Plaintiff v Defendants

2 First, whether any aggravated damages should be awarded to complainants in respect of which the director has succeeded, and if so in what amount.

3 Second, whether the Court should exercise its discretion to:

(a) make declarations in the form or to the effect sought by the Director;

(b) grant injunctions in the form or to the effect sought;

(c) order the publication of notices summarising the result of the proceeding, at the cost of the losing parties, Mr Scully and Mr Hansen.

4 I will deal first with the aggravated damages issues. Aggravated damages are compensatory in nature. They may be ordered under s 158 of the Fair Trading Act 1999 as it stood at relevant times. See for example, Collings Construction Co Pty Ltd & Anor v ACCC.[1] In that case, Cole JA described an award of aggravated damages as an available remedy to compensate for 'anxiety, distress, or vexation' caused by conduct in contravention of consumer protection legislation such as the Fair Trading Act.

5 In Lamb v Cotogno,[2] the High Court described aggravated damages as 'being awarded for injury to the plaintiff's feelings caused by insult, humiliation and the like.' The High Court said also that aggravated damages are truly compensatory and, unlike exemplary damages, are not awarded as punishment for offending conduct; a distinction which the High Court recognised may be difficult to maintain.

6 Aggravated damages are at large. No amounts were suggested by counsel for the Director in any of the individual cases. The matter was left to the Court for assessment on the basis of specified paragraphs of the affidavits of the complainants whose cases succeeded. A list of those paragraphs was provided after yesterday's hearing. Much of that evidence comprised background material. The critical paragraphs, summarising the relevant damage to the feelings of the complainants, appears at the end of the affidavits, informed, of course, by the earlier paragraphs.

7 The affidavits used language obviously directed towards sustaining an aggravated damages claim. The language was perhaps of a kind which would not ordinarily be used by persons such as the complainants. However, I think that is not an issue which should lead to the Court rejecting the evidence as to the hurt feelings, and in some cases humiliation, suffered by the relevant complainants.

8 Mrs Butcher gave evidence that her experience in the Future Owner Program made her 'feel stupid, angry, scared, hopeless and powerless.' As at 2007 when she swore her affidavit Mrs Butcher's mental condition was obviously affected by the experience of participation in the program, and she felt anxious, tense and bordering on a breakdown. I did not observe that to be the case when she gave evidence five years later. In his affidavit, Mr Butcher described feeling 'frustrated and angry' and 'scared, helpless and upset' about his and his wife's financial predicament during their time in the program.

9 I accept that participation in the program caused Mr and Mrs Butcher considerable anxiety. Some compensation should be ordered. However, the amount should be tempered by the fact that they knowingly and recklessly ignored sound advice given by a trusted acquaintance, and by a solicitor, that they should not proceed.

10 Doing the best I can in all the circumstances, I will award them $5,000 for aggravated damages.

11 Mr and Mrs Opalic gave evidence to the general effect that they each felt humiliated by their experience in the Key Home Buyer Program. They relied heavily on the fact that it was necessary for Mr Opalic to file for bankruptcy, albeit at the insistence of his wife, so they could have sufficient available money to participate in the program.

12 In their affidavits they referred to money being so tight during their period of participation in the program that Mr Opalic at times ceased taking his prescription medication. In cross-examination, however, Mrs Opalic acknowledged that she and her husband continued smoking during this time, and that the cost of cigarettes well exceeded the cost of Mr Opalic's medication. This causes me to doubt some of their evidence of financial distress. It was their choice to prefer cigarettes over medication. They also purchased consumer items for about $6,000 with some of the excess money received under their furniture pack arrangement with the investor.

13 Taking the evidence as a whole, however, I am satisfied that participation in the program caused Mr and Mrs Opalic anxiety and distress. I accept that Mr Opalic felt humiliation at his bankruptcy. However, although I have found that they would not have participated in the program if it had been fully and accurately explained to them, and Mr Opalic would not then have become bankrupt, the effect of his bankruptcy was to relieve him of significant debts. In Mr Opalic's words, when he and his wife got out of the program they 'had money again and they were able to pay bills on time and spend money on what we needed and wanted.' This position was undoubtedly contributed to by Mr Opalic's bankruptcy and consequent release significant debts, which he had previously been paying off on a structured payment program. This reduces some of the impact of the humiliation felt by Mr and Mrs Opalic, in particular Mr Opalic, at his bankruptcy. Notwithstanding this, bankruptcy of course is a serious step and I accept that the Opalics would have preferred to have avoided it and its consequences if they could.

