. COMMONWEAT !'H OF AUS'RAT.TA a ry A lala) seni ANTE FEDERAL COURT No. VG 9 of 1977 In the matter of - THE TRADE PRACTICES ACT 1974 Betwren - GEOFFREY JON EVA Informant And - SOUTHERN MOTORS BOX HILL PTY. L™D. Defendant Decision of The Honourable Mr. Justice Smithers - 9th June 1977 TRADE PRACTICES - CONSUMER PROTECTION - FALSE REPRESENTATION STANDARD OF VILIGANCE REQUIRED FROM EMPLOYER - PENALTY - RELEVANCE OF ADVERSE PUBLICITY - TRADE PRACTICES ACT 1974 s. 53 (a), s. 79, s. 84 (2) ~ MOTOR CAR TRADERS ACT 1973 (VICTORIA) s. 40. Serre CUMMONWHAL'LH OF AUSTRALIA IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION MEMBER OF THE BENCH: ORDER OF THE COURT: } No. VG 9 of 1977 In the matter of - THE TRADE PRACTICES ACT 1974 Between - GEOFFREY JOHN EVA Informant And SOUTHERN MOTORS BOX HILL PTY. LTD Defendant SMITHERS, J. This Court doth find and order - In proceedings by summons upon the information of Geoffrey John Eva that on or about 24th day of February 1975 at Box Hill in the State of Victoria the defendant Southern Motors Box Hill Pty. Ltd. did 1n contravention of s. 53 (a. of the Trade Practices Act 1974, 1n trade or commerce, in connection with the supply of goods falsely represent that the goods were of a particular standard, in that in the course of trading 1n used cars in connection with the supply cf a used Holden Statesmen de Valle moter car to Charles John Camilleri the said corporation falsely represented to the said Charles John Camilleri that the said motor car was of a particular standard the defendant is convicted of the offence of so contravening such section and is fined $12,000 and ordered to pay the costs of the informant as taxed by the Registrer: In proceedings by summons upon the information of Geoffrey John Eva that on or about the 5th day of April 1975 at Box Hill in the State of Victoria the defendant Southern Motors Box H111l Pty. Ltd. did in contravention ct s. 53 (a) af the Trade Practaces Act 1974 1n trade or commerce, in connection with the supply of goods,falsely represent that the goods were of a particular standard, in that in the course of trading in used cars, in connection with the supply of a used Holden Statesman de Ville motor car to Lazlo Voros the said corporation falsely represented to the said Lazlo Voros that the said motor car was of a particular standard the defendant is convicted of the offence of so contravening such section and is fined $8,000 and ordered to pay the costs of the informant as taxed by the Registrar; 3. Leave is reserved to the informant to seek ancillary relief pursuant to s. 87 of the Trade Practices Act if so advised. DATE: 9th June 1977 A werner eee +e " COMMONWEALI'H OF AUSITRALLA IN THE FEDERAL COURT ) OF AUSTRALIA ) No. VG 9 of 1977 GENERAL DIVISION In the matter of - THE TRADE PRACTICES ACT 1974 Between: GEOFFREY JOHN EVA Informant And: SOUTHERN MOTORS BOX HILL PTY. LTD. Defendant MEMBER OF THE BENCH: Smithers, J. DATE: 9th June 1977. REASONS FOR JUDGMENT Holden Statesman de Ville Sedan motor car registerod No. IAA 921 was leased by General Motors-Holden's Ltd. (hereinafter called "G.M.H.") to Avis Rent-A-Car System Pty. Ltd. in September 1973 and was used by that company as a hire and drive yourself vehicle until January 1975. During that time it had travelled 23,152 kms. At that stage the lease expired, G.M.H. resumed possession and sold the car to Southern Motors Pty. Ltd. for $3,266. That company made it available for sale by retail to the defendant company, Southern Motors Box Hill Pty. Ltd., one of its associated companies. On the 28th February 1975 it was sold to one Camilleri for $5,698 as part of a transaction in which he was credited with $2,400 in respect of a trade in car which he transferred to the defendant. The salesman who negotiated the sale, one John Mandragona, stated to Mr. Camilleri that the vehicle had been purchased from G.M.H. and was an ex-G.M.H. executive car. The vehicle was found to be faulty; Mr. Camilleri complained. Ultimately after some haggling, Southern Motors Box Hill Pty. Ltd. took the car back in exchange for a different vehicle. Southern Motors Box Hill Pty. Ltd. carried out repairs to the vehicle and on 5th April 1975 it was sold to a Mr. Voros. The salesman who negotiated that sale stated to Mr. Voros, at least, that the car "had come from G.M.H." The statement made by the salesmen to Mr. Camilleri and that made to Mr. Voros were untrue. After the sale the vehicle continued to give trouble and was found to require correction in relation to the mschiring of the discs and attention to wheel bearings and balancing, and the carburettor, and other items. This work was done by the defendant. Se aathaanadedlientade setae enimnendiiediniid Consequent upon these events two informations were laid against the