Zheng v Sunning Pty Ltd (Civil Claims) [2016] VCAT 593

1. Each of the Applications by Third Respondent and the Fourth Respondent, under s75(1) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) are dismissed.

1. The Applicants' costs of the two s75(1) applications are reserved.

1. The Third Respondent, and separately the Fourth Respondent, have applied for orders under s75(1) of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) ("VCAT Act") summarily dismissing the Applicants' claims against them. The proceeding is listed for hearing on 26 April 2016, with an estimated duration of three days. Settlement negotiations have not resulted in the dispute being resolved.

1. The Applicants owned a retail business in Melton. They sold the business to the First Respondent under a contract dated 19 February 2015. The Second Respondent is a director of the First Respondent. The sale proceeded, and the Applicants and those Respondents have a dispute about the stock take. The Applicants sue the First and Second Respondents for around $18,000.00 for stock, plus some other matters. The First Respondent has made a counterclaim.

1. The Third Respondent is a law firm, and the Fourth Respondent is a legal practitioner who at relevant times was employed by the Third Respondent. They acted for the First and Second Respondents in the transaction.

1. The Vendors represent themselves in this VCAT proceeding, and have not set out their claim in the manner which a legal practitioner would. The Tribunal is not bound by Court processes and has a mandate to deal with disputes fairly and according to the substantial merits of the case, and with as little formality as the requirements of the law and a proper consideration of the matters before it permit[1].

1. On 16 September 2015 the Purchaser and Guarantor filed Amended Points of Defence and Counterclaim. In that document they take several "pleading points" in relation to the Vendors' claim, saying that elements of it are "embarrassing", but they do plead some matters which narrow the issues in dispute. They admit the Contract of Sale dated 19 February 2015. Significantly, at paragraph 1(c) they say that the Guarantor had no liability or obligations to the Vendors because

clause 19.3 of the General Conditions of the Contract - which would have had the Guarantor guarantee the Purchaser's obligations - had been deleted. They plead particular matters in relation to the transfer of stock and the stock take. Alleging that the Vendors had acted unconscionably and deceptively in relation to the stock and the stocktake, the Purchaser counterclaimed for the return of the sum it had paid for stock.

1. The Vendors were concerned at the allegation in paragraph 1(c). It led them to join the law firm and the lawyer, and those Respondents are now applying under s75 of the VCAT Act for the summary dismissal of that part of the claim.

1. The Vendors set out their claim against the law firm and the lawyer in a document dated 26 August 2015, which replied to the First and Guarantors' Defence. As a condition of granting their joinder application[2] the Tribunal required the Vendors to file and serve a statement of their claim against the law firm and the lawyer, which they did on 2 December 2015.

1. Because the Vendors are not legal practitioners, their expression of their claim against the law firm and the lawyer uses some language which is inapt[3]. Leaving their choice of words aside, the substance of their claim is as follows. Before the s75 applications were filed, the law firm filed Points of Defence to the Vendors' claim against them, and it is clear that the law firm understands the claim against it. The lawyer's submissions in the s75 application shows that he too understands the Vendors' claim:

1. In October 2014 the Vendors retained a solicitor, Robert Wu, to prepare a contract of sale. He did so and gave the Vendors a soft copy of that document.

1. In February 2015 Mr Wu travelled overseas. He was away when the Vendors reached their agreement in principle with the Purchaser and the Guarantor. The Vendors wanted to use the contract document that Mr Wu had prepared, but it had to be amended by including the Purchaser as purchaser and the agreed purchase price, and by inserting a special condition under which the Vendors would pay the Purchaser's deposit into the law firm's trust account.

1. The Vendors gave the lawyer the soft copy contract and authorised him to amend the document as above. Significantly, the law firm charged the Vendors $220.00 including GST.

1. The Vendors on the one part, and the Purchaser and Guarantor on the other, executed the contract of sale on 19 February 2015. Much later the Vendors learned that clause 19.3 had been deleted from the printed copy which was executed. The Vendors say that they never suspected that a standard condition could be changed by a solicitor intentionally, without disclosure.

1. On 16 September 2015 (well after this VCAT proceeding had been issued) the lawyer admitted having deleted clause 19.3, and on 17 September 2015 he wrote to the Vendors about that matter.

