Plaintiff v Defendant

1 By leave granted by an Associate Justice on 17 March 2010, the plaintiff, Mr Thomas Alabakis, appeals against the order of VCAT made on 14 January 2010 that the Tribunal does not have jurisdiction to determine his claims.

2 Before VCAT, Mr Alabakis alleged two causes of action. He sought damages for deceptive and misleading conduct in breach of s 9 of the Fair Trading Act 1999 (the Act). The relevant conduct was alleged to be representations made to Mr Alabakis by Mr Michael Boyd, upon which he relied in subscribing for shares. Secondly, Mr Alabakis contended that the circumstances gave rise to a consumer and trader dispute under s 107(1) of the Act.

3 The finding that VCAT did not have jurisdiction was based on a conclusion that neither the representations, nor the agreement or arrangement between the parties, occurred in the course of trade or commerce.

4 The issue on the appeal is, in short, whether this finding is open, or is correct.

5 The evidence at the VCAT hearing concerning the relevant dealings revealed that at the heart of the dispute was a placement of shares in Advance Healthcare Group Ltd ("AHG"). AHG was a publicly listed company in 2007, the time of the events in issue in the proceeding. On 28 April 2008, administrators were appointed to AHG and trading in its shares was suspended on the ASX. Later, liquidators were appointed. The shares are now, apparently, worthless.

6 On 5 January 2007, PharmAust Ltd made an announcement to the ASX about a possible takeover offer for AHG. On 22 January 2007, AHG announced that the directors had resolved to make an equity placement to raise $400,000. It seems clear that AHG was short of working capital. The possible takeover by PharmAust Ltd did not proceed. On 14 February 2007, Fulcrum Equity Ltd announced to the ASX that it had entered into a conditional agreement to acquire a controlling interest in AHG. An extraordinary general meeting of shareholders was convened for 19 March 2007 to vote on a series of resolutions that stemmed from the restructure and recapitalisation of AHG arising out of these, and other, events. Mr Boyd was clearly interested in the result of the vote upon these resolutions.

7 Mr Boyd was then the Chairman of Fulcrum. Mr Boyd, whose background was in chartered accountancy, had significant business experience with companies involved in healthcare and telecommunications.

8 Mr Alabakis, who also had a background in chartered accountancy had relocated to Melbourne in January 2007, having lived and worked overseas.

9 Mr Alabakis and Mr Boyd had met years earlier through business connections. They had been involved together in commercial projects. Through these activities, they also became friends. In March, 2007, shortly prior to the extraordinary general meeting of AHG, Mr Alabakis acquired from AHG 10 million AHG shares, paying $200,000. This acquisition, which formed part of the equity placement approved by the directors of AHG, was arranged by Mr Boyd. The claims made in the proceeding before VCAT were founded on the circumstances in which Mr Alabakis agreed to acquire the shares, and the agreement or arrangement he alleged with Mr Boyd about the possible repurchase of the shares.

10 The proceeding came on for hearing in the civil claims list at VCAT on 15 December 2009. By an order pronounced on 14 January 2010 and supported by written reasons, the Tribunal found that it did not have jurisdiction to determine the matter. The crux of its reasoning was that the relevant conduct showed a favour done in friendship; what transpired between Mr Alabakis and Mr Boyd was of an entirely private nature.

11 On 16 July 2009, a preliminary hearing determined the Tribunal was able, under the Act, to hear and determine the claims in the proceeding. It was not in issue, either before the Tribunal upon the final hearing or before me, that the Member engaged in final determination of the proceeding was not bound by the order made at the preliminary hearing, and was entitled to determine for himself whether the Tribunal had jurisdiction.

12 The representations alleged to constitute the misleading or deceptive conduct and the alleged agreement entered into between Mr Alabakis and Mr Boyd arose out of a conversation which occurred between them in a car in March 2007. The content of that conversation was in dispute. However, the Tribunal did not express clear findings as to what passed between the two men during the conversation, despite the conversation being the basis on which the Tribunal addressed the threshold question of whether any representation was made or whether supply occurred in the course of trade or commerce.

