Set CATCHWORDS Trade Practices - consumer protection - representations that first respondent held exclusive licence to distribute a product in Australia - whether misleading and deceptive. Trade Practices - whether second respondent liable as a party to the contravention by first respondent - whether knowledge of facts and matters constituting contravention. Trade Practices Act 1974 ss.52, 75B Yorke v. Ross Lucas Pty. Ltd. (1983) 46 ALR 319 Yorke v. Lucas (1983) 49 ALR 672 RIDGHAY & ANOR. v. CONSOLIDATED ENERGY CORPORATION PTY. LIMITED & ABNOR. No. GlOF of 1986 CORAM: FOX J. 27 NOVEMBER 1986 a SYDNEY fe No.G103 of 1986 ! BETWEEN: TERANCE WILLIAM RIDGWAY Pirst Applicant AND: CORPORATION PLY, LIMITED Second Applicant AND: ORATION PLY. LIMITED First Respondent MORROW Second Respondent MINUTE OF ORDER JUDGE: ; POX J. DATE OF ORDER: 27 November 1986 WHERE: MADE: Sydney. THE COURT ORDERS THAT: 1. The first respondent pay to the Deputy Registrar of the Court within 21 davs after service upon it of a copy of the order herein: (a) for payment to the first applicant the sum of $201,529.83: and I Ee te 2. Note: 2. (b) for payment to the second applicant the sum of $88,792.56. The first respondent pay the costs of the applicant of the proceedings. Settlement and entry of orders is dealt with in Order 36 of tHe Federal Court Rules. , No. G103 of 1986 J BEIWEEN : TERANCE WILLIAM RIDGWAY Pirst Applicant CONSOLIDATED ENERGY CORPORATION Pry. LIMITED Second Applicant ORPORATIO PTY, LiMiTED First Respondent TERENCE GEORGE MORROW Second Respondent CORAM: FOX J. DATE: 27 NOVEMBER 1986 REASONS FOR JUDGMENT This case concerns representations leading up to licence aqreements made between the first and second applicants on the one hand and the first respondent on the other hand and is brought in reliance upon s.52. and ss.53, 53B. 55A and 58 of the Trade Practices Act 1974. I gave leave at the hearing for the applicants to rely also upon s.59(2). The matters to which the two applicants turn are closely related. and are to a degree identical, but they seek separate assessments of damages. There have been several directions hearings but no question has been raised as to the correctness of the two proceedings being amalgamated. the applicants appearing together as applicants in the one case. In the circumstances ["have not caused any other course to be adopted, although separate judgments will have to be eiven. The first respondent bears the same name as the second applicant. due to the fact. apparently. that they were registered in different States. one in New South Wales and the other in South Australia. The second respondent was at all material times a director of the first respondent, and was active in making the representations and concluding the two agreements with the applicants. There was originally a third respondent. Mr Pocklington, who was not a director. but was active in promoting the agreements mentioned. His actual financial interest does not appear. but he was at the centre of the promotion. and, under an assumed name, was the person referred to in the first respondent's advertisements as the person of whom inquiries should be made. During the course of the hearing. the proceedings against Mr Pocklington were bv consent discontinued. Although the first and second respondents were represented at directions hearings, except the last. they did not appear at the hearing of the proceedings, although given notice. This was apparently a deliberate decision on their part. The case concerns an energy saving computer system known as the "Energy Computer". The applicant's major complaint is that the first respondent represented. wrongly, that it had the exclusive license to market and distribute the Eneray Computer in Australia (the "Australian licence"). The applicants algo complain about other representations. which will be dealt with separately later. The Energy Computer was developed in the United States of America and the exclusive rights to market and distribute the system in Australia were apparently owned by The Enercy Computer Company Inc., incorporated in Washington. It would-seem_that the idea of selling the system in Australia was conceived by a Mr Tony Murphy. who is the principal of two companies, Energy Computer Company Pty. Ltd. (°E.C.C.") and Abbotly and Associates Pty. Ltd. ("Abbotly"). On Ll January 1985 the Eneray Computer Company Inc. granted the Australian licence to Abbotly. By a sole marketing agreement dated 3 October 1985 E.C.C. purported to aqrant the Australian licence to the first respondent. E.C.C. did not have the right todo this: there seems to have been some confusion on the Murphy side. Starting in late October 1985 the first respondent made numerous representations in newspaper advertisements. and in oral and written statements through the second respondent and. Mr Pocklington that it had the Australian licence. Pursuant to the representations. both applicants in December 1985 entered into sub-licence agreements containing warranties to this effect which purported to qrant exclusive licences to the applicants in relation to Western Australia