defendant alleging two offences against the provisions of s. 53(a) of the Trade Practices Act 1974. The first related to the representation made to Camilleri and the second in respect of the sale to Voros. The offence alleged in each information was that in contravention of s. 53(a) of the Trade Practices Act 1974, in trade and commerce in connection with the supply of goods, the defendant did in the course of trading in used cars falsely represent that the car in question was of a particular standard. In respect of each charge the defendant pleaded guilty. The plea concedes that what was said by the salesman in each case was a representation that the car was of a particular standard. No doubt this course was taken in recognition that what was said to the purchasers would carry to the mind of a prospective purchaser a belief that the vehicle had been properly maintained and subjected only to such wear and tear as was involved in it being used by competent and responsible drivers. That a car had been part of the stock cf a car rental organisation and hired ovei a substantial period to mcmbers of the public would be incompatible with that belief. re In the sale of a used motor vehicle there is no obligation on a trader to inform a purchaser of the history of the vehicle even if relevant to the assessment of its standard. But equally clearly it is essential that nothing be done to mislead a prospective purchaser in that respect. A representation of a fact which would give rise to the inference that the vehicle has been well maintained and responsibly used is seriously misleading if what was stated was not true and if on the true facts not only could no such inference be drawn but in the minds of many people the inference would be the other way. It is to be observed that the statements were untrue not only in what they positively stated but also in their negative content. To say that a car is an ex-G.M.H. executive car is not only to say just that, but also to say that it is not in any real sense an Avis or other rental car. It is a statement calculated to turn away further enquiry. It facilitates the sale of the car by putting the customer's mind substantially at rest as to the past history of the vehicle. Accordingly the false representations which are admitted constituted serious misconduct on the part of the salesmen concerned. org —- wee og -- No doubt there is always a real risk thal a salesman employed to sell or cars or any goods will use his imagination and make a false representation for the purpose of making a sale. Such an event is one for which an employer must take responsibility both civilly and under the Trade Practices Act. But if the employer had done everything reasonably required of him to avert such misconduct on the part of the salesman, then so far as the employer is concerned his culpability in respect of the event would be technical and not reprehensible. A penalty imposed in such a case would reflect this. However it would not be compatible with the objectives of the Trade Practices Act that an offence arising from misconduct of a salesman in such circumstances should be regarded as a minor irregularity. It is expressly enacted in s. 84(2) of the Act that any conduct engaged in on behalf of a body corporate by its servant shall be deemed for the purposes of the Act to have been engaged in also by the body corporate. Accordingly it is intended that in a substantial way misconduct of a servant shall be treated as the misconduct of his employer. Of course, in this connection the making of representations false or otherwise in the negotiation of a sale of the company's goods is conduct "engaged in on behalf of" the employer. It is clear that in this situation the only course to be adopted by employers is to choose and instruct their employees wisely and to endeavour to convince them that honesty is the best policy. It is no doubt to induce conduct of this kind that the penalty authorised by the Act is one which still is, but more particularly at the time of its enactment ,was considered very substantial. Accordingly, in a case like the present the objectives of the Act would require that a substantial penalty be imposed even if the false statements were merely an aberration of a dishonest salesman and the employer's responsibility merely technical. But where a false representation made by a salesman has been made in circumstances where the temptation to strain a point to make a sale may be real and the area of that temptation is apparent the question arises whether the employer's culpability is not more than technical unless he has taken reasonable steps to endeavour to remove that temptation or reduce the chances of his salesman yic!tding to it. It is elementary that many potential purchasers of