FEDERAL COURT OF AUSTRALIA

Quikfund (Australia) Pty Limited v Airmark Consolidators Pty Limited

[2014] FCAFC 70

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondents’ costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellant pay the respondents’ costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

THE COURT ORDERS THAT:

1.    The appeal be dismissed.

2.    The appellants pay the respondents’ costs.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

the court:

INTRODUCTION

1    These three appeals, which were heard together, raise the same issues of statutory construction and involve similar facts. The questions of construction concern ss 51AF and 73 of the Trade Practices Act 1974 (Cth) (the TPA) (prior to the changes brought about by the passing of the Competition and Consumer Act 2010 (Cth)) and s 6(2) of the Contracts Review Act 1980 (NSW) (the CRA).

2    The appellants, Quikfund (Australia) Pty Limited (Quikfund) (the appellant in NSD 1192 and 1193) and Enterprise Finance Solutions Pty Limited (EFS) (the appellant in NSD 1194), are finance companies. In 2007, 2008 and 2009, they entered into rental agreements with the corporate respondents, Airmark Consolidators Pty Limited (Airmark) (in the case of Quikfund) and Austec.Net Pty Limited (Austec) (in the case of EFS), in respect of office equipment including telephones, computer equipment and copiers. The obligations of Airmark and Austec under their respective rental agreements were guaranteed by their directors, Mark Gonsalves (in the case of Airmark) and John and Lynette Harrison (in the case of Austec).

3    Airmark and Austec were induced to enter into the rental agreements by misleading and deceptive conduct on the part of employees or agents of third party companies that supplied the relevant office equipment. That conduct involved the making of false or misleading representations, including representations that the equipment would be provided free if Airmark and Austec entered into separate contracts relating to the supply of telephone services by other companies.

4    In due course, Airmark and Austec defaulted under the terms of the rental agreements. As a result, Quikfund sued Airmark and EFS sued Austec to recover the outstanding rental payments or damages for breach of contract. Quikfund and EFS also sued to enforce the guarantees and indemnities given by the directors of the companies, Mr Gonsalves (of Airmark) and Mr and Mrs Harrison (of Austec). In response to the respective claims, Airmark and Austec claimed (amongst other things) that Quikfund and EFS were liable to them under s 52 of the TPA as a result of the misleading or deceptive conduct of the employees or agents of the third party equipment suppliers. Quikfund and EFS were alleged to be liable for the conduct of the third party equipment suppliers because they were “linked credit providers” for the purposes of s 73 of the TPA and were therefore jointly and severally liable under that section for the misrepresentations of the equipment suppliers. This liability was sought to be set off against any asserted liability under the rental agreements.

5    Mr Gonsalves and the Harrisons sought relief against any personal liability under the CRA on the basis that the guarantees and indemnities were unjust.

6    The primary judge upheld these claims in Enterprise Finance Solutions Pty Limited v Austec Pty Limited [2013] FCA 491 (the Judgment), the effective result being that both Quikfund and EFS failed to recover anything from Airmark and Austec respectively in relation to the rental agreements, and failed to recover anything from Mr Gonsalves and Mr and Mrs Harrison respectively under the guarantees.

7    The appeals from the judgment of the primary judge raise two questions. The first is whether s 51AF of the TPA precluded Airmark and Austec from relying on s 73 to make Quikfund and EFS jointly and severally liable for the misrepresentations of the equipment suppliers because the rental agreements involved the supply of financial services. The primary judge held that s 51AF did not have that effect.

8    The second question is whether s 6(2) of the CRA precluded the grant of relief in respect of the guarantees signed by Mr Gonsalves and Mr and Mrs Harrison because they were “entered into in the course of or for the purpose of” the business carried on by them. The primary judge held that s 6(2) did not preclude the granting of relief because the relevant businesses were not carried on by Mr Gonsalves and Mr and Mrs Harrison, but by Airmark and Austec. The primary judge found that there was nothing to suggest that any of the directors were carrying on a business in his or her own right. Thus, s 6(2) did not preclude relief under ss 7 and 9 of the CRA, which was found otherwise to be available.

9    For the reasons that follow, the decision of the primary judge in respect of both these questions was correct and the appeals must be dismissed.

Facts

10    Given the nature of the issues, it is necessary to provide only a brief outline of the facts in relation to each of the appeals. None of the factual findings by the primary judge is the subject of challenge.

Quikfund v Airmark & Anor – 1192 and 1193

11    Airmark was a freight forwarding company which dealt specifically with air and sea freight. In 2008, it had about 25 employees. Its directors were Mr Gonsalves and his wife. Its shares were directly or indirectly held by Mr Gonsalves and his wife or entities associated with them.

12    In August 2008, a man named Mr Joe Rizcallah visited Airmark’s offices and spoke with Mr and Mrs Gonsalves. He told Mr and Mrs Gonsalves that he was from Link Solutions Pty Limited (Link). He told Mr and Mrs Gonsalves that he could cut Airmark’s telephone bills in half and that if they signed up that day he could give them free office equipment in exchange for “call credits.” He explained that they would earn points for the telephone calls they made, that the points then gave them credits and that those credits would go towards the free equipment.

13    Mr Rizcallah then arranged for Mr Gonsalves to sign various documents. One of the documents was entitled “Understanding the Arrangements.” It set out the key elements of the arrangements, which included an equipment rental agreement with Quikfund and a telephony services plan with Clear Telecoms Australia Pty Limited (Clear Telecoms). The equipment rental agreement referred to 60 monthly rental payments of $550. The telephony services plan referred (somewhat confusingly) to monthly fees of $500, monthly credits of $500 and a term of 60 months. Mr Gonsalves also signed the rental agreement with Quikfund on behalf of Airmark and on his own behalf as guarantor of Airmark’s obligations. The rental agreement was most likely blank when signed by Mr Gonsalves. It did not include any description of the equipment.

14    In December 2008, Mr Gonsalves signed two further rental agreements with Quikfund on behalf of Airmark. He also signed guarantees in these agreements whereby he guaranteed Airmark’s obligations. The signing of these agreements occurred following further contact from Mr Rizcallah and a meeting with a man named Mark Carroll. Mr Carroll said he had been sent by Mr Rizcallah to have the agreements signed.

15    The representations made by Mr Rizcallah concerning the provision of free goods were false or misleading. Airmark received and paid invoices from Clear Telecoms in respect of the telephone plan and made monthly payments of $550 to Quikfund in respect of the rental agreements. The misleading representations induced Mr Gonsalves to sign the rental agreements on behalf of Airmark, including the agreements he signed in December 2008.

16    Perhaps not surprisingly, after some time Airmark stopped paying the monthly payments under the rental agreements. Quikfund then sued Airmark to recover the outstanding rental payments or, in the alternative, damages for breach of the rental agreements. It also sued the Mr Gonsalves to enforce the guarantees in respect of Airmark’s liability.

17    Airmark and Mr Gonsalves cross-claimed against Quikfund. Airmark claimed that it had an entitlement to a set-off equal to the whole of the amount claimed against it. Relevant to this appeal, Airmark claimed that Mr Rizcallah or his employer (Link Solutions or Clear Telecoms) had engaged in misleading and deceptive conduct contrary to s 52 of the TPA which had caused it loss or damage. Because Quikfund was a linked credit provider of Link Solutions within the meaning of s 73 of the TPA, it was jointly and severally liable for the loss or damage suffered by Airmark as a result of the misleading and deceptive representations by Mr Rizcallah.

18    Mr Gonsalves claimed that even if Airmark was liable to Quikfund, the guarantee and indemnity signed by him was unjust, essentially by reason of the misleading or deceptive conduct of Mr Rizcallah, and was therefore void under the CRA.

EFS & Anor v Austec & Ors – 1194

19    Austec carried on the business of an information technology consultant and software trainer. Its directors and shareholders were Mr and Mrs Harrison.

20    In December 2007, a man by the name of Rodney Dadson met with the Harrisons at Austec’s offices in Eagle Farm, Queensland. Mr Dadson introduced himself as being from “Technix” which he said was a part of the “Queensland Communications Company.” The business name Technix Australia (Qld) was registered to Queensland Communications Company Pty Limited (QCC). QCC went into liquidation in 2009. The registered office of QCC was the same address as that of Australian Equipment Rentals Pty Limited (AER). Mr Dadson told the Harrisons that he could offer Austec cheaper telephone services than it was presently receiving. He said that he could reduce their telephone costs from $1,200 per month to $900 per month, fixed and capped. After persuading them to sign up to the telephone package and to take up two additional telephone lines, he told them that the package made them eligible for free equipment, including a PABX system and some printers.

21    Mr Dadson then asked the Harrisons to sign the relevant paperwork. He told them that each month they would receive two invoices: one for the equipment (for $907.50) and one for the telephone calls (for $0.00). Mr and Mrs Harrison signed a number of documents described by the primary judge at [28]-[38] of his judgment. The documentation included a telephone contract with Axis Telecom Pty Limited (Axis) and a rental agreement with AER as agent for EFS, which included a guarantee and indemnity. The rental agreement related to the PABX system and printers that Mr Dadson had represented would be provided for free. The Harrisons signed these documents without reading them.

22    The representations made by Mr Dadson that induced Austec and Mr and Mrs Harrison to sign the documentation, including the representations about free equipment, the nature of the documents they were signing and the amounts Austec would be required to pay, were misleading and deceptive. Following the signing of the agreements, Austec was invoiced by Axis and then Clear Telecoms for telephone services. These invoices were not, as Mr Dadson had suggested, for $0.00. Rather, they were on average $750 per month. On top of that, Austec also received monthly invoices for $907.50 in respect of the rented equipment.

23    After a while Austec ceased making payments under the rental agreement. EFS then sued Austec seeking to recover the outstanding rental payments or, in the alternative, damages for breach of the rental agreement. It also sued Mr and Mrs Harrison on the guarantees and indemnities given by them in respect of Austec’s liability.

