in connection with the competition conducted in 1998 and were not intended to be used in connection with the 1999 Competition. There is no allegation that, when it rejected the claims of the Applicant and the group members, McDonalds did not genuinely believe that the game stamps were not issued after 4 June 1999. 24 No allegation of unconscionable conduct is made in connection with the issuing of the game stamps. Nor is any allegation of unconscionable conduct made in relation to the making of the alleged contracts between McDonalds, on the one hand, and the Applicant and the group members, on the other. The allegation is simply that it would be unconscionable for McDonalds to rely on the terms of such contracts. 25 The assertion is that, by relying on the condition relating to security and verification checks, McDonalds is relying on the provision to deny "the otherwise existing contractual entitlement" of the Applicant and group members. That assertion begs the question. That is to say, any contractual entitlement of the Applicant and group members depends upon the terms of their contracts with McDonalds. If, under the terms of those contracts, properly construed, McDonalds is entitled to deny the claims, then the Applicant and group members have no contractual entitlement. 26 The allegation concerning McDonalds' reliance on the condition that it would not be liable for any claims, losses, damages, injuries, costs and expenses is in the same category. Reliance on that condition is said to be an unfair tactic being used to defeat an otherwise valid contractual entitlement. That assertion also begs the question for the reason explained above. That is to say, if under the terms of the contracts McDonalds is entitled to reject the claims, then the Applicant and group members have no contractual entitlement. 27 The allegation concerning the condition whereby McDonalds' decision on all matters pertaining to the 1999 Competition would be final involves an allegation of unreasonableness. The allegation is that McDonalds based its rejection on an opinion that was wrong, being an opinion that McDonalds had no reasonable basis for holding. It might be alleged that, on the proper construction of the relevant condition, McDonalds could only rely on the condition if it had formed an opinion on a reasonable basis. Alternatively, it might be alleged that there is an implied term of the contract that McDonalds would only rely on the condition if it formed an opinion on a reasonable basis. They are matters that go to the correct construction of the contract. However, the allegation that McDonalds' conduct is unconscionable is made in a context where it is alleged that the Applicant and the group members had a contractual entitlement to a prize, but for McDonalds' reliance upon the condition. Thus, the allegation also begs the question for the reason explained above. 28 The Applicant and the group members have no contractual entitlement, except in accordance with the terms of their contracts. If McDonalds is entitled to rely on the conditions in question, and does so, the Applicant and the group members have no contractual entitlement. If, on the proper construction of the conditions in question, those conditions afford McDonalds an answer to the claims of the Applicant and group members, there is nothing unfair or unreasonable or immoral or wrong in relying on those terms, absent any allegation beyond the mere allegation that McDonalds is relying on the terms. 29 There is no allegation of any circumstance that renders reliance upon the terms of the contracts unconscionable. For example, it might be that, having regard to particular circumstances it would be unconscionable for one party to insist upon the strict enforcement of the terms of a contract. One such circumstance might be that an obligation under a contract arises as a result of a mistake by one party. The mistake is an additional circumstance that might render strict reliance upon the terms of the contract unconscionable. Mere reliance on the terms of a contract cannot, without something more, constitute unconscionable conduct. 30 The Applicant's claim, and the claims brought on behalf of the group members, are for recovery of a windfall. If any of them is entitled to that windfall, it will be as a result of a mistake. McDonalds seeks to rely on the conditions of the 1999 Competition in order to avoid the consequences of that mistake. It is quite unclear how that, of itself, could be said to be unconscionable, in any sense. 31 Before sections 51AA, 51AB or 51AC will be applicable, there must be some circumstance other than the mere terms of the contract itself that would render reliance on the terms of the contract "unfair" or "unreasonable" or "immoral" or "wrong". That is not the case propounded by the proposed amendments. The proposed new causes of action therefore cannot succeed. To allow the amendment would therefore be an exercise in futility. Accordingly, it should not be allowed.

DISCRETIONARY GROUNDS FOR REFUSAL 32 It is, therefore, not necessary to consider the other ground upon which Dowsett J declined to allow the amendment. If the amendment were allowed, further evidence would be required. It would be necessary to recall many of the claimants for further cross-examination. It would be necessary for McDonalds to embark on further investigations of the matters that are alleged to have made it unreasonable for McDonalds to form the opinion upon which it based its decision to rely on the "final decision" condition. 33 However, it was not suggested on behalf of McDonalds that there was any prejudice to McDonalds other than that which would be occasioned by the additional costs and possible delay. Costs, however, may have been a relevant question in the present circumstances. It is common ground that the Applicant would be unable to meet any order for costs that might be made against her if the proceedings are unsuccessful. She has offered no security. In circumstances where the Applicant brings the case in a representative capacity, that might well be a basis for imposing, as a term of any indulgence, a requirement for the provision of security for costs. However, for the reasons indicated, it is not necessary to consider that question.

LEAVE TO APPEAL 34 Generally, the question of whether leave to appeal should be given in respect of an interlocutory decision will depend upon whether, in all the circumstances, the decision is attended with sufficient doubt to warrant its being reconsidered by a Full Court and whether substantial injustice would result if leave were refused, supposing the decision to be wrong - Décor Corporation Pty Ltd v Dart Industries Inc (1991) 33 FCR 397 at 399. The question of the construction of section 51AB and 51AC, which governed his Honour's decision is not without doubt. The interrelationship between section 51AA, on the one hand, and sections 51AB and 51AC, on the other hand, has not been the subject of any final judicial consideration. 35 Whether the term "conduct that is unconscionable" means something different in different provisions is a question on which minds may differ. Further, if the proposed new causes of action had substance, disallowing the amendment could have a substantial effect on the outcome of the proceedings. Accordingly, if the proposed amended pleading truly raised the question of the construction of sections 51AB and 51AC, the matter may well be an appropriate one for the grant of leave. 36 However, the analysis undertaken above indicates that no question of principle is, in fact, raised. While the true meaning of section 51AB and its relationship with section 51AA would be a matter of substance, the proposed pleading does not make any allegation of circumstances that could on any view fall within section 51AB. In the circumstances, leave to appeal should be refused with costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Drummond and Emmett.

Counsel for the Appellant: S.S.W. Couper QC and D.A. Skennar

Counsel for the Respondent: P.D. McMurdo QC and D.P. Robinson

Solicitor for the Respondent: Minter Ellison as town agent for Baker & McKenzie