used cars may be expected to be interested in and to enquire about the history of a car which they are offered. Obviously there is a temptation for a salesman who knows nothing of its history to provide one for himself and preferably one which will Sa er eee Ye ee - satisfy the prospective purchaser and turn aside further enquiry. It is clear from the evidence that the management of the defendant understood those matters. A reasonable step towards relieving a salesman of the temptation to provide a history of his own would have been to inform him of the true history and indicate to him that any departure from the truth would be regarded as serious. By the time of the sale of the car to Mr. Voros everybody at Box Hill, certainly the management and the salesmen, knew of the history of the car because of the stir caused by the return of the car by Mr. Camilleri to the defendant after it had broken down. But that general knowledge was fortuitous. The salesman who negotiated with Mr. Camilleri knew no more than was revealed by looking at the car and being told that it had been purchased from G.M.H. To him, as he frankly said, "All cars from G.M.H. are G.M.H. executive cars". Not only had management failed to ascertain that he harboured this fallacy and to correct it but the procedures adopted actually created favourable conditions in which the false representation could be made with every prospect of success. These procedures involved the cancellation of the registration of the car which at the time of sale was in the name of Avis Rent-A-Car Systems Pty. Ltd. (hereinafter called "Avis") and its re- registration in the name of Southern Motots Pty. Ltd. They enemenee involved also the insertion in what is known as the "L" form of the name of G.M.H. as the last owner of the car. There was good reason for the cancellation of the registration in the name of Avis. It was a term of the purchase from G.M.H. that this be done. The reason for that was that the refund for the unexpired period was to be credited to Avis. The registration rates for companies like Avis were higher than those for ordinary registered owners. But it was a consequence of this procedure that Avis' previous connection with the car ceased to be apparent on current registration documents. By reason of the above a salesman who was asked how it was that the car was not registered in the name of G.M.H. could truthfully say that G.M.H. had stipulated that the car be re-registered. The "L" form is something provided for by the law of Victoria. By the Motor Car Traders' Act 1973 it is enacted that at the time of sale of a used car there shall be attached to the vchicle a notice known as an "LL" form although under current regulations it has become the "K" form, stating, inter alia, the name and address of either - "(i) the last owner of the moter car other than a Motor Car Trader or a Special Trader; or (ii) the last registered owner (other than a Motor Car Trader or Special Trader) of the motor car under the provisions of any Act or law whether in Victoria or elsewhere." An "L" form was attached to the vehicle at the time of sale. In amplification apparently of particular B(1i) of the form an employee of the defendant is said to have inserted the expression "G.M.H."' G.M.H. was the last owner and the view was taken that it was not a Motor Trader within the meaning of the Act. It would require an examination of the complex definition of "Motor Trader" in the Act and a precise knowledge of the scope of the business of G.M.H. to arrive at this view. If it be correct the defendant would comply with the requirements of form "L" by inserting the expression "G.M.H." in particular BQ) Mr. Jane, the managing director of the defendant, stated that to have inserted "Avis" as being the last person registered as owner might not have been correct because Avis was a Special Trader within the meaning of the Act. He indicated that there was considerable confusion in the trade as to the precise particulars which ought to be inserted in circumstances such as those relating to this vehicle and thet legal advice had failed to resolve it. rene eee - -- But for Mr. Jane's suggestion that Avis was a Special Trader within the meaning of the Act, there was just as good a reason to choose to insert "Avis" in particular B(1i) as to insert "G.M.H." in particular B(i). And it is far from clear that Avis was a Special Trader. A Special Trader is defined by s. 2(1) as meaning "a financier manufacturer or LU. wholesale trader,or a related company of a financier manufacturer or wholesale trader being a body corporate". According to what is generally accepted as to the nature of its business, Avis does not come within this definition and no facts appeared in evidence to support the view that it