24    As in the Quikfund proceedings, Austec and Mr and Mrs Harrison cross-claimed against EFS claiming that Austec had an entitlement to a set-off equal to the whole of the amount claimed against it on the basis that Mr Dadson or his employer (QCC or Axis) had engaged in misleading or deceptive conduct contrary to s 52 of the TPA and that, because EFS was a linked credit provider of QCC, it was jointly and severally liable under s 73 of the TPA for the loss or damage suffered by them as a result of the misleading or deceptive representations by Mr Dadson. Mr and Mrs Harrison also claimed that, even if Austec was liable to EFS, the guarantee and indemnity signed by them was unjust by reason of the conduct of Mr Dadson and was therefore void under the CRA.

FIRST ISSUE - SECTIONS 51AF and 73 TPA

25    Grounds 1 and 2 of the notices of appeal contend that the primary judge erred in finding that s 51AF of the TPA did not operate to exclude liability on behalf of the appellants to the corporate respondents. Ground 2 contends that the primary judge erred in finding that the appellants were jointly and severally liable for the loss and damage caused by the misrepresentations by Mr Rizcallah (in 1192 and 1193) and Mr Dadson or QCC (in 1194).

26    The appellants’ submissions in relation to these grounds depend to a large extent on a detailed consideration of the legislative history and amendments to ss 51AF and 73 of the TPA, together with associated and ancillary provisions.

Relevant statutory provisions and legislative history

27    Until 1998, the supply of financial services by a corporation to a consumer was, like other services, subject to the consumer protection provisions in Pt V of the TPA. That was a consequence of the broad definition of “services” in s 4(1) of the TPA and of the terms of Pt V itself. In particular, s 55A of the TPA, which proscribes certain misleading conduct in relation to services, and s 74, which implies warranties as to due care and skill and fitness for purpose into contracts for the supply by corporations of services, were applicable to contracts for the supply of services of a financial kind. Other provisions which dealt generally with certain types of conduct, such as s 52, which proscribes misleading or deceptive conduct by a corporation in trade or commerce, were also capable of applying to conduct engaged in in relation to the supply of financial services.

28    In 1998, significant changes were made to the statutory scheme relating to consumer protection concerning the supply of financial services. This was achieved by the enactment of the Financial Sector Reform (Consequential Amendments) Act 1998 (Cth) (the FSR Consequential Amendments Act). The apparent purpose of these changes, which was confirmed by the terms of the Supplementary Explanatory Memorandum to the Financial Sector Reform (Consequential Amendments) Bill 1998 (Cth) (the FSR Explanatory Memorandum) was to shift regulatory responsibility for financial services and financial products from the Australian Competition and Consumer Commission (the ACCC) to the Australian Securities and Investments Commission (ASIC). ASIC was to have sole regulatory responsibility for consumer protection in relation to financial services.

29    This regulatory change was effected in two ways. First, specific provisions dealing with the regulation of conduct relating to financial services and the supply of financial services were inserted into the Australian Securities and Investments Commission Act 1989 (Cth) (the 1989 ASIC Act). Part 1 of Sch 2 to the FSR Consequential Amendments Act inserted (inter alia) Pt 2 Div 2 into the 1989 ASIC Act. Many of the provisions in Pt 2 Div 2 were derived from counterparts in Pt V of the TPA. The inserted provisions included s 12DA, which proscribed misleading or deceptive conduct in relation to financial services in essentially the same terms as s 52 of the TPA; s 12DB, which proscribed false or misleading representations in connection with the supply or possible supply of financial services in essentially the same terms as s 55A of the TPA; and s 12ED which, in similar but not identical terms to s 74 of the TPA, implied into contracts for the supply by corporations of financial services a warranty that the services would be rendered with due care and skill and would be reasonably fit for the purposes made known by the consumer.

30    The second way that the FSR Consequential Amendments Act sought to effect the regulatory shift from the ACCC to ASIC was to remove the supply of financial services from the sphere of operation of Pt V of the TPA. Item 27 of Pt 2 of Sch 2 to the FSR Consequential Amendments Act inserted s 51AF into the TPA. As originally enacted, s 51AF was in the following terms:

51AF    Part does not apply to financial services

(1)    This Part does not apply to the supply, or possible supply, of services that are financial services.

(2)    Without limiting subsection (1):

(a)    sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and

(b)    if a security (within the meaning of the Corporations Law) consists of or includes an interest in land, section 53A does not apply to that interest; and

(c)    section 63A does not apply to a debit card that allows access to an account that is a financial product.

(3)    In subsection (2):

debit card has the same meaning as in section 63A.

31    Section 4(1) provided that “financial service” had the same meaning as in Div 2 of Pt 2 of the 1989 ASIC Act. The 1989 ASIC Act at s 12BA defined the phrases “financial product” and “financial service” as follows:

financial product means:

(a)    a facility for taking money on deposit (otherwise than as part-payment for identified services) made available in the course of conducting a banking business within the meaning of the Banking Act 1959; or

(b)    a security; or

(c)    a futures contract; or

(d)    a contract of insurance (including a life policy or a sinking fund policy within the meaning of the Life Insurance Act 1995); or

(e)    a retirement savings account within the meaning of the Retirement Savings Accounts Act 1997; or

(f)    a superannuation interest within the meaning of the Superannuation Industry (Supervision) Act 1993;

but does not include a foreign exchange contract.

financial service means a service that:

(a)    consists of providing a financial product; or

(b)    is otherwise supplied in relation to a financial product.

32    The combined effect of these provisions was that the exclusion or excision from the operation of Pt V of the TPA effected by s 51AF was limited to the supply or possible supply of services that fell within the definition of financial service in the 1989 ASIC Act. It is of some significance to appreciate that, subject to the widening effect of para (b), the definition of “financial service” was not expressed generally, but was expressed by reference to the particular concepts in the definition of “financial product”.

33    A further amendment made to the TPA by the FSR Consequential Amendments Act, which is important to the resolution of the issue of construction raised in these appeals, was the amendment of s 73 of the TPA. That amendment, made by items 28 and 29 in Pt 2 of Sch 2, inserted a reference to s 12ED of the 1989 ASIC Act into s 73(1) and (2). As already indicated, s 12ED of the 1989 ASIC Act was inserted into the ASIC Act as part of the same suite of amendments and is the analogue to s 74 of the TPA. Following the amendment (and a further amendment in 2001 to update the title of the ASIC Act), s 73 provided as follows:

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 hire-purchase 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 damages 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.

(2)    Where:

(a)    a corporation (in this section also referred to as the supplier) supplies goods, or causes goods to be supplied, to a credit provider who is not a linked credit provider of the supplier;

(b)    a consumer enters into a contract with the credit provider for the provision of credit in respect of the supply by way of sale, lease, hire or hire-purchase of the goods to the consumer;

(c)    antecedent negotiations in relation to the contract were conducted with the consumer by or on behalf of the supplier; and

(d)    the credit provider did not take physical possession of the goods before they were delivered to the consumer;

or where a consumer enters into a contract with a credit provider for the provision of credit in respect of the supply of services to the consumer by a corporation (in this section also referred to as the supplier) of which the credit provider is not a linked credit provider, and the consumer suffers loss or damage 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 credit provider is not under any liability to the consumer for the amount of the loss or damage, but the consumer may recover that amount by action in a court of competent jurisdiction against the supplier.

(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 hire-purchase 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 suppler might be unable to meet the supplier’s liabilities as and when they fall due;

    (c)    …

    (d)    …

(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.

…

(14)    In this section:

credit provider means a corporation providing, or proposing to provide, in the course of a business carried on by the corporation, credit to consumers in relation to the acquisition of goods or services.

linked credit provider, in relation to a supplier, means a credit provider:

(a)    with whom the suppler 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.

34    Section 73 was in these terms at all times relevant to these appeals.

35    In 2001, further amendments were made to provisions in the TPA and ASIC Act.

36    First, the 1989 ASIC Act was repealed and replaced by the Australian Securities and Investments Commission Act 2001 (Cth) (the 2001 ASIC Act). The 2001 ASIC Act initially contained definitions of “financial product” and “financial service” replicating the definitions that were in the 1989 ASIC Act. At the same time, the TPA was amended to incorporate by reference the definitions of these expressions in the 2001 ASIC Act (items 550 and 551 of Sch 3 to the Corporations (Repeals, Consequentials and Transitionals) Act 2001(Cth)).

37    Secondly, and slightly later, the Financial Services Reform Act 2001 (Cth) repealed the definitions of “financial service” and “financial product” in the 2001 ASIC Act and replaced them with new definitions in ss 12BAA and 12BAB.

38    Section 12BAB is lengthy and for present purposes need not be quoted in full. It is sufficient to note that s 12BAB indicates that persons provide a “financial service” if, amongst other things, they deal in a “financial product” (subs (1)(b)), or provide a service which is “otherwise supplied in relation to a financial product” (subs (1)(g)), or engage in conduct of a kind prescribed by regulation (subs (1)(h)). By s 12BAB(7), a person will deal in a financial product by, amongst other things, issuing a financial product.

39    The definition of “financial product” in s 12BAA is equally extensive. It includes “a security” (subs (7)(a)), “a credit facility (within the meaning of the regulations)” (subs (7)(k)), as well as anything declared by regulation to be a financial product (subs (7)(m)).

40    The meaning of “credit facility” was left to prescription by regulation. By the Australian Securities and Investments Commission Amendment Regulations 2001 (No 1) (Cth), the expression “credit facility” was given an expansive operation. It includes the provision of “credit”, with “credit” also being defined expansively. Relevantly for present purposes, reg 2B(3) of the Australian Securities and Investments Commission Regulations 2001 (Cth) defines “credit” to mean “a contract, arrangement or understanding under which payment of a debt owed by one person … to another … is deferred or by which one person incurs a deferred debt to another”. “Credit” is also defined to include any form of financial accommodation, or a hire purchase agreement.

