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Federal Court of Australia |
Last Updated: 13 June 2002
Australian Competition & Consumer Commission v Black on White
TRADE PRACTICES - notice of motion seeking costs orders against third and fourth respondents - whether compensation should be paid by the third and fourth respondents to the applicant - if compensation is ordered, the appropriate amount to be paid - whether a refund of money or payment of loss and damage will compensate the loss or damage identified - whether a causal connection exists between the loss or damage that has allegedly been or is likely to be suffered and the contravening conduct - measure of compensation is the monetary difference between the position in which the aggrieved person now finds him or herself in and the position in which the person would have been had there been no contravention - whether what the claimants received was of value irrespective that it was not what they had paid for
INTEREST - claim of interest pursuant to s 51A Federal Court of Australia Act 1976 (Cth) - whether the relevant state Supreme Court interest rate should be applied
Trade Practices Act 1974 (Cth), s 87, Part V
Federal Court of Australia Act 1976, ss 51A, 52(2)
Federal Court Rules, O 35 r 8
Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494, applied
Henville v Walker [2001] HCA 52, cited
Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215, referred to
March v Stramare [1991] HCA 12; (1991) 171 CLR 506, cited
Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514, cited
Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1, cited
Ikin & Ors v Same & Lamborghini Tractors of Australia Pty Ltd & Anor (1985) ATPR 40-595, cited
Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23, cited
Namol Pty Ltd v A.W. Baulderstone Pty Ltd (No. 2) (1993) 47 FCR 388, cited
Kettle Chip Company Pty Ltd v Apand Pty Ltd (No. 2) (1998) 83 FCR 466, cited
Nagy v Masters Dairy Ltd (1997) 150 ALR 301, cited
EMCL Pty Ltd v Esanda Finance Corporation Ltd (No. 2) (1998) 160 ALR 382, cited
EMCL Pty Ltd v Esanda Finance Corporation Ltd [1999] FCA 978, cited
White Industries (Qld) Pty Ltd v Flower & Hart [2000] FCA 1132; (2000) 103 FCR 559, cited
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v BLACK ON WHITE PTY LTD (ACN 061 507 248) trading as Australian Early Childhood College and OTHERS
No QG 110 of 1997
SPENDER J
BRISBANE
12 JUNE 2002
IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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1. The third and fourth respondents pay to Mr Darryl Cobb and Mrs Sarah Cobb the amount of $3,655.00 plus interest, a total amount of $5,482.50.
2. The third and fourth respondents pay to Ms Jody Rye the amount of $3,214.12 plus interest, a total amount of $4,821.18.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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JUDGE: |
SPENDER J |
DATE: |
12 JUNE 2002 |
PLACE: |
BRISBANE |
1 I am presently concerned with further aspects of the principal proceedings, in which I made orders on 4 April 2001. Those aspects are contained in a notice of motion filed by the applicant on 15 June 2001, which was considered in part on 22 November 2001. Paragraphs 3, 4, 5 and 6 of the notice of motion seek orders against both the third and fourth respondents. These paragraphs provide as follows:
"3. The third and fourth respondents pay to the applicant, within 30 days of the date of the Court's order, the amount of $6,869.12 to be distributed to the following persons who have suffered loss and damage in the following amounts:(a) Sarah Elizabeth Jill Cobb and Darryl Steven Cobb in the amount of $3,655.00; and
(b) Jody Leanne Rye in the amount of $3,214.12.
4. The third respondent and the fourth respondent pay to the applicant, within 30 days of the date of the Court's order, interest pursuant to section 51A of the [Federal Court of Australia Act 1976 (Cth)], at the rate of 10% per annum or such other rate as the Court considers appropriate, on each of the amounts listed in paragraph 3 to be distributed to the respective persons listed in paragraph 3.
5. The third and fourth respondents pay the applicant's costs of and incidental to this application to be taxed if not agreed.