13 Mr Alabakis told the Tribunal that Mr Boyd informed him AHG needed working capital urgently to pay legal bills and for other purposes. Mr Boyd asked for assistance from Mr Alabakis by taking a placement from the equity on offer. The takeover offer was common knowledge and the discussion took place in that context. While Mr Alabakis stated he was prepared to help out, he said he could not risk his money. It was set aside to fund legal action in which he was involved in the United States of America and of which Mr Boyd was aware. Mr Boyd then offered to underwrite any downside by agreeing, if the shares had not risen in value, to buy the shares back once Fulcrum had control at no cost or loss to Mr Alabakis. Mr Alabakis said Mr Boyd's exact words were that there would be no risk to him. Mr Alabakis also recalled, specifically, that the conversation took place in a car while the car was in East Melbourne.

14 Mr Boyd gave evidence that AHG required cash. AHG was not at the point of insolvency but needed working capital to take advantage of opportunities. His company, Fulcrum, had been in competition with PharmAust for AHG. Mr Boyd described informing Mr Alabakis of an opportunity to invest in AHG before it got going by taking up part of the placement of the shares. At that time, Mr Boyd clearly envisaged a good future for AHG. Mr Boyd denied agreeing to underwrite the downside and also stated that he did not recall the East Melbourne car meeting. When cross-examined, Mr Boyd said it was possible that he had picked Mr Alabakis up on his way to work one day and, in the car, had discussed AHG, including requesting Mr Alabakis to subscribe to 10 million shares at 2 cents a share. Mr Boyd said there would have been discussions about AHG generally, including its prospects post Fulcrum gaining control. He denied agreeing to buy back the shares after gaining control and he denied agreeing to effectively underwrite Mr Alabakis against any loss.

15 In his reasons, the Member summarised the competing contentions of the parties concerning the conversation in the car. He then set out the legal basis of the claims made by Mr Alabakis and the relevant provisions of the Act. He concluded that shares in a publicly listed company fall within the definition of "services" in s 3 of the Act. He identified the preliminary jurisdictional issue that both a claim of misleading and deceitful (sic) conduct under s 9(1) of the Act and a consumer and trader dispute involving services under s 107(1) must involve matters arising in trade or commerce. The Member continued:

[24] There may or may not have been a representation or an agreement that Mr Boyd would purchase the shares. However, the threshold question is whether any such representation or agreement occurred in the course of trade or commerce.

[25] Mr Alabakis's evidence was that there was no agreement in writing and no terms were reduced to writing. When asked why this was so Mr Alabakis reported that it was a "gentlemen's agreement". When asked why he did not just put his money in the bank he responded that he was helping a friend out. He said that he did not investigate the company's worth as an investment. When it was put to Mr Alabakis that Mr Boyd had merely given him an investment tip, Mr Alabakis's reply was non-responsive. Mr Boyd's evidence was that he merely gave Mr Alabakis an opportunity to invest in AHG.

[26] Despite Mr Alabakis's contention that Mr Boyd represented that he would finalise the purchase of the shares after the EGM on 19 March 2007, no attempt was made by Mr Alabakis to seek to have Mr Boyd buy the shares until August 2007, just before the Alabakis relocated to Dubai.

[27] The circumstances are not consistent with there being a supply or possible supply in trade or commerce. The whole situation is consistent with one of a favour done in friendship. What transpired between Mr Alabakis and Mr Boyd was of an entirely private nature.

16 The proceeding comes before me as an appeal on a question of law pursuant to s 148 of the Victorian Civil and Administrative Tribunal Act 1998. Pursuant to leave granted by an Associate Justice, the plaintiff was permitted to raise two questions of law:

(a) Whether the tribunal applied the correct test to determine whether the agreement entered into between the plaintiff and the defendant in or about March 2007 was enforceable, and in particular, whether the tribunal erred in considering that matter by having regard to subjective matters instead of objective matters.

(b) Whether the tribunal failed to accord natural justice to the plaintiff in light of the order of Deputy President Steele, made on 16 July 2009, where the tribunal confirmed the claim was within its jurisdiction under the Fair Trading Act 1999 (Vic) and the contents of the amended defence dated 11 December 2009 and by failing to offer the plaintiff an opportunity to make submissions on the question of whether the agreement entered into between the plaintiff and the defendant in or about March 2007 was legally enforceable.