41    Consequential amendments were also made to the TPA by the Financial Services Reform (Consequential Provisions) Act 2001 (Cth). First, the TPA was amended to pick up by cross-reference these new definitions. Secondly, s 51AF was amended so as to reflect the new definitions. The word “security” was omitted from s 51AF(2)(b) and replaced by “financial product” and minor changes were made to subs 51AF(2)(c) and (3) relating to debit and credit cards. Following the amendments, s 51AF provided as follows:

51AF Part does not apply to financial services

(1)    This Part does not apply to the supply, or possible supply, of services that are financial services.

(2)    Without limiting subsection (1):

(a)    sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and

(b)    if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and

(c)    section 63A does not apply to:

(i)    a credit card that is part of, or that provides access to, a credit facility that is a financial product; or

(ii)    a debit card that allows access to an account that is a financial product.

(3)    In subsection (2):

credit card has the same meaning as in section 63A.

debit card has the same meaning as in section 63A.

42    Section 51AF was in these terms at all times relevant to these appeals.

The decision and reasons of the primary judge in relation to ss 51AF and 73

43    At this stage it is only necessary to outline briefly the findings of the primary judge insofar as they relate to the issue raised by grounds 1 and 2 of the notices of appeal.

44    In each case, the primary judge found that the corporate respondents (Airmark in 1192 and 1193 and Austec in 1194) had been induced to enter into the rental agreements as a result of misleading or deceptive conduct on the part of Mr Rizcallah (in 1192 and 1193) and Mr Dadson (in 1194). Having rejected the contentions that Mr Rizcallah was acting as an agent of Quikfund and that Mr Dadson was acting as an agent of EFS when engaging in the misleading or deceptive conduct, the liability of Quikfund and EFS arising from the misleading or deceptive conduct of Messrs Rizcallah and Dadson respectively turned on the application of s 73 of the TPA. The primary judge found that Quikfund was a linked credit provider of Link Solutions and that EFS was a linked credit provider of QCC.

45    The critical issue before the primary judge was whether, on the facts as found, the operation of s 73 was excluded by s 51AF given that the rental agreements were financial services for the purposes of the TPA.

46    The primary judge found in the circumstances of each case that s 51AF did not operate to exclude s 73. His reasons for so finding were as follows.

47    First, his Honour reasoned (at Judgment [71]) that the language of s 51AF tended to suggest that it is concerned only with those provisions of Pt V which proscribe conduct of a corporation, including ss 52 to 64. Section 51AF does not provide simply that “Part V does not apply in relation to financial services”. Rather, s 51AF(1) uses the words “does not apply to the supply, or possible supply” of services that are financial services and s 51AF(2) uses the words “conduct engaged in” in relation to financial services. Thus, subs 51AF(1) and (2) pick up the language of ss 53 and 52 respectively. Accordingly, because s 73 is not a provision which proscribes the conduct of a corporation, it is not excluded by s 51AF.

48    Secondly, his Honour found (at Judgment [74]) that s 51AF operates to exclude the operation of Pt V in cases involving contraventions of any of its provisions only in so far as such conduct relates solely to financial services. When the conduct relates to (or also relates to) something other than financial services, for example the condition or characteristics of goods or services, Pt V is not excluded. Thus, if a supplier made representations to a consumer concerning goods, s 73 would not be excluded by s 51AF simply because the goods were to be acquired using finance made available pursuant to a lease, rental or other credit contract.

49    Thirdly, his Honour reasoned that the construction of s 51AF which he favoured was supported by the reasoning of Foster J in Australian Securities and Investments Commission v Bank of Queensland Ltd [2011] FCA 1361; 211 FCR 412, with which he agreed. His Honour noted (at Judgment [78]) that Foster J was considering an application to strike out a statement of claim filed by the applicant (ASIC) based on the simple proposition that s 51AF deprives s 73 of any operation if the representations in issue relate to financial services. Foster J considered that argument by reference to ASIC’s response to it in the following terms (at 427-428 [45]):

ASIC countered these arguments with the following submissions:

(a)    Section 73 of the TPA is predicated upon the existence of a linked credit provider. For s 73 of the TPA to apply to any set of circumstances, a linked credit provider must have provided credit under some form of contract in relation to a supply of goods and/or services. Providing credit under a contract (including a home loan contract or a margin loan contract) amounts to providing financial services within s 4(1) of the TPA, ss 12BA and 12BAB of the ASIC Act. Therefore, a claim under s 73 of the TPA will always involve the supply of financial services. To read s 73 in the way that the respondents urge upon the Court would render s 73 incapable of any application. ASIC urged an interpretation of s 73 which allowed it to operate harmoniously with the rest of Pt V of the TPA.

(b)    Section 12ED of the ASIC Act is specifically referred to in s 73(1) of the TPA. Section 12ED is confined in its operation to a contract for the supply of financial services by a person to a consumer in the course of a business. Accordingly, s 73 of the TPA must be capable of applying to a contract for the supply or possible supply of financial services at least insofar as there is implied into such a contract the warranties specified in s 12ED of the ASIC Act.

(c)    Section 51AF(1) restricts the operation of Pt V of the TPA only when a provision of Pt V would otherwise “apply to the supply, or possible supply of … financial services” (emphasis added). As a result, the only provisions of Pt V which are affected by s 51AF(1) are those which have as their subject matter some aspect of the actual supply or possible supply of financial services. There are many sections which have that operation: for example, ss 52 and 53 would operate where a misrepresentation or false statement was made in relation to the supply or possible supply of financial services.

50    Foster J then continued (at 428 [46] and [47]):

In my judgment, the submissions of ASIC constitute the preferred interpretation of s 73 when read with s 51AF of the TPA. The initial fundamental engagement of the section is brought about by a consumer suffering 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 [certain specified sections of the TPA] or section 12ED of [the ASIC Act]”. The section does not confine the source of that description of primary liability on the part of the supplier to contraventions of Pt V of the TPA. The description of the primary contravening conduct is very broad and is apt, in my view, to cover common law and statutory contraventions as well as breaches of contract.

The only Pt V provisions which are excluded by s 51AF(1) from operation in respect of financial services are those which impose what I have called “primary liability” upon persons. In this case, the statutory liability of Storm directly to the Doyles for misleading and deceptive conduct would have to be anchored in a provision in the Corporations Act and could not have been litigated pursuant to s 52 of the TPA. An applicant is not prevented by s 51AF(1) of the TPA from suing a linked credit provider in respect of conduct of the relevant supplier which is not alleged to be a contravention of Pt V of the TPA. If the liability of the suppler is founded upon general law or statutory rights otherwise covered by the text of s 73(1) which I have extracted at [46] above, s 73 will be available as a means of rendering liable the linked credit provider.

51    The primary judge noted that in Technology Leasing Ltd v Lennmar Pty Ltd [2012] FCA 709, Cowdroy J had agreed with Foster J’s reasoning and that both Foster J’s and Cowdroy J’s decisions on this point were referred to by the Full Court in Quikfund (Australia) Pty Ltd v Prosperity Group International Pty Ltd (in liq) [2013] FCAFC 5; 209 FCR 368 at 391-392 [96] and 397 [128] without disapproval.

52    The primary judge concluded (at Judgment [82]) that, applying this interpretation of s 51AF to the case concerning EFS, Austec and Mr Dadson, s 51AF did not operate to exclude liability on the part of EFS for misrepresentations made by Mr Dadson even if the representations were made in relation to financial services.

Appellants’ submissions

53    The appellants submit that s 51AF is not ambiguous or obscure and that its ordinary meaning does not lead to results which are manifestly absurd or unreasonable (s 15AB of the Acts Interpretation Act 1901 (Cth)). There is no need to look to extrinsic material as an aid to its construction. They contend that the language of s 51AF should be given its ordinary meaning with the effect that the provisions in Pt V of the TPA, including s 73, do not apply to the supply or possible supply of financial services. Accordingly, the linked credit provider provisions in s 73 were not available to the respondents in the present cases.

54    The appellants recognise, however, that there is a need to explain the insertion of the reference to s 12ED of the ASIC Act into s 73. The references to s 12ED in subs 73(1) and (2) of the TPA may be understood as indicating that s 73 may operate on a breach of the implied warranty relating to financial services. The appellants submit that the explanation for the reference to s 12ED in s 73 becomes apparent upon a close analysis of both the legislative history of the relevant amendments to the TPA and ASIC Acts and of the potential operation of s 12ED of the ASIC Act and s 73 of the TPA given the definitions of “financial services” and “financial products” at various times. Whilst the appellants’ primary submission is that resort need not, or should not, be had to the FSR Explanatory Memorandum, they submit nonetheless that their explanation for the insertion of s 12ED is consistent with what is said on this topic in that Memorandum.

55    The appellants point first to the fact that the references to s 12ED were inserted at a time when the definition of “financial service” did not have the amplitude which it presently has. The particular and narrow meaning of “financial service” in 1998 when s 51AF was inserted had the effect that the provision operated to exclude the application of Pt V of the TPA in relation to a confined category of financial services only. This meant in turn that s 73 could apply to a range of other services which might in the ordinary sense be understood to be financial services, but which did not fall within the narrow statutory definition. That would include equipment rental agreements of the sort under consideration here. The appellants’ submissions in this respect hinge to a certain extent on a narrow meaning being given to the word “security”, which is used in the original ASIC Act definition of financial product.

56    The appellants then contend that, when closely analysed in the context of the original narrow definitions of “financial service” and “financial product”, the reference to s 12ED in s 73 was intended to operate as a very limited derogation from the operation of s 51AF. The insertion of the reference to s 12ED in s 73 was intended to extend the benefit of s 73 to a very narrow situation involving the supply of a financial service, that is, when a warranty was implied, by reason of s 12ED, in a contract involving the supply of credit for a financial service. The argument is essentially as follows.