6. Such further or other order as the Court thinks appropriate."
Section 87(1B) of the Trade Practices 1974 (Cth) ("the Act") allows the Australian Consumer and Competition Commission ("the ACCC") to make an application under subsection (1A) on behalf of Mr and Mrs Cobb and Ms Jody Rye, as it provides as follows:
"Where, in a proceeding instituted for an offence against section 79 or instituted by the Commission or the Minister under section 80, a person is found to have engaged (whether before or after the commencement of this subsection) in conduct in contravention of a provision of Part IVA, IVB or V, the Commission may make an application under subsection (1A) on behalf of one or more persons identified in the application who have suffered, or are likely to suffer, loss or damage by the conduct, but the Commission shall not make such an application except with the consent in writing given before the application is made by the person, or by each of the persons, on whose behalf the application is made."
Section 87(1A) provides:
"Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA, IVB or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person."
2 The orders made on 4 April 2001 included declarations that the third and fourth respondents were knowingly concerned in or party to contraventions by the first respondent of Part V of the Act by engaging in misleading and deceptive conduct by representing that courses offered by the Australian Early Childhood College ("the College") were approved by the Vocational Education, Training and Employment Commission of Queensland ("VETEC") when in fact they were not.
3 The issue that remains to be determined in respect of the third and fourth respondents is the compensation, if any, to be paid by the third and fourth respondents to the applicant. The orders that can be made by the Court in respect of costs include directing the refund of money (s 87(2C)) and directing payment of loss and damage (s 87(2D)). For such orders to be made, it must be shown that the orders will compensate the loss or damage identified: Marks v GIO Australia Holdings Limited [1998] HCA 69; (1998) 196 CLR 494 at 513 per McHugh, Hayne and Callinan JJ. In Marks v GIO (at 510) it was established that, in determining whether a person has suffered, or is likely to suffer, loss or damage by the conduct of another person, a causal connection must be identified between the loss or damage that has allegedly been or is likely to be suffered and the contravening conduct.
4 Such a causal connection will exist if the representation at issue plays some part, even if only minor, in contributing to the course of action taken: Henville v Walker [2001] HCA 52 at [107] per McHugh J (citing Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 236, 250-251). If the respondent's breach has materially contributed to the loss or damage suffered, it will be regarded as a cause of the loss or damage, irrespective of whether other factors have played an even more significant role in causing the loss or damage: Henville v Walker at [106] per McHugh J (with whom Gummow J agreed).
Emma Katherine Cobb
5 Both Emma Katherine Cobb and her mother Sarah Elizabeth Jill Cobb gave oral and affidavit evidence of the relevant facts, establishing that Emma enrolled in the Diploma of Early Childhood Education at the College. She attended the College from 24 February 1997 until 6 June 1997. Her course fees totalled $2,205.00. Furthermore, as she lived at home in Tomewin, New South Wales, she moved out of home to attend the Brisbane campus of the College and paid $100 per week for food and board ($70 per week board, $30 per week food and incidentals), a total of $1,500 of which $1,050 was paid for accommodation.
6 Emma Cobb in her affidavit filed 21 December 2001 claimed that, had she known that the course offered was not an accredited course, she would not have enrolled in it. Instead, she would have returned to study at Murwillumbah High School and continued to live at home. Since leaving the College she has not completed any other child care courses and has not been given or received credit for any subjects completed at the College. Cross-examination by Mr Davis, counsel for the fourth respondent, disclosed that, although Emma enrolled in the College with the intention of working in the child care industry, that ambition changed when she undertook a practicum in a child care centre. At that time, it became apparent to her that she did not wish to pursue a career in the child care industry and she is now employed in retail. Concerning Emma Cobb, I said to counsel for the fourth respondent:
"...there's no challenge to the fact of payments and neither Mrs Cobb or Ms Cobb were challenged on their claim that, had each of them known the course was not an accredited course, Emma Cobb wouldn't have enrolled in it and Mrs Cobb wouldn't have paid any moneys."
To which Mr Davis replied, "That's so. Reliance, if I can call it that, is conceded."
7 It was submitted for the applicant that the respondent's misleading and deceptive conduct materially contributed to the Cobbs' decision to enrol Emma in the course, to pay her tuition fees and to incur accommodation costs, which resulted in loss and damage to the Cobbs.
