Solitare Pty Ltd v Quikfund

local court proceeding 2 It is first necessary to provide a brief summary of the Local Court Proceeding. The first applicant (Solitare) operates a petrol station in Richmond. The second applicant, Mr Arora, is a director of Solitare. Quikfund alleges that a written rental agreement was entered into on 18 March 2009 by Solitare and Quikfund (the Rental Agreement), with Mr Arora guaranteeing the obligations of Solitare under the Rental Agreement. Under the Rental Agreement, Quikfund was to provide Solitare with various pieces of equipment, including a laptop, plasma television, mobile phone, video camera and printer, in return for which Solitare was obliged to make 60 monthly rental payments of $330, commencing on 18 March 2009. Solitare made three of these monthly payments but failed to make any further payments after May 2009. 3 The Local Court Proceeding was commenced on 9 December 2009 when Quikfund filed a Statement of Claim in the Local Court of New South Wales (Local Court) for a liquidated debt of $19,858.08, representing the balance due under the Rental Agreement, as well as interest, filing and service fees and legal fees. The applicants filed a Defence and Cross-Claim in the Local Court Proceeding on 12 February 2010 in which they denied that they had entered into and were bound by the Rental Agreement. This was on the basis of misrepresentations allegedly made to them prior to entering into the Rental Agreement by an agent or employee of Choicecom and/or Clear Telecoms (the Telcos) who the applicants say were also acting on behalf of Quikfund. The representations relied upon are pleaded in paragraph 13 of the defence in the following terms: (a) that Choicecom and/or Clear Telecoms would provide to the Defendants telephone services for an amount not exceeding the amount which the Defendants were paying in respect of the existing telephone arrangement, $330 per month ("the services"); (b) that if the Defendants entered into a contract with Choicecom and/or Clear Telecoms for the provision of the services for, [sic] Choicecom and/or Clear Telecoms would immediately provide to the Defendants free of charge certain equipment namely one plasma television, one video camera, one printer, one Mobile phone ("the equipment"); (c) that upon expiry of the 60 month contract, the Defendants would be entitled to purchase the equipment from Choicecom and/or Clear Telecoms for the amount of $1.00 plus GST; (d) that the only financial commitment which the Defendants would have was to pay the monthly amount in respect of the provision of the services; (hereinafter referred to as "the representations"). 4 The applicants allege that these representations were false and that they were induced by these misrepresentations into entering into the transaction with Quikfund and the Telcos. The applicants allege that this conduct gave rise to contraventions of ss 52, 53(e) and 53(g) of the Act, as well as the corresponding provisions of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). 5 So far as Quikfund is concerned, the applicants have pleaded that Quikfund is also liable pursuant to s 75B of the Act, on the basis that Quikfund was aware both of the representations being made by the Telcos as well as their falsity, but despite this, caused, permitted or allowed the representations to be made. In addition, the applicants have filed a cross-claim in the Local Court Proceeding for damages which they seek to set off against any liability owed to Quikfund on the basis that Quikfund was a linked credit provider (as that term is defined in s 73(14) of the Act) of the Telcos and is jointly and severally liable under s 73(1) of the Act. 6 Quikfund denies the allegations made against it in the Local Court Proceeding. In relation to the s 73 claim, Quikfund's Defence to Cross-Claim filed on 27 August 2010 states: 1. By order of the [Local] Court on 10 August 2010, the Cross Claimant's pleading in relation to section 73 of the Trade Practices Act is abandoned. However, paragraph 2(c) of the Defence to Cross-Claim then goes on to state: …Quikfund says that the Local Court has not been conferred with jurisdiction to entertain a claim or grant relief under section 73 of the Trade Practices Act 1974 (Cth).

