A wee sre - et a ae "SEF | Bo CATCHWORDS TRADE PRACTICES - misleading statements - opinions as to future profitability - finding that not justified by objective facts - whether ground of liability - liability for predictions. Trade Practices Act, 1974 s.52 Yortan Pty. Ltd. v. Lord Buxton Pty. Ltd. & Ors. Qld G45 of 1984 PINCUS J. BRISBANE 28 NOVEMBER 1986 IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G45 of 1984 GENERAL DIVISION ) BETWEEN: YORTAN PTY. LTD. Applicant AND: LORD BUXTON PTY. LTD. First Respondent AND: KEN BADE Second Respondent AND: MICHAEL FARCOMENT Third Respondent MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE OF ORDER: 28 NOVEMBER 1986 WHERE MADE: BRISBANE THE COURT ORDERS THAT: l. The application by the applicant against the second respondent be dismissed. 2. The applicant pay the second respondent's costs of and incidental to the proceedings, to be taxed. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) QLD G45 of 1984 GENERAL DIVISION ) BETWEEN: YORTAN PTY. LTD. Applicant AND: LORD BUXTON PTY. LTD. First Respondent AND: KEN EADE Second Respondent AND: MICHAEL FARCOMENT Third Respondent PINCUS J. 28 NOVEMBER 1986 REASONS FOR JUDGMENT This 1s an application under s.52 of the Trade Practices Act by a company controlled by Antonius Van Eerdewyk. There are three respondents, but the case has proceeded against one only, the second respondent, Ken Eade. The only evidence at the hearing was given by Van Eerdewyk. Eade was not called. Although Van Eerdewyk's evidence was therefore uncontradicted, his case was, at least on the face of it, rather weak; plainly, the second respondent was not the principal target of the applicant's attack. The statement of claim alleges, and the second respondent's defence admits, that the first respondent engaged in the business of importing and dealing in perfumes and the like, and that the second respondent was a "promoter of or dealer in franchises or licences granted by the first respondent ..." The defence further admits that the second respondent caused an advertisement to be published in a newspaper called The Gold Coast Bulletin, calling for applications for distributorships "of a range of exclusive continental perfumes to established Gold Coast outlets". The heading of the advertisement was "Distributor $1,000 per week net". The defence admits that the advertisement represented that the business referred to in it was' likely to return to the distributor $1,000 per week net, but says that 1t was "the honestly held opinion of the second respondent that the business was likely to return to the distributor $1,000 per week net after the business had been operated for a reasonable time and assumed a reasonable amount of expertise and effort on the part of the individual distributor". The second respondent also says that his belief about the $1,000 per week was based upon advice given him by the first respondent. The second respondent also admits in his pleading that he had a telephone conversation with Van Eerdewyk in May 1983 and told him that he (the second respondent) was authorised to offer Van Eerdewyk a distributorship for the Gold Coast region of perfumes and the like imported by the first respondent. The statement of claim alleges, but the defence denies, that in that conversation Van Eerdewyk was also told that the business would return a profit of about $2,500 in the first month, $5,000 in the 3. second and $7,000 in the third and successive months. The statement of claim sets out, however, and it is admitted, that a letter to somewhat similar effect was sent on 13 May 1983; that letter is further dealt with below. The statement of claim also alleges that representations were made as to provision of an adviser to the distributorship during the first month of business, and provision of promotional aids for the first ten outlets. I find it unnecessary to discuss these allegations further, as 1t seems clear that the applicant has no case as to their falsity. As to the other allegations, relating to the money likely ta be earned, the matter 1s by no means as simple. The statement of claim sets up, in effect, that the second respondent did not believe the business to be likely to achzreve the profits represented, nor know of facts justifying sucha belief. In addition, the statement of claim sets up that the representations as to likely returns imported that "the person procuring the publication thereof had made due inquiry and had carried out research and had thereby ascertained to his satisfaction that" the returns were likely to be achieved. Again, without the necessity of any discussion, it is clear no such implication could possibly be held to have been made. Van Eerdewyk's evidence was given orally and in writing, the latter being constituted by an affidavit which was tendered by the applicant's counsel. It was not in dispute that, induced at least in part by the matters mentioned above, Van Eerdewyk caused the applicant to pay substantial sums and received very little return. In his affidavit, Van Eerdewyk said that after he made contact with Eade in response to the newspaper advertisement, he spoke to him personally and was told "it will be