Civil and Administrative Tribunal New South Wales Medium Neutral Citation: Atlantic Caravans Pty Ltd v Armstrong & Hinterland Outdoors Pty Ltd [2018] NSWCATAP 52 Hearing dates: 14 November 2017 Date of orders: 27 February 2018 Decision date: 27 February 2018 Jurisdiction: Appeal Panel Before: S Westgarth, Deputy President D Robertson, Senior Member Decision: 1. The appeal is dismissed Catchwords: Jurisdiction – diversity jurisdiction of the Commonwealth – major defect, major failure under the Australian Consumer Law Legislation Cited: Australian Consumer Law Civil and Administrative Tribunal Act 2013 NSW Civil and Administrative Tribunal Rules 2014 NSW Corporations Act 2001 Judiciary Act 1903 Cases Cited: Australasian Temperance and General Mutual Life Assurance Society Ltd. v. Howe (1922) 31 CLR 290 British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 Burns v Corbett; Gaynor v Burns [2017] NSWCA 3; (2017) 343 ALR 690 Bywaters Investment Ltd v Commissioner of Taxation [2016] HCA 45 R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361 Johnson v Dibbin; Gatsby v Gatsby [2018] NSWCATAP 45 Texts Cited: Ford, Austin & Ramsay, Principles of Corporations Law Leeming, Authority to Decide: The Law of Jurisdiction in Australia, 2012 Federation Press Category: Principal judgment Parties: Atlantic Caravans Pty Ltd (Appellant) Ronald Armstrong (Respondent) Hinterland Outdoors Pty Ltd (Second Respondent) Representation: Counsel: Mr J Doyle (Appellant) Solicitors: Holman Webb Lawyers (Appellant) Mr Armstrong (Respondent) Mr Sealie, General Manager of Hinterland (second Respondent) File Number(s): AP 17/39130 Publication restriction: Unrestricted Decision under appeal Court or tribunal: Civil and Administrative Tribunal Jurisdiction: Consumer and Commercial Division Citation: Not applicable Date of Decision: 04 August 2017 Before: D Moss, General Member File Number(s): MV 16/48760 reasons for decision Background 1. This appeal is from a decision made in the Consumer and Commercial Division of the Tribunal. The decision was published on 4 August 2017 and, following a request for a written statement of reasons, the Tribunal published a written statement of reasons on 22 September 2017 (the Decision). 2. The Notice of Appeal was filed on 8 September 2017. Accordingly, it was filed within the time limits prescribed by the Civil and Administrative Tribunal Rules 2014 (the Rules) – see r 25(4)(c). 3. The order which is the subject of the appeal required Hinterland Outdoors Pty Ltd (which we will refer to as "Hinterland") and Atlantic Caravans Pty Ltd (which we will refer to as "Atlantic") to pay to the applicant, Mr Armstrong, the sum of $75,108.00. The Tribunal additionally ordered Mr Armstrong to return the caravan to Hinterland within 7 days of receiving payment. 4. Atlantic is the appellant and the respondents to this appeal are the applicant at first instance (Mr Armstrong) and the other respondent at first instance (Hinterland). We were informed that Hinterland has paid Mr Armstrong the amount required by the order. 5. The proceedings concerned a transaction by which Mr Armstrong entered into an agreement with Hinterland for the purchase of an Atlantic "New Generation" new caravan. Atlantic was found to have been the manufacturer of the caravan. The Tribunal found that the caravan was not of acceptable quality, in breach of the consumer guarantee arising pursuant to s54 of the Australian Consumer Law (NSW) (ACL), and that the defects in the caravan constituted a major failure which entitled Mr Armstrong to reject the caravan and recover a full refund of the purchase price and damages for consequential loss. The Tribunal also found that the defects were manufacturing defects with the result that Atlantic, as the manufacturer, was liable to Mr Armstrong for his losses sustained by reason of his purchase of the caravan. Notice of Appeal 1. The Notice of Appeal set out a number of grounds of appeal but at the hearing, counsel for Atlantic stated that Atlantic limited its grounds of appeal to the following: 1. The Burns v Corbett point: in summary, Atlantic submitted that the Tribunal had, and continues to have, no jurisdiction to determine this dispute having regard to the principles set out in the decision of Burns v Corbett; Gaynor v Burns [2017] NSWCA 3; (2017) 343 ALR 690; 2. The Tribunal committed an error of law by finding that there was a major failure to comply with the consumer guarantee of acceptable quality as contained in the ACL. Alternatively, the finding by the Tribunal that there was a major failure constituted a substantial miscarriage of justice justifying the grant of leave to appeal – see cl 12 of Sch 4 of Civil and Administrative Tribunal Act 2013 NSW (NCAT Act); and 3. The Tribunal has committed an error of law and Atlantic has suffered a substantial