CATCHWORDS TRADE PRACTICES - Alleged misrepresentation as to credit worthiness of applicant - Meaning of "credit problem" - Dispute between applicant and respondent as to state of applicant's account - Whether applicant was in fact indebted to respondent when statement made. COSTS - Dispute between parties occasioned by confusing and inaccurate statements rendered by respondent to applicant - Exercise of discretion to deprive successful respondent of part of its costs. Trade Practices Act 1974 s.52 Federal Court of Australia Act 1976 s.43 Donald Campbell & Co Limited v Pollak [1927] AC-732 referred to. NSW G.86 of 1986 TELA PTY LIMITED v_AMPOL LIMITED Wilcox J Sydney 13 November 1986 mA eer ee eee wre Sag apo IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G.86 of 1986 sews we GENERAL DIVISION BETWEEN: TELA PTY LIMITED Applicant AND: AMPOL LIMITED Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 13 NOVEMBER 1986. MINUTES OF ORDER . THE COURT ORDERS THAT: 1. The Application be dismissed. 2. In the Cross-Claim, judgment be entered in favour of the Cross-Claimant, Ampol Limited, against the Cross-Respondent, Tela Pty Limited, in the sum of eight thousand one hundred and seventy dollars ninety one cents ($8,170.91). re Note: The applicant pay to the respondent one half of its costs of these proceedings. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. eee ea IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. G.86 of 1986 GENERAL DIVISION BETWEEN: TELA PTY LIMITED Applicant AND: AMPOL LIMITED Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 13 NOVEMBER 1986 REASONS FOR JUDGMENT This is unfortunate litigation. For several years the parties have enjoyed a mutually profitable, and basically harmonious, business relationship but they now find themselves in court because of their failure adequately to communicate with each other; a failure for which each must share the blame. +s Tela Pty Limited is a company controlled by Mr Jim Harris. The company operates two service stations in the Sydney suburb of Redfern. Since 1975 it has purchased supplies of motor spirit from Ampol Limited, the respondent. On 13 October 1981 the parties executed a Reseller's Agreement providing for the supply by Ampol to Tela of refined petroleum products during the period of two years commencing on that date; and thereafter until termination by one month's notice in writing given by one party to the other. Wo such notice has been given, so that the agreement continues in operation. But it has little relevance to the present case; the provisions relating to price have been overtaken by subsequent events. The agreement provides that Tela will purchase petroleum products from Ampol at Ampol's "wholesale list price/s prevailing as at the date and place of delivery thereof". However, this term is subject to Schedule B of the agreement whereby Ampol undertakes to allow to Tela a rebate of 1.75 cents per litre cf super grade motor spirit "provided that the rate referred to in this Schedule", that is 1.75 cents, "may at any time be varied by the Company" (Ampol) "in the event of any variation in the maximum wholesale price in respect of such product in effect as at the date of this Agreement ...". The proviso quickly swamped the term as to the amount of the rebate. Only two months after the document was signed the maximum wholesale price of super grade petrol was increased, leaving Ampol free to grant such rebate, if Se pcoosesienta we Tz TNT roe soy toe 3 e mat ee amt any, as it chose. Since that date the amount of the rebate has been varied on numerous occasions; the frequency of variations being an underlying cause of the present problem. At all material times Tela's service stations were within the area of responsibility of Mr W D Dixon, Metropolitan Retail Manager, South, of Ampol. It was Mr Dixon's practice to maintain in his office a card relating to Tela upon which he noted variations in the rebate allowed to that company. Some variations occurred at the initiative of Ampol, some as a result of a request by Mr Harris at a time when his competitors were discounting their retail prices. When a variation occurred the new rebate was supposed to be -- and I think usually was -- communicated orally to Mr Harris; but there was no system of written confirmation. Until October 1983 Mr Harris' practice was to hand to the tanker driver a Tela cheque for the value of his delivery. The cheque being written after the load was measured into the service station tanks, Mr Harris should have been able to calculate the exact cost of the petrol. He was generally able to do this accurately. But there were occasions upon which he calculated a payment at a particular rebate rate, only to be told subsequently that a different rate applied. Sometimes adjustments had to bé made. But these were relatively small and, whilst this system operated, the parties do not appear to have had much difficulty in reconciling their calculations. r a In October 1983 two Tela cheques -~- for $7,012.91 and $6,329.86 respectively -- were dishonoured. The dishonour of the $6,329.86 cheque was soon made good, by two payments totalling that amount, but Mr Harris was apparently unable to make any immediate arrangements about the other cheque. Tela's account -went—-into