Houghton v Arms

• Jurisdiction: Australia Federal only
• Court: High Court (Australia)
• Judge: Gleeson CJ,Gummow,Hayne,Heydon,Crennan JJ
• Judgment Date: 13 December 2006
• Neutral Citation: 2006-1213 HCA A,[2006] HCA 59
• Docket Number: M107/2006
• Date: 13 December 2006

James Houghton And Anor

Appellants

and

Simon Arms

Respondent

[2006] HCA 59

Gleeson CJ, Gummow, Hayne, Heydon and Crennan JJ

M107/2006

HIGH COURT OF AUSTRALIA

Houghton v Arms

Trade practices — Misleading or deceptive conduct in trade or commerce — Where appellant employees of a corporation made misleading or deceptive statements to respondent in the course of their employment — Where the corporation was sued for contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the Commonwealth Act’) by reason of the conduct of the appellants — Where the appellants were also sued for contravention of s 9 of the Fair Trading Act 1999 (Vic) (‘the State Act’) — Whether each appellant was a ‘person’ for the purposes of s 9 of the State Act — Whether conduct of each appellant was ‘in trade or commerce’ for the purposes of s 9 of the State Act.

Statutes — Statutory construction — Construction of s 9 of the State Act — Where the Commonwealth Act and the State Act have concurrent and overlapping operation — Where the Commonwealth Act had, but the State Act did not have, provisions imposing accessorial liability upon persons ‘involved’ in a contravention — Where the Commonwealth Act had, but the State Act did not have, provisions deeming conduct engaged in on behalf of a corporation to have been engaged in by the corporation — Whether s 9 of the State Act is to be construed so as not to apply to persons who were not engaged in trade or commerce on their own account.

Words and phrases — ‘in trade or commerce’.

Trade Practices Act 1974 (Cth), ss 52, 75, 75B, 82, 84.

Fair Trading Act 1999 (Vic), ss 9, 159.

Gleeson CJ

The litigation

1 The action giving rise to this appeal was instituted by the present respondent (Mr Arms) in the Federal Court of Australia. He sought declaratory relief and damages in respect of alleged misleading and deceptive conduct. It was admitted on the pleadings that each of the first appellant (Mr Houghton) and the second appellant (Mr Student) was an employee of WSA Online Limited (‘WSA’). WSA was the first respondent to the action but was subject to a deed of company arrangement.

2 At the trial before Ryan J, Mr Arms recovered judgment against WSA in the sum of $58,331, but his claims against Mr Houghton and Mr Student were dismissed1. WSA on the one hand and Mr Houghton and Mr Student on the other had had separate representation. Mr Houghton and Mr Student thereafter have maintained their joint representation. WSA has not been a party to the subsequent steps in the litigation.

3 An appeal by Mr Arms against the dismissal of his claims against Mr Houghton and Mr Student was allowed by the Full Court (Nicholson, Mansfield and Bennett JJ)2 essentially on the basis that an employee acting within the scope of actual authority could be liable for misleading or deceptive conduct. The orders of Ryan J were varied, with the result that judgment was entered against all three respondents. The particular order now read: ‘There be judgment for [Mr Arms] against [WSA, Mr Houghton and Mr Student] in the sum of $58,331.00.’

4 It is against these Full Court orders that Mr Houghton and Mr Student appeal to this Court.

5 The Court received written and oral submissions by the Director, Consumer Affairs, Victoria, who administers the relevant State legislation. The submissions were presented as amicus curiae but their effect was to support the respondent, Mr Arms.

The nature of the dispute

6 Mr Arms traded under the name ‘Australian Cellar Door’ and formulated a proposal for the provision by means of an internet web site, www.auscellardoor.com.au, of a service for the direct marketing of the products of small to medium independent wineries. The expectation was that direct ‘cellar door’ sales would attract sales tax at a much lower rate and would avoid the need for the payment by the wineries of the margin, usually in the order of 30 per cent, required by agents or distributors when sales were effected by retail outlets.

7 WSA was engaged to provide advice and services on web site design, construction and administration. Mr Student was described in the dealings with Mr Arms as ‘WSA Online project manager’ and he introduced his fellow employee, Mr Houghton, to Mr Arms as the ‘guru of interactive website design and development’.