does. Although the expression "G.M.H." is said to have been inserted in the "L" form by a member of the Box Hill staff, it is clear from a statement made by Mr. Black the General Manager of the defendant that to do so accorded with company policy because "the last previous owner was G.M.H." It would seem that in cases where there has been a lease and sub-leases, verbal or written, of the car in question and those leases and sub-leases have expired, the apparent purpose of form "L" may not be achieved. Contributing factors are the uncertainty involved in knowing or deciding whether business enticies are Motcr Traders or Special Traders, the alternative "or" between B(2) and B(11), the non use in B(ii) of the expression "the last person registered as the owner" pe ae which appears in s. 40(3) of the Act and the absence of a direction reflecting the requirements of s. 40(3) or any other instruction for difficult circumstances, designed to elicit identification of the last person believed to have had lengthy control of the use of the car. But even if legally correct the insertion in the "L" form of the reference to G.M.H. was calculated to assist materially a salesman inclined to elaborate on the nature and extent of the connection of G.M.H. with the car. The expression "G.M.H." having been used to indicate the previous owner of the car it is my view that having regard to the history of the car reasonable prudence required the taking of some step to ensure that the outward appearance of the documents relating to the car were not used as a corroborative background to a scenario in which a customer was misled. But no step was taken. There was additional ground for care because it was far from fanciful that a prospective purchaser inspecting the "L" form itself might have been led to believe that G.M.H. had probably not only owned the car but used it as a vehicle driven by its employees in the course of their employment. 12. It would have been an advantage to do what is said to have been done at a later stage with similar vehicles, namely to add the words "ex-Avis" after the expression "G.M.H." The type of misconduct in question could have been corrected by Mr. Bennett, the defendant's Sales Manager, whose duty it was to conclude the negotiations on the sale of the car by cnquiry directed to the purchaser or at least to the salesman. And no doubt if any attention had been given to the problem it could have been safely handled in other ways. Had "Avis" been inserted in particular B(1i) there is little doubt that the management of the defendant would have regarded the car as much less suitable to be markecled by it than a genuine G.M.H. used vehicle. This is clear because for some time cars from Avis were banned from the Southern Motors stock as a result of the events the subject of these proceediuss. In the light of these observations it is impossible to regard the responsibility of the defendant company for the fraud of its servants as merely technical. Whether or not the salesman knew that the car was an Avis used car it is clear that Mr. Black and other members of the upper management of the defendant company were well aware. And yet they permitted it to go on sale under a documentation which pointed away From any Avis connection and in the hands of a salesman of Jengthy standing who had been so poorly instructed as to be uncer the belief that it was proper for him to describe any car bought from G.M.H. as an ex-G.M.H. executive car. Also he was so poorly informed of the car's history as to be unable truthfully to answer any question about it other than that it had recently been purchased from G.M.H. The two cases before the Court concern but two transactions and two misleading statements. The trading methods disclosed might be thought to indicate that other incidents of similar misconduct may have occurred but there is no evidence of any such incidents. Accordingly, in relation to the question of penalty any such suggestion must be firmly rejected. But this is not to say that the method of trading is irrelevant. It is out of that that the culpability of the defendant in its managerial conduct as distinguished from the misconduct of its employee arises. I turn therefore on the question of penalty in relation to the false representation made to Mr. Camilleri to a consideration of criteria outlined by Mr. Nathan by reference to the considerations indicated in Hartnell v. Sharp Corporation, 5 A.L.R. at 492, and Eva v. Mazda (Motors) Sales Pty. Ltd. (unreported - VG 1-7 of 1977). mom nn In this connection it is clear that in relation to the transaction in which the false representation was made the representation was most important. Mr. Nathan's suggestion that the transaction being a minor one involving less than $10,000 