17 Before me, the parties agreed that the second ground would not arise for consideration if the first ground succeeded.

18 The precise formulation of the questions of law to be determined on the appeal was in issue on the written submissions filed by the parties. Those submissions revealed an application to amend the Notice of Appeal, although neither counsel addressed me upon the issue during the hearing. The plaintiff sought to add a further ground, being:

whether the tribunal erred by failing to apply the correct test to determine whether the defendant's conduct occurred in trade or commerce within the meaning of s 9 of the Fair Trading Act 1999 (Vic)

and to add further words to the ground set forth in paragraph 16(b) above, being "and/or whether the defendant's conduct occurred in trade or commerce within the meaning of s 9 of the Fair Trading Act 1999 (Vic)".

19 In this proceeding the same question, central to the issue of the Tribunal's jurisdiction, arises in two distinct ways, referable to each of the claims made.

20 The first way, about which there was no dispute between the parties, is that the plaintiff's claim under s 9 of the Act required the plaintiff to prove that representations, alleged to constitute the conduct which offended the section, occurred in trade or commerce.

21 The second way arises out of the claim brought under Part 9 of the Act. Section 107(1) defines a consumer/trader dispute as,

a dispute or claim arising between a purchaser or possible purchaser of goods or services and a supplier or possible supplier of goods or services in relation to a supply or possible supply of goods or services.

Services includes any rights (including rights in relation to, an interest in real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce ...

Supply includes in relation to services - provide, grant or confer.

Trade or commerce includes any business or professional activity whether or not carried on for profit.

22 By definition, a consumer and trader dispute in relation to the supply of services is limited to rights that are, or are to be, provided, granted or conferred in trade or commerce. In this claim, the plaintiff must prove that the supply, alleged to constitute the basis of the consumer and trader dispute, has occurred in trade or commerce.[1]

23 Thus it can be seen that the same question, at the heart of the jurisdictional finding being challenged, arises in each claim.

24 For the defendant, Mr McKillop of counsel challenged the application to amend the notice of appeal on the grounds that:

(a) The proposed new question of law revives a question from an earlier draft for which leave to appeal had not been granted; and

(b) The grounds of appeal are too wide.

Neither party addressed these contentions further in oral submissions. The substantive issue concerning conduct and/or supply in trade or commerce was fully argued. Mr McKillop addressed all the issues to be raised by the proposed amendments to the notice of appeal and no suggestion of prejudice to the defendant if the amendments were granted was made. I will allow the amendment sought to fully enable the determination of the real questions in controversy between the parties.

25 Accordingly, I grant leave to the plaintiff to amend the notice of appeal in the form of the proposed amended notice of appeal, dated 24 June 2010.

26 Before me, Mr Moon of counsel for Mr Alabakis, contended that the Member fell into error by applying the wrong test in determining whether the conduct or the supply was in trade or commerce. Mr Moon submitted that the Member's reasons, which do not on my reading of them actually articulate what test he was applying, used language appropriate for an inquiry into whether the parties intended to enter into enforceable contractual relations. When the Member concluded that the circumstances "are not consistent with there being a supply or possible supply in trade or commerce", he must have been addressing the concept of providing, granting, or conferring rather than the question whether the circumstances can properly be characterised as bearing a trading or commercial character. I observe too that the Member did not discuss the issue, relevant for the s 9 claim - whether the conduct constituted by representations was conduct in trade or commerce.

27 In Re Ku-Ring-Gai Co-Operative Building Society (No 12) Ltd[2], Deane J said:

[44] The terms "trade" and "commerce" are not terms of art. They are expressions of fact and terms of common knowledge. While the particular instances that may fall within them will depend upon the varying phases of development of trade, commerce and commercial communication, the terms are clearly of the widest import (see, generally, W & A McArthur Ltd v State of Queensland (1920) 28 CLR, at pp 546 et seq and Bank of New South Wales v The Commonwealth (1948) 76 CLR, at pp 284 et seq, 381 et seq). They are not restricted to dealings or communications which can properly be described as being at arm's length in the sense that they are within open markets or between strangers or have a dominant objective of profit-making. They are apt to include commercial or business dealings in finance between a company and its members which are not within the mainstream of ordinary commercial activities and which, while being commercial in character, are marked by a degree of altruism which is not compatible with a dominant objective of profit-making.

