Court of Appeal (WA)|1998-02-06|Before: Mr J, Ipp J

Karin Hope Bembridge & Ors v G-K-R Karate Australia Pty Ltd & Anor [1998] WASCA 15 (6 February 1998)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

Contracts - General contractual principles - Construction and interpretation of contracts - Door to door salesmen and consumers - Written contract conferring no express benefits on consumer - Benefits only discussed orally - Consumer signing on basis of oral statements by salesman - Whether oral statements formed part of agreement - Whether express written condition purporting to exclude salesman's oral statements operates to conceal true nature of transaction - Contract held to be partly oral and partly in writing - Contract a prescribed contract within meaning of s6 of .

Appellant : Bronwyn Davies Taylor, Minister for Fair Trading

Bacchus Marsh Concentrated Milk Co (in liq) v Joseph Nathan & Co Ltd [1919] HCA 18; (1919) 26 CLR 410

Broken Hill South v Commissioner of Taxation (NSW) [1937] HCA 4; (1937) 56 CLR 337

Bull & Ors v Attorney-General for New South Wales [1913] HCA 60; (1913) 17 CLR 370

Chappell & Co v Nestlé Co Ltd [1960] AC 114

Codelfa Construction Pty Ltd v State Rail Authority of NSW [1982] HCA 24; (1982) 149 CLR 337

Copper Industries Pty Ltd (in liq) v Hill [1975] 12 SASR 292

Dunlop Pneumatic Tyre Co v Selfridge & Co [1915] UKHL 1; [1915] AC 847

Impala Kitchens Pty Ltd v Hagen [1991] FCA 603; [1992] ASC 57,350

L'Estrange v Graucob [1934] 2 KB 394

State Government Insurance Office (Q) v Rees [1979] HCA 52; (1979) 144 CLR 549

Technical Products Pty Ltd v SGIO (Queensland) [1989] HCA 24; (1989) 167 CLR 45

Trade Practices Commission v TNT Management Pty Ltd (1985) 58 ALR 423

Workers Compensation Board v Technical Products (1988) 165 CLR 642

This is an appeal under the Justices Act. The respondent was charged with four complaints, each containing five charges, alleging offences under the Door to Door Trading Act 1987. Each complaint related to a separate transaction. Save for the identity of the consumer concerned, the facts relating to each transaction were, in all relevant respects, virtually identical. The 20 charges alleged breaches of ss7(1)(a)(i), 7(1)(f), 7(1)(g)(i), 7(1)(g)(ii) and 8(1) of the Act. All the acts of the respondent complained of were alleged to have been committed by the respondent "in relation to a prescribed contract" within the meaning of s6 of the Act. In other words, an element of each of the 20 charges was that whatever was done by the respondent was done in relation to a prescribed contract.

It was common cause in the trial before the learned Magistrate that, if the contracts alleged by the prosecution were prescribed contracts, the respondent had failed to comply with the requirements of the Act in the respects particularised in the 20 charges. The respondent, however, denied that the contracts were prescribed contracts, and the respondent's contentions in this regard were upheld by the learned Magistrate. For that reason, the complaints brought against the respondent were dismissed.

"The learned Stipendiary Magistrate erred in law in finding that the contracts between the Respondent (Defendant) and various consumers named in the complaints were not prescribed contracts as defined in s6 of the Door to Door Trading Act 1987, when the contract in each case was a contract to which the Act applied and where the total consideration payable under of [sic - or] in respect of each contract was not ascertainable at the time of the making of the contract."

This ground squarely raises the question whether the contracts in question were prescribed contracts under s6 of the Door to Door Trading Act.

Sections 6(1) and 6(2) of that Act provide as follows:

"6. (1) Subject to this section, a contract to which this Act applies is a prescribed contract if the total consideration payable by the consumer under, or in respect of, the contract -

(a) is not ascertainable at the time of the making of the contract; or

(a) 2 or more contracts relate to substantially the same transaction; and

(b) the transaction could have been effected by a single contact which would, in that case, have constituted a prescribed contract;

then each of the contracts that would not, if it stood alone, constitute a prescribed contract becomes a prescribed contract and, for the purpose of ascertaining the cooling-off period in relation to such a contract, it shall be deemed to have been made when the last of the contracts was made."