the representation was of minor importance, cannot be accepted. But it is important that in the end neither Mr. Camilleri nor Mr. Voros would appear to have suffered financial loss. The degree to which the representation departed from the truth was in my opinion very high. Mr. Nathan urged that all that it did was to give to the actual G.M.H. connection with the ownership of the car "a turn beyond its propriety". But this is to understate the significance of the representation which was to divert attention from the true facts and to ascribe a standard of quality to the car which upon the true facts could not have been ascribed to it. As to the degree of wilfulness or carelessness of the defendant in relation to the representations, Mr. Nathan urged that there was carelessness but no wilfulness. In my opinion the responsibility of the defendant to take reasonable precautions to prevent the kind of fraud which occurred was totally ignored. It was argued that the management must be held guilty at least of conniving at the possibility of that happening which it did. I think the defendant's conduct should be regarded as indicating a culpable complacency in the face of real risk that what occurred might occur. As to the extent of the dissemination of the frauds they were of course confined to the two purchasers of the car. On the question as to whether the defendant took steps to correct the situation under which the frauds were committed it is to be noted that Mr. Jane's first reaction was to exclude Avis or other rental house cars from the stock altogether at all the used car yards of Southern Motors Pty. Ltd. including that of the defendant. He seems later to have regarded this as too draconian a measure and modified it. I do not overlook the memorandum of 12th May 1975. However, although issued after Mr. Jane knew of the difficulties arising from the Camilleri sale that document is directed to quality contrcul and ignores standards of conduct. The evidence that "ex-Avis" is now inserted in the "L" form was somewhat fleeting and hardly convincing. wai As to the other steps taken to guard against a lapse on the part of a salesman it is said,and I believe,that reasonably frequently the Managing Director did tell cmployecs that they had the reputation of the company in their hands and that practically each month he has told them that "no matter what they promise, no matter what they say, no matter what they do, we will be paying the bill, so there is no point in telling a lie". Mr. Jane emphasised also that at all times he has been trying to eliminate complaints and problems of customers who were dissatisfied because of the car they have bought or the price paid or what they say the salesman promised and he had got it down to a negligible level at this point. He said that whatever the salesman promiscs the defendant will honour. The general thrust of what Mr, Jane said may be accepted but whether performance conforms with precept is another matter. Throughout his evidence and the statements of all the management and the salesmen the emphasis appears to be on the fact that value is given for money. The cendency is to decal with the problem by reference to car quality rather than by the quality of sales conduct. But if the truth be not told then reliance on car quality does not excuse the error. Accordingly what is ultimately seen is that the defendant company culpably permitted conditions to exist in which the commission of the offence by its cmployce was a real possibility and did eventuate. A standard of managerial control is revealed well below the requirements of the occasion, With respect to the sale to Mr. Voros the false representation was made by a salesman, one Glendon Rodier, whose association with the defendant was of short duration. But it was long enough for him to have ascertained that the car in question had been leased by G.M.H. to Avis and sold to Southern Motors Pty. Ltd. by G.M.H. after its return from Avis. He knew that the car had been sold to Camilleri and returned by Camilleri as grossly unsatisfactory because of serious mechanical defects. Notwithstanding this knowledge he represented the car as having come from G.M.H. There is a narrow and irrelevant sense in which this might be true. But having regard to the circumstances and to the defendant's plea it is established that in the context of the transaction of the sale to Mr. Voros, what was said was to be understood as carrying the intimation that the car was a vehicle the use of which was under the control of G.M.H. during a material period of its recent life and driven and maintained as would be expected of a vehicle so controlled. That, of course, was far from the truth. Similarly the negative implication from what was said, namely that the