easy to reach a profit of $1,000 per week out of 30 outlets". In his. oral evidence, Van Eerdewyk said that Eade referred to $1,000 per week return as being the figure after the first months "and then it would increase". Under cross-examination, as I understood his evidence, Van Eerdewyk said that he took the profit figures supplied by Eade to have been worked out in conjunction with the third respondent and with one Alfierl, a person associated with the first respondent. Watering that down somewhat, Van Eerdewyk also agreed that Eade had explained to him that Eace was passing on the opinions of two people (the third respondent and Alfieri) "whom he believed were experts in the business". The affidavit says that shortly after the conversation just referred to, Van Eerdewyk received the letter dated 13 May 1983 which said, among other things: "Working on minimum sales from the opening lines, which Mario recommends as being the fastest movers. The first month should result in profits of approx. $2,500. The second month should double this figure and the third month should increase at the same rate, making projected profits around $7,000 per month from 30 outlets. At this time new lines could be added and sales increased by more institutional advertising support - radio, T.V. etc." 5. In speaking of that letter during the course of his evidence, Van Eerdewyk agreed that Eade had said that the profits were "target profits", that much would depend upon Van Eerdewyk's efforts and that it might take some months to make those sorts of figures. Van Eerdewyk also said that he did not think that Eade had misled him, but he thought the third respondent had. More generally, the effect of Van Eerdewyk's evidence was that he understood that Eade was not himself vouching for the profit projections but merely passing on the opinions of others. I am satisfied that in Van Eerdewyk's mind Eade was not to blame for his problems. Despite diligent efforts on the part of Van Eerdewyk, the distributorship the applicant undertook was a failure. The basic problem was, of course, that the products did not sell. Mr. Sofronoff, for the second respondent, pointed out that in this sort of business much depends upon the skill of the individual salesman and that is plainly so. However, it was not disputed that in the shops which accepted (on consignment) the products offered for sale, very few sales were made and I infer that an important reason for that was that there was little demand for them. Another reason might be that they were poorly placed in the shops, that Van Eerdewyk did not explain to the shopkeepers adequately how to go about selling the products and matters of that sort; nevertheless, it seems to me the proper inference to draw is that at all material times the products were, for reasons unconnected with Van Eerdewyk, very difficult to sell. There is no dispute that Van Eerdewyk was given quite a contrary impression in his discussions with the second respondent. Van Eerdewyk came to Australia about five years ago from Holland, where he had a chemist's shop and sold perfumes. However, since coming to Australia, apart from the venture in issue in this case, he has been in the motel business. It was, of course, his past experience of perfumes which interested him in taking a distributorship, but it 15 a reasonable inference that he could not have been expected to know as much about' the likely marketability of any particular brand of perfume as the respondents did. It is clear that he was influenced by what the second respondent told him, but I have not found it easy to come to a conclusion as to whether what he was told was misleading, as 1s alleged. It is, of course, not enough to show that the profit predictions were not borne out by events: James v. Australia and New Zealand Banking Group Ltd. (1986) 64 A.L.R. 347 at p.372. The applicant has the difficulty that according to Van Eerdewyk's evidence, the second respondent merély passed on to him the opinions of the third respondent and Alfieri - or, at least, 30 Van Eerdewyk understood. The principal point made by Mr. Morris, for the applicant, was that the second respondent's answers to interrogatories are sufficient ground for a finding that what the second respondent said was misleading. As to the $1,000 per week representation, the second respondent answered to the effect that he had cause to believe that the business would return that sum: ",.