other proceedings in this court 7 Quikfund, or entities claiming to have been the undisclosed principals of Quikfund, namely Enterprise Financial Systems (EFS) and Australian Equipment Rentals (AER) (the Financiers), have commenced numerous other proceedings for liquidated sums in the Local Court and the District Court of New South Wales (District Court) against other customers who have defaulted under the rental agreements. These include Local Court proceedings 11238 and 12226 of 2009 and 24504 and 24505 of 2010, as well as District Court proceedings 3429 of 2009 and 1303 of 2010 (the other proceedings). The defendants in the other proceedings are represented by the same firm of solicitors which represents the applicants in the present case. Similarly, each of Quikfund, EFS and AER are represented by the same firm of solicitors in the other proceedings and the Local Court Proceeding. 8 On 19 August 2010 a number of defendants in the other proceedings filed a Notice of Motion in this Court (in proceeding number NSD1069 of 2010), seeking orders transferring the other proceedings to this Court under s 86A(4) of the Act. On 20 August 2010, following a short hearing, I made orders transferring some of the other proceedings to this Court pursuant to s 86A(4) of the Act. On 6 September 2010 I made further orders in chambers transferring the remainder of the other proceedings to this Court on the same basis. On both occasions the transfer was with the consent of the parties. I subsequently made orders referring the other proceedings to mediation.

the proposed representative action 9 At the hearing on 19 August 2010 the applicants in the proceedings then before me relied upon an affidavit of Lauren Magasdi sworn 16 August 2010. The same affidavit was read and relied upon by the applicants in this proceeding. Annexed to the affidavit is a draft Amended Statement of Cross-Claim which contains a proposed representative claim under Part IVA of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act) against each of Quikfund, EFS and AER, on behalf of each of the parties who were defendants in the other proceedings. The draft Amended Statement of Cross-Claim has not been filed. 10 It is helpful to provide a brief summary of the proposed representative action. Two categories of group members are proposed - the Customer Applicants and the Guarantor Applicants. The Customer Applicants are identified as those entities or persons: 1. who had dealings with one or more of the telecommunications companies listed, which list includes the Telcos; 2. in circumstances where the telecommunications company was acting as the agent of one or more of the Financiers; and 3. to whom, during 2007 or 2008, employees or representatives of the telecommunications companies made representations in relation to the provision of telephony services and business equipment, including representations that the services and equipment were provided as part of a single deal or agreement and that the equipment provided as part of the deal would be "free". 11 The Guarantor Applicants are individuals who are related (usually as a director or controller) to the Customer Applicants who are said to have been aware of the representations allegedly made to the Customer Applicants and who relied on these representations in executing the rental agreement and other documents as guarantor. 12 The proposed representative action alleges that the Financiers are liable for engaging in, or being involved in, conduct which constitutes exclusive dealing under s 47 of the Act, misleading and deceptive conduct under ss 51A, 52 and 53 of the Act and/or ss 12BB, 12DA and 12DB of the ASIC Act, unconscionable conduct under s 51AB of the Act and/or s 12CB of the ASIC Act, as well as the unjust contract provisions of the Contracts Review Act 1980 (NSW). A wide variety of relief is sought, including declarations that the rental agreements were frustrated, damages or compensation, as well as an order under s 87 of the Act setting aside the rental agreements or declaring them to be void. Relevantly, s 73 of the Act is pleaded as a further basis upon which Quikfund, EFS and AER are liable. 13 In general terms, the common questions of fact and law that are said to arise out of the various claims are essentially whether: the various telecommunications companies and Quikfund, EFS and AER have engaged in exclusive dealing in contravention of s 47 of the Act; the telecommunications companies were acting as the agents of Quikfund, EFS or AER; and Quikfund, EFS and AER were 'linked credit providers' for the purposes of s 73 of the Act.