57    Section 73(1)(a) deals with the situation in which the relevant supplier supplies goods (not services) to a linked credit provider and a consumer then enters into a contract with that provider for the provision of credit in respect of the supply of the goods by way of sale, lease or hire. The relevant contract in that situation in which the statutory warranty may be implied is the contract for the provision of credit for the supply of the goods by the linked credit provider. Given the narrow definition of “financial service” in the 1989 ASIC Act and the TPA in 1998, the provision of credit in respect of the supply of goods would not or could not involve the supply of a financial service. Hence there was no scope for the implication of a term in the contract by reason of s 12ED. If a warranty was to be implied in the contract, it could be implied only by reason of the operation of s 74.

58    Section 73(1)(b), on the other hand, is concerned with a contract between a consumer and a linked credit provider whereby the linked credit provider provides credit in respect of the supply of goods or services or goods and services to the consumer. As with s 73(1)(a), if the relevant contract related only to the supply of goods, there would be no scope for the implication of a warranty by reason of s 12ED. However, if the credit was being supplied in relation to the supply of a financial product, such as a security, the contract would involve the supply of a financial service. That is because the definition of financial service in the 1989 ASIC Act and the TPA in 1998 included a service that “is otherwise supplied in relation to a financial product.”

59    The appellants’ submission is that the insertion of the reference to s 12ED into s 73 was intended to provide for the implication of a warranty into such a contract. This was considered necessary because, by reason of s 51AF, s 74 could not operate to imply a warranty into a contract for the supply of a financial service. The insertion of s 12ED into s 73 was intended to provide protection for the consumer in this very narrow factual scenario that might arise under s 73(1)(b). It provided for a very limited derogation from the otherwise broad and unrestricted operation of s 51AF, namely, when credit is provided by a linked credit provider in respect of the supply of a financial product. In such a case involving supply of a financial service, but no other, a consumer could rely on s 73.

60    This interpretation of the interaction between ss 51AF and 73 is, in the appellants’ submission, entirely consistent with what is said in [3.53] of the FSR Explanatory Memorandum.

61    It was only following the significant expansion of the definition of “financial services” that occurred in 2001, including the broad definition of “credit facility” provided by regulation, that s 73 could effectively no longer operate in circumstances in which a warranty was implied into a contract for the supply of a financial service by reason of s 12ED. That is because, following the widening of the definition, any provision of credit for the supply of goods, or the supply of goods or services, would involve the supply of financial services. Accordingly, s 51AF would operate to deny s 73 any operation. But that resulted from the actions of the Executive in extending, by regulation, the definition of “credit facility” and, accordingly, the definition of financial services. That circumstance can provide no basis for reading down the otherwise plain meaning of s 51AF.

62    The appellants’ submission is that the primary judge was not taken to the legislative history and analysis which explains the insertion of s 12ED into s 73 and the original intended interaction between ss 51AF and 73. This led him in effect to read words into s 51AF, or to read down its operation in a way involving error.

Respondents’ submissions

63    The starting point for the respondents’ submissions is that the purpose of the 1998 amendments, which included the insertion of s 51AF into the TPA and the amendment of s 73, was to shift regulatory responsibility for financial services and financial products from the ACCC to ASIC. This statutory purpose was achieved in two ways. First, provisions in the TPA which prescribed or proscribed norms of conduct (including implied terms) and which could relevantly apply to the supply of financial services were replicated in the ASIC Act in relation to the supply or possible supply of financial services. Secondly, exclusionary provisions, such as s 51AF, were inserted in the TPA to ensure that there was no duplication or regulatory overlap. When analogues of the TPA provisions had been inserted in the ASIC Act, the TPA provisions no longer applied to the supply or possible supply of financial services.

64    Section 73 of the TPA was not replicated in the ASIC Act and was therefore outside the exclusionary operation of provisions such as s 51AF. That was because s 73 is not a provision that prescribes or proscribes norms of conduct. Rather, it provides for private rights of action, relevantly against linked credit providers, by effectively creating a deemed statutory agency. Because it involves private rights of action, it was not a matter for regulation by ASIC. It was therefore outside the scope of the regulatory shift.

65    The shift of regulatory responsibility for consumer protection in relation to the supply or possible supply of financial services was intended to enhance, not diminish, consumer protection. This is inconsistent with any construction of s 51AF which would involve it cutting down the rights of action provided by s 73.

66    A clear textual indication that the statutory intention was that the general exclusionary operation of s 51AF was not intended to apply to s 73 was the insertion in s 73 of the reference to s 12ED of the ASIC Act. Section 73 extends to situations where s 74 implies warranties into contracts for the supply of goods and services. The insertion of s 51AF into the TPA meant that s 74 would no longer apply to the supply or possible supply of financial services. Section 73 had to be amended by including a reference to s 12ED because otherwise s 51AF would have had the effect that warranties implied into contracts for the supply of financial services would have been removed from the operation of s 73. The insertion of the reference to s 12ED in s 73 is a clear indication that it was intended to operate in cases involving the supply of financial services and was therefore outside the general excision by s 51AF.

67    The respondents submit that the construction of s 73 advanced by the appellants to explain the insertion of s 12ED is strained and tortuous. It also gives rise to a significant anomaly, namely that the amount of protection given by s 73 is directly affected by changes to the definition of financial services. An expanded definition results in a narrowing of the protection. There is nothing to suggest that this was the statutory intention. It is contrary to the apparent statutory intention of enhancing, not diminishing, consumer protection.

68    The relevant legislation should also be construed in such a way that it can accommodate future amendments to the legislation, including definitional provisions. On the appellants’ construction of ss 73 and 51AF, the effect of the 2001 changes to the definition of financial services was to render s 73 nugatory. On the respondents’ construction, changes to the definition of financial services have no impact on the operation of s 73. An expanded definition means that the scope for s 73 to be engaged by reason of the implication of terms by s 12ED is increased, and the scope for s 73 to be engaged by terms implied by s 74 is correspondingly decreased.

69    The respondents also submit that the appellants’ construction of ss 73 and 51AF involves an apparent tension, if not conflict, between ss 73 and 51AF. In accordance with the principles of construction expounded by the plurality in Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 at 381-382 [70] (Project Blue Sky), the meaning of the “competing provisions” should be “[adjusted] … to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions.” That is best achieved here by adjusting the s 51AF excision so that it only applies to provisions of the TPA which prescribed or proscribed norms of conduct involving the supply of financial services. That does not include s 73.

70    Finally, the respondents point out that their construction of s 73 is confirmed by the terms of the FSR Explanatory Memorandum.

Consideration - does s 51AF exclude the operation of s 73?

71    The issue raised by the appeal is essentially one of statutory interpretation. The question for the Court is the manner in which effect is to be given to the legislative intention evinced, in particular, in ss 51AF and 73 of the TPA and, if those provisions are inconsistent in their effect, the way in which that inconsistency is to be resolved.

72    In Project Blue Sky, the plurality said (at 381-382 [69]-[71]):

The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute. The meaning of the provision must be determined “by reference to the language of the instrument viewed as a whole”. … Thus, the process of construction must always begin by examining the context of the provision that is being construed.

A legislative instrument must be construed on the prima facie basis that its provisions are intended to give effect to harmonious goals. Where conflict appears to arise from the language of particular provisions, the conflict must be alleviated, so far as possible, by adjusting the meaning of the competing provisions to achieve that result which will best give effect to the purpose and language of those provisions while maintaining the unity of all the statutory provisions. Reconciling conflicting provisions will often require the court “to determine which is the leading provision and which the subordinate provision, and which must give way to the other”. Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

Furthermore, a court construing a statutory provision must strive to give meaning to every word of the provision. …

(Citations omitted)

73    More recent decisions of the High Court have emphasised the importance of regard to the text of the statute in question, in statutory construction. For instance, in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (NT) [2009] HCA 41; 239 CLR 27 at 46-47 [47], Hayne, Heydon, Crennan and Kiefel JJ said:

This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.

(Citations omitted)

74    In Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; 293 ALR 257 at 268-269 [39], French CJ, Hayne, Crennan, Bell and Gageler JJ said:

“This court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text”. [Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27; 260 ALR 1: [2009] HCA 41 at [47]]. So must the task of statutory construction end. The statutory text must be considered in its context. That context includes legislative history and extrinsic materials. Understanding context has utility if, and in so far as, it assists in fixing the meaning of the statutory text. Legislative history and extrinsic materials cannot displace the meaning of the statutory text. Nor is their examination an end in itself.

75    The place of the context and purpose of a statute and their relationship with its text has also been the subject of detailed consideration by the High Court since 1990: see the cases referred to in Wilson v State Rail Authority of New South Wales [2010] NSWCA 198; 78 NSWLR 704 at 707-710 [12]-[14]. Often, the relationship between context (including pre-enactment history), purpose and text will be illuminated by the subject matter of the statute, as well as by the approach to expression by the drafter. Statutes drafted in broad simple language that set a principled framework for a well-known body of law may well be approached with an eye to context, and especially pre-existing law. On the other hand, in legislation that is closely structured and finely worded, the importance of the text may be paramount: Joffe v The Queen; Stromer v The Queen [2012] NSWCCA 277; 82 NSWLR 510 at 518 [36]. Nevertheless, even in closely structured and finely worded legislation such as the TPA and ASIC Act, context and purpose may be important. Nothing in Alcan or Consolidated Media Holdings requires a decision about the clarity of meaning of text without reference to context and purpose. What was said in CIC Insurance Ltd v Bankstown Football Club Ltd (1997) 187 CLR 384 at 408; Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 99; Network Ten Pty Ltd v TCN Channel Nine Pty Ltd [2004] HCA 14; 218 CLR 273 at 280-281 [10]-[11] and in the other High Court cases cited in Wilson at [12]-[14] remains binding authority.