8 Counsel for the fourth respondent disputed that there was a causal connection between the misrepresentation founding the contravention in which the fourth respondent was involved and the loss suffered by the Cobbs. Counsel acknowledged that Emma had decided to pursue a career in child care, which could not be pursued in her home town of Tomewin in New South Wales, hence she had to leave Tomewin and board at one of the capital cities where there was an appropriate college. It was not submitted that the amount of board Emma paid was excessive, nor was it suggested that cheaper accommodation could have been obtained in another city if she had pursued a different course.
9 The core of the argument on causation was that Emma decided to abandon her studies after realising that child care was not to her liking. But for the misrepresentation, it was submitted that she would have enrolled at another college and incurred board and tuition fess but not pursued this career even had the misrepresentation not occurred. Consequently, it was said that Emma did not suffer loss by reason of the misrepresentation. This argument is fallacious. It is simply not correct that, if the misrepresentation had not occurred, she would have expended the same amounts on an enrolment at another college. The subsequent disenchantment with a career in child care is not relevant to the question of causation.
10 There was no challenge to Mrs Cobb or Ms Cobb concerning their claim that had each of them known the course was not an accredited course, Emma Cobb would not have enrolled in it and Mrs Cobb would not have paid any moneys. Even by what might be called the Flat Earth Theory of Causation enunciated by the High Court in March v Stramare [1991] HCA 12; (1991) 171 CLR 506 ("causation is a matter of common sense"), the making of the misrepresentation about the accreditation of the course in which Emma Cobb enrolled was a cause of the payment of the moneys by Mr and Mrs Cobb. "Common sense" as a basis for determining causation, is, it seems to me, either self-justifying or meaningless.
11 It was submitted for the fourth respondent that even if the submission on causation be not accepted, no loss had been proved, because what Emma Cobb studied did have a value and the true measure of the loss was what she paid for the course less what it was worth, and therefore the applicant has not proved any loss and that even if it could prove some, it has not properly quantified the loss and therefore there is no basis on which the Court could make an assessment. This submission also applies in the case of Jody Leanne Rye and will be considered later.
Jody Leanne Rye
12 Jody enrolled in Certificate IV in Early Childhood Development at the College in February 1997. Between about 26 February 1997 and 30 July 1997 Jody paid the College's fees by instalments totalling $4,500. Whilst undertaking the course Jody was not employed, but received an allowance of $1,285.88 from Austudy, as well as an Austudy supplementary loan of $2,646.74. All of the allowance and supplementary loan, in addition to $567.38 of Jody's own funds, were used to pay the course fees.
13 Since leaving the College, Jody has not undertaken any other child care courses and has not been given or received any credit for the subjects completed at the College. In an affidavit filed 21 December 2001 she deposed that, had she known that the Certificate Course offered by the College was not an accredited course she would not have enrolled in it.
14 Jody said in cross-examination that an attempt to use in the child care industry the certificate given upon completion of the 1997 course was unsuccessful. She said she was told that the certificate did not qualify her for the job she had applied for and that she could not be paid as a qualified child care assistant. Because the course she studied was not accredited, the certificate she received from the College was useless and she would need to completely redo a course of study to gain those qualifications. She is currently unemployed and has not undertaken further study. She has not approached any institution with a view to having her study at the College credited towards further qualifications.
Assessment of Compensation
15 In assessing the amount of compensation to be awarded, the measure of compensation is the monetary difference between the position which the aggrieved person now finds him or herself in and the position in which the person would have been had there been no contravention: Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494; Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514; Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3; (1986) 160 CLR 1.
16 In Ikin & Ors v Same & Lamborghini Tractors of Australia Pty Ltd & Anor (1985) ATPR 40-595 I observed (at 46,825) that:
"... a proper interpretation of section 82, the remedy given by the Act, does not enable an applicant to recover on the basis of `how much better off [the applicants] would have been if the statements had been true but how much worse off [they are] by reason of having taken the steps which [they] did in reliance on the statements.'"