miscarriage of justice because the effect of the decision was to impose upon Atlantic the obligation to pay a substantial sum of money to Mr Armstrong but not to require the caravan to be returned to Atlantic. The Hearing of the Appeal 1. Mr Doyle of counsel, who appeared for the appellant, advised the Tribunal that he had only recently been instructed and, at the conclusion of the hearing, on his application, we made directions as follows: 1. The appellant has leave to file and serve further written submissions elaborating upon the submissions already made (but limited to the issue of jurisdiction), such submissions to be filed and served within days; and 2. The respondents have leave to file and serve written submissions in reply within 7 days thereafter. 1. Atlantic subsequently filed submissions. A submission was received from Mr Armstrong who wrote that he did not receive a copy of Atlantic's submissions. As is apparent later in these reasons, he has not been prejudiced as we have decided to reject the contentions made by Atlantic in its further submissions. Some parts of Mr Armstrong's submissions went beyond the issue of jurisdiction and those parts have not been considered by us. Atlantic's Submissions The Burns v Corbett Point 1. Atlantic's submissions concerning the Burns v Corbett point may be summarised as follows: 1. Atlantic's place of residence is in Victoria. Mr Doyle tendered a folder marked "Tender Bundle" (which has been marked by us as Exhibit A). He relied upon an affidavit of Mark Henry Logan dated 14 November 2017 (commencing at page 243 of Exhibit A). That affidavit annexed a company search for Atlantic. The company search recorded the company's registered office as being at an address in Victoria. Atlantic also submitted that Hinterland's place of residence was in the State of Queensland and in support of that assertion relied upon an annexure to the affidavit of Mr Logan (commencing on page 250) which was a company search for Hinterland. That search showed the registered office of Hinterland as being at an address in Burleigh Heads in Queensland. Atlantic also submitted that the place of residence of Mr Armstrong is in New South Wales; 2. Accordingly, the dispute brought by Mr Armstrong concerned a matter between residents of different States and therefore the Tribunal does not have jurisdiction to hear and determine the dispute; 3. The Tribunal was purporting to exercise "state judicial power" expressed to have been conferred upon the Tribunal by the NCAT Act; 4. The application brought by Mr Armstrong sought an order that Atlantic and Hinterland pay damages. The claim and the proceedings ought to be characterised as a "matter" within the meaning of s 75 of the Constitution. An issue arises as to whether Atlantic was a resident of Victoria in the sense that that word "resident" is used in s 75(iv) of the Constitution. If it can be said that a corporation is a resident in the state where it is incorporated for the purposes of the Corporations Act 2001 (Corporations Act), then it must follow that the proceedings are a "matter" between residents of different states within the meaning of s 75(iv) of the Constitution. 1. Atlantic's submissions at the hearing were developed in the written submissions filed on 21 November 2017 pursuant to the directions made on 14 November 2017. The submissions may be summarised as follows: 1. The majority of the High Court in Australasian Temperance and General Mutual Life Assurance Society Ltd v Howe (1922) 31 CLR 290 (the Australasian Temperance case) held that a corporation cannot be a "resident" within s 74(iv) of the Constitution, but a corporation as considered by the High Court in that case was materially different in important respects in relation to its residency; 2. An important change occurred with the enactment of the Corporations Act 2001 (Commonwealth) with regards to the concept of the "residence" of a corporation. It was "only with the insertion of s 119A into the Corporations Act that a company's registration was for the first time required by national legislation a State or Territory for registration". That concept did not apply to a corporation at the time that the majority decision in the Australasian Temperance case was formulated. A company as registered in a particular State under s 118 to 121 was a new concept, and for that reason could not have been taken into account; 3. There have been recent decisions which have challenged the majority finding in the Australasian Temperance case, pointing to the strong dissenting judgments, particularly of Isaacs J, but also of Starke J. Those decisions would be strongly assisted by the new registration requirements which necessarily locate a corporation in a particular state; 4. In British American Tobacco Australia Ltd v Western Australia (2003) 217 CLR 30 (British American Tobacco case), Kirby J said that the High Court should reconsider the early determination that corporations, including statutory corporations, cannot be "residents" of a different State for the purposes of s 75(iv) of the Constitution. His Honour stated that the decision in the Australasian Temperance case was wrong; 5. Atlantic adopted the observations of Kirby J but accepts that the Tribunal cannot depart from the High Court majority decision in the Australasian Temperance case; 6. Atlantic referred to the majority decision in the British American Tobacco case and in particular to par 37 where the majority said that the authorities in the High Court which are to be followed until a successful challenge be made to them, establish that an artificial person, including a corporation cannot be a resident within the meaning of s 74(iv). Atlantic concedes that it is beyond the power of the Tribunal to revisit the issues referred to in that case; 7. However, Atlantic submitted that the position is different where all of the shareholders of a corporation that is a party to proceedings are within a State. Atlantic relies upon the following words in the majority judgment in the Australasian Temperance case: We do not propose to determine the matter without the benefit of argument, but, if the word "residents" does not include corporations, we at present see no difficulty in construing sec. 100 as protecting the rights of individuals resident within the State, whether those rights are exercised immediately by themselves or mediately through an incorporated company. (31 CLR at 299) 1. Atlantic submitted that although the above quotation was directed at s 100 of the Constitution, the passage follows immediately upon these words: But if the word is to have the same meaning in both sections, what is there in sec. 100 to suggest that that meaning should include corporations? 1. Atlantic submitted that the judgment in the Australasian Temperance case expressly considers the possibility (without determining the question) that the word "residents" has the same meaning in both sections in relation to their effect on corporations. And no reason is given as to why the proposition set out at (7) above would not apply equally to s 74(iv) as to s 100; 2. Atlantic submitted that the evidence in this case reveals that all office holders and shareholders of Atlantic and shareholders are residents in Victoria. If those natural persons and their interests are to be pulled into litigation with persons from another State through their corporate vehicle, why should they not be entitled to invoke the Federal jurisdiction guaranteed to them by s 75(iv) of the Constitution and s 39 of the Judiciary Act; and 3. The majority in the Australasian Temperance case agree that there is no substantial or logical reason why a dispute between a group of natural persons litigating through a corporation against another person or a in a different state is any less of Federal character than if they were litigating in person. The Major Failure Point 1. Atlantic's submissions may be summarised as follows: 1. It was not open to the Tribunal at first instance to have found that the defects were "major defects" or that the supply of the caravan was a "major failure". The Tribunal should have found that any alleged defects were capable of rectification; 2. The evidence was that the chassis could be restrengthened for a cost of $680 (see par 42 of the Decision) and that Hinterland was prepared to have the chassis restrengthened. There was no evidence that minor rectification work could not be effectively carried out. The defects being relatively inexpensive and quick to rectify, the only conclusion open to the Tribunal was that the defect to the chassis was not a major defect; and 3. On the basis that all defects had either been rectified or were capable of rectification at small cost and an offer had been made to Mr Armstrong to rectify them at no cost to him, the defects in the goods were not a major failure such that a reasonable consumer fully acquainted with the nature and extent of the defects would have accepted the offer of rectification; The Decision was unfair 1. This submission may be shortly stated: the obligation to pay $75,108.00 was imposed upon Atlantic but there was no requirement on either of the other parties to return the caravan to Atlantic. Mr Armstrong's Submissions 1. Mr Armstrong did not provide any written submissions prior to the hearing of the appeal, but at the hearing he submitted that the evidence concerning restrengthening the chassis at a cost of $680 was not the only evidence before the Member and the issue with the chassis was not the only finding concerning defects made by the Member. Mr Armstrong opposes the appeal. Submissions of Hinterland 