Criminal law - Consumer sales - Whether first respondent a supplier - Distinction between dealer and supplier - Whether second defendant entitled to defence under s 24 Criminal Code - Need to establish "positive belief" before section applicable

Door to Door Trading Act, s 4(3)(a), s 7, s 18(1)(a)

Lurssen v Williams, unreported; SCt of WA; Library No 950015; 20 January 1995

O F Gamble Pty Ltd v Whitemore Pty Ltd (1990) 2 WAR 327

Taco Co of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177

Thessaly Pty Ltd v Pelworth Pty Ltd (1991) 6 WAR 253

Vrisakis v Australian Securities Commission (1993) 9 WAR 395

Whitemore Pty Ltd v O F Gamble Pty Ltd (1991) 6 WAR 110

1 MILLER J: The first respondent was charged by complaint in the Court of Petty Sessions at Perth with eight offences of breaching the provisions of s 7 of the Door to Door Trading Act 1987. Three charges alleged offences in relation to a prescribed contract entered into between the first respondent and one Bridget Anne Le Grove on 26 October 1998; one related to a prescribed contract entered into between the first respondent and one Leigh Raymond Turner on 31 March 1999; and four charges related to a prescribed contract entered into between the first respondent and one Karyn Peta Elloy on 11 June 1999. In each case the first respondent was alleged to have been a supplier within the meaning of the Act and in each case there was alleged to have been a failure to comply with one or other of the requirements in relation to prescribed contracts which are set out in s 7 of the Act.

2 The second respondent faced nine charges on a complaint issued in the Court of Petty Sessions Perth, but only one of those charges is relevant to this appeal. It alleged an offence against the provisions of s 18 of the Act which prohibits action to recover an amount under a contract which is capable of being rescinded under the relevant Part of the Act. The allegation against the second respondent was that on 18 March 1999 it, in relation to a prescribed contract with Bridget Anne Le Grove, had asserted an intention to bring legal proceedings against her, contrary to the provisions of s 18(1)(a) of the Act.

3 The charges were the subject of a hearing before Ms J Musk SM on 30 and 31 March 2000. At the conclusion of the hearing the learned Magistrate dismissed the charges against the first respondent on the basis that it had been charged as a supplier but was not as a matter of fact a supplier of services. Her Worship made reference to the fact that the first respondent might properly have been charged as a "dealer" as defined in the Act, but was not satisfied that it was a supplier as alleged. The charge against the second respondent of breaching the provisions of s 18 of the Act appears to have been overlooked by the learned Magistrate when reaching her conclusions on the case, no consideration being given as to whether it was guilty or not guilty of that offence.

4 Leave to appeal from the learned Magistrate's decision was granted in this Court on 3 May 2000. The grounds of appeal are in essence that the learned Magistrate erred in

(i) failing to conclude that the first respondent was a "supplier" as alleged in the offences charged;

(ii) reaching the conclusion that the first respondent was not a "supplier" by reference to post-contractual conduct by the respondent rather than determining the matter solely by reference to the content of the contract forms and/or other communications which passed between the first respondent's representative and the consumer;

(iii) failing to conclude that the first respondent had, in procuring the signature of consumers on contract forms, conferred a right to services within the meaning of the definition of "supply" in s 3(1) of the Act, thus constituting it a supplier;

(iv) failing to conclude that the second respondent had breached the provisions of s 18(1) of the Act.

5 The evidence at the hearing established that a Ms Wright, who was a director of the first respondent, had approached a number of consumers (defined as persons to whom goods or services are or are to be supplied under a contract or proposed contract to which that person is or is to be a party), seeking to sell entitlements to dine at certain restaurants contained within a book entitled the "Australian Good Food Guide". Tendered in evidence was a transcript of what Ms Wright proposed to the various consumers. She announced herself as being from the Australian Good Food Guide and sought to persuade consumers that by signing a contract for a consideration of $796 they would then have access to the very best restaurants in Perth, elsewhere in Australia and in New Zealand, where on presentation of a Connoisseur Card, the consumer would receive free dinners in restaurants and substantial discounts in certain hotels, various tourist attractions and in relation to hire vehicles. The consumers in question each signed a contract for which the six year membership fee was $796. That contract contained much small print, but was headed in the following way:

6 There were numerous conditions contained within the agreement, the essence of them being the consumer agreed to acquire "from you" all rights and privileges to which he or she was entitled under the agreement; acknowledged that Pacific Good Food and Accommodation Guide offered the services described in the agreement; acknowledged that "the company" would post his or her membership package; and warranted that "nothing contained in this Agreement shall limit or restrict any rights or privileges at law I am have against Austar Enterprises Pty Ltd under the Trade Practices Act (Cth) or any state or territory Statute or Ordinance relating to door to door sales, fair trading or the like."