1. The Vendors also allege that the lawyer acted inappropriately in relation to the stock take. Whilst some of those allegations appear to be to the effect that the lawyer did not properly act on the instructions of the Purchaser and the Guarantor, others are in the nature of an allegation that the lawyer acted unconscionably. For example, the Vendors allege that the lawyer gave his opinion about the value of their stock, in a way which was designed to influence them to make concessions favourable to the Purchaser and Guarantor.

1. It is most significant that the Vendors allege that they paid the law firm and (or through) the lawyer $220.00 to have them prepare the execution copy of the contract. This suggests a retainer between the Vendors and the law firm, even though as legal practitioner for the Purchaser and Guarantor this would put the law firm in a most serious conflict of interests.

1. It is also significant that the lawyer is alleged to have deleted clause 19.3 of the contract from the execution copy, and presented the document for execution without disclosing that fact, which amounts to allegations of misleading and deceptive conduct and unconscionable conduct within the meaning of the Australian Consumer Law.

1. If I may paraphrase the concluding section of the Vendors' Points of Claim against the law firm and the lawyer, the Applicants say

Legal professionals owe a very basic duty of trust and care to the public. The law firm and the lawyer did not make a mistake, but intentionally and purposefully took action, using their legal practitioners' expertise and knowledge and professional status, to cause detriment to the Vendors. This is a situation where the law firm was in a position in which the Vendors had confidence in the law firm and the lawyer, and relied upon and trusted both of them.

A professional's position and power can make it very difficult for a member of the public to catch up. By refunding the $220.00, the law firm and the lawyer have purported to just wash their hands and walk away by simply saying, "I put the money back, and you suffered no loss. It is like nothing happened".

However it is not as if nothing happened. The Vendors should not be dragged up to 22 hours without sleep, and be exhausted after settlement day. The Vendors should not be required to spend so much time preparing documents, attending to this VCAT proceeding, and meeting with three legal practitioners, being under pressure, and suffering financial and mental pressure by this legal proceeding. We are seeking formal apologies and $5,000.00 formal compensation from the law firm and the lawyer.

1. On 12 February 2016 the law firm filed Points of Defence to the Vendors' Points of Claim against the law firm. That document does not purport to have been filed on behalf of the lawyer[4]. It is clear that the law firm sees its interests as separate from those of the lawyer. In this document the law firm pleads the following

1. At material times the lawyer was the law firm's employee.

1. The Purchaser and Guarantor retained the law firm to act in the purchase of the business. The lawyer was the solicitor who performed the services.

1. The Vendors knew that the law firm acted for the Purchaser and Guarantor.

1. The Vendors paid the law firm $220.00 for the administrative service of receiving the deposit into its Trust Account.

1. The contract of sale was executed on 19 February 2015, and settlement took place on 1 May 2015. It was not until after the stock dispute had arisen that the law firm was made aware of the deletion of General Condition 19.3[5].

1. At material times the law firm had no knowledge of the deletion of GC19.3 or of any intention by the lawyer to delete it. The lawyer's conduct was "self-motivated and personal", which was "never authorised or approved" by the law firm. The lawyer "neither sought instruction or permission from the (law firm) before his so doing nor reported to the (law firm) that he did so until the dispute took place between the parties, sometime after settlement of the sale of business".

1. The lawyer advised the law firm that he deleted clause 19.3 for the benefit of the Guarantor's legal interests.

1. The law firm has refunded the $220.00 to the Vendors.

1. As to that last paragraph, GC19.3 has not been reinstated in the sense of the Vendors executing some amendment to the Contract. Rather, the Guarantor has executed a document waiving the deletion of GC19.3 and stating that he agrees to be bound as if he had given a guarantee of the Purchaser's obligations in the terms of GC19.3. In other words, he has voluntarily become estopped from alleging that there is no guarantee.

1. The law firm has not filed a claim against the lawyer.

At any time, the Tribunal may make an order summarily dismissing or

striking out all, or any part, of a proceeding that, in its opinion -

(a) is frivolous, vexatious, misconceived or lacking in substance; or

1. When the Tribunal considers an application under section 75(1), it considers whether the facts alleged by the applicant give rise to an arguable claim. In dealing with the section 75 applications before me, I make no finding that the Vendors' allegations are "true" or as to the likelihood of them being able to prove them.