8 At a meeting in late January 2000, or shortly thereafter, Mr Houghton told Mr Arms that he was aware of a financial transactions product called ‘ANZ e-Gate’ which would be ‘perfect’ for the requirements of Mr Arms' business. It was said that this facility would enable customers to pay by means of all major credit cards with funds clearing directly into the account of the relevant winery, in return for the payment by the winery of a small transaction fee. Thereafter, either Mr Houghton or Mr Student told Mr Arms that wineries could be added to the auscellardoor web site (incorporating the ANZ e-Gate facility) ‘by simply filling in a form’ and paying a small set-up fee.

9 However, WSA was told by the ANZ Bank in meetings conducted by Mr Houghton that WSA should obtain an e-Gate licence from that bank and then sub-licence Australian Cellar Door or others of its clients requiring a facility of that kind. WSA was also told that each winery would be required to have an ANZ credit card merchant facility which was plugged into the ANZ e-Gate engine; each winery would be subject to an approval process consisting of a completed application form, financial data and, perhaps, a business plan. Later, in February 2000, WSA and the ANZ Bank agreed that the ANZ e-Gate licence would belong to WSA and the credit card merchant facilities would belong to the individual wineries who had signed up with auscellardoor.

10 On 23 June 2000, Mr Student told Mr Arms that Mr Houghton had made a mistake in describing the operation of the ANZ e-Gate facility and that Australian Cellar Door would have to arrange for each participating winery to become a ‘merchant’ accredited by the ANZ Bank, and for separate merchant accreditation to be obtained of Diners Club and American Express. Mr Studentfurther said that to achieve that accreditation each winery would have to provide to those three entities acceptable profit and loss statements for the last two years and a business plan. At that stage, Australian Cellar Door had already enrolled about 30 wineries and its web site was to be launched within five days. In that time it was impossible for Mr Arms to arrange for the wineries to comply with the conditions necessary for them to become individual merchants.

11 To preserve the credibility and goodwill of his business with the wineries, Mr Arms converted Australian Cellar Door into a retailer with a mark-up or commission limited to the 5 per cent which Mr Arms had told the wineries they would be charged under the system which he had been forced to abandon. Sales tax was now payable at a higher rate on the transactions because the retailer was Australian Cellar Door, not the wineries. Mr Arms operated his business in this fashion at a loss for 12 months until June 2001. He then adopted a quite different business structure and moved from loss to profit-making.

12 Ryan J accepted that representations had been made to Mr Arms, the substance of which was that, in order to run his business effectively and operate the auscellardoor web site, Mr Arms was not required to obtain any documentation from the wineries other than a form, with provision for banking details; WSA had engaged in that conduct when it was incumbent upon it to alert Mr Arms to the existence of the additional requirements of the ANZ Bank, or to ascertain that there were no such additional requirements in order for a winery to become an ANZ e-Gate merchant. Ryan J found that, had Mr Arms known the true position, he would have changed the auscellardoor web site to a profitable method of trading by November 2000, not June 2001, and would not have lost the sum of $58,331 from the seven month ‘set back’.

13 However, Ryan J also held that neither Mr Houghton nor Mr Student could be said, in any sense, to have been engaged in trade or commerce on his own account as distinct from being an employee of WSA. Because ‘no independent trading or commercial interest can be imputed to [Mr Student] or [Mr Houghton] in the present case’3, it followed that the applications against them had to be dismissed.

14 On appeal, the Full Court noted that Ryan J's conclusion that Mr Houghton and Mr Student did not actually have an independent commercial interest was a finding of fact. However, the Full Court ultimately determined

that Ryan J had erred in law in concluding that it was not ‘open to him at law’ to find them liable under s 9 of the Fair Trading Act 1999 (Vic) (‘the FT Act’)4.

15 Mr Houghton and Mr Student submit as appellants in this Court that the primary judge was correct and that the Full Court erred in its decision to the contrary. For the reasons which follow, the submissions of the appellants should be rejected and the appeal dismissed.

The structure of the litigation

16 Something more first should be said of the framework of the Federal Court action. As applicant, Mr Arms initially claimed declarations that WSA had contravened s 52 of theTrade Practices Act 1974 (Cth) (‘the TP Act’)5 and that Mr Houghton and Mr Student were ‘involved’ in that contravention within the meaning of s 75B(1), thereby rendering them, as well as WSA, subject to the recovery under s 82(1) of the TP Act of the amount of the loss or damage suffered by Mr Arms6.

‘(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).’

Part V (in which s 52 appears) no longer...