7 The agreement was signed by the consumer and by Ms Wright on behalf of the first respondent, but no description of the first respondent was given other than that it conducted the business of Pacific Good Food and Accommodation Guide Perth as indicated in the heading to the form which is reprinted above. Significantly, nowhere in the document was the first respondent described as merely a "dealer" or entity with no responsibilities in relation to the subject matter of the contract. To the contrary, the indications apparent from the document itself are that the first respondent was the entity which conducted the business of Pacific Good Food and Accommodation Guide Perth. On the face of it, that would appear to be the business trading name of the first respondent - although in one of the conditions of the agreement reference is made to Pacific Good Food and Accommodation Guide Pty Ltd publishing the Australian Good Food and Accommodation Guide. The relationship between Pacific Good Food Accommodation Guide Pty Ltd and the first respondent is not disclosed.

8 In evidence before the learned Magistrate Ms Wright testified that she had been associated for some nine years with Pacific Good Food and Accommodation Guide. She described herself as "looking after Western Australia" and testified that the first respondent sold the Guide in Perth. When asked what was involved with the Guide she said:

"Okay. Tell me a little about what this guide does? --- Okay. Okay. Well, as I said, we rate all of the restaurants and hotels in Australia and New Zealand. We run in conjunction with that the Connoisseur Club which is a program we market to owners and managers of businesses. What happens is in return for us sending them to restaurants where they can save money - ones that we've recommended - they send us back comment forms which actually will ascertain how they're graded in their next edition of the book.

So how do they save money at the restaurants? --- How do they save money? Well, as I said, we have certain recommended ones which we suggest they dine in above others because we now the food is good. When they dine there they receive a meal free of charge.

Okay. So you present the customers with that guide? --- Mm hm.

How often do they get that guide? --- Okay. The guide comes out every 18 months. So we re-publish each year, as I said, according to what we hear about the restaurants. Obviously each of the establishments have to be visited each year to ensure that the information is correct. Of course as well, because restaurants change, then the book must be printed each year because a restaurant which is fabulous this year may be lousy next year."

9 Ms Wright went on to say that she had a staff of five employees who identified a target market (purely corporate people) and endeavoured to contract them to the Australian Good Food Guide. Most of the evidence of Ms Wright was taken up with the issue which was the primary issue at trial. That was whether the consumers who had been approached entered into contracts to which the Act applied. Section 4(3)(a) of the Act provides that it does not apply to a contract made by a consumer in the course of or in connection with a business carried on by the consumer. The question which loomed largest at trial was therefore whether the three persons named in the complaints were persons who entered into contracts in the course of or in connection with a business which they carried on. The learned Magistrate's findings were to the contrary, and nothing turns on those findings in this appeal.

10 Ms Wright was cross-examined by counsel for the prosecution as to her relationship with the second respondent:

"MS RICHARDSON: So can you explain to the court how this works? We've heard there's a telemarketer who rings somebody, makes an appointment. Then the sales rep goes out and, if successful, signs up that person? --- Mm hm.

What happens then? --- The report --- the contract are sent to our head office and they process them there. They look after payments and send out cards; look after the customer. We look after the customer from here if they have queries but they do administration plus look after the customer.

So that original form that's been filled out and signed by the consumer is sent off then to --- ? --- Correct.

All right. You're paid purely on a commission basis --- ? --- Mm hm.

--- then as a result of that. What then is your relationship with Austar? --- I'm a director of Austar.

Okay. So sole director? --- Well, no actually, that's not true. My father is the other director but he's --- at that time you needed 2 directors. He lives in the UK. He has nothing to do with the business.

All right. In terms of your relationship with Pacific Good Food does the commission come via Austar or does it come to you personally? --- Austar is my company so it goes to Austar.

So in fact the business relationship is between Austar and --- ? --- That's correct. That's right.