14 In all the circumstances, I fix the sum of $5,000 for aggravated damages.

15 Mr and Mrs McDowell's affidavits described the heartbreak of losing a house they had thought was theirs after 'two years of hell fighting for the house.' Particular reliance was placed on the fact that Mr McDowell was forced to work for seven days a week to keep up with the payments required under the program and that this caused great strain on them and their children as a result. They felt humiliated at sometimes having to accept charity. The circumstances in which they vacated their house were humiliating. Taking the evidence as a whole, I would again fix the sum of $5,000.

16 I turn to consider the Directors' claims for declarations, injunctions and publication orders. As I pointed out in the course of argument, this requires separate consideration of the respective positions of Mr Hansen and Mr Scully. The power of the Court to make declarations and orders of the kind sought in cases such as the present is not in doubt.

17 In exercising the Court's discretion, the Court starts with the nature of the offending conduct. Against that background, the cases demonstrate that the Court should consider a number of factors relevant to the public interest, including but not limited to whether, in the particular circumstances of the case, declarations, injunctions or publication orders are necessary or appropriate: to mark the Court's disapproval of the conduct; to protect the public from further conduct of that kind; to inform consumers of the risks of such conduct; to educate persons engaged in similar kinds of trade or commerce as to the issues arising from the Court's findings; to assist self-regulation by industry bodies; and to deter the contravener and others from engaging in like conduct in the future.

18 I have taken each of these factors into consideration in the exercise of my discretion. I have also taken account of my view as to the general justice of the case; and as to the proportionality of the relief sought to the contraventions I have found.

19 I will consider first whether orders of this kind should be made in respect of Mr Scully. The findings against him are of serious and considered misconduct, towards a significant section of the public. The conduct was not isolated in the course of a specific dealing, but planned and directed towards all consumers who participated in the Key Home Buyer Program. There was evidence that Mr Scully is a person who is prepared to push the boundaries of commercial morality and, if liability results, to embrace bankruptcy. Declarations and injunctions should be made to mark the Court's disapproval of the conduct found against him, and place him under the risk of sanctions for contempt of court should he again engage in similar conduct.

20 As discussed in argument with counsel, the Court will declare that Peter Gerard Scully, in the period from July 2003 to September 2005, in trade or commerce in connection with the supply or possible supply of services of a kind ordinarily used for personal household or domestic purposes:

(1) engaged in general conduct that was unconscionable in contravention of s 8 of the Fair Trading Act 1999 Victoria (as it then stood) by-

(a) using misleading materials to explain the Key Home Buyer Program to consumers; and

(b) designing a system to implement the Key Home Buyer Program which failed to provide potential home buyers with a full and fair explanation of material parts of the program, including the terms and possible ramifications of the 'back-to-back' contractual arrangements involved in the program.

(2) engaged in specific conduct of that kind towards two couples who participated in the key home buyer program, namely Nikola and Sladjana Opalic and Shane and Jillian McDowell.

21 The Court will also make orders restraining Mr Scully from engaging in such conduct in the future in respect of any similar program. Those orders will be in the following form:

Peter Gerard Scully shall not in the future, either directly, through a company controlled by him, or by an agent, offer or provide services to consumers wishing to purchase a home (other than by a direct contract of sale) without first designing and implementing, or arranging to implement, a system which fully and fairly explains to those consumers the substance of the contractual arrangements by which the home is to be acquired.

22 I am not persuaded that any order requiring Mr Scully to publish a notice of the Court's findings, declarations and orders should be made. The relevant conduct occurred many years ago. Mr Scully is an undischarged bankrupt who no longer lives in Australia, and I can see no real utility in such an order.

23 I will deal next with Mr Hansen. In contrast to Mr Scully, who was the promoter of a program which the Court found was unconscionable in its design and implementation, Mr Hansen was an employee of Active. Active marketed the future owner program. That program was not found to be unconscionable in its general design and implementation. Mr Hansen has been found liable for one specific instance of unconscionable conduct concerning Mr and Mrs Butcher.

24 While the Court's findings against Mr Hansen are serious, that his conduct was sufficiently immoral to deserve the label unconscionable, I am not persuaded that there is any public interest or utility to be served by a declaration as to Mr Hansen's offending conduct, or by a general injunction directed to him in the form proposed by the Director. Nor should a publication order be made. In my view, the monetary orders made against Mr Hansen, including for costs, are all that is necessary and appropriate to signify the Court's disapproval of his conduct.

[1] (1998) 43 NSWLR 131, 155.

[2] [1987] HCA 47; (1987) 164 CLR 1, 8.