CATCHWORDS TRADE PRACTICES - claim to recover amount paid to the respondents under an agreement relating to the conduct of a business for the retail sale of used furniture and other goods - representations by or on behalf of the respondents false, misleading and deceptive, and fraudulent - failure by second respondent to perform fundamental obligations under the agreement - whether notice to respondent to remedy its breaches required. Trade Practices Act ROBERT LEONARD WEAVER & HEATHER MAREE WEAVER (Applicants) v. NERVINA INDUSTRIES (INTERNATIONAL) PTY LTD (First Respondent) and TISDALE PTY LTD (Second Respondent) FITZGERALD J. BRISBANE 7_ DECEMBER 1983 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) Qld 51 of 1983 GENERAL DIVISION ) BETWEEN : ROBERT LEONARD WEAVER Applicant AND: HEATHER MAREE WEAVER Second Applicant AND: NERVINA INDUSTRIES (INTERNATIONAL ) Pry LTD First Respondent AND: TISDALE PTY LTD Second Respondent ORDER JUDGE MAKING ORDER: FITZGERALD J. DATE OF ORDER: 7 DECEMBER 1983 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. There be judgment for the applicants against both respondents for $25,800.00 2. The cross-claim is dismissed. 3. The respondents pay the applicants' costs of and incidental to the proceedings including reserved costs, if any, to be taxed. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD 51 of 1983 GENERAL DIVISION ) BETWEEN : ROBERT LEONARD WEAVER First Applicant AND: HEATHER MAREE WEAVER Second Applicant AND: NERVINA INDUSTRIES ( INTERNATIONAL) PIY LTD First Respondent AND: TISDALE PTY LTD Second Respondent FITZGERALD J. 7 DECEMBER 1983 REASONS FOR JUDGMENT On 14 February 1983, a written agreement was entered into between the applicants (therein described as the "Licensed Dealer") and the second respondent (therein described as the ""Company") relating to the conduct of a business for the retail sale of used furniture and other goods in Bundaberg under the name Royce Re-Used Furniture (Bundaberg). The applicant, who had previously paid a deposit of $5,160.00, paid a balance purchase price of $20,640.00 upon the signing of the agreement, a total of $25,800.00. The applicants' principal claim in these proceedings is to recover that amount from the respondents which are associated companies. Claims are made by the applicants against both respondents under the Trade Practices Act 1974 ("the Act") and for fraud and against the second respondent for breach of the agreement and breach of collateral warrancies. The second respondent has cross-claimed, asserting that 1t is entitled to retain the $25,800.00 under clause 12 of the agreement and that the applicants are liable to pay to it a further amount, ultimately quantified as $14,321.80, either under clause 6 of the agreement or as damages for breach of the agreement. Various other claims are also made, for example, for declaratory relief, but it is not in doubt that the agreement 1s at an end except as a possible source of the asserted monetary claims. Clause 5 of the agreement provided for the sharing of the profits from the proposed business between the applicants and the second respondent. By clause 4, each was to contribute a relatively small amount to a joint bank account for use in the business. The location of the premises of the business was described in the agreement as "to be selected". By clause 3 of the agreement, the applicants were required to obtain a second-hand dealer''s licence pursuant to the Second-hand Wares Act of 1921 (Queensland) but they believed that they could not make an application for such a licence until premises had been selected since such a licence relates to a particular location. Further obligations upon the applicants were imposed by clause 8 of the agreement. By sub-clause 8(c), the applicants agreed to use all proper means and powers to maintain improve and extend the business and to conduct it in accordance with sound business principles and by sub-clause 8(q) they agreed to devote themselves exclusively to the business and to attend thereto personally at all times during usual business hours except in the case of accident or 1llness. Clause 9 of the agreement provided, inter alia, that, if the applicants failed to comply with any of the terms or conditions or provisions of the agreement and the second respondent gave written notice of such fazrlure to the applicants which the applicants did not remedy within such time as the second respondent deemed reasonable but not being less than 30 days after the date of such notice, the respondent might at its option forthwith declare the agreement cancelled and terminated and that thereupon all rights and privileges granted to the applicants under the agreement were immediately to cease and be at an end. By clause 6, the applicants agreed to indemnify the second respondent from all expenses "incurred or suffered by the Company ... as a result of a breach of the terms and conditions of this agreement on the part of the Licenced Dealer". Clauses 7, 10, 12, 15 and 20 of the agreement respectively provided: "7. Upon the date for completion hereof, within a reasonable time thereof and during the course of this agreement the Company undertakes: (a) To supply to the Licensed Dealer upon consignment a reasonable quantity, quality and variety ot second hand furniture and goods (hereinafter called 'the original trading stock'). Such original trading stock and all further trading stock to the value of the original trading stock purchased for use in the