The respondent's business was that of a provider of karate classes. It conducted those classes through the medium of instructors at premises occupied by it. The instructors gave lessons to persons who were registered as members of the respondent. Each member had to pay a fee to the respondent in order to be registered as such and also paid a fee for each class attended. The respondent employed sales representatives to solicit new members.

At the trial before the learned Magistrate only one witness testified, a Mr Jarvis. Mr Jarvis gave evidence that in April 1996 a sales representative of the respondent called at his house. The sales representative offered Mr Jarvis three months' membership of the respondent for his two children, or life membership if that was what Mr Jarvis wished to obtain. The representative told Mr Jarvis that membership would cost $40 for three months per member, and life membership would cost $140. The following exchange then occurred:

"All right. When you -- you say it was karate classes, was there any cost involved in the classes?---Yeah. It this [sic] it was $5; and because we had two children entering, he put it down to $4.50.

Did he tell you about any other costs apart from the $40 and the $4.50 cost per class?---No."

The "registration form" which Mr Jarvis signed (and a similar form was signed by all the other complainants) contained the following provisions:

"In consideration of and by this agreement the above named person now being registered with Go-Kan-Ryu Karate-Do agrees to pay the registration of $40.00."

The registration form also contained details of the "branch" of the respondent which was to be attended by the consumer concerned, the date of the first class which the consumer would attend, and the "expiry date" which was three months after the date of the first class. The following provisions were then set out:

"1. The above fee does not include the class attendance fees which form no part of this agreement and are payable at each attendance.

2. No part of the registration fee is refundable."

On the reverse of the registration form were "further conditions". Condition 6 of these further conditions provided that the consumer acknowledged that "no part of the registration fee is refundable and does not include class attendance fees which form no part of this agreement and are payable at each attendance".

After Mr Jarvis had completed his evidence, the facts were agreed between the parties. The agreed facts were as follows:

"In each case, a salesman, representing the defendant, attended at the consumer's home, and attended there in the course of door to door trading. ... That salesman conveyed the following information to each of the consumers: the information was that for $40 the consumer ... had the right to attend karate classes, conducted by the defendant, during a four month period.

It was also conveyed that if the consumer did attend such a karate class, they would pay the defendant $4.50 per class, in the case of the two Jarvis girls. ... In the case of the other consumers, it was $5 per class that the consumer attended.

It's also agreed that it was after all this information was conveyed to each of the consumers, that the consumers signed the registration form. ... It's also agreed that $80 was paid at that time by or on behalf of Mr Jarvis, and that in the case of the other consumers $40 was paid at that time.

It's also agreed that of the documents which have already been tendered, documentation in identical form was presented to each of the other consumers; and that save for the details of the consumer involved, the form which was signed by each of the consumers was identical ... to the one which was tendered in the course of Mr Jarvis' evidence."

Before the learned Magistrate counsel for the prosecution contended that the complete agreement arrived at between the respondent and the consumer in each case was a composite agreement ("the composite agreement"). The composite agreement, it was said, comprised the terms contained in the registration form ("the registration agreement") and an oral agreement between the parties ("the oral agreement") as to the amount of the fee payable for each class to be attended by the consumer, the number of classes the consumer could attend, and the period over which classes could be attended. In other words, it was contended that the composite agreement, in each case, was partly oral and partly in writing. On that basis the prosecution argued that the total consideration payable by the consumer under, or in respect of, each composite agreement was "not ascertainable at the time of the making of the contract" within the meaning of s 6(1)(a) of the Door to Door Trading Act; accordingly, it was submitted, each composite agreement was a prescribed contract under s6 of the Act. In the alternative, counsel for the prosecution submitted that the respective oral agreements as to fees were contracts collateral to the registration agreements, and that each of the contracts (i.e. the oral agreements and the registration agreements) were to be regarded as prescribed contracts in terms of s6(2) of the Act.