1. Mr Sealie submitted that the evidence before the Tribunal demonstrated that the structural integrity of the caravan had been compromised. He stated that had Hinterland been aware of the modifications to the chassis, it would not have supplied the caravan to Mr Armstrong. He did not seek to overturn the findings made by the Tribunal and acknowledged that Hinterland had supplied a defective product. Atlantic's Submissions in Reply 1. Mr Doyle submitted that the challenge to the finding that there was a major defect concerns a question of law and, in the alternative, that if it is found that there is no question of law, Atlantic seeks leave to appeal. Decision Burns v Corbett Point 1. Section 75(iv) of the Constitution is concerned with the exercise of judicial power. Atlantic submitted that the Tribunal was purporting to exercise judicial power. The respondents made no submissions. In our view, in deciding the dispute between the parties, the Tribunal was exercising judicial power because the decision under appeal purported to set for the future a question as to the existence of rights and obligations between the parties following an enquiry as to the facts as determined by application of the law: see R v Trade Practices Tribunal; Ex parte Tasmanian Breweries Pty Ltd (1970) 123 CLR 361 at 374-375. 2. However, in our view, the Burns v Corbett point has no substance. Our reasons follow. 3. In the Australasian Temperance case, the High Court was considering the following question which had been reserved for the consideration of a full court: Upon the facts stated herein are the plaintiff and the defendant residents of different States within the meaning of sec. 75 (iv.) of the Constitution? 1. The facts stated, crucially, included that the defendant was a natural person who was, at the time of commencement of the proceedings, a resident of New South Wales and that the plaintiff was a corporation limited by guarantee incorporated in Victoria and registered under the Victorian Companies legislation. 2. A majority of the Court, Knox CJ, Gavan Duffy J and Higgins J, answered the above question in the negative. 3. The joint decision of Knox CJ and Gavan Duffy J outlined the issue in the following terms (31 CLR at 294): The question turns on the meaning of the word "residents." On the one side it is said to be confined to natural persons; on the other side it is said to extend to the artificial persons called corporations, to which the law attributes an existence apart from and independent of the existence of their constituent members. 1. In our view, it is clear that the judgment of Knox CJ and Gavan Duffy J decided the following: 1. The fact that some statutes which prescribed residence as a criterion of liability either expressly or impliedly dealt with corporations might mean that those statutes must be taken to be interpreted as requiring a corporation to have a place of residence for the purpose of those statutes. Those cases do not afford assistance in determining the meaning of "resident" for the purposes of considering s 75(iv); 2. The word "residents" in s 100 of the Constitution and in s 75(iv) of the Constitution need not have the same meaning. Their Honours decided not to determine the meaning of "residents" in s 100; 3. Their Honours answered the question put to them in the negative. One of the considerations they thought relevant in coming to this view was this: But "residence," we have seen, is not to be determined merely by the fact that operations are carried on at a particular place. A company having its residence and its operations within a State would come within the protection of the section as a "resident," while another conducting similar operations within the State, but having its residence outside, would not. In these circumstances the protected company might be a foreign company and all its members foreigners, and the unprotected company might be incorporated under the laws of the State in which it carried on operations and all its members might be resident there. Was this the intention of the framers of the Constitution or of the Imperial Parliament, which gave it legislative force? (31 CLR at 299-300) 1. In his separate judgment Higgins J stated: In my opinion, in the absence of words to the contrary, the expressions in sec. 75 of the Constitution, "residents of different States" and "a resident of another State," refer to residence in the ordinary popular sense, usually involving sleep, shelter and home, and not to carrying on business... A corporation, being an artificial incorporeal entity, "without body to be kicked." has no residence in the ordinary sense. (31 CLR at 334) 1. The leading judgment in Burns v Corbett was that of Leeming JA. That judgment does not expressly refer to the question of whether the reference to "residents" in s 