- 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.
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