The learned Magistrate, however, held that no oral agreement at all had been arrived, the evidence in this respect being too vague. Her Worship said:

"It would appear to me what has happened here is there has been an attempt for an organisation to set themselves up; to join this organisation one must pay a certain amount of money; and then if one wishes to use it, how many times wishes to use it, then one pays a fee. That, to me, does not constitute a contract. ... I cannot accept that there was a promise in any way; there was a representation made about the fees which would be paid in relation to attendance. But it is just so vague. How many times would they go? How many fees would they pay? It just is unclear, and it's not a contract which one could say was ascertainable."

I turn, firstly, to the question whether there was an oral agreement, in each case, as alleged by the prosecution, and, if so, whether that oral agreement, together with the registration agreement, constituted a composite agreement.

The registration form, itself, provides some assistance in regard to these issues. It is true that the consumer in question, by signing the form, agreed to pay the registration fee of $40 in consideration for being registered with the respondent, and no other consideration to be provided by the respondent was stipulated in the registration form. Nevertheless, the form noted the date on which the consumer was to attend his or her first class and told the consumer that at the first class the consumer needed "to attend 20 minutes earlier than the normal starting time". The form advised the consumer what he or she should tell the instructor when meeting that individual for the first time. The form recorded that "the purpose is for you and your instructor to meet personally, even though there may be some other new members present as well. The instructor will give some general information regarding the club, how the classes are run, etiquette etc and more". Thus, the form contemplated quite clearly that the registered consumer would attend karate classes with the respondent.

Moreover, the registration form also contemplated that, at some time, an agreement would be arrived at in respect of "class attendance fees". This is demonstrated by the pains taken to record in the form that class attendance fees did not form part of "this agreement" (in other words, it was expected that class attendance fees would form part of some other agreement). Plainly, a door to door salesman attempting to obtain $40 from consumers would have a hard time of it if his remuneration depended on him persuading consumers to pay $40 merely so that they could be registered as members of the respondent. A consumer would not ordinarily pay $40 merely for the privilege of registration as a member, particularly if nothing was agreed as to the rights of members. If that were all the salesman did when canvassing customers, it would be surprising if he had any success whatever in achieving sales.

It is apparent, however, on the agreed facts, that the door to door salesman did much more than simply offer consumers the right to become members of the respondent. He also told them what rights and privileges would attach to membership. Thus, the salesman told each consumer that in consideration for the payment of $40 the consumer had the right to attend karate classes conducted by the respondent for a particular period, namely three or four months. This differed materially from what was stated on the registration form. The registration form was silent as to these matters, and stated that the $40 was paid as consideration merely for being registered as a member.

Further, the salesman told each consumer how much the consumer would have to pay for each class attended. This was said to be $4.50 per class for the Jarvis girls and $5 per class for the others. It was only then, after all the aforementioned information had been conveyed to the consumers, that the consumers, in each case, signed the registration form concerned. Obviously, at the stage that each consumer signed the registration form, a mutual understanding had been effected between the consumer in question, on the one hand, and the salesman representing the respondent, on the other. According to that mutual understanding, the cost of registration would be $40, the cost per class would be $4.50 (in the case of the Jarvis girls) or $5 (in the case of the other consumers), and further, the consumers could attend the respondent's karate classes for the agreed period whenever they wished. In consequence, on the agreed facts the registration form did not record the true agreement arrived at between the respondent and each consumer.

Counsel for the respondent submitted that on these facts there was no agreement between the consumers and the respondent as to the cost of the classes the consumers would attend. If this submission were to be correct it would have been open to the respondent in each case to charge whatever it wished for the classes in excess of the fee conveyed to the consumer before the consumer signed the registration form. I am unable to accept this submission.

As reflected in the agreed facts, the consumer, in each case, was advised of the cost of the class before signing the registration forms. The consumer was informed that for $40 he or she had the right to attend karate classes conducted by the defendant during a three or four month period. In summary, the information given orally to the consumer in each case, together with what was recorded in the registration form, constituted an offer by the respondent as to the cost of classes, and the period during which and the frequency with which the consumer could attend them. This offer was accepted by the consumer by his or her act in signing the registration form. Once the registration form was signed there was a binding contract as to the initial payment to be made, the cost of each class, the period over which the consumer was entitled to attend classes, and the number of classes which the consumer was entitled to attend (in fact, as many as the consumer wished). The fact is that, in effect, the consumer, in each case, paid $40 for the right to attend the classes at the agreed fee over the agreed period.