Jurisdiction of the Local Court in relation to s 73 of the Act 14 There is no doubt that if Solitare and the defendants in other proceedings wish to make an allegation of exclusive dealing under s 47 of the Act, this Court has exclusive jurisdiction in relation to such a claim. However, the position in relation to s 73 of the Act appears to me to be quite different. Section 73(1) of the Act relevantly provides: 73 Liability for loss or damage from breach of certain contracts (1) Where: (a) a corporation (in this section referred to as the supplier) supplies goods, or causes goods to be supplied, to a linked credit provider of the supplier and a consumer enters into a contract with the linked credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hirepurchase of the goods to the consumer; or (b) a consumer enters into a contract with a linked credit provider of a corporation (in this section also referred to as the supplier) for the provision of credit in respect of the supply by the supplier of goods or services, or goods and services, to the consumer; and the consumer suffers loss or damage as a result of misrepresentation, breach of contract, or failure of consideration in relation to the contract, or as a result of a breach of a condition that is implied in the contract by virtue of section 70, 71 or 72 or of a warranty that is implied in the contract by virtue of section 74 of this Act or section 12ED of the Australian Securities and Investments Commission Act 2001, the supplier and the linked credit provider are, subject to this section, jointly and severally liable to the consumer for the amount of the loss or damage, and the consumer may recover that amount by action in accordance with this section in a court of competent jurisdiction. 15 A 'linked credit provider' is defined in s 73(14) in the following terms: linked credit provider, in relation to a supplier, means a credit provider: (a) with whom the supplier has a contract, arrangement or understanding relating to: (i) the supply to the supplier of goods in which the supplier deals; (ii) the business carried on by the supplier of supplying goods or services; or (iii) the provision to persons to whom goods or services are supplied by the supplier of credit in respect of payment for those goods or services; (b) to whom the supplier, by arrangement with the credit provider, regularly refers persons for the purpose of obtaining credit; (c) whose forms of contract or forms of application or offers for credit are, by arrangement with the credit provider, made available to persons by the supplier; or (d) with whom the supplier has a contract, arrangement or understanding under which contracts or applications or offers for credit from the credit provider may be signed by persons at premises of the supplier. 16 Section 73(3) of the Act sets out the circumstances in which a linked credit provider is not liable under s 73(1). It relevantly provides: (3) A linked credit provider of a particular supplier is not liable to a consumer by virtue of subsection (1) in proceedings arising under that subsection if the credit provider establishes: (a) that the credit provided by the credit provider to the consumer was the result of an approach made to the credit provider by the consumer that was not induced by the supplier; (b) where the proceedings relate to the supply by way of lease, hire or hirepurchase of goods by the linked credit provider to the consumer, that: (i) after due inquiry before becoming a linked credit provider of the supplier, the credit provider was satisfied that the reputation of the supplier in respect of the supplier's financial standing and business conduct was good; and (ii) after becoming a linked credit provider of the supplier, the credit provider had not had cause to suspect that: (A) the consumer might be entitled to recover an amount of loss or damage suffered as a result of misrepresentation or breach of a condition or warranty referred to in subsection (1); and (B) the supplier might be unable to meet the supplier's liabilities as and when they fall due… 17 Sections 73(4) to (7) of the Act set out the manner in which a consumer may raise a claim under s 73(1). Of particular relevance is s 73(4), which provides: (4) Subject to subsection (5), in any proceedings in relation to a contract referred to in paragraph (1)(a) or (b) in which a credit provider claims damages or an amount of money from a consumer, the consumer may set up the liability of the credit provider under subsection (1) in diminution or extinction of the consumer's liability. 