debit. As a result of the dishonour of these two cheques Ampol put Tela on "hard cash" trading terms, that is it required that Tela pay for deliveries, as they were made, either in cash or by bank cheque. Mr Harris thereafter adopted the practice of procuring bank cheques prior to each delivery but it was not usually possible accurately to calculate the exact amount which would be required. The quantity of petrol delivered often differed from that ordered. The result was that, even if Mr Harris correctly understood the rebate being allowed, an adjustment was usually necessary. Moreover, with the object of reducing the debit balance, Mr Harris frequently attempted to present a cheque greater than that which he thought would be required for the instant load. As a result of these matters it was no longer possible for Mr Harris to work upon the basis that his cheques matched the invoices. The state of the account could only be determined from the statements which he received from Ampol each month. te nt a re ene ee ca ee Ts yt tore es ea ee pe Unfortunately, problems arose with the monthly statements. They were twofold in nature. First, there were occasions upon which payments received by Ampol from other service stations were mistakenly credited to the Tela account. When the error was detected the credits were reversed, but not before misleading statements had been sent to Tela. Secondly, and more importantly, there were frequent discrepancies between the price per litre used in the calculation of the value of a load of petrol, as shown on the invoices, and the amounts shown on the monthly statements. The practice varied from time to time but there appears to have been a lengthy period during which the invoice taken by the driver to the service station showed a price per litre different from that intended to be actually paid. Sometimes ~- and notwithstanding that, according to Mr Dixon's card, a rebate was to be allowed ~- the invoice showed the gross wholesale price. Sometimes it showed a price equal to the gross price less part, but not all, of the relevant rebate. As each load was delivered Mr Harris would discuss with the driver what was the actual price and he would make his calculation ~— accordingly. I believe that he did this honestly and as carefully as possible. But he frequently found that the debit for the load upon the monthly statement differed from his figure. As is now clear, there were two causes for these discrepancies. In some cases Mr Harris assumed a rebate figure which was different from that shown on Mr Dixon's card; it is not clear whether, and if so to what extent, the exo Tore ag ee -f incorrect assumption was occasioned by a failure of communication by Ampol officers or by incorrect recollection by Mr Harris. Upon other occasions the rate used for the calculation of the debit on the statement differed from that shown on Mr Dixon's cards. In the result, predictably enough, the position became thoroughly confused. Mr Harris -~- I think over~estimating the extent to which he had paid off the debit arising from the dishonoured cheque -~ became convinced not only that the various debit balances in the monthly statements were erroneous but that Tela did not owe Ampol anything. Unfortunately, he did not take any active steps to reconcile his understanding of the position with the statements he was continuing to receive. 'He seems to have decided simply to ignore the statements. The practice of Ampol was to supply its area representatives with information as to the contents of monthly statements sent to customers in their areas. At material times, the relevant area representative was Mr Ray Watson. Mr Watson was aware that, according to the monthly statements, Tela continued to owe Ampol some thousands of dollars. He spoke to Mr Harris about the matter. Mr Harris disputed that he owed any money but nothing was done between the two men to clarify the position. flan, ys ve rad sraineie Say abenaamneneneeeenrtiaien Liavalitohiatinuntandiidentallcantialt edetenieend meee cee TRS BTR f Ty Late in 1984 or early in 1985 Mr Harris decided to purchase his petrol elsewhere. On 17 January 1985 he sent a letter to Ampol notifying that he would no longer purchase from Ampol. This letter was acknowledged by a letter dated 18 January in which Mr Dixon said that the pumps at the two service stations -- which were owned by Ampol ~~ would be removed on a date to be arranged. But they never were removed; apparently because Mr Harris found himself compelled to continue purchasing petrol from Ampol. He had difficulty in obtaining alternative supplies; and that difficulty nag given rise to the present proceedings. The applicant's Amended Statment of Claim relies upon s.52 of the Trade Practices Act 1974. A number of allegations of misleading or deceptive conduct are made but, in the end, only one allegation is pressed. This allegation is contained in para.12 of the Amended Statement of Claim, which reads as follows: "12. On or about 10 March 1985 the respondent by its agent Ray Watson made statements to Ross Walden of Complete Service Station Management a supplier of petrol to the following effect: a) That the applicant owed money to the respondent b) That the applicant was an unreliable eredit risk." eee