I do not accept that there was any vagueness or uncertainty in this agreement. The cost of each class, the overall period during which the consumer in each case could attend the classes, and the frequency with which the consumer could attend the classes, were all expressly agreed upon. There was no uncertainty whatever in regard to these essential terms. Of course, it was not known, at the time the agreement was arrived at, how often the consumer would attend classes. This meant that the total consideration payable by the consumer could not be calculated at the time the agreement was entered into. That depended on how many times the consumer would attend the classes. This uncertainty had no bearing whatever on the certainty of the essential terms of the agreement. In my view the oral agreement was not void for uncertainty as the learned Magistrate, in effect, held.

Counsel for the respondent submitted further that regard could not be had to what was agreed in the oral discussions as, it was contended, the terms of the oral agreement were inconsistent with the terms of the written registration agreement. Counsel for the respondent referred particularly to the statements in the registration agreement that class attendance fees "form no part of this agreement". The significance of this submission is that if the oral agreement is separate from the registration agreement, then the registration agreement is not a prescribed contract under s6(1)(a) of the Door to Door Trading Act. That is because the total consideration payable by the consumer under, or in respect of, the registration agreement, looked at alone, was ascertainable at the time of its making.

I accept that the words in the registration form to the effect that "the class attendance fees ... form no part of this agreement" were intended to prevent an oral agreement being regarded as part of the agreement recorded by the registration form. As counsel for the respondent pointed out, an acceptance that a single composite agreement was arrived at (on the basis that an oral agreement and a registration agreement were to be regarded as one contract) would be inconsistent with the words in question. It is open to argument that this attempt at separation was deliberately contrived so as to avoid the consequences of the Door to Door Trading Act, but it is not necessary to arrive at a final conclusion in this respect.

Ordinarily, effect would be given to a clause recording that an agreement on a particular issue did not form part of an agreement as to other matters. However, irrespective of the existence of such a clause, evidence may be admitted to establish the real or true nature of a transaction. Thus, for example, evidence may be given to establish that a transaction was a sham: Esanda Ltd v Burgess (1984) 2 NSWLR 139, or that an apparent sale was really a mortgage: Re Marlborough (Duke); Davis v Whitehead [1894] 2 Ch 133, or that a transaction was a sale with an option to repurchase and not a loan: Gurfinkel v Bentley Pty Ltd [1966] HCA 75; (1966) 116 CLR 98.

On the face of the registration agreement, each transaction was merely an agreement whereby the consumer in each case would be registered as a member with the respondent. The admitted facts, however, reveal that that was not the real nature of the transaction. In truth, by the transaction, the consumer paid $40 to acquire the right to attend karate classes at the respondent's premises over a four month period, whenever the consumer wished, at an agreed cost per class of $4.

The Door to Door Trading Act contains several provisions which create criminal offences, all depending on whether contracts are prescribed contracts or not. The purpose of these provisions is consumer protection. In these circumstances the court will have regard to the true substance of the transaction. The relevant considerations are not dissimilar to those referred to in O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327 (per Anderson J) at 331 (approved on appeal in Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110) and Van Den Bergh v Clever Management Pty Ltd, unreported; FCt SCt of WA; Library No 970319; 20 June 1997. In the latter case White J said:

"The submission that, the parties having agreed that base rent was part of the rent, the court cannot contradict the words used by the parties is unsupported by authority and, in my opinion, is clearly wrong. It cannot be thought that a transaction which is rendered void by the terms of a statute can escape such fate simply by being given a different name in the deed. If what is called 'Base Rent' in the Lease is, in fact, key money, describing it as 'rent' cannot, in my judgment, alter its true character."

Similarly, in my view, once parties, in reality, enter into an agreement which is a prescribed contract under the Door to Door Trading Act, the consequences of their agreement being a prescribed contract cannot be avoided by the use of words in a standard form of agreement which falsely suggest that the agreement in fact entered into involved a different type of transaction to which the Act does not apply. Accordingly, in my view, the mere insertion of the words "the class attendance fees ... form no part of this agreement" in the registration agreement cannot preclude evidence tending to show that there was but one agreement constituted by the oral agreement and the registration agreement, namely the composite agreement. Evidence of this kind would reveal the real nature of the transaction: see, generally, Cross on Evidence, 5th Australian Edn, para 39185.