18 Jurisdiction is expressly conferred on the various courts by s 86 of the Act, which relevantly provides: (2) The several courts of the States are invested with federal jurisdiction within the limits of their several jurisdictions, whether those limits are as to locality, subject-matter or otherwise, and, subject to the Constitution, jurisdiction is conferred on the several courts of the Territories, with respect to any matter arising under Part IVA or IVB or Division 1, 1A or 1AA of Part V in respect of which a civil proceeding is instituted by a person other than the Minister or the Commission. (3) Nothing in subsection (2) shall be taken to enable an inferior court of a State or Territory to grant a remedy other than a remedy of a kind that the court is able to grant under the law of that State or Territory. [Emphasis added] 19 Section 73 is found in Division 2 of Part V of the Act, which, as can be seen above, is not expressly referred to in s 86. This is the basis for the argument that the jurisdiction of the Federal Court in this regard is exclusive and, as such, a claim under s 73 of the Act cannot be brought in the Local Court. The alternative argument identified before me was that the limitation on jurisdiction in s 86(2) (identified in bold above) applies only to Territory Courts. 20 I am not persuaded by this alternative argument. From a practical perspective, it has the result that the jurisdiction of the State courts under the Act is unlimited, subject only to the qualification imposed by sub-section (3). In contrast, the courts of the Northern Territory and the Australian Capital Territory would only have jurisdiction in relation to the portions of the Act expressly referred to in s 86(2). This would be an odd result and one which I do not think could have been intended. I agree with the construction of s 86(2) adopted by Cowdroy J in Champion Truck Bodies Pty Limited v Capital Finance Australia Limited [2010] FCA 332 at [9] that s 86(2) confers jurisdiction on the Local Court with respect to matters arising under Parts IVA or IVB or Division 1, 1A and 1AA of Part V of the Act, where such matters were not instituted by the Minister or the ACCC and subject to the qualification imposed by sub-section (3). A similar view was also expressed by the Full Court in Western Australia v Wardley Australia Ltd (1991) 102 ALR 213 in relation to s 86(2) as it then stood. The Court stated at 225: Pursuant to s 86(2) of the Act, State courts are invested with jurisdiction with respect to any "matter" arising under Div 1 or 1A of Pt V of the Act in respect of which a civil proceeding is instituted by a person other than the Minister or the Commission. 21 The question of the Local Court's jurisdiction in relation to s 73 was touched upon by Cowdroy J in Champion Truck Bodies in the course of determining whether to transfer proceedings under s 86A(4). It was not necessary for his Honour to determine whether the Local Court had jurisdiction in relation to s 73. Nevertheless, his Honour stated at [13]: …it is important to characterise correctly the legislative effect of s 73 of the TP Act. Section 73 renders a supplier and linked credit provider jointly and severally liable for a consumer's loss when the loss was the result of a misrepresentation, breach of contract, or failure of consideration in relation to the contract or where there is a breach of a term implied by ss 70, 71 or 72 or of a warranty that is implied in a contract by virtue of s 74 of the TP Act or s 12ED of the Australian Securities and Investments Commission Act 2001 (Cth). Section 73 neither invests jurisdiction nor does it create a contravention of the TP Act. 22 During argument I was referred to two decisions in which State courts had considered claims arising under s 73. The first was Business & Professional Leasing Pty Ltd v Dannawi; BPL (NSW) Pty Ltd v Blue Robe Petroleum Pty Ltd; BPL (NSW) Pty Ltd v Macarounas [2008] NSWSC 902 (Dannawi). That case related to the leasing of pizza ovens by the plaintiff as financier and lessor to the defendants in circumstances where the supplier had falsely represented that there was a 6 month free trial period. Section 73 was raised by the defendants by way of defence. Young CJ in Eq (as he then was) did not expressly address whether or not the Supreme Court had jurisdiction in relation to s 73 in his reasons. However, his Honour concluded that s 73 did not provide a defence for the defendant's failure to make the rental payments, nor did it authorise the making of an order rescinding the rental agreements as a consequence of the misrepresentations. Rather, his Honour held that s 73 permitted the linked credit provider to be liable, by way of set-off, for the loss or damage suffered by the consumer in relation to the contract with the credit provider (at [185]-[186]). 23 The second case I was referred to was Landy DFK Finance v Rasaratnam (2000) Aust Contract R 90-117. Balmford J upheld a decision of a Magistrate that the respondent could rely on s 73 of the Act to set off the amount the respondent owed under a finance agreement against the liability of the appellant (who was the assignee of the tied loan contract) in relation to a failure of consideration. In doing so, his Honour held that the purpose of s 73 is "the protection of the purchaser in a case where the supplier of the goods or services and the provider of finance are associated" (at [17]). As such, s 73 continued to operate even where the linked credit provider had assigned its rights. His Honour held that "[t]he assignee of a tied loan contract must take that contract subject to the rights of the debtor under s 73" (at [17]). As in Dannawi, there is no mention in the decision of any concern that the Magistrates' Court might not have jurisdiction in relation to s 73. 