said business shall remain the property of the Company until sold; (c) ... to advertise the subject business (d) To sell to the Licensed Dealer such of the Company's trading stock (or trading stock held by similar businesses conducted by or on behalf of the Company) at a price equal to the price paid by the Company for the acquisition of that stock plug Ten (10%) of that price PROVIDED THAT the Licensed Dealer shall be at liberty to acquire from sources other than the Company and its associates upon reasonable terms and conditions trading stock of the type and quality usually sold by the business. (f) To assist the Licensed Dealer in the administration of the business and on behalf of the Licenced Dealer to pay from the Bank Account referred to in paragraph 4 hereof all proper expenses with relation to the said business (g) To assist the Licensed Dealer an the general control and management of the said business including but not limited to the employment of other persons to assist the Licensed Dealer therein; 10. At any time within three (3) calendar months of the date of this agreement upon the written request of the Licensed Dealer made in that behalf the Company will negotiate the sale of the rights of the Licensed Dealer hereby created upon terms and conditions suitable to the Licensed Dealer and upon completion of such sale the Company will refund to the Licensed Dealer the sum set forth in Schedule 4 hereof or such other sum as the parties shail mut'ally agree upon PROVIDED HOWEVER that in the event of the determination of this agreement in consequence of the Licensed Dealer delivering a Notice pursuant to this Clause the Licensed Dealer hereby undertakes to continue to operate the business in accordance with the terms hereof until such time as such subsequent sale has been completed and the Licensed Dealer shall be entitled to receive the benefit of this agreement including the payment of the amount referred to in Clause 5 hereof or a proper proportion thereof calculated from the date that the last such amount was calculated down to the date of the transfer of the Licensed Dealer's rights hereunder. If the Company has been unable to sell the rights of the Licensed Dealer hereby created within sixty (60) days of the date of delivery of the abovementioned written request then the Licensed Dealer shall have the option of listing such property for sale with any Licensed Real Estate Agents of his choice provided that the licensed dealer shall not have authority to grant to any such agent or agents an exclusive right to sell such property. 12. fn the event of termination or determination of this Agreement (other than in consequence of a notice delivered pursuant to Clause 10 hereof) all rights of the Licensed Dealer hereby granted shall terminate and the Licensed Dealer shall not be entitled to receive any rebate or refund of the whole or any part of the sums paid by him pursuant to this Agreement 15. If the Company shall fa21 to comply with any of the terms conditions or provisions of this Agreement {including all schedules hereto) and the licensed dealer gives notice of such failure to the Company and the Company does not remedy such failure within such time as the licensed dealer shall deem reasonable, but not being less than thirty (30) days after the date that such notice was delivered to the Company then in such event the licensed dealer may terminate this agreement and quit the business without further notice and upon such termination the Company shall be liable to pay to the licensed dealer the sum referred to in Schedule 4 hereof. 20. This agreement sets forth the entire agreement and understanding between the parties as to the subject matter of this agreement and merges all prior discussions between them and neither of the parties shall be bound by any conditions, defintiions, warranties or representations with respect to the subject matter of this agreement other than as expressly provided in this agreement as duly set forth or subsequent to the date hereof in writing and signed by a proper and duly authorised representative of the party to be bound thereby." The applicants' first contract with the respondents flowed from an advertisement in a Bundaberg newspaper in January this year in the following terms: "BUSINESS ACTIVE PARTNER REQUIRED to participate in the opening of the latest Royce New and Used Furniture Store soon to open in. Bundaberg. Experience in furniture sales not required as full company training 1s supplied. Earnings in excess of $40,000 p.a. by way of retainer. commission plus percentage of profits. An earnest desire to succeed essential. Capital required $25,800. For confidential interview phone 796125 or head office Brisbane 07-3764894," A number of discussions took place from that time up to and including 14 February 1983 between the applicants and the respondent's agent, one William Ronald Johnston. In that period, the deposit was paid, the applicants executed and delivered to Mr Johnston an "Official Application Form" in respect of a Royce Re-Used Furniture store addressed to the first respondent as agent for the second respondent, and the applicants were notified that their application had been approved. Consequent upon that approval, Mr Johnston produced the agreement to the applicants for execution on 14 February 1983, and on that day they signed it and paid the balance purchase price. By their amended Statement of Claim, the applicants allege that they were induced to enter into the