76    Here, both the appellants and the respondents had recourse to context and purpose to assist in the process of ascribing meaning to the words in question.

77    In the present context, this means that the Court should seek to ascertain the meaning of ss 51AF and 73 by having regard, primarily, to the text but also to the context and purpose of these provisions, and should, if possible, adopt a construction which will give them a harmonious effect. The principle emphasised in Project Blue Sky that a court should strive to give meaning to every word in a statutory provision is also important in the resolution of these appeals.

78    The inclusion in s 73(1) of the TPA of a breach of the warranty implied by s 12ED of the ASIC Act as a circumstance which, on satisfaction of its other conditions, will give rise to the liability of a linked credit provider, can be taken to be an express indication of the legislative intention that s 73 was intended to operate in circumstances involving the supply of financial services. The question seems, therefore, to be whether that legislative intention has been negated (perhaps unintentionally) by the terms of s 51AF(1).

79    The following observations may be made concerning the text of s 51AF(1).

80    First, it provides that Pt V of the TPA does not apply to the supply, or possible supply, of services that are financial services. Effect has to be given to the words “the supply, or possible supply”. They appear to be words of limitation with the effect that subs (1) is not to be read as though it provided that Pt V does not apply to financial services generally or in any respect at all. The nouns “supply or possible supply” seem to connote the activity of providing financial services so that Pt V of the TPA has no application to that activity, as distinct from precluding it having application to financial services generally and in all respects.

81    The heading to s 51AF provides “Part does not apply to financial services”. This could be regarded as an indication that s 51AF is not limited in the way just suggested. Prior to the passing of the Acts Interpretation Amendment Act 2011 (No 46 of 2011) (Cth), s 13 of the Acts Interpretation Act 1901 (Cth) provided that no heading to a section shall be taken to be part of the Act. Leaving aside the effect of s 15AB of the Acts Interpretation Act, prior to 2011, the section heading had no role to play in construction of the Act. The replacement in 2011 of s 13 by the current provision means that headings to sections are part of the Act. Section 13 is now in the following terms:

13     Material that is part of an Act

(1)    All material from and including the first section of an Act to the end of:

(a)    if there are no Schedules to the Act—the last section of the Act; or

(b)    if there are one or more Schedules to the Act—the last Schedule to the Act;

is part of the Act.

(2)    The following are also part of an Act:

(a)    the long title of the Act;

(b)    any Preamble to the Act;

(c)    the enacting words for the Act;

(d)    any heading to a Chapter, Part, Division or Subdivision appearing before the first section of the Act.

82    Nevertheless, the section heading is just that – a heading. The text of the provision is crucial.

83    The second matter to note concerning the text of s 51AF is that s 51AF(1) does not contain a prepositional clause such as “in relation to” or “in respect of”. It does not, for example, provide that Pt V does not apply “in relation to financial services” or “in respect of the supply, or possible supply, of financial services”. Use of such prepositional clauses is a recognised drafting technique to indicate a wide relationship between two subject matters. In the present case, use of such a clause could have indicated that Pt V was not to have any application in relation to matters relating to, incidental to, or consequential upon, the supply or possible supply of financial services.

84    The absence of such a prepositional clause in subs 51AF(1) contrasts with the use of such a clause in subs (2)(a), which provides that ss 52 and 55A of the TPA “do not apply to conduct engaged in in relation to financial services”. This difference in drafting technique was adopted also in s 51AAB of the TPA concerning the application of the provisions in the TPA concerning unconscionable conduct to financial services. It supports an inference that s 51AF precludes the application of Pt V of the TPA only to the supply, or possible supply, of financial services, rather than being a preclusion with wider effect.

85    The appellants drew attention to another feature of the text in s 51AF. Subsection (2) has the preface “[w]ithout limiting subs (1)”. The appellants’ submission is that this is an indication of legislative intention that s 51AF is to be read according to its terms. One may accept that that is so, but it does not, with respect, assist in identifying the meaning of those terms. All the preface does is to indicate that the express provisions in subs (2) are not to be regarded as limiting the meaning which subs (1), properly construed, conveys.

86    However, the presence of subs (2) in s 51AF may be significant. It may indicate a legislative understanding that, on its terms, subs (1) does not exclude the application of Pt V of the TPA to financial services altogether, and that it recognised the necessity for some provisions to be expressly excluded by subs (2). In other words, the very presence of subs (2) may indicate a legislative intention that subs (1) is not to be regarded as “covering the field” of the possible application of Pt V of the TPA in relation to financial services.

87    A third feature of s 51AF(1) is that it provides that Pt V does not apply to the supply, or possible supply, “of services that are financial services”. This manner of expression indicates that s 51AF is intended to exclude a subclass of services from the range of services to which Pt V would otherwise be applicable. Those services are indicated by the broad definition of “services” in s 4(1) of the TPA:

services includes any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

(a)    A contract for or in relation to:

(i)    the performance of work (including work of a professional nature), whether with or without the supply of goods;

(ii)    the provision of, or the use or enjoyment of facilities for, amusement, entertainment, recreation or instruction; or

(iii)    the conferring, of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b)    a contract of insurance;

(c)    a contract between a banker and a customer of the banker entered into in the course of the carrying on by the banker of the business of banking; or

(d)    any contract for or in relation to the lending of moneys; but does not include rights or benefits being the supply of goods or the performance of work under a contract of service.

88    It is the services of this kind, to which the substantive provisions in Pt V apply, from which the subclass of financial services is to be excluded.

89    This understanding of s 51AF is important to the resolution of the present appeals. It suggests that s 51AF(1) is to be applied by first determining the services to which Pt V would apply in the absence of s 51AF, and then excluding those which are financial services as defined. That is to say, one first needs an understanding of the services to which the provisions in Pt V would apply before one excludes from that class of services those which are financial services. This is different from the approach which was implicit in the appellants’ submissions, namely, by enquiring whether a given service is a financial service and on that question being resolved in the affirmative, concluding that Pt V can have no application to it.

90    A number of provisions in Pt V refer expressly to “services” (for example, ss 53, 53C, 54, 55A, 56, 57, 58, 60, 64, 65A, 67, 68A, 68B, 73 and 74), There are others which, by their nature or by implication, are capable of referring to “services” as defined (for example, ss 52, 53B, 68 and 74J). It is reasonable to suppose that it is the class of services to which these provisions refer from which the subclass of financial services is excluded.

91    Section 73 refers to “services” in subs (1)(b). That subparagraph relates to the circumstance in which a consumer acquires goods or services (or goods and services) from a supplier and enters into a contract with a linked credit provider for the provision of credit in respect of that supply. They are the class of services in respect of which the preclusion in s 51AF(1) operates. That is to say, s 51AF(1) has the effect that the expressions “goods or services” and “goods and services” in s 73(1) do not include financial services.

92    An analysis in these terms gives effect to the expression “services that are financial services” in s 51AF(1). Those words indicate that the preclusion effected by s 51AF is in respect of services, being financial services, in respect of which the provisions of Pt V would otherwise operate. An analysis in these terms also avoids construing s 51AF(1) as though it provided only that “this Part does not apply to financial services”.

93    The terms of s 73(1)(a) and (b), and in particular the latter, indicate that a consumer’s contract with a linked credit provider does not involve a service of the contemplated kind. So much is made clear by the text of s 73(1)(b), as it refers to a contract between a consumer and a linked credit provider for the provision of credit in respect of the supply of goods or services, or goods and services.

94    This understanding suggests that the provisions concerning the liability of a linked credit provider in s 73 are left untouched by s 51AF in relation to the provision of credit by a linked credit provider in respect of goods and services other than financial services.

95    A similar conclusion may be reached by an alternative analysis. Reference was made earlier to the fact that s 51AF(1) provides that Pt V of the TPA does not apply to the supply, or possible supply, of financial services. The understanding that s 51AF(1) precludes the application of Pt V to “the supply, or possible supply” of financial services and not to financial services more generally, raises a question of characterisation; namely, is s 73(1) and, to a lesser extent, subs (2) to be characterised as a provision concerning the supply, or possible supply of financial services.

96    Section 73(1) establishes the liability of a linked credit provider in two distinct circumstances: first, when it is the linked credit provider which acquires goods from a supplier and provides credit to a consumer for their sale, lease, hire or hire purchase; and, secondly, when a linked credit provider provides credit to a consumer in respect of a consumer’s acquisition of goods or services from a supplier. If either of those circumstances exists, and the consumer suffers loss or damage as a result of a defined circumstance, s 73(1) specifies that the supplier and the linked credit provider are jointly and severally liable to the consumer for the amount of the loss and damage.

97    On its face, s 73 is not directed to the supply, or possible supply, of financial services. It seems better characterised as a remedial provision: remedial in the sense that it provides that, when the defined circumstances exist, a consumer will have a remedy against both the supplier and the linked credit provider in the case of goods (subs (1)(a)); and in the case of goods and/or services (subs (1)(b)). Its remedial nature is indicated by subs (1) (which establishes the joint and several liability of the linked credit provider and the supplier); by subs (2) and (3) (which identify circumstances in which the remedy against the linked credit provider will not arise); by subs (4) (which allows a set-off by a consumer of a liability arising under subs (1) against any liability which the consumer may have to the credit provider); by subs (5), (6), (8), (9), (10) and (13) (which indicate that the primary remedy of the consumer should be against the supplier); and by subs (7) (which caps the liability of the linked credit provider).