--- Pacific Good Food. In terms of the financial aspect of it - that is arranging those direct debits, getting payment from consumers: those types of activities - they're carried out by Pacific Good Food, are they? --- Yeah, that's correct.

Okay. Equally, in terms of updating the card and the discount book, that's all done by --- ? --- No. No, I look after --- well, they actually do the printing. I do the --- I do all the information for that each year."

It will be seen that not a great deal of attention was paid to the question whether the first respondent came within the definition of "supplier" in the Act. This issue was, however, raised in argument during submissions made by counsel for the prosecution to the learned Magistrate. It was in response to those submissions that the learned Magistrate concluded in her reasons that the first respondent was the Western Australian agent for the second respondent and that the second respondent in turn was the supplier of the services the subject of the contracts. What her Worship concluded was as follows:

"I accept that Austar is the WA agent for Pacific Good Foods, who are the supplier of the services the subject of these contracts.

That is of course the supply which in the definition includes in point here in relation to services the conferral of the right to the services. That's what's being done here under this arrangement. So on those findings Austar has been charged as supplier but in fact on my findings is not the supplier of these services. It would be Pacific Good Foods who are the supplier of the services, but they have been charged as obtaining a benefit from a supplier. So that on my findings the charges against them in that capacity cannot be sustained.

Certainly under section 21 Austar, as I probably mentioned before, could have been charged as an employer or a dealer. Having found that Ms Wright comes within the definition of a dealer, Austar could have been charged in that capacity but hasn't. So for all of those reasons the charges against Austar and Pacific Good Foods - all of those charges - in capacities in which they have been laid in my view it cannot be sustained, notwithstanding the nature of the transactions and the lack of a cooling off period being nominated in the contracts and the lack of the handing over of form 1 and 2.

" 'dealer' means a person who, in the course of door to door trading -

(a) enters into negotiations with another person with a view to the making of a contract for the supply of goods or services to that other person; or

(b) calls on another person for the purpose of entering into such negotiations,

(whether or not that person is or is to be the supplier of the goods or services);"

On the evidence it was clear that Ms Wright was at least a dealer as defined.

12 To understand the definition of "supplier" it is necessary to set out the definitions of "services", "supplier" and "supply". They are as follows:

" 'services' includes rights or benefits of any kind except the supply of goods;

'supplier' in relation to a contract or proposed contract for the supply of goods or services, means the person by whom the goods or services are, or are to be, supplied under the contract or proposed contract;

(a) in relation to goods, the conferral of a right to goods or a right the possession or use of goods;

(b) in relation to services, the conferral of a right to services;"

13 Fundamental to the submissions of the appellant is the proposition that the first respondent may well have been a dealer within the meaning of the Act but was a supplier as charged. Indeed, it was submitted that one could be both a dealer and supplier. The reason why it was said that the first respondent was a supplier is that it is contended that the evidence established that the first respondent in entering into the agreement with the consumer conferred at least a right to services within the meaning of the definition of "supply", "services" being defined to include rights or benefits of any kind, and the "supplier" in relation to a contract or proposed contract for the supply of services being the person by whom those services are or are to be supplied under the contract or proposed contract. The extended definition of "supply" is thus contended to embrace the first respondent in this case which, on the face of the contract, at least conferred upon the consumer the right to the services available from the Pacific Good Food and Accommodation Guide.

14 Although counsel for the appellant argued at the hearing that the learned Magistrate was in error in adverting to post-contract conduct for the purpose of determining whether or not the first respondent was a supplier, I am not sure that the learned Magistrate consciously decided the case in that way. She seems to have taken the view that as the first respondent actually supplied nothing, but the second respondent did, it was the second respondent which was the supplier and the first respondent which was the dealer. This finding really ignored the representations made by the first respondent on the contract itself which revealed it to be at least the agent of the second respondent, if not the corporate body that actually conducted the business of the second respondent. It ignored also the extended definition of "services" in the Act and the combined definitions of "services", "supplier" and "supply". Prima facie, the evidence established that the first respondent was a person by whom services were to be supplied under the proposed contract, those services including rights or benefits of any kind and the supply including in relation to services, the conferral of "a right to services". At the very least, the first respondent was, by entering into a contract with the consumer", conferring upon the consumer a right to services whether provided by the first respondent as the operating arm in Western Australia of Pacific Good Food and Accommodation Guide, or as agent for Pacific Good Food and Accommodation Guide. Given the extended definitions to which I have referred, it is difficult to see how the learned Magistrate could have concluded that the first respondent was not a supplier within the meaning of the Act. It may also incidentally have been a dealer, but that was not to the point. One could be both.