agreement and make the payments by representations to the effect that: (i) there would be a single such business in Bundaberg; (ii) the furniture to be supplied for sale in the business would be good quality second-hand furniture and high quality new furniture manufactured by Curries Furniture; (iii) stocks of furniture would be available for sale in the business as soon as the agreement was entered into. The representations were allegedly false misleading and deceptive because: (i) furniture supplied was poor quality second-hand furniture and did not include any high quality new furniture manufactured by Curries Furniture; (ii) no stocks of furniture were supplied until the second half of April 1983. (1i1) it was always intended that there would be another such store opened similtaneously and that contemporaneous negotiations were conducted with a Mr and Mrs Eberhard for them to open such a store. All the representations are alleged to have been made fraudulently in that they were either known to be false or were made recklessly without care as to whether they were true or false. Ido not doubt that the applicants were cheated. The respondents' conduct, however unsophisticated when viewed with hindsight, was a deliberate fraud. Unfortunately but not suprisingly, the applicants' gqullibility which rendered them vulnerable to the respondents persevered and they continued in their dealings with the respondents as, step by step, the position was changed. It was not until the applicants were provided with a load of junk instead of furniture that they finally were shocked into an acceptance that they had been duped. Soon after that, they consulted their solicitor for the first time and a refund of their money was demanded. Of course, credibility is very much in issue. Whilst there were aspects of the male applicant's evidence which I felt unable to accept unreservedly, in general I formed a clear preference for his evidence over the evidence of the witnesses for the respondents whom I considered totally unreliable. In the initial advertisement, which I have set out above, the business was described as relating to new as well as used furniture. This was the first of the applicants' expectations to be dashed. The term "re-used furniture" was consistently used in the name of the business from as early as the application form which was signed and delivered by the applicants on 2 February 1983 and the agreement, which the applicants read prior to signature on 14 February 1983, refers to second-hand furniture and makes no mention of new furniture or goods. Nonetheless, the process of withdrawal was not clear cut. In their discussions with Mr Johnston, the applicants were told that they would be supplied with items of new furniture manufactured by the first respondent and there was also reference to new Curries furniture. It 1s by no means clear to me what it was the applicants believed with respect to new Curries furniture at the time when they signed the agreement. However, they came to be aware that the proposal was that they would not be supplied with new Curries furniture but rather that they would display brochures etc. with respect to that furniture which they would be able to acquire, if required, through the first respondent, and that if a demand for such products was demonstrated their stock might be expanded to include such furniture. By 12 April 1983, a date to which it will be necessary to return, the applicants were under no misapprehension concerning the position with respect to new Curries furniture. So far as the new furniture manufactured by the first respondent is concerned, it may be that the applicants were ultimately supplied with one such item and have made no complaint concerning any lack or inadequacy of supply in respect of those products. The delay which was experienced after the agreement was signed and the applicants paid their money to the respondents was at least in part deliberately occasioned by the respondents. On the date of the agreement between the applicant and the second \ respondent, an agreement in identical terms, also to open a Royce Lo. Re-Used Furniture store in Bundaberg at premises to be selected, was entered into between Mr and Mrs Eberhard and Cudworth Pty Ltd, another company associated with the respondents. Mr and Mrs Eberhard had only paid a deposit of $5,160.00 and needed finance to pay the balance purchase price of $20,640.00. Obviously, their incentive to borrow and pay such amount might have been diminished had a Royce Re-Used Furniture store been opened in Bundaberg in the meantime. The respondents stalled, waiting for the Eberhards to borrow and pay the balance purchase price. On the other hand, whilst I accept that the applicants were led to believe that matters would progress much more quickly than they did and that the respondents deliberately contributed to the delay, the applicants knew that time would be needed before furniture would be received and the business could be commenced. At the time the agreement was entered into, premises for the business had not even been selected. Further, the applicants had to acquire a second-hand dealers licence even if there had been a possibility that, for an initial brief period, a licence possessed by the second respondent could be used. The delay in acquiring premises led to delay in obtaining the licence. The applicants did not receive their second-hand dealers licence until 3 May 1983. The "furniture" had been delivered prior to