98    It is true that one of the conditions for the operation of s 73(1) is that the consumer has entered into a contract with a linked credit provider for the provision of credit. It is also true that, at least following the 2001 amendments that inserted the new definitions of “financial product” and “financial service”, the provision of credit will be a supply of a financial service. This might be taken to indicate, as the appellants contend, that because it refers to the supply, or possible supply, of financial services, s 51AF necessarily operates to exclude the application of s 73. There is force in this submission, but, in our opinion, it should not be accepted. That is because s 73 does not make the supply, or possible supply, of a financial service one of the conditions for its operation. Instead, it selects as the relevant criterion the entry by a consumer into a contract with a linked credit provider for the provision of credit. The entry by a consumer into such a contract with a linked credit provider for the provision of credit cannot be said to be co-extensive with the concept of a supply, or possible supply, of a financial service. A consumer may enter into a contract with a credit provider without there being any subsequent supply of a financial service. Similarly, there may be a supply of credit without the consumer having entered into a contract with a supplier (as when, for example, a credit provider advances credit in the mistaken belief that the consumer has entered into such a contract). Circumstances of these respective kinds may be uncommon, but the fact that they exist serves to indicate that the predicate on which s 73(1) operates is not intrinsically the supply, or possible supply of a financial service.

99    Accordingly, the characterisation of s 73 as a remedial provision, rather than one directed to the supply, or possible supply, of financial services, is not affected by the circumstance that one of the predicates for its operation is the entry by a consumer into a contract with a linked credit provider for the provision of credit. This has the consequence that s 73 is not a provision concerned with the supply, or possible supply, of financial services to which s 51AF(1) is directed.

100    Construing ss 51AF and 73 in this way is consistent with the construction accepted by Foster J in ASIC v Bank of Queensland and with the purpose of the FSR Consequential Amendments Act of 1998. Plainly enough, that purpose was to transfer regulatory control of the provision of financial services to ASIC. There is no indication of a legislative purpose to reduce the protections or remedies available to consumers at the same time. On the contrary, the legislative intention was to maintain the existing consumer protection provisions. So much is apparent from the FSR Explanatory Memorandum. The FSR Explanatory Memorandum included the following relevant passages:

[3.7]    The removal of consumer protection functions in relation to financial services from the regulatory responsibility of the ACCC to ASIC reflects widespread support for the proposal that there should be one regulator with full and dedicated responsibility for consumer protection in the financial system. This arrangement will avoid possible regulatory duplication and inconsistency, which are ultimately costly to the consumer, and will provide a high level of service from a specialist financial service consumer protection regulator.

…

[3.31]    The provisions of proposed Subdivision E will be based on Division 2 of Part V of the Trade Practices Act. The key provision in this Subdivision is proposed section 12ED, which will imply in contracts for the supply of financial services a warranty that the services will be rendered with due care and skill and any materials supplied in connection with those services will be reasonably fit for the purpose for which they are supplied.

[3.32]    Proposed Subdivision E will not include provisions equivalent to sections 73, 73A and 73B of the Trade Practices Act. These provisions deal with linked credit contracts and are therefore outside the scope of Schedule 2. Section 73 of the Trade Practices Act enables consumers who have linked credit contracts to pursue a legal action against their credit providers if, for example, they suffer loss or damage as a result of a breach of a warranty implied in a contract of supply for goods or services. Proposed items 27 and 28 of Part II of Schedule 2 will amend section 73 of the Trade Practices Act so that consumers who suffer loss or damage because of a breach of proposed section 12ED of Subdivision E will also be able to rely on section 73 of the Trade Practices Act.

…

[3.53]    Proposed items 27 and 28 will amend subsections 73(1) and 73(2) of the Trade Practices Act. These amendments will reflect the inclusion of proposed section 12ED, which will imply in contracts for the supply of financial services a warranty that the services will be rendered with due care and skill and any material supplied in connection with those services will be reasonably fit for the purpose for which they are supplied, in the ASIC Act. As outlined above in paragraph 3.30 above, section 73-73B of the Trade Practices Act are detailed provisions dealing with the recovery of amounts from a linked credit provider for a breach of this warranty. Section 73-73B will have no equivalent in the ASIC Act, but the amendments to subsections 73(1) and (2) made by items 27 and 28 will ensure that consumers have access to those provisions in relation to credit supplied for financial services.

101    These statements in the FSR Explanatory Memorandum confirm the natural inference arising from the references to s 12ED in s 73(1) and (2), namely, that the linked credit provider provisions in s 73 apply (and are to continue to apply) to circumstances that might involve financial services.

102    The appellants’ attempt to explain the insertion of s 12ED by reference to the legislative history of the amendments to the TPA and ASIC Acts and in particular the original narrow definition of “financial services” is unduly strained. It also hinges on a narrow meaning being given to “security” in the context in which it appeared in the original definition of financial product. However, the word “security” is susceptible to more than one meaning (Handevel Pty Ltd v Comptroller of Stamps (Victoria) (1985) 157 CLR 177 at 196-197) and it is far from clear that the narrow meaning given to it by the appellants is the only meaning it can have in the context in which it appeared in the ASIC Act.

103    More significantly, the appellants’ explanation imputes to the legislature an intention that the remedial operation of s 73 was to be limited to a very narrow class of contract (contracts for the provision of credit in respect of the supply of financial products) and that even that narrow operation of s 73 would be susceptible to further confinement by executive action through the promulgation of regulations. Given that the overriding legislative purpose of the relevant amendments was one of regulatory reorganisation, and that there is no indication of any intention to narrow any aspect of consumer protection, including the remedial operation of s 73, it is difficult to accept that the legislature had the intention to give s 73 such a narrow and fragile operation.

104    The provisions in the Competition and Consumer Act, which came into operation on 1 January 2011, cannot control the construction of ss 51AF and 73 of the TPA. It is worth noting, however, that s 131A(1) of the Competition and Consumer Act has the effect that the provisions establishing the liability of linked credit providers contained in Pt 5-5 of Sch 2 of the Australian Consumer Law do apply to the supply, or possible supply, of services that are financial services or are financial products.

105    For these reasons, the appellants’ submission that s 51AF(1) of the TPA has the effect of making the linked credit provider provisions in s 73 inapplicable to the rental and hire contracts with the respective respondents to this appeal should be rejected. The primary judge was correct to find that s 51AF did not operate to deny the respondents recourse to s 73 in the circumstances.

Second issue – subsection 6(2) cra

106    Ground 4 of the notice of appeal in the Quikfund appeal (1192 and 1193) and ground 5 in the EFS appeal (1194) contend that the primary judge erred in finding that the contracts of guarantee and indemnity respectively signed by Mr Gonsalves (in the Quikfund appeal) and Mr and Mrs Harrison (in the EFS appeal) were unjust in the circumstances relating to the contracts at the time they were made. The effect of this finding was that Mr Gonsalves and the Harrisons were entitled to relief under s 7 of the CRA, including a declaration that the contracts were void.

107    Whilst expressed in broad terms, at the hearing of the appeals senior counsel for the appellants confirmed that these grounds of appeal were limited to the question of whether the primary judge erred in concluding that Mr Gonsalves and Mr and Mrs Harrison were not precluded from obtaining relief under s 7(1) of the CRA by the terms of s 6(2) of the CRA.

108    Our views on s 51AF of the TPA have the effect that the primary liability of Airmark and Austec is eliminated by the set-off found by the primary judge to arise from the operation of s 73. On this basis, there being no moneys owed by the debtor companies, the guarantees and indemnities of Mr Gonsalves and Mr and Mrs Harrison were not engaged. Thus, the resolution of the debate about s 6(2) of the CRA may be unnecessary. Nevertheless, Mr Gonsalves and Mr and Mrs Harrison are entitled to have their legal position clarified.

109    Subsection 6(2) of the CRA provides as follows:

A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales.

110    The primary judge found that s 6(2) did not apply to the entry into the respective contracts of guarantee and indemnity by Mr Gonsalves and Mr and Mrs Harrison, because on the evidence there was nothing to suggest that Mr Gonsalves and the Harrisons were carrying on business in their own right: Judgment at [106] and [208]. It is readily apparent, however, that in so concluding his Honour was following a number of New South Wales authorities to the effect that s 6(2) of the CRA does not have the effect of piercing the corporate veil. The respective businesses of Airmark and Austec were carried on by those companies, not their directors Mr Gonsalves and Mr and Mrs Harrison.

Submissions in relation to s 6(2) CRA

111    The appellants submit that the proper construction of s 6(2) of the CRA is that the expression “carried on by” in s 6(2) can extend to an individual or individuals who carry on business through a company. They submit that a businessman or woman can be said to be carrying on business if they control and manage a company which owns the business. That is in accordance with the ordinary meaning of the words “carry on”. The words “carry on” do not necessarily imply that to carry on a business a person must own it. Rather, the words “carried on by” in s 6(2) are used in the sense of “managed.” One can, it was submitted, carry on a business that is owned by someone else.

112    The appellants contend that this interpretation of the words “carried on by” is consistent with what was said in the relevant second reading speech concerning the intended operation of the CRA, including the following (at pp 5533 and 5535):

Encouraged by this widespread concern for the consumer faced by harsh or unjust contracts, the Government has decided that the Contracts Review Bill before this House will be confined to consumer and unincorporated farming transactions. In effect, the only persons having access will be the commonly-termed traditional consumer, that is, a consumer of goods, services or land for personal, domestic or household use only, and the unincorporated farmer. Excluded from seeking relief will be the Crown, a public or local authority, a corporation and of course the unincorporated businessman. Strata title body corporates and the like will be excluded from this blanket exclusion. With the exception of certain farming contracts, no contract with a pure business content will be reviewable.

…

Clause 6 effectively precludes applications for relief being made by the Crown, a public or local authority, a corporation or any person, e.g., a sole trader or partnership, if the contact is entered into in the course of or for the purposes of a trade, business or profession. This blanket exclusion does not apply to an unincorporated farmer nor through clause 4 (2) to strata title body corporates and the like. This means that access to possible relief is only available to a traditional consumer and an unincorporated farmer.