In Gates (supra) Gibbs CJ said at 7:
"It has not been shown either that if the representations had not been made the appellant would have taken out a different policy conferring benefits of the kind which it was represented to him that the total disability clauses conferred, or that it would have been possible to obtain such a policy. As was said in the Full Court, `The inference seems inescapable that, but for the statements, Mr Gates would have proceeded exactly as he did save that he would not have paid extra for total disability cover.' The claim for damages under the Trade Practices Act was not made out. No application was made for the making of any ancillary orders under s 87. No doubt, under that section, the court could have awarded rescission of the policies and return of the premiums paid, but that course was not sought and would in any event have afforded little benefit to the appellant." (Emphasis added)
17 In Gates, the respondent's agent represented that upon total disability certain benefits would flow under an insurance policy. However, under the terms of the policy that was not the case. The appellant claimed the payment which would have been made had the representation been true. The appellant's claim failed. Here, moneys were paid on behalf of both Emma Cobb and Jody Rye based on a representation that the course had an accreditation which it did not in fact have. What is sought on their behalf is the return of the moneys paid together with interest.
18 In Marks v GIO Australia (supra) at 514-515, it was held by McHugh, Hayne and Callinan JJ that what is necessary is a comparison of the value of what was obtained as opposed to what was paid for it.
19 The argument for the fourth respondent on this aspect of the case is that the damage suffered is the amount they paid less the value of the courses studied, that is, that the true measure of loss was what was paid for the course less what it was worth: Gates (supra) at 7. Consequently, it was submitted that the applicant did not prove any loss and that, even if it had, did not properly quantify the loss, hence there is no basis upon which the Court can make an assessment: Ted Brown Quarries Pty Ltd v General Quarries (Gilston) Pty Ltd (1977) 16 ALR 23. While counsel for the fourth respondent admitted that Emma and Jody received "less than what [they] bargained for" because the courses did not have VETEC approval, Mr Davis maintained that what they received was of value.
20 This submission was based on the evidence of Mrs Du Moulin, the effect of which was that, in certain circumstances, credit for prior learning, even if the course actually studied was not accredited by VETEC, could be given. Credit transfer for the course actually studied by the students is not automatic because the course actually studied lacked VETEC accreditation, but if the study reached the competency level of an accredited subject, the student might receive accreditation for that subject. It was submitted that, in the absence of evidence that the course actually studied, though lacking accreditation, was not of such a nature that credit for prior learning could not be given, the applicant had not established that the course actually studied was worthless, therefore had not proved the damage to found any award for compensation.
21 It was submitted by Mr Lumb, counsel for the applicant, that customers are entitled to the services they want and are not obliged to accept something else. As the written submissions of the applicant outlined:
"If a consumer would not have purchased what was in fact provided, it is not to the point in assessing damages that it had some of the features the consumer wanted it to have unless what was purchased could be returned, sold or traded. Ms Rye (like the Cobbs) would not have invested her time and money attending a course that did not lead to the qualification that she wanted and was promised."
22 Argument by way of analogy sometimes has its difficulties, but not uncommonly, specific examples can illustrate the problem to be solved and point in the way of the correct solution. Two instances were given in the course of submissions on this interesting point. First was the case where a person purchased a ring on the basis that it was a flawless diamond ring worth $5,000 when in fact the ring was zirconium and worth $10. It is correct, in my view, that the buyer would only be entitled to $4,990 by way of compensation in the circumstance of not returning the zirconium ring. This result is consistent with the doctrine that the true measure of loss is what is paid for a thing, less what it was worth. The second example was that of a person paying $1,000 for a ticket to hear Pavarotti in concert who, on turning up to the concert hall, learns that there is no Pavarotti, but that a member of the local Guiseppe Verdi choir would be singing a number of arias. Is the concert goer entitled to the repayment of the $1,000 ticket, or does the concert goer have to establish that a concert by the local Guiseppe Verdi choir member was worthless or else was worth something, and establish what that something was, and then be entitled to the difference between the $1,000 paid for the concert by Pavarotti and whatever might be established as the value of the concert that was in fact presented? It seems to me in the latter case that what was received was not what was bargained for, and what was received cannot be returned. In those circumstances the concert goer would be entitled to a repayment of the full $1,000 paid for the ticket for the Pavarotti concert.