15 It is true that in Bembridge v G-K-R Karate Australia Pty Ltd (1998) ASAL 55-004, Ipp J (at 57,330) said:

"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.

'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."

16 All of this can be accepted. It does not, however, go to the essence of this case. Here, it has not been suggested that consequences of an agreement are being avoided by the use of words in the standard form of agreement which falsely suggest the agreement in fact entered into involved a different type of transaction. Of course, it is necessary for the court to have regard to the "true substance of the transaction", but that does not preclude reference to the clear and unambiguous terms of the contract document. I see nothing in the Bembridge case to suggest that this matter is to be approached only by reference to the actual conduct of the parties as distinct from the contractual arrangements contained within the contract document itself.

17 It follows that I am satisfied that the learned Magistrate erred in law in concluding that the first respondent was not a supplier within the meaning of the Act. In my view, that case had clearly been made out and the first respondent should have been convicted in relation to each offence.

18 The charge against the second respondent for breaching the provisions of s 18(1)(a) of the Act relied upon the receipt by Ms Le Grove of a letter from Pacific Good Food and Accommodation Guide threatening her with legal proceedings in the event of failure to pay the amount of $796 which she had purportedly contracted to pay under the prescribed contract. The letter was in the following terms:

"Our records indicate that your account in the amount of $796.00 is now well overdue and you have not responded to our previous requests for payment.

Should you choose to ignore this letter, and fail to contact this office within SEVEN DAYS then legal proceedings will be commenced to recover the outstanding amount. This would mean that you would be ORDERED to pay the entire balance of your contract, along with any legal fees and court costs (minimum fees $200.00) necessary for us to enforce the collection thereof. SHOULD YOU NOT DO SO, OUR CREDIT DEPARTMENT HAS BEEN INSTRUCTED TO ISSUE A SUMMONS IMMEDIATELY FOR THE RECOVERY OF THE OUTSTANDING BALANCE.

A court hearing can be quite costly as not only are there additional court costs to consider, but also any judgement obtained becomes a matter of PUBLIC RECORD and will be recorded in the credit file at the Credit Reference bureau and other reporting agencies. This, no doubt, would affect your ability to obtain credit in the future.

If there are difficulties in arranging payment, then please contact this office and advise of the circumstances.

Your prompt attention to this matter is imperative. We will hold your file for a period of SEVEN DAYS only."

19 On the face of it, the second respondent had clearly breached the provisions of s 18(1)(a) of the Act which is in the following terms:

"18. Prohibition of action to recover amount under contract in certain circumstances

(1) Where a contract to which this Act applies has been rescinded, or is capable of being rescinded, under this Part, no person shall, for the purpose of recovering an amount alleged to be payable by the consumer under the contract or a related contract or instrument -

(a) bring, or assert an intention to bring, legal proceedings against the consumer;"

There is no question that Ms Le Grove had entered into a contract which was a contract capable of being rescinded and the letter from the second respondent to Ms Grove clearly asserted an intention to bring legal proceedings against her and made that assertion for the purpose of recovering an amount alleged to be payable by Ms Le Grove under the contract.

20 Counsel for the respondent argued before the learned Magistrate and argued at the hearing of the appeal that the second respondent had made out a defence of honest and reasonable but mistaken belief (Criminal Code, s 24). That contention was based upon evidence of Ms Wright:

"Kimberley, can you tell us why Le Grove's account was never debited? --- We -- she actually gave us an incorrect account number so we actually received notification back from the bank saying it couldn't be debited because the account number was incorrect.

Okay. Perhaps if you could have a look at this letter. (Is that your only copy? I don't think we've actually had a letter of 12 April 1999 to Mr Lane on the Le Grove matter as an exhibit yet. I've only got a copy).

MR ALTERUTHEMEYER: Perhaps I can show that to the witness. (TO WITNESS): Can you tell me who wrote the letter? --- That was from myself.

What's it about? --- Just a letter back to Mr Lane advising him that the -- her contract had been cancelled. As it says there, we'd actually -- I was surprised to receive anything from him because I had spoken with head office a couple of months before that and it was cancelled at that time. So it was just administration.