amr ee The only evidence relating to this allegation was that adduced by counsel for the applicant in his eross~examination of Mr Watson. Mr Walden did not give evidence. It appears from that cross-examination that, at the relevant time, Mr Walden carried on business, inter alia, as a petrol wholesaler. Mr Watson had occasion to see him from time to time. During a visit to Mr Walden's office in March 1985 he noticed Mr Harris' telephone number on the wall and he asked Mr Walden whether Mr Harris had sought supply from him. (Mr Waiden had in fact supplied 38,000 litres to Tela only a few days earlier). There was a discussion about Mr Harris during which Mr Walden asked Mr Watson why Ampol would not supply Mr Harris. Mr Watson replied that "it is not that we will not supply, that there is a bit of a credit problem". Later in the conversation he told Mr Walden that Mr Harris was "on bank cheque as a result of a disputed account". Mr Walden subsequently declined to supply Tela any further. The case made by the applicant is that, as a result 'Of what was said by Mr Watson to Mr Walden, Tela was prevented from obtaining petrol from an alternative source, leaving it no option but to continue to purchase from Ampol. It is said that this has occasioned damage to Tela, that, knowing that Tela was "locked in" to purchasing from it, Ampol has granted rebates insufficient to allow the company to trade profitably. ye aoe ee ee At the commencement of the hearing, and pursuant to the joint request of the parties, I directed that the issue of liability be determined prior to the hearing of evidence as to damages. Consequently, no material has been put before the Court as to the losses allegedly sustained by the applicant as a result of the conversation between Mr Watson and Mr Walden. But, as it seems to me, that stage will not be reached; the applicant must fail on the issue of liability. The evidence adduced from Mr Watson discloses three relevant statements made by him to Mr Walden: (a) that there was "a bit of a credit problem"; (b) that Mr Harris was "on bank cheque"; and (c) that this was "a result of a disputed account". Statement (b) was true. Statement (c) was not true but it was a version more favourable to Tela than the actual truth, namely that the company was "on bank cheque" because two of its cheques had been dishonoured. Taxed by counsel as to the reason for giving this untrue reason, Mr Watson said he thought it easier to say a disputed account than a dishonoured cheque. I think that Mr Watson correctly appreciated that a correct statement would have been more damaging to Tela than the statement in fact made by him. There is no reason to believe that the false element in statement (c) had any adverse influence upon Mr Walden. ne oe re ee ne 10. The real contest between the parties relates to statement (a). Counsel for the applicant contends that this statement would be understood as conveying that Mr Harris, or Tela, was unable or unwilling to pay moneys justly due to Ampol. Counsel for the respondent does not accept this proposition, contending that, in context, the statement would be understood as referring to an unsatisfactory position arising out of a disputed account. I incline to the view suggested on behalf of the applicant but the question only arises if it is shown that Tela was not in fact indebted to Ampol at this time. If there was a debt then, given Mr Harris' steadfast refusal either to make payment or to resolve the dispute, it must be said that Tela was unwilling to pay moneys justly due to Ampol. Shortly after the institution of these proceedings, on 3 April 1986, an affidavit of Mr C V Carter was filed. Mr Carter is a qualified accountant, independent of Tela, who had examined the various invoices, rebate advices and monthly statements received by Tela from Ampol. Mr Carter compiled a schedule stating, in respect of each delivery between 14 March 1984 and 3 February 1986, the invoice number, quantity, price on invoice, invoice amount, payment made, price on statement, amount claimed on statement and the amount overpaid or underpaid (that is comparing payment with invoice) as the case might be. The schedule showed the total invoice amount for ee a ern en ll. eed the period as $506,206.73 compared with a total statement amount of $519,576.13. On Mr Carter's calculation Ampol owed Tela $8,225.62. On 22 October 1986, only six days before the hearing, an affidavit of Mr G B Hudson was filed on behalf of the respondent. Mr Hudson is a qualified accountant and the New South Wales Credit Manager of the respondent. Mr Hudson did not deal expressly with Mr Carter's computation but he set out calculations yielding the resuit that Tela owed Ampol $8,170.91. These calculations went back to 29 July 1983, that is to a date before the dishonour of the two cheques. At the commencement of the hearing I granted leave to the respondent to file in court a Cross-Claim for $8,170.91. At my request an attempt was made to reconcile the calculations of the two accountants. This proved a relatively simple matter. Mr Carter accepted that there was a debit balance ~~ of which he had been unaware and which was the residue of the debt on the dishonoured cheque -- at the date of his commencement, 14 March 1984, of $2,593.56. He accepted that some of the figures in the schedule were erroneous; in particular one payment was over-stated by $3,000. The true position, it was agreed, was that, over the period covered by the schedule, there was a shortfall of payments as against total invoice debits of $3,402.27. It also appeared that the total amount claimed by the invoices was $3,175.09 less than - ae er tte ee sen ee ee Se ie ee at =r , pe tee as Saleen: Aeeetirtalataeeraatealll deteedataamta siebeenhatechete acted Cnaatinn 12. the amount which would have been payable if the calculation had been in each case based on the rebate shown at the relevant time on Mr Dixon's card. (When he made his computation Mr Carter had not had access to the card). Counsel for the applicant submits that, in determining whether it was accurate for Mr Watson to speak of a "credit problem", no account may be taken of the deficiency | stemming from the dishonoured cheque, that Mr Watson's comment must be taken to refer only to the current method of payment. I do not agree. Although the system operative at that time might be regarded as satisfactory there was, it is now agreed, a continuing debt, incurred under the previous system, which Mr Harris declined either to acknowledge or to discharge. Mr ; Watson was not inaccurate in regarding that debt as part of the problem. Once account is taken of the whole position, that is back to 29 July 1983 when -- it is now accepted -- Tela last had a nil balance, it is apparent that Tela was indebted to Ampol when Mr Watson saw Mr Walden. (There was no change in the position between March 1985 and February 1986; during this period the accounting system was improved so that invoice claims and statements claims exactly corresponded and, on each occasion, Mr Harris paid the exact amount of the invoice). It follows that it was not erroneous for Mr Watson to imply that Tela was indebted to Ampol and that Mr Harris was unable or - 13. unwilling to pay. There was no conduct on behalf of the respondent infringing s.52 of the Trade Practices Act. The application must be dismissed. In relation to the Cross-Claim, I have already set out the items which, as a matter of mathematics, have been agreed. The two shortfalls represented by the figures $2,593.56 and $3,402.27 represent moneys still owing by Tela to Ampol; the contrary was not contended. The recoverability of the third item, $3,175.09, depends upon whether the contractual obligation of Tela was to pay the price shown on the invoices, as delivered by the driver, or an amount calculated by deducting from the current wholesale price the current rebate shown on Mr Dixon's card. In my opinion, in those cases where there was a difference, Tela was obliged to pay the latter figure. Mr Harris conceded that he knew that Mr Dixon was the person with authority to fix rebates on behalf of Ampol and that he depended on either Mr Dixon or the area representative to notify him of any variations in the rebate. He dealt with Ampol upon the basis that he would receive such rebate as Mr Dixon might allow. He does not suggest that he believed that the drivers had authority to fix rebates. To the extent that the invoices completed by the drivers departed from Mr Dixon's rebate, this was done without authority. Although Mr Harris did not realise at the time that there were departures, his knowledge was such that, once ph the facts emerged, he knew that the departures were without oe YY eee rit arene en gre oe on eer po pon ee ee ye arty oe ~~, wo f 14. authority. In my view the obligation of Tela was to pay in accordance with the card. Consequently, the item of $3,175.09 is recoverable. The total of these figures is $9,170.92; a figure which exceeds the amount of the Cross-Claim. I pointed this out to counsel but I have been informed that Ampol does not____ seek to amend its Cross~Claim. The respondent is, apparently, content to receive the amount mentioned in the Cross-Claim, $8,170.91, in full satisfaction of all arrears. That being so, there will be judgment in the Cross-Claim in that amount. The respondent has succeeded, in relation to both the Application and the Cross-Claim. In the usual course it would be entitled to recover its costs of the proceedings. However, it is submitted that, in this case, the Court should depart from the usual course and should make no order as to costs. The basis of this submission is that, so it is contended, the whole problem stemmed from the inaccurate accounts rende1ed by Ampol. As I have already indicated, there is reason to be eritical of the accounting system adopted by Ampol. Not only were there unfortunate extraneous entries; the system adopted was confusing in the extreme. Until early 1985 no attempt was made to ensure that the correct price was shown on the invoice issued by the dispatch office for delivery by the driver. The & is. only certain information of the driver, and of Tela, would have been that the price per litre shown on the invoice was incorrect. It had to be adjusted downwards, but it was not clear to what extent. Moreover, many of the monthly statements were wrong. According to the agreed figures, the total amount, claimed by Ampol in statements issued for the period 14 March 1984 to 29 March 1985 exceeds by $13,940.46-— the