75(iv) includes corporations, but in par 27 of his judgment, his Honour referred to his book Authority to Decide (2012, Federation Press). In that text, his Honour summarises at page 122 the "essential principles" concerning diversity jurisdiction including the proposition that "only natural persons may be 'residents'". That proposition is accompanied by a footnote referring to the Australasian Temperance case. The footnote also states that attempts to reopen that decision were refused in a number of cases which are cited in the footnote and acknowledges the contrary view expressed by Kirby J in the British American Tobacco case. 2. Accordingly, we accept that the law as expressed in the Australasian Temperance case remains applicable and constitutes the law which we must apply. That much is acknowledged by Atlantic. 3. We do not agree with the submissions of Atlantic that the decision in the Australasian Temperance case is not applicable where all the shareholders of a corporation are within a State, or that the position is different because the Corporations Act requires a corporation to be registered in a particular State. Our reasons are set out below. 4. In our view, the fact that the Corporations Act contains a provision that the place of registration of a company is in the State or Territory specified in the application for registration does not mean that the word "resident" in s 75(iv) of the Constitution now includes corporations or that the decision in Australasian Temperance case would now be decided differently. 5. The appellant's submissions concerning s119A fail to recognise that the inclusion of that provision in the Corporations Act was necessitated by the fact that, upon the enactment of the Corporations Act in 2001, the incorporation of companies commenced to be regulated under Commonwealth law whereas prior to that date corporations had been registered in a particular State or Territory under the Corporations Law of that State or Territory (and prior to 1991 under the Companies Act of the relevant State or Territory). It was only after the referral to the Commonwealth, pursuant to s51(xxxvii) of the Constitution, of legislative power with respect to the incorporation of corporations that corporations were incorporated under Commonwealth law with an accompanying need to identify a State or Territory of registration. (See the history of Companies legislation in Australia set out in Ford, Austin & Ramsay, Principles of Corporations Law at 2.170-2.310.) 6. The enactment of s119A did not introduce a concept of registration within a particular State where previously no such concept had existed. It merely reflected the changed legal environment in which incorporation was now governed by Commonwealth rather than State law. It provides no warrant for distinguishing the decision in the Australasian Temperance case. 7. Nor is there any substance in Atlantic's submission concerning s100 of the Constitution. Although the majority judgments in the Australasian Temperance case recognised the possibility that, in the application of s100, which protects the rights of residents of the States to the "reasonable use of the waters of rivers for conservation or irrigation", it might be appropriate to recognise the rights of residents who are conducting business through a corporation, the judgments determined unequivocally that no such expansive meaning of the term "resident" could be applicable in respect of s75(iv). 8. It is our view, generally speaking, that a place of registration is an entirely different concept from a place of residency. In any event, the Tribunal is bound by the decision in the Australasian Temperance case and is not able to speculate that that decision might now be differently decided were the issue to come before the High Court again. Again, this appears to us to be conceded in Atlantic's submissions. 9. In our view, the proceedings do not involve a matter between residents of different States in the sense envisaged by s 75(iv) of the Constitution. There is one relevant resident, namely Mr Armstrong, and the other entities involved are corporations. For the purposes of s 75(iv), those corporations do not have a place of residence. Accordingly, there is no foundation for the submission that this Tribunal does not have jurisdiction in the factual circumstances of these proceedings. 