113    The appellants acknowledge that there are a number of New South Wales authorities that stand in the way of their submission. They contend, however, that there is no considered decision of the Court of Appeal on point. Accordingly, the principle in Australian Securities Commission v Marlborough Gold Mines Limited (1993) 177 CLR 485 at 492 that uniformity of decision-making dictates that there should be no departure from an interpretation placed on legislation by another Australian intermediate appellate court unless the Court is convinced that that interpretation is “plainly wrong” is not engaged.

114    The line of authorities concerning the relevant interpretation of s 6(2) of the CRA commences with Toscano v Holland Securities Pty Limited [1985] 1 NSWLR 145, in which McLelland J (as he then was) held that s 6(2) did not prevent two directors and shareholders of a company who carried on business through that company from obtaining relief under the CRA. His Honour held that the business was relevantly carried on by the company, not the director shareholders. The appellants submit that Toscano was wrongly decided because McLelland J was not taken to the second reading speech.

115    According to the appellants, since that decision, there has been mere “passive acceptance” of that point by both single judges and the Court of Appeal, without any significant or substantive challenge or debate: Australian Bank v Stokes [1985] 3 NSWLR 174 at 175-176; Ring Tread Systems (Australasia) Pty Ltd v Tubb (Unreported, Supreme Court of New South Wales Court of Appeal, Mason P, Meagher and Handley JJA, 30 October 1998); Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186; 75 NSWLR 42 at 65 [98] and 66 [103]; Brighton v Australia and New Zealand Banking Group Ltd [2011] NSWCA 152 at [118].

116    In support of the proposition that directors and shareholders of a company that manage the company can be said to carry on the business of the corporation, the appellants also rely on a number of other cases in which consideration has been given to the meaning of carrying on business, albeit in different factual and statutory contexts: Graham v Lewis (1888) 22 QBD 1; Thiel v Federal Commissioner of Taxation (1990) 171 CLR 338 at 344; Turner v Trevorrow (1994) 49 FCR 566 at 572-574.

117    The appellants’ submission is that it is readily apparent that the primary judge simply accepted that, because the relevant businesses were carried on by Quikfund and EFS respectively, the directors and shareholders (Mr Gonsalves and the Harrisons) did not carry on the businesses in their own right. In so finding his Honour must have simply followed the Toscano line of authority. Had he not done so, it was not open on the evidence to conclude other than that directors and shareholders of Quikfund and EFS effectively owned and managed the companies, that they accordingly carried on the relevant businesses, and that the guarantees signed by them were entered into in the course of or for the purpose of the businesses carried on by them.

118    The respondents’ submission is that s 6(2) of the CRA has a long-established and settled meaning in the Supreme Court of New South Wales. They rely in particular on the Court of Appeal decision in Brighton, in which (at [114]-[124]) Campbell JA (with whom Giles and Hodgson JJA agreed) considered and explicitly, or at least implicitly, approved the Toscano and Stokes line of authority. Accordingly, this Court should not interfere with that interpretation, or would not intervene unless convinced that the interpretation is plainly wrong.

119    The respondents submit that the settled interpretation given to s 6(2) is not plainly wrong. Neither the text of s 6(2) nor the second reading material support the construction advanced by the appellants.

Consideration – proper construction of s 6(2) CRA

120    The CRA wrought an important, indeed, fundamental change to the commercial legal landscape in New South Wales. In a short, clearly drafted and powerful statute, the courts of New South Wales, and by the operation of the Judiciary Act 1903 (Cth) s 79, federal courts were given authority to grant relief in respect of contracts or provisions of contracts that were “unjust”. There had been statutes directed to particular classes of contracts, such as the Money Lending Act 1941 (NSW) s 30, the Hire Purchase Act 1960 (NSW) s 32 and the Industrial Arbitration Act 1940 (NSW) s 88F, that had permitted relief from transactions that were harsh or unconscionable. The CRA was directed to contracts generally.

121    The CRA was the product of a report in 1976 by an eminent scholar (Professor John R Peden) to the Minister for Consumer Affairs and Co-operative Societies and to the Attorney-General of New South Wales. It was then the subject of public discussion. This is not the place to chart in detail the history of the Act. No other State or Territory has seen fit to pass legislation in the same simple terms. Its operation and application has been a regular subject of consideration by the Supreme Court of New South Wales (both in the Equity Division and the Common Law Division, in the latter often in the Possession List) and in the Court of Appeal, in cases too numerous to mention.

122    A critical aspect of the CRA’s operation, as was recognised at the time of its debate and enactment, was the boundary of its operation. The aim was to provide for the protection of those who might be referred to as consumers: JR Peden The Law of Unjust Contracts (Butterworths, 1982) at 115. Section 6(2) was the verbal formula employed. We have already referred to the relevant terms of the second reading speech.

123    If s 6(2) does not remove the contract from the scrutiny of the court for unjustness under the Act, the court’s task is one that involves a broad normative evaluation of the totality of the relevant circumstances: Provident Capital Ltd v Papa [2013] NSWCA 36; 84 NSWLR 231 at 233-234 [7]. Such an evaluation is inherently of the kind about which minds may sometimes reasonably differ.

124    Early in the life of the operation of the CRA, McLelland J construed s 6(2) in Toscano. There, Mr Toscano had for some years carried on an earthmoving business, first on his own account and then in partnership with his wife. In 1979, the partnership business was transferred to a family company. McLelland J said at 148 that “[t]hese arrangements appear to have been implemented by the Toscanos’ accountant and it is not at all clear how much practical regard (if any) either of the Toscanos paid to the technicalities of the position. Neither change seems to have affected the way Mr Toscano dealt with outsiders”. McLelland J saw as central whether the business in question was that of the company in order to determine whether it or Mr Toscano was carrying it on. One did not look broadly to a business being carried on by Mr Toscano and his wife through a company. The company was the owner of the business and thus carried it on. It was not a business carried on by the Toscanos.

125    In the context of a radical change to the control and authority of the courts’ judicial power over private rights, this approach provided a degree of workable certainty in identifying the boundary of the operation of the CRA. It was in conformity with the second reading speech which had referred to companies, sole traders and partnerships being excluded. It allowed people such as the Toscanos to avail themselves of the CRA; it did not, however, preclude the court from taking into account the proximity of the director or shareholders to the business and the transactions as a relevant consideration in the assessing of unjustness.

126    A little over seven months after the decision of McLelland J in Toscano in the Equity Division, Rogers J (as he then was) decided Stokes. His Honour pointed out the difficulty of identifying a clear underlying parliamentary intention and rationale to the meaning that was adopted by McLelland J, and that McLelland J and Rogers J both thought flowed from the words. Rogers J was not criticising the reasoning of McLelland J. Rather he was pointing out the difficulty of construing s 6(2) and of recognising the informing policy in denying a business person the benefit of the CRA, if she or he carried on business as a sole trader or in partnership, but not if she or he operated through a two dollar family company. Though a long passage, what Rogers J said at 176-177 bears repetition in this context:

Now s 6(1) self-evidently excludes the operation of the Act in relation to a corporation. Section 6(2) excludes the operation of the Act if a trader enters into the contract in the course of or for the purpose of the trade, business or profession carried on. Prima facie, the defendants were not carrying on any relevant trade, business or profession; they were utilising the form of enterprise known as the limited company for the purpose of engaging in a business activity.

It has been the established principle since the decision of the House of Lords in Salomon v Salomon & Co [1897] AC 22, that the law draws a clear distinction between the individual and the legal entity utilised for the purpose of carrying on business. It is right to recognise that in more recent years there has been a steady erosion of that separation by piercing the corporate veil. However, on the face of it, the exclusion in s 6(2) does not seem to apply to the defendants. Parliament and courts of authority have enjoined judges to give to statutory provisions a purposive interpretation. So approached, the interpretation of s 6(2) is a difficult and confusing task. It seems illogical in the extreme that Parliament should have excluded, from the purview of the Act, relief to a two dollar company which is carried on by the corner grocer and to the grocer carrying on business in his own name, yet if that grocer carries on business in the name of the two dollar company and then gives a guarantee in respect of the business of the company, on the face of it he is not carrying on business for the purposes of s 6(2) and the Act operates in relation to a guarantee.

With the most profound desire to pay deference to the Parliamentary intention, I must say that I am confused. I cannot identify the clear strand of reasoning which would allow me to give the provision the purposive interpretation that I am called upon to give it.

There are difficulties, if one approaches the provision along the lines suggested by counsel for the plaintiff, of working out what is meant by the expression “carried on by him”. Does it mean that the person in question has to hold 100 per cent of the shares, 50 per cent of the shares, or a controlling interest? Does it mean that the person has to have a beneficial interest in the entity at all? The trading trust which may be carried on for the benefit of discretionary beneficiaries is but one example of the difficult type of situation which one would have to confront if one were to depart from the strict separation of entities commanded by the decision in Salomon v Salomon.

If I may say so with the utmost deference, these difficulties do not seem to have troubled or found a reflection in the judgment of McLelland J in Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145. His Honour was apparently content to accept the view that in circumstances such as the present and those which obtained before him, if the business is carried on in the name of a company then that is the end of the matter.

Because of the difficulty of ascribing a clear Parliamentary intention to s 6(2) and because of the real difficulties which I think would be occasioned by departing from the prima facie effect and words of the subsection, I think it is appropriate to hold that the meaning to be given to it is the one which appears on its face and which was the one adopted by McLelland J. However, I think it is appropriate to suggest that the Parliament consider whether or not it is desirable that what appears to me to be conflicting expressions of Parliamentary intention be resolved one way or the other, both for the benefit of the courts and for members of the community who may need to resort to the provisions of the Act.

127    This lucid and powerful expression of view, reported in the authorised reports of New South Wales, has not led to any action by Parliament.