1. In Noonan v Owners Corporation No [2011] VCAT 1934; 2 PS 409115E and Anor[6], Senior Member Vassie, with whom I respectfully agree, said the following of section 75:

The principles governing the disposition of an application under section 75 of the VCAT Act for summary dismissal are well known and are not in dispute. It is a very serious matter to dismiss a proceeding summarily and thus to deprive an applicant of its ordinary right to ventilate its claim, call its evidence and argue its case at a full hearing of the proceeding. So the Tribunal is obliged to act with great caution before doing so, and should not exercise that drastic power of summary dismissal unless it is quite clear that the applicant's claim is absolutely hopeless, unsustainable in fact or in law and bound to fail. See, in particular, Forrester v AIMS Corporation [2004] VSC 506; (2004) 22 VAR 97, a decision of Kaye J. of the Supreme Court of Victoria, which confirmed that the principles expressed by the Court of Appeal in State Electricity Commission of Victoria v Rabel [1998] 1 VR 102 apply to summary dismissal applications to VCAT brought under section 75.

Section 75(1) expressly confers a power to strike out part of a proceeding. If I conclude that the proceeding as a whole is not so completely hopeless and unsustainable that it should be dismissed summarily, but that parts of it are so hopeless and unsustainable that they are "misconceived or lacking in substance", I may strike out those parts but leave the rest of the proceeding on foot.

1. By refunding the $220.00, and by now having the benefit of the Guarantor effectively binding himself to a guarantee as if GC19.3 had not been deleted, the law firm and the lawyer submit that the Vendors have not suffered any loss as a result of their actions.

1. I must reject their analysis. The effect of the Vendors alleging that the law firm charged them $220.00 including GST, is to allege that the law firm and the lawyer owed fiduciary duties to the Vendors. Whilst the 'reinstatement of the guarantee' is said to protect the Vendors in the event that the Purchaser is insolvent, that will only be so if the Guarantor is also solvent, which may not be the case. In Hospital Products Ltd v United States Surgical Corp [1984] HCA 64; (1984) 156 CLR 41 at page 107, Mason J stated:

A fiduciary is liable to account for a profit or benefit if it was obtained (1) in circumstances where there was a conflict, or possible conflict of interest and duty, or (2) by reason of the fiduciary position or by reason of the fiduciary taking advantage of opportunity or knowledge which he derived in consequence of his occupation of the fiduciary position... It can make no difference that it was not his duty to obtain the profit or benefit for the person to whom the duty was owed.

1. A fiduciary must disgorge any profit or benefit, whether or not the fiduciary was acting honestly or dishonestly, recklessly, or negligently or even with the best intentions.

1. A fiduciary who breaches a duty may also be liable to compensate the injured party, to restore the injured party to the position which existed before the wrong was committed. In "The Principles of Equity" [7], the author Michael Tilbury says:

Punishment of the guilty party is also a possible object of compensation in equity. The duties binding defendants in situations in which equitable compensation is a possible remedy often contain an element of deterrence which, in principle, ought in appropriate cases to be reflected in the remedy which the Court fashions, provided that the defendant cannot be said to be

punished twice, once by the award of compensation and once by the additional award of exemplary damages. By analogy to the availability of exemplary damages at common law, the cases in which it is appropriate to award equitable compensation by way of punishment of those in which the defendant's conduct amounts to conscious wrongdoing in contumelious disregard of the plaintiff's rights. ...

No limitation on the heads of damage recoverable in equitable compensation claims has emerged in the authorities. Economic loss, including such consequential or economic loss as flows from the defendant's wrong, has been the subject of compensation in nearly all the reported cases. However, it is clear that non-economic loss may also be the subject of a claim in equitable compensation. Non-economic loss is widely understood in this context to include pain and suffering, nervous shock, and injury to the plaintiff's feelings including mental anguish, discomfort, tears and anxiety and loss of memory.

1. As I said above, in their conclusion to their Points of Claim the Vendors allege that they have suffered exhaustion, pressure, financial and mental pressure by this legal proceeding.