total amount of the invoices raised. After making the adjustment of $3,175.09, referred to above, for the amount by which the invoices understated the card rates, it is apparent that the statements over-claimed $10,765.37. It is little wonder that Mr Harris refused to take them seriously. If the statements had been accurate, it is unlikely that Mr Harris would have put himself in the position of declining to address the problem 'and to pay what he owed; and Mr Watson would never have said what he did to Mr Walden. ' on 16 September 1985 Tela was served with a Demand issued by Ampol claiming payment of the sum of $8,928.22. This Demand was issued pursuant to s.364(2) of the Companies (NSW) Code with the intent that non-payment should furnish evidence, for the purpose of winding up proceedings, that Tela was unable to pay its debts. Thereupon Mr Northwood, the solicitor for Tela, contacted Ampol. He endeavoured to ascertain Ampol's calculation of the debt. He had a meeting with Mr Hudson during which Mr Hudson informed him of the rebate card system and gave some details of his calculations. — > wee nee eee eS ee eee ee ee wep ere ow 16. Mr Hudson had with him a handwritten document, going back to 29 July 1983, which showed a calculation of a debt of $9,043.69 as at 30 September 1985. Mr Hudson said in evidence that this document was "tabled for discussion" but there is no evidence that it was in fact read or considered by the solicitor. No copy was delivered. In any event, the document being now in evidence, it is far from clear that it would have resolved the problem. It would probably have satisfied Mr Northwood that there was a debit balance at the beginning of March 1984 but it did not demonstrate the position since then. Shortly after that meeting Mr Hudson wrote a letter to the solicitors, on 9 October 1985, sending a different document. This document was described as "a detailed analysis of how this debt occurred" but it was not worthy of that description. The document commenced only at 14 March 1984 -- whereas on the respondent's case in this Court the prior period was of major importance -~ and it showed a debit balance at 19 February 1985 of $4,743.39. Not only did the document not support a higher figure; its proclaimed comprehensiveness impliedly indicated that no higher figure could be supported. The first analysis of the account by reference to invoices was that made by Mr Carter. It is true that this analysis required significant adjustments, mainly to allow for matters unknown to Mr Carter. These adjustments were a iene 17. aa performed during an overnight adjournment of the trial. They could have been made at any time after 3 April 1986, long before the trial. Had the adjustments been made, and pointed out to the applicant's advisers, it is most unlikely that the matter would have come to trial. Costs are in the discretion of the Court; see s.43 of the Federal Court of Australia Act 1976. There is high authority for the proposition that the discretion ought not to be exercised against a successful party except for some reason connected with the case itself: see Donald Campbell & Co Limited v Pollak [1927] Ac 732 at p.812. But proved facts "connected with or leading up to the litigation" may furnish a reason for depriving a successful party of its costs, or part of them. Taking the view, as I do, that the accounting system adopted by Ampol was a basic cause of the problem which developed, that the information furnished in late 1985 served rather to confuse than to elucidate and that the failure to respond quickly and helpfully to Mr Carter's analysis prolonged the litigation, this is a proper case for departing from the usual order. = However, it would not be appropriate to go so far as sought by the applicant. I cannot overlook the fact that, as is now apparent, Tela was at all material times indebted to Ampol. Although his frustration was understandable, Mr Harris was not justified in ignoring the problem of reconciling the pilsieeeliehedic eitani-ah =x thenaceadh Suettensnemmmten op ~Te oy yout en yo toe ere soe can 18. account. At no time did Ampol refuse to supply information or to discuss the matter. The analysis made by Mr Carter could have been undertaken before the litigation commenced. There is no reason to doubt that, if this had been done, Mr Hudson would have co-operated in a reconciliation of the figures and the true position would quickly have emerged. To put the matter at its lowest, Mr Harris was most imprudent to commence litigation, whose success depended upon his demonstrating that Tela was not indebted to Ampol, without first ascertaining the true position.Had he done so, he would have realised the position before embarking on litigation. Having regard to the whole of the matters I have mentioned, I think it appropriate that the applicant pay one half of the costs of the respondent. I certify this and the <> preceding pages to be a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. Associate: Der ibn Date: ovember 1986 Counsel for the Applicant: Mr J M Ireland Solicitors for the Applicant: R F Giles, Payne & Co Counsel for the Respondent: Mr M J Slattery Solicitors for the Respondent: Dawson Waldron Dates of hearing: 28 and 29 October 1986 "4 ey «ff aoe oper ty sae wy A