and South Australia respectively. Orders for the computers would be made to the first respondent. which would pass them on to the Murphy interests. The fact its of course that the first respondent did not have the Australian licence, as there was no chain of title between it and Abbotly. Under the respective agreements between the first respondent and the applicants substantial sums were paid. and expenses were incurred by the applicants in getting ready to market and distribute the Eneravy Computer. After the agreements were entered into. the applicants sought tc obtain supplies throudh the first respondent from the Murphy interests. There was delay. and only the first applicant obtained any supplies. Twenty Energy Computers were delivered to him, but by that time solicitors for Abbotly had informed the applicants that the first respondent did not have the Australian licence, if indeed it had any licence. This was important to the applicants, not simply as a matter of title and the nature of anv right they had, but also because the first respondent was not in CE CR te ween eee ee & position to ensure further supplies and "back-up" in the form of quarantees and service. Later, in February 1986 the first respondent obtained the Australian licence from Abbotly and offered to the second applicant a fresh agreement in materially different terms from the December 1985 licence, but this offer was declined. The applicants rescinded their respective agreements. So far as appears, the right to rescind has not been challenged. There can be no doubt that a case is made out against the first respondent under s.52,. as well as other of the sections relied upon. The damages of the first applicant are dealt with somewhat generally. He says: "Set out below is a calculation of the costs incurred by me in setting up the business of Consolidated Enercv in Western Australia for the purpose of distributing the energy computer." The list ts too long ta set out. I can accept the entries up to the end of March 1986, but in the absence of more evidence. am unable ta accept what is claimed in respect of April to September of that veer. except so far as it might reasonably be inferred that they related to the closing down of the office and bringing to an end the arrandements made to sell the computers. I disallow items of $1,555.76 and $437.60 (July). There is an error in adding up the expenses for February 1986 which results EY TE © ON em NT ee in the total for that month being overstated by $360. A further $35,936 said to be loss of projected profits is not allowable. Making these adjustments. the amount allowable is $201,529.83. The claim for damages of the second applicant has been set out in a schedule as follows: 31.10.85 14.11.85 29.11.85 23.12.85 31.12.85 SCHEDULE OF DAMAGES AND LOSSES B.Horwood visit to Sydney to discuss acquisition of rights (2 days) (meeting was 1/11/85) Greyhound coaches Accommodation - Koala Motel Meals and incidentals (2 x 26) Telephone calls re visit —-~ B. Horwood visit to Sydney to discuss acquisition of rights (2 days) Coaches Accommodation - Great Southern Meals and incidentals Telephone calls re visit B. Horwood visit to Sydney to discuss acquisition of rights (2 davs) Coaches Accommodation Meals Telephone B. Horwood & R. Edaecombe visit to Sydney pay deposit on richts (2 days) Aussie Express Coaches Meals and incidentals Telephone calls Expenses to obtain Consolidated Enerav Corporation Pty Ltd in South Australia Corporate Affairs Commission Fines for late lodament (to reinstate company) NE ne ae mee oe etna oenetnen eennnemenmetemneneenal a ee som seen ee ee 140.00 65.77 52.00 25.00 140.00 50.00 52.00 25.00 140.00 50.00 52.00 25.00 to 264.00 52.00 25.00 752.00 228.00 Rl R2 R3 R4 RS 8.1.86 20.1.86 9.3.86 14.5.86 B. Horwood & R. Edgecombe trip to Melbourne to visit Vic. offices of Consolidated Energy (2 days) Accommodation - Flag Inn Meals Travelling ~ motor veh.. 1600 kms @ 3ic. Incidentals Telephone calls B. Horwood & J. Wilson to Sydney for training course with Mr Murphy (3 days) Aussie Express - coach Air fare (B. Horwood) - 23.1.86 Accommodation - Great Southern Meals and incidentals 3 x 26 x 2 Telephone calls B. Horwood to Sydney to see solicitors and C.I.B. Air fares Accommodation Meals and incidentals (26 x 3) Telephone calls B. Horwood to Svdnev to neqotiate settlement with T. Morrow (3 days) Air fares Accommodation Meals and incidentals (26 x 3) Telephone calls Borrowing expenses: Other Expenses: Commonwealth Trading Bank to 4.6.86 Interest (as per statement) Bank fees (as per statement) LRF LCB LCB LSD Other Solicitors fees to date 17,312.55 68.00 70.80 496.00 18.00 25.00 264.00 162.00 103.00 156.00 25.00 324.00 73.20 78.00 25.00 324.00 89.50 78.00 25.00 8,920.93 2,430.00 360.00 45.00 165.00 231.71 Less paid by Cco-applicant 3,000.00 14,312.55 Salary to emplovee J. Wilson 1.1.86 - 31.3.86 (3/12 of $28.000) Telephone calls to Sydney. Perth ONE SR 7,000.00 R6 R7 R8 R9 R10 Rll R12 R13 R14 R15 R16 R16 R16 R16 etc., sav 860.00 Stationery . 