28 Both counsel referred me to Concrete Constructions (NSW) Pty Ltd v Nelson[3] and to Houghton v Arms[4] where the High Court held it may be accepted that the construction of the phrase as it appears in s 52 of the Trade Practices Act 1974 (Cth), and which was considered in Concrete Constructions, applies to s 9 of the Act. I was also taken to some of the many other decisions at trial and intermediate appellate level which have applied or discussed Concrete Constructions in a variety of diverse factual situations.[5]

29 The expression operates to limit the extent of the proscription of conduct by the section. It refers only to conduct with the character of an aspect or element of trading or commercial activities or transactions. While in most cases the focus will be on the nature of the business of the party making the representation, the terms of each Act are not so limited and in particular, do not refer to the trade or commerce of any particular corporation. Statements made by a person who is not engaged in trade or commerce may answer the statutory expression if, for example, the statements are designed to encourage others to invest, or to continue investments, in a particular trading entity.[6]

30 Counsel for the defendant submitted, and I agree, that the relevant questions for consideration by VCAT was:

(a) Whether the alleged representations were conduct in trade or commerce; or

(b) Whether the rights allegedly conferred or to be conferred by the parties were conferred in trade or commerce.

Counsel stated that this is a different question to whether the conduct in question evinces an intention to create legal relations and so gives rise, as a matter of the law of contract to a binding agreement. Counsel submitted that VCAT must determine whether the conduct is itself an aspect or element of activities or transactions which, by their nature, bear a trading or commercial character. Further, counsel submitted that in relation to the supply of services the Court of Appeal in Sigma Constructions v Maryvell Investments[7] directs the decision maker to consider the perspective of each supplier of services when determining if the supply was of a trading or commercial character. This in turn focuses attention upon the service in question to enable identification of the supplier of such services. I do not think the supply of the shares by AHL was central to the dealings between the two men.

31 The proper inquiry for the Tribunal was whether Mr Boyd's representations or Mr Boyd's possible supply of a service, constituted by a promise that there would be no risk of loss to Mr Alabakis, was an aspect or element of activities or transactions which, by their nature, bear a trading or commercial character. Neither counsel disputed that such a promise could constitute a supply of services if provided, granted or conferred in trade or commerce.

32 I will mention two cases referred to by Mr McKillop in developing a distinction, which he contended was here relevant, between conduct which in itself had a trading or commercial character and could be said to be conduct in relation to trade or commerce but was not conduct which actually was in trade or commerce. In Unilan Holdings Pty Ltd v Kerin,[8] Hill J applied Concrete Constructions to conclude that the Commonwealth Minister for Primary Industries and Energy, when making statements in a speech at a conference of the international body governing the wool trade, had not engaged in conduct in trade or commerce. It is clear from his Honour's discussion of the particular facts of the matter before him that the circumstances in Unilan are on the other side of the line from the circumstances in this proceeding. While a speech given by a Minister to explain government policy impinging directly on the international trade in wool can be said to be in relation to trade or commerce, it is a speech dealing with government policy and is not conduct which itself has a trading or commercial character and is actually in trade or commerce.

33 Perhaps because he was attracted to the intellectual challenges inherent in a concept of an officious or mischievous bystander making a false statement, I was also referred by Mr McKillop to another decision of the Federal Court in Dataflow Computer Services Pty Ltd v Goodman.[9] Goodman had been an employee of Dataflow, a company which sold and distributed computer software programs in Australia, including to franchisees of Harvey Norman. Goodman sent representatives of Harvey Norman an email which conveyed false representations. There was no other evidence as to whether Goodman was carrying on a business nor evidence of his motivation for sending the email, and the issues before the Court included the question whether Goodman's conduct in sending the email occurred in trade or commerce.