128    Since 1985, the articulation of principle as to the operation of s 6(2) has been broadly consistent and uniform with the expression of principle in Toscano and Stokes. In some cases, such as Steele-Smith v Liberty Financial Pty Ltd [2005] NSWSC 398 at [88], judges saw s 6(2) as throwing up the question whether the contract was “for business purposes”. See also Ellison v Vukicevic (1986) 7 NSWLR 104; and Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505; 13 BPR 25,343 at 25,382 [363]. The Court of Appeal in Ford at 65-66 [98]-[103] made clear that such general phrases were not to be taken as a gloss on the terms of s 6(2). That said, the Court in Ford, recognised at [103] the difficulties that trading trusts might impose on the interpretation of s 6(2) whilst, at the same time, not casting doubt on Toscano:

Nothing we have said is intended to deal with the question of the operation of a business through a trust. Difficult questions might arise somewhat different to those dealt with in the context of a company and shareholder in Australian Bank Ltd v Stokes (1985) 3 NSWLR 174, Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145 and Chen v Song (2005) ANZ Conv R 130. It would be a factual and legal mistake to attribute the status of trustee to Mr Ford. He was not the owner of the business in any sense and he was not intended to be. He was not intended to be a trustee and did not have the capacity to be a trustee.

129    In 1998, the Court of Appeal (Mason P, Meagher and Handley JJA agreeing) had applied Toscano and Stokes.

130    Two years after Ford, the New South Wales Court of Appeal returned to s 6(2) in Brighton. The judgment of the Court was delivered by Campbell JA (Giles and Hodgson JJA agreeing, without separate reasons). From [116]-[124] Campbell JA carefully reviewed the jurisprudence on s 6(2). These paragraphs should be set out in full:

The judge's reasoning on the application of s 6(2) was:

“165    In relation to s 6(2), the defendants submitted that the deed was not entered into ‘in the course of or for the purpose of’ the Brightons' pontoon and marina business. Rather, it was contended, the purpose of the Deed was to extinguish the ANZ's liability for a wrongful disclosure. The defendants' counsel submitted that the deed ‘was for a protective purpose not a mercantile purpose’.

166    In my view this submission is incorrect. In relation to Mrs Brighton it seems clear to me that the deed was entered into ‘in the course of or for the purpose of’ the trade, business or profession she was carrying on through SSMG. Put simply, in the course of carrying on that trade, business or profession - and specifically in resisting the winding up proceedings against SSMA - Mrs Brighton entered into the deed. Thus she is not entitled to relief under the CRA.

167    In relation to Mr Brighton, on his own account he had a substantial involvement in the SSMG group over a number of years, including in the period covering the execution of the deed. He had taken a leave of absence of some 14 months in around 2004 in order to work with the SSMG. He intended to join the SSMG in a full time role in 2006. Mr Brighton also had a 50% shareholding in Brighton Associates, which in turn owned 100% of SSMA. When regard is had to these factors, the correct conclusion as a matter of substance is that Mr Brighton entered the deed either in the course of, or for the purpose of, the trade, business or profession he was carrying on, or proposed to carry on, through SSMG. Thus he is also not entitled to relief under the CRA.”

The Appellants submit that this conclusion is erroneous, because the judge failed to take into account the decision of McLelland J (as his Honour then was) in Toscano v Holland Securities Pty Ltd (1985) 1 NSWLR 145. McLelland J there considered a situation in which a business was carried on by a company that had only two shareholders, who had previously carried on the business in partnership. One of the contracts concerning which relief was sought under the Contracts Review Act had been entered into by one of the former partners in his own name, but as undisclosed principal for the company. The other was a guarantee by the other shareholder of the obligations of the first-named shareholder under that contract. McLelland J held that those shareholders were not carrying on a business at the time, and hence the contracts in question were not entered into “for the purpose of” a business carried on by the person who entered the contract.

In Australian Bank Ltd v Stokes (1985) 3 NSWLR 174 Rogers J followed the decision in Toscano. Rogers J did so with grave reservations that Toscano seemed at odds with the apparent purpose of s 6 to make the Act inapplicable to what could be broadly described as commercial transactions. However ultimately, in light of the well established distinction between a corporation and its shareholders, and difficulties in deciding what sort of relationship between a shareholder and a corporation would need to exist before the business of the corporation was “carried on by him” his Honour followed the literal construction that McLelland J had given to s 6(2).

In Chen v Song [2005] NSWSC 19; [2005] ANZ Conv R 130 at [187] James J found, without any reference to Toscano or Australian Bank v Stokes, that:

“… the business was proposed to be carried on by the company Golden Mountain Group Pty Ltd and that, accordingly, s 6(2) of the Act is not an obstacle to Mr and Mrs Song being granted relief.”

Mason P (Meagher and Handley JJA agreeing) followed Toscano in Ring Tread Systems (Australasia) Pty Ltd (Receiver and Manager Appointed) v Tubb (Court of Appeal, 30 October 1998, unreported). Mason P said, at 8, “I cannot see any basis upon which the Contracts Review Act was excluded from the proceedings” insofar as the beneficiary of a guarantee of the debts of a company sought to enforce it against the guarantor.

In Ford by his Tutor Beatrice Ann Watkinson v Perpetual Trustees Victoria Limited [2009] NSWCA 186; (2009) 75 NSWLR 42 Allsop P and Young JA (Sackville AJA agreeing) held that the Contracts Review Act could in principle be applied to a situation where the person seeking relief had entered a contract that related to a business that was then proposed to be carried on, but where he did so as a consequence of manipulation, and with no intention “to take any benefit whatsoever from the business or to carry on the business” [96]. The primary judge in that case had said he was willing to accept an argument “that the provisions of the Act did not in any event apply to the transaction as the loan was for business purposes within the terms of s 6(2) of the Act”. Allsop P and Young JA said, at [95]:

“With respect, that is not the relevant question for s 6(2). What must be answered is whether [the person seeking relief] entered into the contract in the course of or for the purpose of a trade or business carried on by him or proposed to be carried on by him.”

At [99] their Honours referred to another case in which a trial judge had said:

“The loans sought by [the applicant for relief] were stated in her application to be for business purposes. She confirmed that purpose to [counsel]. There is no evidence that the proceeds of the loan were not applied for a business purpose, contrary to [the applicant's] statements. Those circumstances take the loans out of the purview of the Contracts Review Act 1980, even if some factual basis for relief under the Act had otherwise been made out: see s 6(2).”

Allsop P and Young JA said of those remarks, at [100]: “With respect, as a statement of the relevant test under s 6(2) that expression of the matter is inadequate.” At [103] their Honours specifically referred to Toscano, Australian Bank v Stokes and Chen v Song without a hint of criticism.

The written submissions of counsel for ANZ specifically referred to the decisions in Ring Tread Systems and Ford v Perpetual Trustees , and did not contend to the contrary of what those cases had decided concerning the applicability of s 6(2). Thus, Issue 3 should be resolved in favour of the Appellants. That clears the way to move on to Issue 2.

131    It is plain from [124] that the issue was not the subject of full argument. Nevertheless, Campbell JA set out the clear position in unequivocal terms that it had obtained in New South Wales for 25 years.

132    It was submitted there was no precedential impediment to stating the law contrary to this unbroken line of authority, because the point had not previously been squarely taken. No principled reasoned decision stood in the way of an examination of the question afresh. This Court, it was submitted, was unconstrained by the need to conclude that earlier authorities were “plainly wrong”.

133    We reject the appellants’ underlying submission, and we would also reject their submissions on the proper approach to precedent.

134    It may be accepted that there has been no full square attack on s 6(2) in the New South Wales Court of Appeal or in this Court along the lines of the argument propounded by the appellants. Nevertheless, the argument has not been hidden, nor is it subtle. It was illuminated by Rogers J in Stokes. The position has been consistently stated over nearly 30 years by judges such as McLelland J, Rogers J, Mason P, Meagher JA, Handley JA, Giles JA, Hodgson JA and Campbell JA. The stable interpretation has provided a straightforward workable framework of some certainty to a statute that affects commercial law. That stability should not be interfered with lightly. This is so when, as Rogers J pointed out in 1985 in Stokes and Campbell JA pointed out recently in Brighton, such interference would bring about uncertainty in the boundaries of s 6(2), that is, in deciding what sort of relationship between shareholder, director or manager of a company and the business of the company would suffice to lead to the conclusion that the business of the corporation was carried on by her or him.

135    The construction contended for by the appellants would make the operation of s 6(2) less clear than it now is. If the business can be carried on by the person without being owned by the person, one is left to ask what degree of management responsibility is required. Is the subsection to be interpreted as referable to contracts entered “for business purposes”? That, in effect, was the substance of the submission. Yet the words are: “a trade, business or profession carried on by the person or proposed to be carried on by the person”. The implicit ownership of that business contained in the words “carried on by the person” that commended itself to McLelland J and Rogers J must be recognised.

136    Whilst, as Rogers J said, the policy behind drawing the line short of those who do not own the business may, from one point of view, be obscure. It does, however, conform with one clearly available linguistic reading of the section; it creates a tolerably certain test: In the course of whose business (that is owned by whom) was the contract entered into? Further, all the circumstances of what might be the close relationship between the person, the business and the company can still be explored in resolving the issues as to whether the contract was unjust and, if it is, what relief, if any, should be granted.

137    We are not persuaded that the construction placed on s 6(2) by the primary judge which was in accordance with the stable body of principle in the New South Wales Court of Appeal was wrong. Nor are we persuaded that it would be a responsible step to gainsay the stable, long-held interpretation of such an important piece of New South Wales legislation.

138    There was no appeal from the primary judge’s evaluation of unjustness or relief.

Conclusion

139    For the above reasons, the appeal should be dismissed with costs.

Associate:

Dated:    16 June 2014