24 The characterisation of the effect of s 73 by Young CJ in Eq in Dannawi is consistent with the observation of Cowdroy J in Champion Truck Bodies (at [13]) that it neither invests jurisdiction nor creates a contravention of the Act. This is also consistent with the reference in Landy to s 73 conferring a "right" upon a defaulting debtor in particular circumstances, and the conclusion of the Full Court in Wardley that "[s]ection 73(1) and (2) creates both right and remedy" (at 221). Similarly, it also accords with the commentary in Heydon, Trade Practices Law, at [16.900], in which it is said that s 73(1): …is expressed to confer a remedy on a consumer in one of two alternative sets of circumstances in which a consumer and a linked credit provider have entered a contract…The consumer is given a cause of action if, in either case, the consumer suffers loss or damage from misrepresentation… This is reiterated at [16.950] in relation to s 73(4), which states: Section 73(4) creates a right of set-off in favour of the consumer. In any proceedings in relation to a contract referred to in s 73(1)(a) or (b) in which a credit provider claims damages or an amount of money from a consumer, a consumer may set up the liability of the credit provider under s 73(1) in diminution or extinction of the consumer's liability. 25 This is also consistent with the purpose of both the Act generally and s 73 in particular, insofar as it seeks to protect consumers against the insolvency of suppliers. The original s 73 was repealed and replaced in full in 1986. The Explanatory Memorandum to the Trade Practices Revision Bill 1986 relevantly stated (at [143]-[145]): 143. However, in some cases the credit provider must carry some fault. If he has an arrangement with the supplier to provide credit in respect of purchase from the supplier, he is aiding the supplier's business. He is then in a better position to know of the solvency of the supplier and depending on the connection he may be able to exercise some control over the supplier's business conduct. 144. Under the credit legislation recently introduced in New South Wales, Victoria, Western Australia and the Australian Capital Territory, where a credit provider who is linked to the supplier provides credit to a consumer in respect of a purchase from the supplier, the credit provider and the supplier are liable jointly and severally for any breach of the contract of sale, misrepresentation or failure of consideration. 145. The existing s 73 is being repealed and replaced with a section modelled on and consistent with the linked credit provider provisions in the State Credit Legislation… 26 The phrase "court of competent jurisdiction" which appears in s 73(1) has been interpreted in a variety of other contexts. In R v Ward (1978) 140 CLR 584, the High Court held that the use of this phrase in s 273 of the Bankruptcy Act 1966 (Cth) was not a reference to the courts upon which jurisdiction was specifically conferred under s 27 of that Act, but rather was "apt to signify a court which is otherwise endowed with jurisdiction, as for example by the provisions of the Judiciary Act" (at 588-589). In Johnstone v Commonwealth (1979) 143 CLR 398, Jacobs J held that in the context of s 56 of the Judiciary Act 1903 (Cth), the phrase refers to "competency in respect of amount and subject matter and personality of the plaintiff" (at 404). Similarly, in Stack v Coast Securities (No. 9) Pty Ltd (1983) 154 CLR 261 it was held by Gibbs CJ (at 277), in relation to the use of the phrase in Division 2A of Part V of the Act (as it then was), that the phrase was: …obviously not intended to be synonymous with "the Court", which as I have said means the Federal Court, and must therefore refer to (or at least include) State courts invested with jurisdiction under s 39(2) of the Judiciary Act". 27 In my view the use of the phrase "court of competent jurisdiction" in s 73(1) is not simply a reference to a court upon which jurisdiction has been conferred under s 86 of the Act. Rather, it is a reference to any court which has jurisdiction to hear claims where the loss or damage suffered by the consumer is caused by misrepresentation, breach of contract, failure of consideration, breach of the warranties implied by ss 70, 71, 72 or 74 of the Act or s 12ED of the ASIC Act and subject to such other jurisdictional limits that may exist. If a consumer makes a claim in respect of such a matter in the Local Court then, subject to the matter being otherwise within its jurisdiction, the Local Court will be able to give effect to s 73 as may be appropriate in the circumstances of the case.