34 The Court characterised Goodman's conduct as that of a bystander. He was commenting on the trade or commerce in which others were engaged rather than doing something himself in that, or any other, trade or commerce. It was put to me that the distinction is significant where, as here, the relevant trade or commerce concerned the supply of shares by AHG, not the defendant, to the plaintiff and that the defendant was no more than a bystander. In that case, Hely J observed that:

Trade or commerce does not exist in the abstract. For present purposes the trade or commerce with which one is concerned can probably be described as the business or commercial dealings between Dataflow and Harvey Norman and other retailers of Dataflow products. In my view the sending of the email was not conduct on the part of the respondent which was engaged in as part of those business or commercial dealings, as opposed to being in connection with or in relation to those dealings.

Again, in my view, this decision is another example of a matter falling, on its own facts, on the other side of the line.

35 Moreover, on the evidence before the Member, to which I shall shortly turn, the only conclusion reasonably open to him was that, on Mr Boyd's own evidence, his conduct was calculated to induce Mr Alabakis to deal with AHG. Further, Mr Boyd freely acknowledged that part of his business was to find investors and that the need for investors in AHG arose not merely from the circumstances giving rise to the placement of equity but also to the dealings between his company Fulcrum and AHG. These circumstances are quite different from those in Dataflow.

36 There was no supply or possible supply of shares by Mr Boyd to Mr Alabakis. The supplier of the shares to Mr Alabakis was AHG. The dealings between the parties, which occurred in the car and which may have resulted in a supply or possible supply of services by Mr Boyd to Mr Alabakis, concerned whether Mr Boyd agreed to later purchase the shares from Mr Alabakis to indemnify him against any loss in the transaction, following the AGM. An agreement to indemnify of the type alleged would be a commercial transaction whether it was between friends or publicly listed companies. Whether these events are examined from the perspective of the trading or commercial activities of AHG or of Mr Boyd, there is, in either case, a sufficient connection between the supply of the shares by AHG and the relevant conduct of Mr Boyd.

The evidence relevant to the jurisdictional facts

37 I accept the submission put to me on behalf of Mr Alabakis that in finding that the Tribunal did not have jurisdiction to determine the matter, it fell into error.

38 The Member made no finding as to whether there was a representation or an agreement that Mr Boyd would later purchase the shares from Mr Alabakis. If the question to which he turned his mind was whether any such representation or agreement, assuming it to have been made as alleged, occurred in the course of trade or commerce, I consider that none of the matters to which he refers in paragraph [25] or paragraph [26] of his reasons, set out above, address that issue. He referred in paragraph [27] of his reasons to the "circumstances" and to "the whole situation" but it is unclear to precisely what he is referring and how he reasons from such general observations to the conclusion that what transpired was of an entirely private nature.

39 It is inappropriate that I express any views about the evidence other than evidence which bears upon the question whether the activities or transactions are of a trading or commercial character.

40 The Member did not made relevant findings. What he said about the whole situation being consistent with one of a favour done in friendship and that what transpired between the parties was of an entirely private nature is not to the point. I consider that the Tribunal's conclusion is not based upon any appropriate finding of fact, and, if based on a relevant finding, it is certainly not upon a finding expressly articulated in his reasons. The conclusion that the tribunal lacked jurisdiction was not open to it upon such findings as it has expressed.

41 Counsel for the defendant submitted that the Member had considered all relevant and admissible evidence and, having gone through that process, was required to reach his own decision on the facts whether the alleged conduct was in trade or commerce and so whether VCAT had jurisdiction. The decisions of the Member on such questions of fact were not reviewable, he submitted. If wrongly made they are findings of fact, not errors of law. Although he did not use the term, counsel was referring to the doctrine of "deference" by which a court defers to the conclusions of fact reached by the tribunal upon the evidence before it. However, as the High Court made clear in Corporation of the City of Enfield v Development Assessment Commission,[10] that doctrine is not applicable to jurisdictional fact-finding.