23 In the present case, I am satisfied that compensation should be paid for the full amount of the payments made on behalf of Emma Cobb and Jody Rye as a result of the representation that the courses in respect of which the payments were made had an accreditation which they did not have.
Interest
24 The applicant claims on behalf of Ms Cobb and Ms Rye interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth), at the rate of ten per cent per annum.
25 There is a line of authority that the relevant state Supreme Court interest rate should be applied (Namol Pty Ltd v A.W. Baulderstone Pty Ltd (No. 2) (1993) 47 FCR 388; Kettle Chip Company Pty Ltd v Apand Pty Ltd (No. 2) (1998) 83 FCR 466; Nagy v Masters Dairy Ltd (1997) 150 ALR 301; EMCL Pty Ltd v Esanda Finance Corporation Ltd (No. 2) (1998) 160 ALR 382 (at first instance); EMCL Pty Ltd v Esanda Finance Corporation Ltd [1999] FCA 978 (on appeal)) unless there is evidence that such interest is penal and not commercial: EMCL Pty Ltd (on appeal) at [62].
26 However, in White Industries (Qld) Pty Ltd v Flower & Hart [2000] FCA 1132; (2000) 103 FCR 559, Goldberg J did not adopt the usual practice of the Court so as to apply Queensland interest rates. Goldberg J adopted the relevant interest rates determined for the purposes of O 35 r 8 of the Federal Court Rules (prescribed for the purpose of s 52(2) of the Federal Court of Australia Act 1976 (Cth)). Goldberg J did so on the basis that it "was not suggested that the interest rates fixed pursuant to O 35, r 8 were not commercial rates of interest or that they were penal rates or that they should not be applied" (at [47]). The relevant rates set out in the judgment included the following:
1 January 1994 to 31 July 1995: 10%
1 January 1996 to 25 September 1997: 12%
26 September 1997 to the date of judgment
(14 August 2000): 10.5%
27 The relevant interest rates applicable to default judgments in the Supreme Court of Queensland are as follows:
1 July 1995 to 30 April 1997: 11.5%
1 May 1997 to 30 June 1998: 10%
1 July 1998 to 31 October 2000: 9%
1 November 2000 to 31 August 2001: 10.5%
1 September 2001 to date: 9.5%
28 No submissions were made by the fourth respondent as to the applicable interest rate.
29 The object of s 87(1A) of the Act is to make an order that will compensate a person for the loss sustained as a consequence of the contravention, in this case of Part V, of the Act. That compensation should in my opinion include a component to reflect the fact that the payers have been deprived of the use and benefit of their moneys since the date of payment. In my opinion, an interest component assessed at the rate of ten per cent per annum over that period would be appropriate.
30 The amount claimed in respect of Mr Darryl Cobb and Mrs Sarah Cobb is $3,655 made up of an amount of $2,605 paid to the first respondent and $1,050 paid in respect of Emma Cobb's accommodation. The total sum was paid in various instalments from 9 February 1997 to 24 May 1997. Dealing with the matter in a broad brush way, I will allow interest for five years at ten per cent on that sum to today, making a total amount in respect of Emma Cobb of $5,482.50.
31 In respect of Jody Rye, the appropriate amount to order by way of compensation is $3,214.12 together with interest. That sum is made up of the total amount paid less an amount of $1,285.88 being an allowance received from Austudy, the repayment of which has been waived by Centrelink. Again in a broad brush way, I would allow by way of interest an amount calculated at ten per cent for five years on the sum of $3,214.12 to today, making a total amount of $4,821.18.
32 I will hear the parties as to costs.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender. |
Associate:
Dated: 12 June 2002
Counsel for the Applicant: |
Mr S. Lumb |
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Solicitor for the Applicant: |
Australian Government Solicitor |
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Counsel for the Respondent: |
Mr P. Davis |
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Solicitor for the Respondent: |
Lynch & Co |
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Date of Hearing: |
25 February 2002 |
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Date of Judgment: |
12 June 2002 |
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