10. Since the hearing of this appeal, the Appeal Panel of the Tribunal has published a decision reported as Johnson v Dibbin; Gatsby v Gatsby [2018] NSWCATAP 45 (Wright J, President, Boland ADCJ, Deputy President and Dr J Renwick SC, Senior Member). That decision held that the Tribunal is a Court of a State within the meaning of Ch III of the Constitution . Although that decision concerned the Tribunal's jurisdiction under the Residential Tenancies Act, 2010, the principles laid down in that decision clearly state, in our view, that the Tribunal is able to hear and determine disputes between residents of different states of Australia. On the basis of that decision, it is our view that the tribunal had jurisdiction to determine the dispute which is the subject of this appeal. As we have determined that the tribunal has jurisdiction in any event, the decision in Johnson v Dibbin merely provides a further basis for rejecting the contention that the tribunal did not have jurisdiction. The Major Defect/Major Failure Point 1. In the Decision the Tribunal made reference to reports provided by Mr Felk, Mr Young and Mr May. No reports were tendered by Atlantic or by Hinterland. It is clear that the Tribunal accepted the evidence of Mr May (see par 64) and the evidence of Mr Young (see par 83). It is also clear from an overall reading of the Decision that the evidence of Mr May and Mr Young was persuasive in the Tribunal's conclusion that there was a failure to comply with the consumer guarantee of acceptable quality and that the failure was a "major failure". In par 56 the Tribunal found that the "most significant defect was the severe undercutting into the chassis, where cross-rails had been removed by angle grinding, thereby reducing the structural integrity and expected service-life of the chassis". 2. Paragraph 74 of the Decision contains the findings that the caravan had a major defect in its chassis. Further findings of fact concerning the chassis are made in par 75. 3. In addition, there was evidence recorded in the Decision that Mr Armstrong would not have purchased the caravan had he known of its condition (see par 68). 4. The Tribunal also accepted the evidence of Mr Young who stated that any potential buyer would be put off by what was done to the chassis (par 83). 5. In our view, there was sufficient evidence to justify the Tribunal's finding, recorded in par 86, that the caravan would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failures, particularly the significant alteration of the chassis. That conclusion formed the basis of the finding that there was a major failure. 6. Section 260 of the ACL (NSW) states that a failure to comply with a guarantee referred to in s 259(1)(b) is a major failure if the goods would not have been acquired by a reasonable consumer fully acquainted with the nature and extent of the failure. The evidence of Mr Young and Mr May and that of Mr Armstrong were all taken into account when considering whether there was a major failure and whether looking at it objectively, there was a major failure. The fact that one witness described certain work that could be done for a small sum of money does not have the effect that all of the other evidence can be ignored. 7. We are of the view that the Tribunal's findings of fact properly enabled it to conclude that Mr Armstrong was entitled under the ACL (NSW) to reject the caravan (see par 88). No error of law has been identified. Insofar as Atlantic relies upon cl 12 of Sch 4 of the NCAT Act, we are of the view that Atlantic has not established that the Decision was not fair and equitable (see cl 12(1)(a)) or against the weight of evidence (see cl 12(1)(b). 8. For the above reasons, this ground of appeal fails. The Decision was unfair 1. In par 102 of the Decision the Tribunal found that the defects in the caravan, especially "the most serious defect, the undercutting of the chassis and removal of the structural cross-rails" were manufacturing defects. That conclusion was not disputed by Atlantic. Rather, Atlantic's point is that the effect of the orders was that it had an obligation to pay the purchase price to Mr Armstrong but there was no order that the caravan be returned to Atlantic. 2. However, the Tribunal did order that Mr Armstrong return the caravan to Hinterland. Hinterland has not suggested that that order has not been complied with. 3. In our view, the effect of the Tribunal's order was not to hinder or adversely affect any rights or obligations which may have existed, or continue to exist between Atlantic and Hinterland. We understand that Hinterland has paid Mr Armstrong as required by the Tribunal's order. As matters presently stand it is difficult to see that Atlantic has suffered any unfairness by reason of the orders. Either of the companies may have a claim against the other. The Tribunal's orders do not affect such possible claims or defences (if any). Accordingly, we do not accept that the Tribunal's orders are unfair to Atlantic. This ground of appeal is rejected. 4. For the above reasons, the appeal must be dismissed, and an order to that effect will be made. Orders 1. The Appeal Panel makes the following order: 1. The appeal is dismissed. ********** I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 27 February 2018