A powerful tool for proper behaviour: Law Reporter

Monday, 01 July 2002


    Is misleading and deceptive conduct equal to a breach of duty to act with care and diligence? The introduction of section 52 into the Trade Practices Act (and the equivalent provisions of the Fair Trading Acts in all states and territories) has certainly revolutionised the law of both contract and tort (tort being the law relating to civil wrongs).

    Indeed Justice Bob French of the Federal Court, in a leading article on section 52 has queried whether it is necessary to rely on the law of contract and tort any more in many ways because of the far-reaching effect of section 52 of the TPA. Now, in a recent New South Wales Court of Appeal decision, the issue has again been considered and some very telling comments have been made by the court about the far-reaching implications of section 52 of the TPA and how it impacts on the law of tort and the law of negligence. In Gatsios Holdings v Nick Kritharas Holdings (In Liquidation) ((2002) ATPR para 41-864) the facts were briefly these (as taken from the CCH Trade Practices News). As the trustee of a trust, the respondent, Nick Kritharas Holdings (NK Holdings) carried on a business of supervising the supply of snack foods to the employees of certain companies.

    In the course of conducting that business, NK Holdings, and various of its officers, were found to have made false and misleading statements about the times involved in packaging the snack foods and the profitability of selling them. That conduct was found to be in contravention of section 52 of the TPA. Those findings led to an award of damages of $400,000 being made against NK Holdings and others. Prior to the award of damages against it, NK Holdings was removed as trustee of the trust and replaced by the appellant (Gatsios Holdings). NK Holdings commenced proceedings seeking a declaration that it was entitled to be indemnified for the liability to pay the damages of $400,000 (together with interest and costs). At first instance, it was held that NK Holdings was entitled to an indemnity on the basis of the express provisions of the trust instrument. The new trustee, Gatsios Holdings, appealed that decision on the basis (among others) that the trustee was at fault and should not be able to obtain indemnity. In dismissing the appeal, the New South Wales Court of Appeal (Spigelman CJ, Mason P and Meagher JA) held that the right of a trustee to be indemnified for all charges and expenses incurred in the execution of a trust extended to the reimbursement of the trustee for damages awarded against him for torts committed by him in the course of carrying on the trust business. It followed that damages under the TPA, for this purpose, were to be equated with damages for common law torts. If the activity, which generated the liability in question, on the other hand involved a breach of trust, or was criminal or fraudulent in nature, then the law would withhold the right to indemnification.

    The court went on to discuss whether there was any special rule that should apply in this case to limit the ability of the trust to be indemnified in cases involving a breach of the TPA. In doing so they made some interesting observations about section 52 of the TPA which are worth repeating. Meagher JA (with whom Mason P agreed) observed that occasional breaches of the trade practices legislation were incidental aspects of ordinary commercial life. Spigelman CJ said that section 52 of the TPA was a vague and indeterminate statutory standard of a character that covered conduct of such a wide range of moral obloquy that the mere fact of contravention could not, of itself, help determine whether there had been a breach of a trustee's duty to exercise reasonable care in the management of the trust. A breach of a duty to a third party to exercise reasonable care cannot be determinative of whether there has been a breach of a trustee's duty to exercise reasonable care in the management of the trust. In all of the circumstances, it could not be said whether the particular activities were such as to warrant a dismissal of the trustee's right to be indemnified. In the court's view consumer protection legislation was quite different to the law relating to trustees' duties and rights. The right of indemnity could not be dismissed in this case simply because there had been a breach of section 52 of the TPA.

    What the case confirmed is that a breach of section 52 of the TPA, which can lead to considerable damages, carries what many would regard as a lower standard of proof than may be expected of other areas of the law. This shows just what a valuable and powerful tool it is for those wanting to use the courts to ensure that persons do behave properly and with appropriate attention to statements they make in carrying out their obligations.


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