1. The Tribunal is a creature of statute and does not have inherent jurisdiction. It does not have general equitable jurisdiction, but Cavanough J said in Tucci v Victorian Civil and Administrative Tribunal[8],

"(I)t is open to Parliament to clothe VCAT, to such extent as Parliament sees fit, with the power, or indeed the duty, to recognise and apply equitable doctrines, defences and remedies or to proceed in accordance with, or by analogy with, equitable principles. Parliament might do this expressly or by implication. Sub-section 89(2) of the Retail Leases Act 1999 ...is an example of an express conferral of equitable jurisdiction. It provides that in an application for forfeiture or relief against forfeiture VCAT has the same jurisdiction, "including equitable jurisdiction", and powers as the Supreme Court would have. Paragraph 91(1)(c) of that Act empowers VCAT to make an order "rectifying a retail premises lease or other document". The purely equitable doctrine of rectification appears to be imported here by implication. Moreover, turning to the Fair Trading Act itself, s 108(2)(h) thereof empowers VCAT, in relation to a consumer and trader dispute,

to "order rectification of a contract". A corresponding comment may be made. Other provisions of s 108(2) appear to pick up various other equitable doctrines and remedies. Thus subparagraph 108(2)(b)(iii) empowers VCAT to order the payment of a sum of money by way of "restitution", arguably picking up the principles applicable to restitution in equity. Paragraphs 108(2)(d) and (i) respectively empower VCAT to "declare" that a term of a contract is or is not void and to "declare" that a debt is or is not owing, thereby arguably picking up all those equitable doctrines which might render a contractual term void or a debt owing or not owing, as well as apparently picking up the equitable remedy of the declaration and the equitable principles surrounding it. Paragraph (f) empowers VCAT to make an order "in the nature of an order for specific performance of a contract". Specific performance is, of course, a purely equitable remedy, governed by equitable principles. Paragraph (g) empowers VCAT to "order rescission of a contract". This seems to be a reference to rescission in equity and to the corresponding equitable principles. More generally, it would be a remarkable thing if VCAT could not have regard to trusts (trusts being entirely creatures of equity) or to equitable estates in land.

By virtue of s 123(1) of the VCAT Act, the Tribunal may "by order grant an injunction, including an interim injunction, in any proceeding if it is just and convenient to do so". Originally the injunction was a creature of equity, although many statutes now confer powers to grant injunctions. ...".

1. I note that the sections of the Fair Trading Act 1999 to which Cavanough J referred have been re-enacted in the Australian Consumer Law and Fair Trading Act 2012.

1. This is a complex and nuanced area of law, but given that under s75 of the VCAT Act the enquiry is whether the Vendors' case against the law firm and the lawyer is absolutely hopeless, unsustainable in fact or in law and bound to fail, and that a fiduciary's liability to account for a profit or benefit and to pay compensation, having regard to the principles of equitable compensation, may in this case exceed the liability to refund $220.00; and given that the law firm in its defence pleads that the lawyer acted independently, the test under s75(1) the VCAT Act has not been met by the law firm or the lawyer.

1. I note in passing that another submission of the law firm was that in substance the Vendors were bringing a disciplinary complaint against it, which was misconceived. The submission was based on the Applicants' choice of words in their Points of Claim against the law firm, which included references to the "professional code". Whilst I accept that disciplinary matters are for the Legal Services Commissioner, I find that on a proper reading of the Points of Claim the Vendors are not seeking to bring a disciplinary complaint, but are seeking to bring a civil claim against the law firm and the lawyer.

1. In the circumstances I must dismiss the two applications under s75 of the VCAT Act. As the Applicants represent themselves, there appears to be no basis on which costs need to be considered, but as a matter of caution I will reserve the Applicants' costs.

[3]For example, the Vendors refer to "duty of care" where VCAT does not have jurisdiction in tort; and "breach of professional code / misconduct" which suggests "disciplinary proceedings" rather than a civil proceeding for damages

[4]It seems the lawyer has not filed a defence, on the basis that he has brought this s75(1) application

[5]It appears that this is intended to convey that a supervising principal was not personally aware of the matter. It therefore implies references to the internal management practices of the law firm

[6] [2011] VCAT 1934, at paragraphs 16-18.

[7]Patrick Parkinson (ed), Law Book Company Ltd (LBC Information Services) 2006, at paragraphs [2208] - [2209]; case citations omitted from the quote

[8] [2010] VSC 425 at paragraphs [41] & [42]