In my view, the true transaction entered into between the parties was recorded by a composite agreement, constituted partly by the oral agreement and partly by the registration agreement. By that composite agreement the consumer, in each case, agreed to pay $40 to the respondent, in effect, for the right to be able to attend karate classes at the respondent's premises over a three or four month period whenever he or she wished at a cost to the consumer of $4.50 per class (in the case of the Jarvis children) and $5 per class (in respect of the other consumers).

The next question is whether the class fees payable by each consumer were payable under, or in respect of the composite agreement, within the meaning of s6 of the Door to Door Trading Act.

The words in s6(1) "under", or "in respect of" have a very wide ambit. The word "under" is itself, alone, capable of a wide meaning: ANZ Banking Group Ltd v Various Debtors (1997) ASC 56-369 at 57,306 - 307. The words "in respect of" are used disjunctively in the section in question. In my view they are intended to broaden the meaning of "under". It is not incumbent upon me, nor, I think, desirable, to attempt to define what is meant by "in respect of" as this phrase is used in s6(1). It is, however, sufficient to state that, for the reasons I have expressed, it has a wide ambit and it is intended to mean more than "in terms of".

Having regard to the broad meaning to be attributed to the words "in respect of", even though the fees payable for the classes to be attended (making up, in aggregate, together with the $40 registration fee, the total consideration paid by the consumer) were to be paid after the composite agreement was arrived at, those fees were to be paid "in respect of" the composite agreement. After all, the right to attend classes was stipulated by the composite agreement, the period over which each consumer could attend was agreed thereby, as were the number of classes that could be attended, as well as the amount of the fees.

At the time each composite agreement was made, the total consideration payable depended on how many times the consumer in question attended at the respondent's premises for karate classes. Therefore, at the time each composite agreement was made, the total consideration payable by the consumer thereunder or in respect thereof was not ascertainable. That being so, in my opinion, the composite agreement, in each case, was a prescribed contract under the Act.

I should say that, in any event, were I to uphold the submissions of counsel for the respondent, and conclude that there were two separate agreements, namely the oral agreement and the registration agreement, I would hold that each of those agreements was a prescribed contract under s6(2) of the Act. In that regard I should point out that the words "the class attendance fees ... form no part of this agreement" in the registration agreement are not inconsistent with a collateral contract which does fix the class attendance fees. The words in question merely stipulate that the registration agreement does not incorporate any agreement as to the class attendance fees. There is no inconsistency between those words and a collateral contract in terms of which class attendance fees are agreed.

On the assumption that there were two separate agreements, they relate substantially to the same transaction; that being the transaction whereby the consumer agreed to pay $40 for the right to attend karate classes over a three or four month period at the agreed fee per class. On that basis, having regard to the provisions of s6(2), the oral agreement, whereby each consumer agreed with the respondent that he or she would be entitled to attend classes at the agreed fee for the agreed period, is a contract in terms of which the total consideration payable in respect thereof was not ascertainable at the time of the making of the contract. Therefore, on the basis predicated, each oral agreement constituted a prescribed contract.

Accordingly, I would uphold the appeal. In the particular circumstances, I consider that I should act pursuant to the powers conferred on me by s199(1)(d) of the Justices Act and remit the case for rehearing by the learned Magistrate with a direction to her to determine the case on the basis that the respondent entered into a prescribed contract within the meaning of s6 of the Door to Door Trading Act, with each consumer referred to in each of the 20 charges, the subject of the 4 complaints.

Door Trading Act 1987

Karin Hope Bembridge & Ors v G-K-R Karate Australia Pty Ltd & Anor [1998] WASCA 15

At a glance

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Judgment (70 paragraphs)

Karin Hope Bembridge & Ors v G-K-R Karate Australia Pty Ltd & Anor [1998] WASCA 15 (6 February 1998)

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Legislation Cited (1)

Cases Cited (14)