that time. Most of the delay had occurred when, on 12 April 1983, the applicants accepted the arrangements then made concerning when furniture would he delivered and those arrangements were thereafter substantially adhered to. ll. The respondents deny that any representation was made to the applicants that theirs was to be the only such business in Bundaberg and assert that, on the contrary, the applicants were informed that there was to be more than one such business prior to their signature on the agreement. I reject the respondents' version completely. The initial advertisement referred to the opening of a store, not stores. I have no doubt but that the tenor of the conversations between the applicants and Messrs Johnston and Woods (a director of the respondents) on behalf of the respondents which followed the agreement in the period up until 12 April 1983 tended to confirm and did nothing to dispel the impression thus created that there was to be but one store opened. I am satisfied that the applicants were led by the respondents to believe that there was to be a single such business in Bundaberg and were anduced by that belief to enter into the agreement and pay the balance purchase price. However, by 12 April 1983, the applicants had ascertained that a second store was intended. The male applicant and Mr Eberhard confronted Messrs Johnston and Woods in Brisbane. Mr Eberhard had his money refunded but the applicants chose not to have a refund of their money but to continue with the transaction after fresh arrangements were entered into by which theirs was to be the only such business in Bundaberg for a period of at least 2 years, At no material time was there ever another Royce Re-Used Furniture business 1n Bundaberg. 12. The respondents by their defence admit that it was represented to the applicants that the furniture to be supplied would be good quality second-hand furniture and I would, in any event, have concluded that such a representation was made. Indeed, the evidence persuaded me that the high quality of the second-hand furniture was initially emphasised. The obligation imposed on the second respondent by the agreement tas to supply "a yeasonable quantity, quality and variety of second-hand furniture and goods". It is perfectly consistent with ordinary human behaviour to accept such a contractual provision on the faith of representations as to the quality which would in fact be supplied. After the agreement, some indication was given that the furniture might not be uniformly good quality. Prior to 12 April 1983, and in some cases prior to the agreement, the applicants were shown photographs and copies of newspaper advertisements in relation to other Royce Re-~Used Furniture Stores and were taken to the premises of Curries Furniture at Strathpine and to the Royce Re-Used Furniture store at Underwood near Hrisbane. The Underwood store contained a wide range of second-hand furniture, some of reasonable quality which was expensive, and the remainder of poor quality such as the male applicant thought was to be expected although he said that his wife was appalled. In the discussions during the period between the agreement and 12 April 1983, the applicants were informed that the furniture to be supplied would be of reasonably good quality with some cheap items and there would be some need to 'dust and clean and touch-up the paint work on some of the furniture. However, nothing in the agreement or in what was said er done gave the applicants a clue to the shock which was in 13. store for them when they were supplied on or about 15 or 16 April 1983 with a large quantity of furniture and goods, the bulk of which was broken, torn, filthy and smelly, and, in the case of the electrical equipment, often unusable, all of which the respondents had acquired for a few thousand dollars on their own figures. According to the male applicant, what had been seen at Underwood was 100% better than what was delivered to Bundaberg. The male applicant telephoned Mr Woods and complained bitterly. A further smaller load of furniture was supplied on or about 18 April 1983. Even then, in the view of the male applicant, only about 20% was saleable. I am satisifed that the representations which were made to the applicants concerning the quality of the furniture to be supplied under the agreement were a material inducement to them to enter into the agreement and to make the payments which they did. Further, I find that neither load of furniture delivered to Bundaberg nor both in conjunction satisfied either the representations which had been made or the second respondent's contractual obligation. Further, I accept, and I indeed doubt whether it was seriously disputed, that what was supplied was of the quality which it was always intended to supply. An employee of the respondents or one or other of them arrived in Bundaberg at about the same time as the furniture. He had no funds to contribute to a bank account for the business or to pay for an advertising campaign and no will to provide other than token assistance. The first respondent had paid a month's rent on the premises and possibly some other expenses in relation to telephone, electricity, etc., but ait transpired that the 14. applicants were expected to sign the lease as lessees. There was no second-hand dealer's licence which related to the premises. Sign-writing had been done, but there was no carpet on the floor until 22 April 1983. Some attempt was made by the male applicant and