423.15 Photocopying say 220.00 Fax and telex costs say 160.00 Motor Vehicle Running Costs (3,000 kms @ 31c) 930.00 Salary foreqone by B. Horwood and R. Edgecombe - 12 weeks x 2 x $600 14,400.00 Expenses to visit Sydney to 24.9.86 (estimate) Air fares 680.00 Accommodation 68.00 Meals and incidentals 60.00 Expenses of visit to Sydney for 3 day hearing (estimate) Air fares 680.00 Accommodation (3 x 26 x 2) 150.00 Meals and incidentals 156.00 $56,794.61 Interest on CTB loan $50,000 * 17.5% pa from 4.6.86 3,021.00 Estimated loss of profits as per statement by John Pocklington 73,000.00 Instalment paid 23.12.85 for marketing rights 50,000.00 There is no accompanying explanation of most of these items. but Mr Horwood says of them that they are his "calculation of damages suffered ....as @ result of the transaction with the respondents". In looking at these items. [I bear in mind that the first representation appeared in the advertisement of 28 October, followed by a telephone conversation with Mr Pocklinaton on 30 October. I believe that the entry for 14 May 1986 relating to R17 neqotiations for a settlement ($516.50) is not allowable as damages. The estimates of the costs of the visits to Sydney on 24 September 1986 ($808) and for a court hearing ($986) and the salary foregone ($14,400) are not supported by the evidence and are not allowable. The estimated loss of profits ($73.000) is not allowable. The solicitors fees are not detailed, or vouched. and I allow an estimate of $10,000. Making these adjustments to the schedule, the amount allowable is $88.792.56. I therefore assess the damages against the first respondent, in the case of the first applicant as $201,529.83 and in the case of the second applicant as $88,792.56. There will be judgment accordingly. For the case against the second respondent, reliance is placed on s.75B of the Act. I questioned whether a person whose acts were responsible for the liability of the first respondent. a company, when he was acting as its agent could properly be regarded as an accessory within the meaning of that section. I was however referred toa the dectsion of Fisher J. in Yorke v. Ross Lucas Pty, Ltd. (1983) 46 A.L.R. 319, in which his Honour treated a person in the same position as the second respondent as ifable under $.75B in circumstances such as the present (see at p.326). I believe I should follow his Honour's decision, not least of all because. when the case went on appeal (sub nom Yorke v. Lucas (1983) 49 A.L.R. 672) no adverse comment was made on this aspect of the case. In saying this. I do not mean to ee re ener ER RR a ae ., 10. suggest that, if necessary, I would not reach the same conclusion independently. The cases show that to be liable under s.75B there must be knowledge actual or constructive on the part of those concerned of the essential facts or matters constituting the contravention. although knowledge that they amount to a contravention is not necessary (see Yorke v. Lucas (1983) 49 A.L.R. 672 at 680). In that case it was held that an agent was not liable for bona fide passing on a vendor's false representations. By analogy, in these circumstances it is necessary to show knowledge. actual or constructive, by the second respondent, of the first respondent's lack of title. There is no direct evidence of actual knowledge by hin, and I do not think any can be inferred. The case against the second respondent arising out of the representations as to title therefore fails. Arguraent was not presented to the effect that the second respondent may be liable. by an application of s.75B, for representations other than that with which I have dealt. or under the other sections relied upon. In the circumstances. but without any suggestion as to what course should be followed. [ am prepared to give the applicants an opportunity to pursue the matter. » li. I therefore order that the first respondent pay to the Deputy Registrar of the Court within 21 days after service upon it of a copy of the order herein (a) for payment to the first applicant the sum of $201,529.83 and (b) for payment to the second applicant the sum of $88.792.56. The first respondent is to pay the costs of the applicants of the proceedings. I make no order as to the costs of the second respondent. In the taxation of costs there should be an awareness of the $10,000 I have allowed as damades. and an avoidance of duplication. I give leave for those orders to be taken out forthwith. and I also stand the proceedings over qenerally with liberty to apply to deal with the other matter. and obtaina date for that purpose. Any further order for costs respectinda the second respondent can then be dealt with. If no application is made forwally within fourteen days. the proceedings against the second respondent will stand dismissed and the proceedinas will be at an end. IT certify that this and the ten (10) preceding pages are a true copy of the Reasons for dJudament herein of his Honour Mr. Justice Fox. Associate: sy Bren e Date: 27 November 1986 Counsel for the Applicant: 12. Mr F G Lever Solicitors for the Applicant: Messrs Moore & Bevins Dates of hearing: Date Judament delivered: in re ee ee eee +e ~-- Svdney: 8 October 1986 Svdnev: 27 November 1986