On 15 of April 2021, the Federal Court of Australia ordered two company directors to compensate their customers personally, a claim that has rarely been substantiated in Australian law. The pair were also ordered to pay a substantial fine and were disqualified from managing a company for three (3) years.

This was the case of Australian Competition and Consumer Commission (‘ACCC’) v Smart Corporation Pty Ltd (No 3) [2021] FCA 347. Smart Corporation Pty Ltd formerly traded as Australian 4WD Hire, a car rental company.

Australian 4WD Hire hired 4-wheel drive cars for consumer off-road use. When hiring a vehicle, the company would take a security bond of $5,000. Originally a successful business, the company itself had a turnover of about $4 million in 2018.

Company directors of Australian 4WD Hire, Vitali Roesch and Maryna Kosukhina, had orders made against them for wrongly keeping security bond funds for excessive wear and tear on their vehicles which never occurred. Specifically, the Federal Court ordered the pair:

  • Pay the wronged vehicle hirers between $550 and $4,760 within three (3) weeks;
  • Pay a pecuniary penalty to the Commonwealth Government, in the amount of $179,000 and $174,000 respectively;
  • Barred from managing any type of corporation for at least three (3) years; and
  • Pay the legal costs of the proceeding.

In addition to the above order, the company, Australian 4WD Hire, was ordered to pay $870,000.00 in pecuniary penalties. The company was in liquidation and the prospect of bankruptcy was in order but neither of these attributes protected the directors from the orders listed above.

The case of Vitali Roesch and Maryna Kosukhina has some company directors wondering if they could be held personally liable for their business actions, even if their business is in liquidation or bankruptcy. Let’s take a deeper look into the Vitali Roesch and Maryna Kosukhina case and break down what concerns business owners should actually have.

When Are Company Directors Personally Liable Under the Australian Consumer Law?

Contraventions of the ACL

Misleading and Deceptive Conduct

The Court found that Australian 4WD Hire knowingly made representations that their rental vehicles had certain characteristics or benefits that the vehicles did not actually have. These representations involved insurance coverage that did not exist. Australian 4WD Hire told customers that their vehicles were insured for off-road use when only half of their inventory was insured. Further, the company willingly noted to customers that if any damage happened to the vehicle while hired, it would be covered by insurance. This was also untrue, as it was actually at the company’s discretion if it were to make a claim on its insurance. If a claim was not placed, the customer was held liable to pay for the repair or replacement costs of the vehicles.

Unconscionable Conduct

The Court declared that Australian 4WD engaged in unconscionable conduct through sending threatening emails to thirty-one different customers. The emails contained threatening language and heavy accusations that were signed by a fictional person.

The Court found that all of the customers who received such emails were accused of incurring excessive speeding violations that were misleading. The emails also noted that the company would keep at least $500 of the security bond the customers paid. Twenty-five of the customers received threatening emails that noted a security bond deduction for excessive wear and tear, regardless of any actual damage to the vehicles. This was considered intimidation for profit, and many of the recipients of the emails lost between $500 to all of their security bond.

Unfair Contract Terms

Under s 250 and s 23 of the ACL, it was found that three contract terms were void due to unfair terms. The terms involved GPS provisions, an insurance discretion clause, and a non-disparagement clause. Essentially, these terms required customers to never defame or complain about Australian 4WD Hire before or after renting from them. The terms contained misleading language to note that insurance claims were at the company’s sole discretion, and that charges could be made against customers without any link between the prohibited operation and alleged damage to the vehicle.

Director Involvement

The Court declared that directors, Vitali Roesch and Maryna Kosukhina, knowingly caused the company to engage in misleading and false conduct. It was also noted in the hearing that both directors were, “knowingly concerned in and a party to, the contraventions’ according to court documents.

When are Company Directors Personally Liable Under the Australian Consumer Law?

In the context of this court case, there are a number of scenarios in which a company director could be held personally liable for misleading or illegal actions under the ACL.

In this specific case, the Court found that the directors were both directly responsible for the actions of Australian 4WD Hire and must be liable to compensate the customers involved.

There are a few reasons for this. To start, the pair signed off on responses to the ACCC’s s 155 notice, both as official directors of the company. According to organisation diagrams drafted in 2019, full corporate responsibility at the company was with Kosukhina and Roesch. The complaints department was directly reported to Roesch.

Further, both parties were the owners and operators of all content on their website, chosen insurance policing, and management of all company policies. To put it simply, there was plenty of evidence to support the notion that one or both of the directors were knowingly giving their customers misleading information surrounding the insurance discretion clause, the GPS provisions, and the non-disparagement clause. The threatening emails were found to be sent by either party or at least sent with their approval.

To put it simply: If you’re the director of a company and directly involved with its operations, you could be held liable for unconscionable acts committed by the company itself.

Monique Kotevski is a law graduate at Sutton Laurence King Lawyers.

 If you are having issues with a consumer dispute call Sutton Laurence King Lawyers on 03 9070 9810 or email us at info@slklawyers.com.au.