the respondents' employee to clean up some of the items and to display them but their efforts were desultory. The doors of the premises were physically opened and some persons did enter the store and a sale or perhaps a few sales were made. However, by Saturday 23 April 1983, the applicants had decided that they could not continue, the male applicant had come to Brisbane to consult his solicitor, and the respondents' employee had left Bundaberg. I am satisfied that in the circumstances which prevailed it was impractical to clean or repair the furniture and open the store and I have no hesitation in concluding that the business never commenced to operate. On the following Tuesday, 26 April 1983, the applicants' solicitors wrote to the respondents asserting that their clients had been misled and deceived, requiring the fund of the money which the applicants had paid, but not at that point rescinding the agreement. Rather, notice was given by reference to clause 10 of the agreement and it was indicated that, pending an early response, the applicants would continue with preparation for the store to open but "without prejudice to their right to rescind -» in the event of no, or an unsatisfactory response...". is. In fact, the applicants did not continue with preparations for the store to open, although I am satisfied that they would have done so had any positive response been received from the respondents. Neither party took any step in connection with the" business except that the key was returned to the Lessor's Agent and the respondents removed such of the furniture as they chose, permitting the balance, on their invitation, to be collected by a charitable organization. The sign-writer and the carpet supplier have not been paid. On 5 May 1983, when no response had been received from the respondents, the applicants' solicitors wrote threatening proceedings. The respondents' solicitors wrote back on12 May 1983, denying that the first respondent was inany way involved, denying the applicants' allegations, and asserting that the applicants were in breach of the agreement and disentitled to take advantage of clause 10. Finally, the applicants' solicitors wrote back on 16 May 1983 rejecting the respondents' contentions and indicating that proceedings were to be commenced. The application to this Court was filed on 5 August 1983 and the relief claimed included rescission of the agreement. As I have already indicated, it is not really in doubt that the agreement is at an end except asa possible basis for the respective monetary claims of the parties. The matter seems to be free from legal complexity. The 'applicants have been misled and deceived by the conduct of the respondents and have lost their money in direct consequence. Nothing occurred to break the chain of causation and, if it 16. mattered, which I am satisfied it does not, I would conclude that there was no unequivocal affirmation of the agreement by the applicants. Further, the second respondent failed to perform fundamamental obligations under the agreement and, by a pattern of behaviour, evinced a clear intention not to perform the agreement in accordance with its terms but to perform, if at all, only as it chose. The applicants seek only the amount which they paid to the respondents. In my opinion, they are entitled to that amount as damages under the Act and for fraud, and in the case of the second respondent, as damages for breach of the agreement. There was no need, in the circumstances, for a notice requiring the second respondent to remedy its breaches: cf. Roberts v. Lewis [1967] V.R. 588; Nund v. McWaters [1982] V.R. 575. It is unnecessary for me to consider conclusively the applicants' claim for damages for breach of collateral warranties but it seems to me that, even 1f the male applicants' evidence was accepted in its entirety it could not support such a claim, particularly having regard to the express terms of the agreement: see J.L. Savage and Sons Pty Ltd v. Blakney (1970) 119 C.L.R. 35; Ross v. Allis-Chalmers Australia Pty Ltd (1981) 55 A.L.d.R. 8; Heliyer Drilling Company v. McDonald Hamilton, unreported judgment delivered 13 October 1983. It is self evident from what I have said that the respondents' claims must fail. They were, in any event, confronted by many obstacles. They were based on a imis-interpretation of the agreement. The alleged payments and liabilities were attributed in evidence to the first respondent not the second respondent, although the first respondent was not fe 17. party to the agreement. I do not accept that any of the amounts were paid or liabilities incurred except where supported by documentary evidence. Even then, the respondents apparently deny liability to some at least of the third parties who have not been paid and I do not accept that all of the amounts can be related to the agreement. I regard the sole claim able to be directly related to the second respondent, namely $8,000.00 for extimated loss of profits, as a mere flight of fancy on the evidence which was adduced. In any event, I find that the applicants did not breach the agreement. The cross-claim will therefore be dismissed and there will be judgment for the applicants against both respondents for $25,800.00 and the costs of the proceedings including reserved costs if any to be taxed. 1 certify that this and the /6 preceding Pages are a true copy of the reasons for judgment herein of His Honour Mr, Justice Fitzgerald L- Jaetsor Associate Dated @ Decenter, 19F>?