Summary

In Kytec Pty Ltd v ProLearn Corporation Pty Ltd [2024] VSCA 23, the Victorian Supreme Court of Appeal (VSCA) considered (among other matters) an application for leave to appeal a judgment in relation to misleading or deceptive conduct where a party was found to have lacked reasonable grounds for making representations as to future matters.

In short, Telstra Ltd sought to rely on the expert opinion of its specialist partner Kytec, as establishing ‘reasonable grounds’ for Telstra making certain representations. Telstra sought to rely on a single judge’s decision that found that a vendor of a business had reasonable grounds for making a representation because it ‘had retained leading professionals to make the assessment and had no reason to doubt their competence or the soundness of their opinion’.

Telstra submitted that this proposition had been approved as a principle in several subsequent decisions. However, the VSCA found that on close analysis of those decisions there is no support for the view that the proposition had gained the status of an established principle. Instead the VSCA found that in each case, whether reliance on expert opinion will establish reasonable grounds for making a representation, will depend on all the circumstances.

The decision serves as a useful reminder that whether reliance on expert opinion will be a basis for establishing a party had reasonable grounds for making a representation will always be a question of fact in each case, depending on all the circumstances.

Overview

ProLearn engaged the services of Telstra to upgrade their telecommunications system. Telstra referred ProLearn to their specialist partner, Kytec, to propose, design and install a new telecommunications system for ProLearn’s call centre (New System). ProLearn claimed the New System did not perform as Kytec and Telstra represented it would and resulted in poorer business outcomes than the pre-existing telecommunications system would have produced. As a result, ProLearn alleged that it had sustained significant business losses.

ProLearn commenced proceedings alleging that it relied upon various representations made to it by Kytec and Telstra in relation to the capabilities of the New System in entering into a suite of contracts with Telstra, which by their terms, authorised Telstra’s agent Kytec to replace ProLearn’s existing telecommunications system.

At first instance, the trial judge found that both Telstra and Kytec had engaged in misleading and deceptive conduct in contravention of ss 18 and 29(1)(g) of the ACL, by making representations as to future matters for the making of which they each failed to establish reasonable grounds.

Critically, the trial judge found that Telstra was unable to rely upon the skill and expertise of its agent, Kytec, as supplying reasonable grounds for Telstra making its representations.

Both Telstra and Kytec appealed to the Court of Appeal.

Telstra’s submissions for establishing reasonable grounds

Telstra argued that the trial judge was wrong to find that it was unable to rely upon Kytec’s skill and expertise as reasonable grounds for making the representations. Telstra sought to rely on the decision of a single judge in Lake Koala Pty Ltd v Walker [1991] 2 Qd R 49 that found the vendor of a business had reasonable grounds for making financial projections for the business as contained in a report which was prepared by an accounting firm and later provided to the purchaser. The Court characterised the representations as expert opinion and held that the vendor had reasonable grounds for making the representations because it had retained leading professionals to make the assessment and had no reason to doubt their competence or the soundness of their opinion.

Telstra then sought to rely on several subsequent decisions to argue that the proposition that a representation can be based on reasonable grounds where it is made in reliance on expert opinion is an approved principle. The VSCA disagreed and made clear the most that should be taken from the case law is that in some circumstances, there may be instances where reliance on expert opinion constitutes reasonable grounds, however this will always be a question of fact.

Factors a court may consider when determining reasonable grounds

In reaching its decision, the VSCA observed that reliance upon expert opinion to establish reasonable grounds for making a future representation is possible in appropriate circumstances, however, much will depend on the facts of the matter, including:

(a)     the commercial structure in which the transacting parties operate;

(b)    past dealings;

(c)     the expertise of the other person and the knowledge of their expertise and competence;

(d)    the capacity of the representor to vet the statement of the other person; and

(e)    the knowledge of the suitability of the thing being supplied.

Applying these matters to the circumstances of the case, the VSCA ultimately granted Telstra’s appeal on the basis that:

• Telstra did not possess the in-house expertise to supply all of ProLearn’s needs and in the circumstances, it was reasonable for Telstra to fully delegate to Kytec the task of assessing ProLearn’s needs and designing and installing the New System;
• absent any in-house capacity, it was unrealistic to expect Telstra to shadow Kytec’s work or make specific enquiries into Kytec’s competence and level of expertise in delivering ProLearn’s technical requirements;
• Kytec had been a contractor of Telstra’s since 2010, and had a successful history of implementing telecommunications solutions for Telstra in the past;
• Kytec met with ProLearn and established a detailed written proposal recording the requirements of the system; and
• until problems arose, there was no reason for Telstra to doubt Kytec’s expertise and experience.

This decision serves as a useful reminder for parties to be cautious when relying on expert opinion to make a representation. Whether reasonable grounds exist for making a representation, even where there is reliance on expert opinion, will depend on the specific circumstances of each case.

The full decision can be found here.