car had not come from somebody other than G.M.H. such as Mr. Camilleri was quite untrue. Notwithstanding the defendant's unfortunate experience arising out of the misrepresentation made to Mr. Camilleri no effort was made by the defendant's management to ensure,even by a simple enquiry of the salesman, that Mr. Voros had not been misled. Mr. Nathan drew the Court's attention to considerations in amelioration such as those set forth above in relation to the Camilleri sale and I have taken them into consideration. As compared with the sale to Camilleri, the culpability of management was in minor degree but the salesman's misconduct was committed with knowledge that he was giving to the vehicle a reassuring character to which it was not entitled. The used car industry is very large; the goods in which it deals are essential to aluwost every family and business; as single items of purchase they are expensive and in nearly every purchase there are inevitable uncertainties. oo een cores gee > For a salesman to tell a purchaser that a particular car has a reassuring history when the reverse is the case 1s not only dishonest but thoroughly unfair to the victim. Good faith is required also to protect honest traders. To a great extent the trade is conducted by large, successful groups with very high turnovers. Perhaps the required standards are unattainable in large organisations. If so, compliance with the requirements of the Trade Practices Act will be achieved only by the institution of procedures designed in recognition of the human frailties of a proportion of their employees. Accordingly, in order to reflect the will of Parliament, substantial penalties must be imposed. In this class of case the deterrent aspect of punishment is most important. It was urged that the Court should take into account, with a view to the imposition of but a moderate penalty, losses suffered by the defendant because of publicity given to these proceedings. It was pointed out that the Trade Practices Commission itself gave wide press publicity in February 1976 to the fact that the summonses in these proceedings had been issucd and also summonses against Southern Motors Pty. Ltd. and stated in a press release particulars of the matters which the Commission would allege, namely that "the companies sold the car twice as an 'ex-G.M.H. executive car' when in fact it was an ex-rental car", At that stage these particulers had not been delivered ae to the defendant company or to Southern Motors Pty. Ltd. When particulars were given they did not contain all that were contained in the press release. When the cases were called on for hearing those against Southern Motors Pty. Ltd. were withdrawn. It may well be that considerations of policy gustify wide publicity being given to the issuance of summonses but where what is involved are court proceedings in which the defendants are regarded as innocent until the contrary is proved, appropriate restraint in tone and content is required. In assessing appropriate punishment for a crime the Court is required to have in mind not only the nature and extent of the offence itself but also a wide variety of associated circumstances. Such circumstances constitute a context in which to view the penalty. Adverse publicity is often one of the inevitable consequences of wrongdoing and in most cases is without influence in the assessment of the appropriate penalty. But adverse publicity initiated by the prosecuting authority itself requires special consideration. If the matter is publicised ahead of the trial and widely and in terms likely to induce public censure of the parties concerned and those parties are in day to day business relationships with the public, then there is obvious danger of injury to the lawful business of the parties which from a practical point of view may have the effect of effectuating a cumulative punishment; cf. Fisse, The Use of Publicity as a Sanction Ageinst Business Corporations 1971) 8 Melbourne University Law Review, 107, 109. In such a case an element has been injected into the situation which 241. supjects the parties to more than the natural and probable consequences of mere publication of the fact that they are being prosecuted for named offences. In my view this is a case in which, by reason of the press release of the prosecuting authority, the danger of cumulative punishment along these lines 1s real and should be treated as part of the background against which the penalty should be assessed. And I have so treated it. In the result the penalty imposed upon the defendant in respect of the representation to Mr. Camilleri is $12,000 and that in respect of the representation to Mr. Voros is $8,000. In each case the defendant will pay the costs of the informant as taxed by the Registrar.