transfer of proceedings under s 86A(4) of the Act 28 Section 86A(4) relevantly provides: Where: (a) a proceeding is pending in a court (other than the Supreme Court) of a State or Territory; and (b) a matter for determination in the proceeding arose under Part IVA or Division 1, 1A or 1AA of Part V, or a provision of the Australian Consumer Law; the court shall, if directed to do so by the Federal Court, transfer to the Federal Court the matter referred to in paragraph (b) and such other matters for determination in the proceeding the determination of which would, apart from any law of a State or of the Northern Territory relating to cross-vesting of jurisdiction, be within the jurisdiction of the Federal Court as the Federal Court determines. 29 It is not in dispute that I have the power to order the transfer of the Local Court Proceeding to this Court under s 86A(4) since the proceeding will involve issues arising under Division 1 of Part V of the Act. The issue is whether I should exercise my discretion to do so in this case. 30 In Computer Accounting & Tax Pty Ltd v Professional Services Australia Pty Ltd [2005] FCA 1361 French J (as he then was) described the power conferred on this Court by s 86A(4) of the Act as "unusual" (at [20]). His Honour further observed (at [16]-[17]) that in the interests of maintaining comity between the courts and respecting the State court system, this Court should not direct that a matter be transferred to this Court as a matter of routine. Rather, for a matter to be transferred pursuant to s 86A(4), some particular reason or justification needs to be shown, which may include, for example, the fact that the proceeding involves the application of provisions of the Act which are novel and not the subject of settled principles. 31 In the present case, to the extent that the proposed representative action seeks to allege contraventions of s 47 of the Act, this is clearly a matter that cannot be dealt with the in the Local Court. There is therefore the prospect, if a transfer is not ordered, of two sets of proceedings being conducted in two different courts in relation to the same transaction. One solution would be to allow the Local Court hearing to proceed, but order that any judgment be stayed pending the resolution of proceedings in this Court. However, I do not think this is a very satisfactory course to adopt, it being neither cost effective nor an efficient use of court time to have the matter fragmented in this way. This is particularly so given the transfer of the other proceedings and the referral to mediation that has occurred in those proceedings. Justice Cowdroy reached a similar conclusion in relation to the prospect of a fragmented hearing in Champion Trucks. 32 The applicants also rely on the issues of fact and law that are common to both the Local Court Proceeding and the other proceedings as a justification for the transfer. These common issues are identified in the proposed representative action, and the applicants say that these issues are also shared by the Local Court Proceeding. Further, the applicants submit that even if the proposed representative action does not eventuate, there is at least the ability in this Court for the Local Court Proceeding and the other proceedings to be heard together, and that any orders made in one proceeding are likely to directly affect the other proceedings. 33 I am satisfied that the cumulative effect of the circumstances identified above is sufficient to justify the transfer of the Local Court Proceeding to this Court under s 86A(4). 34 In relation to whether Quikfund is likely to suffer any prejudice by reason of the transfer of the Local Court Proceeding to this Court, counsel for Quikfund submitted that the following matters were relevant: the delay that would be occasioned by the transfer, particularly in circumstances where the hearing in the Local Court was fixed to commence the following day; the fact that Quikfund has the benefit of a costs order against the applicants in the Local Court; the applicants had abandoned their s 73 claim in the Local Court and transferring the proceeding to this Court would enable the applicants to raise this claim again; and the applicants had failed to file any evidence in the Local Court, and therefore Quikfund had strong prospects of success in the Local Court. Accordingly, Quikfund submitted that the application to transfer the Local Court Proceeding to this Court, at such a late stage, was "simply a delaying tactic and an abuse of process". 35 It is true that the application for transfer was made only a short time before the hearing in the Local Court was scheduled to commence. It is also true that such an application was foreshadowed as early as 12 February 2010, when the applicants filed their Defence and Cross-Claim in the Local Court. However, although the transfer will result in the vacation of the hearing in the Local Court, it will also allow common issues as between the multiple proceedings to be determined together, including those arising under s 47 of the Act. 36 I am satisfied that any costs orders made in Quikfund's favour in the Local Court can be adequately preserved in this Court once the proceeding is transferred. Similarly, if Quikfund is ultimately successful in this Court an order for interest will compensate it for any delay in being paid the money it says it is owed occasioned by the transfer. Finally, I am not satisfied that Quikfund is likely to suffer any other prejudice for which it cannot be adequately compensated by way of an order for the payment of costs thrown away by reason of the transfer. 37 In relation to Quikfund's submission that the applicants are in any event estopped from raising the s 73 claim in this Court on the basis that it was abandoned in the Local Court, I also do not think this is sufficient to prevent the transfer. In any event, this is not a matter which I need to determine now. If Quikfund wants to argue that the applicants are estopped from raising the s 73 claim in this Court, it can still do so.

disposition 38 In my opinion the Local Court Proceeding should be transferred to this Court. All questions of costs are to be reserved. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.