42 It is trite to observe that there is not an error of law simply in making a wrong finding of fact. No such limitations are involved in the determination by this Court of the jurisdictional facts which circumscribe the activities of VCAT. As the plurality observed in Enfield,[11] where the question is whether the Tribunal acted within jurisdiction, it must be for the Court to determine independently for itself whether that is the case. Gaudron J, in a separate judgment, stated:

Where, as here, the legality of an executive or administrative decision or of action taken pursuant to a decision of that kind depends on the existence of a particular fact or factual situation, it is the function of a court, when its jurisdiction is invoked, to determine, for itself, whether the fact or the factual situation does or does not exist. To do less is to abdicate judicial responsibility. However, there may be situations where the evidence before the court is the same or substantially the same as that before the primary decision-maker and minds might reasonably differ as to the finding properly to be made on that evidence. In that situation a court may, but need not, decline to make a different finding from that made by the primary decision-maker, particularly if the latter possesses expertise in the area concerned. Even so, in that situation, the question is not so much one of "judicial deference" as whether different weight should be given to the evidence from that given by the primary decision-maker.[12]

43 There was ample evidence to support a finding that the conduct of Mr Boyd was an aspect or an element of activities or transactions which of their nature bore a trading or commercial character. In evidence-in-chief, Mr Boyd stated that AHG, as a company, required cash. He had funded it himself through Fulcrum and through his private company. He stated investment in AHG presented a commercial opportunity, anticipating that, following the approval at the extraordinary general meeting, AHG would have an opportunity to conclude the various sales and move on to become a major force in pharmacy. The equity placement was, he said, an opportunity to invest in the company before it got going. Fulcrum had acquired shares in AHG to position itself for that opportunity. When asked in evidence-in-chief how he came to be giving Mr Alabakis information about the AHG equity placement, Mr Boyd stated that his role was to encourage investment in companies. He had approached many parties and had got down to the point of dealing with two potential investors, Mr Alabakis and a Mr Banks, who had been given documents. Mr Boyd stated, and I quote:

I had actually on behalf of Fulcrum and to an extent on behalf of AHG - even though I was not a director at that time - encouraged people to look at it and invest in its future.

44 Even on Mr Boyd's evidence, that he did no more than introduce Mr Alabakis to an investment opportunity, it is clear in my view that Mr Boyd's activities and the interaction between the Mr Boyd and Mr Alabakis bears a trading or commercial character.

45 Mr McKillop submitted that there was ample evidence before the Member to support a finding that the whole situation is consistent with one of a favour done in friendship and that what transpired between the two men was of an entirely private nature. I do not disagree with his contention that the evidence adduced before the Member supported such generic observations. Such findings are not relevant to the issue upon which the question of jurisdiction turned. Deane J in Re Ku-Ring-Gai Co-Operative Building Society had observed that the phrase was not confined to dealings between strangers or at "arms length". Upon the evidence which was relevant to that question, it was not, in my view, open to the Member to conclude that the activities and transactions involved in the proceeding did not bear a trading or commercial character.

46 For these reasons, I will set aside the order of the Tribunal and remit the proceeding to be heard and decided in accordance with these reasons. It is, in my view, appropriate that the Tribunal be constituted by a different Member to the Member who made the original order. The member below has, in my opinion, expressed a view upon the facts which must be determined at the rehearing. I consider that from the Member's analysis of the evidence heard it appears that he formed a view as to the evidence he preferred. It would be inappropriate for him to embark upon fresh consideration of the matter.

47 I will hear counsel as to the form of orders and on the question of costs.

[1] Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2004] VSCA 242, [19]-[22].

[2] [1978] FCA 50; (1978) 36 FLR 134.

[3] [1990] HCA 17; (1990) 169 CLR 594.

[4] [2006] HCA 59; (2006) 225 CLR 553, at [32]-[35]

[5] Unilan Holdings Pty Ltd v Kerin [1992] FCA 179; (1992) 107 ALR 709; Dataflow Computer Services Pty Ltd v Goodman [1999] FCA 1625; (1999) 168 ALR 169; Hearn v O'Rourke [2003] FCAFC 78; Sigma Constructions (Vic) Pty Ltd v Maryvell Investments Pty Ltd [2004] VSCA 242.

[6] Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553, at [34].

[7] [2004] VSCA 242 [22].

[8] [1992] FCA 179; (1992) 107 ALR 709, 713-714.

[9] [1999] FCA 1625; (1999) 168 ALR 169.

[10] [2000] HCA 5; (2000) 199 CLR 135.

[12] Ibid, at [60], citations omitted.