- din that he was aware of the profit margins available in respect of the marketing of the said product and the number of outlets available for the marketing of the said produce Csic] including knowledge obtained from discussions obtained with third respondent and one Mario Elfierri1 Csici." In response to the next interrogatory, the second respondent said, in effect, that he had discussions with Alfieri and - -. was satisfied that adequate promotional support be given by the Third Respondent, of the number and type of businesses on the Gold Coast who would be prepared to market the said product, and of the opening for such a product to be placed on the market. The Second Respondent had also viewed promotional aids including those referred to in the Second Respondent's list of documents filed herein." Counsel makes the point that this answer is not really consistent with the theory put forward in cross-examination, and accepted by Van Eerdewyk, that the second respondent was merely passing on information obtained from others. The answers also say that the first respondent authorised the second respondent to make the representations as to the monthly profits - $2,500 ain the first month and so on. It was argued on behalf of the applicant that mere authority to make the representations was not in itself sufficient justification for doing so; however, the answers do not say that it was. Facts sworn to in the answers, apparently as justifying representations as to profits, were: ",.. the profit margins available in respect of the marketing of the said profit Csicl; of the number of outlets available for the marketing of the said product; the back-up to be provided to the Applicant by the Third Respondent; the Second Respondent had questioned a cross-section of the 8. public in relation to their thoughts on the fragrances, bottling and packaging;". Again, it is pointed out that the answers make it clear that the second respondent was not, in fact, merely passing on the thoughts of others. Mr. Sofronoff, for the second respondent, argued that no evidence was put forward to show that Eade did not believe his profit predictions. Mr. Sofronoff submitted - ... there 1S evidence that he had a basis for that belief namely, the opinions of two self-professed experts in the business." That is not quite so; there is evidence that Eade made statements as to the basis for his belief in the answers to interrogatories, but no direct evidence that he had any basis. The difference 13, of course, important 1na case such as this, where the party in guestion has not ventured into the witness box. Mr. Sofronoff also argued that the failure of the business was due to a general downturn in the market, too many products on the market, and other like factors. I accept that such factors contributed, but am of opinion that the objective facts did not justify the representations made as to likely profitability. I amnot prepared to find, however, that the second respondent had no belief in the truth of the representations he made, nor to find that he did not believe facts existed which 9. justified the representation. Mr. Morris relied upon the line of authority of which Jones v. Dunkel (1959) 101 C.L.R. 298 is the Dest-known example, in support of the view that I should draw an inference adverse to the second respondent on the question of his belief. There are two difficulties about applying the principle here. The first is that, as it seems to me, if the second respondent did not have the belief spoken of, then he was guilty of fraud. The second is that on the evidence Van Eerdewyk himself knew as much about the facts as did the second respondent, and Van Eerdewyk apparently accepted the profit projections. The question then is whether my finding that the objective facts did not justify the representations is sufficient to make the second respondent liable. Although I accept that in some circumstances a statement of this sort may make an implicit assertion that the objective facts were of that description, I do not think that the profit predictions by the second respondent did. Considering the evidence as a whole, the impression created is that Van Eerdewyk understood the second respondent to be passing on the opinion of his principals as to the marketability of the products and to be adding to it the slight weight of his own inexpert opinion. The primary basis of the profit projections (which I am confident Van Eerdewyk realised were essentially guesses) was identified as being the opinion of the third respondent and Alfieri, and it was, no doubt, for that reason that Van Eerdewyk said he did not regard himself as having been misled by the second respondent. 10. I can see that sinister inferences may be drawn against the second respondent by reason of his failure to give evidence, but reasons other than that his evidence would have been unfavourable to him may have contributed to his absence from the witness box; perhaps he was not thought to be a very confident witness, or his recollection of the relevant conversations, now three-and-a-half years old, might be rather dim. While there 1s certainly room for suspicion that the second respondent was guilty of conduct proscribed by the Trade Practices Act, I am not satisfied that any such conduct has been established. It should be added that the pleading sets up fraud and it follows plainly enough on the findings already made that I am not prepared to find 1t. The application by the applicant against the second respondent must be dismissed with costs. icertify that ,saratls % preceding Races o e@atrngicry of 42 reasons for jitdereer t perc n of His Hencur tos, Mr Justice Pincus Plt oo Z Associate Dated 2° Viewer 986 | Counsel for the Applicant: A.J.H. Morris Solicitors for the Applicant: Brian C.M. Bigelow Counsel for the Second Respondent: W. Sofronoff Solicitors for the Second Respondent: Robert Lehn & Co. Date of Hearing: 10 November 1986