Lane's letter referred to a previous letter, or came after a previous letter of 18 March. Is that right? --- Yeah. They -- I mean, obviously a lot of letters that are sent from head office are form letters which are sent out. Once they get to a particular time a letter is sent. This contract should have been cancelled. Just administration wise it wasn't put in the right pile. That's basically all it is. And so she was sent a letter that she should never have been sent."

21 It also appeared at trial that the second respondent had written to the Ministry of Fair Trading explaining how it was that the letter of demand had been written to Ms Grove. In a letter dated 12 April 1999 to the Ministry Ms Wright, describing herself as "WA Manager" for Pacific Good Food and Accommodation Guide said:

"I write in reply to your recent letter regarding Ms Bridge LeGrove.

I was surprised to receive this letter as I had received written notification from Head Office months ago that this sale had been cancelled. I queried this with them and it appears that due to an internal computer problem an account letter had been mistakenly sent.

I have advised Head Office to send confirmation of cancellation to Ms LeGrove and if you would be so kind as to pass on the information and our apologies for the error it would be appreciated."

22 It was on this evidence that the defence of "mistake" was based. It is true that unless the operation of s 24 of the Criminal Code is excluded by the law relating to the subject, it is of general application and applies to all persons charged with any offence against the statute law of Western Australia: McPherson v Cairn & Ors [1977] WAR 28. Once a foundation for mistake has been laid by the evidence a defendant must be acquitted if the tribunal of fact thinks that it might reasonably be true: Brimblecombe v Duncan [1958] Qd R 8 at 12, 22 and 23; McPherson v Cairn (supra). However, before the provisions of s 24 of the Criminal Code can operate, it is necessary that a positive belief of the quality required by the section be held by some person exercising the function of management within a corporation: G J Coles & Co Ltd v Goldsworthy [1985] WAR 183.

23 In G J Coles & Co Ltd v Goldsworthy (supra), Burt CJ (at 187 - 188) said:

"Expressed without reference to the onus of proof, what s 24 of the Code requires, in my opinion, is simply what it says, namely that 'a person who does or omits to do an act under an honest and reasonable, but mistaken, belief in the existence of any state of things is not criminally responsible for the act or omission to any greater extent than if the real state of things had been such as he believed to exist'. The belief 'under' which the act is done must be honest, which is to say no more than it be held in fact; it must be reasonable, which is to say that it must be based on his appreciation of primary objective which is in reason capable of sustaining the belief; it must be mistaken and it must be a positive belief because the extent of the criminal responsibility is not to be grater 'than if the real state of things had been such as he believed to exist'. One can readily agree that a mistake made carelessly is not a reasonable mistake but because it can be shown that a person 'exercised due diligence to comply with the law' is not necessarily to say that he did the act or omitted to do the act under a mistake of the kind spoken of in s 24 of the Code."

24 In the present case I can find no evidence which establishes a foundation for a defence of honest and reasonable mistake. Nobody from the second respondent testified that it held a mistake. At best, Ms Wright is shown to have sent a letter to the Ministry of Fair Trading advising that because of an internal computer problem an account letter had been "mistakenly sent". The source of that information was "written notification from head office" and the admissibility of the evidence is questionable. In any event, nobody from the second respondent (from whom the first respondent was seeking to separate itself) testified that the letter sent to Ms Le Grove was mistakenly sent and there was no evidence of any "positive belief" as it was put by Burt CJ in G J Coles & Co Ltd v Goldsworthy (supra). There was, in my view, insufficient evidentiary basis upon which to reach any conclusion that the prosecution had failed to negative a defence of mistake under s 24 of the Criminal Code. It therefore follows that in my view the second respondent should have been convicted of the charge of breaching the provisions of s 18(1)(a) of the Act.

25 I am therefore of the view that the appeals in this matter should be allowed and that the first respondent should be convicted of the eight charges contained within complaint numbers PE 48101-48108 of 1999 in the Court of Petty Sessions at Perth and the Second Respondent should have been convicted of the complaint contained within charge PE 48109 of 1999 in the Court of Petty Sessions at Perth. I therefore allow the appeals and enter verdicts of conviction according. I will hear submissions as to what penalties should, in the circumstances, be imposed.