- This was a class action, with Evans representing the class of applicants.
- Between 1 July 2013 and 28 May 2015, Davantage Group Pty Ltd (“Davantage“) issued financial products in the form of motor vehicle warranties.
- On 23 August 2014, Evans purchased a vehicle for $17,295.00. Evans entered into a warranty agreement with Advantage and paid $1,895.00. Approximately 26,000-28,000 other people purchased similar warranties for their respective motor vehicles.
- Clause 11.1 of the warranty, self-described as a “discretionary risk product”, granted Davantage the absolute discretion as to whether it would pay any claim, in part or in whole or at all, or make a contribution to that claim. The only limitation was that the discretion had to be exercised in a “fair or just way”.
- Evans brought a claim against Davantage, claiming that:
- the warranty fails as an agreement for lack of consideration from Davantage;
- Davantage engaged in unconscionable conduct under s 12CB of the ASIC Act due to cl 11.1; and
- Cl 11.1 is an unfair term within the meaning of s 12BF(1)(a) of the ASIC Act and inseverable such that the warranty is void.
- Is a contractual promise in a “discretionary risk product” illusory?
- Beach J of the Federal Court held that the warranty was illusory.
- The overriding discretion of cl 11.1 imposed no actual obligation on Davantage. The words “fair or just” were determined to be vacuous – they did not have any real substantive effect on Davantage when considering a claim.
- The general principle of an illusory promise, per Kitto J in Placer Development Pty Ltd v Commonwealth is “…It is that whenever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he carry out that which purports to be a promise, the result is that there is no contract on which an action can be brought at all…”
- There were no circumstances under which Davantage would be legally obligated to pay the applicant for any claim – the terms of cl 11.1 were held to be completely unfettered which rendered the promise to pay by Davantage as illusory.
“Ultimately, the respondent’s attempts to construct even a peppercorn from the language of cl 11.1 are unpersuasive. Moreover, even if I were to accept the respondent’s contention that a discretion is only illusory when unfettered, the respondent’s promises to pay under the Applicant Warranty, in substance, are to be regarded as unfettered. The overriding discretion reserved to the respondent qualifies its promise to pay consumers to such a substantial extent that it renders the promise illusory. The effect of the overriding discretion in cl 11.1 is that there is no circumstance in which the respondent may be legally obligated to pay money to the applicant.”
(Beach J at )
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