(CORRIGENDUM) REPLACE ORDER WITH THIS ORDER IN THE FEDERAL COURT OF AUSTRALIA ) ) VICTORIA DISTRICT REGISTRY ) VG No. 113 of 1985 ) ) GENERAL DIVISION Between: PETER JOHNSON ZN (Applicant) arch -D rt aa And: EASTERN MICRO 2 4AFED ISB ELECTRONICS PTY. LTD. JeRDERAL COURT OF (First Respondent) And: JOSEPH LAZAR (Second Respondent) And: LES SMITH (Third Respondent ) dudge Making Order: Ryan J. Date of Order: 18 December 1986 Where Made: Melbourne. MINUTE OF ORDER THE COURT ORDERS THAT: 1. The respondents pay to the applicant, by way of damages, the amount of $5,552.00. 2. The respondents pay the applicant's costs of the application including all reserved costs but excluding the cost of any amendment to the statement of claim. Such costs to be taxed. NOTE: Settlement and Entry of Orders 1s dealt with in Order 36 of the Federal Court Rules. ' ' ' : ' " ' ' ' a ' ' ~ 4 . ' , ant ~ my . poe ue ' ' ' " " . \ . ' ' . far, ' ' Moros woo , wy , > ' ' Feo, ot to * ~ Me ee ' wy . : oe +, ' woe ' . % CATCHWORDS Trade Practices - misleading or deceptive conduct - false or misleading advertising - sale of video amusement machine - representations as to approximate future earnings - relocation of machine by vendor - whether term of purchase agreement - breach of contractual warranty - measure of damages - whether interest paid on borrowed moneys recoverable - alternative relief - s5s.52(1), 82(1), 87 Trade Practices Act 1974 (C'th). Trade Practices Act 1974 ss.52(1), 82(1), 87. Reardon v. Aquajet Holdings (S.A.) Pty. Ltd. (1982) ATPR 40-238. Thompson v. Mastertouch T.V. Service Pty. Ltd. (No.1) (1977) 29 FLR 270. Jones v. Glenhoun Holdings Pty. Ltd. (in Liquidation) (1985) ATPR 40-604. Tiplady v. Gold Coast Carlton Pty. Ltd. (1984) ATPR 40-472. Brown v. Jam Factory Pty. Ltd. (1981) ATPR 40-213. Mason v. Burningham (19491 2 K.B. 545. Cullinane v. British "Rema" Manufacturing Co. Ld. £1954] 1 OB 292. Gates v. City Mutual Life Assurance Society (1986) 60 ALJR 239. Geale v. Glenhoun Holdings Pty. Ltd. (in Liguidation) (1985) ATPR 40-615. T.N. Lucas Pty. Ltd. v. Centrepoint Freeholds Pty. Ltd. (1984) 1 FCR 110. Yorke v. Ross Lucas Pty. Ltd. (1982) 45 ALR 299 Gates v. City Mutual Life Assurance Society Ltd. (1983) 68 FLR 101. PETER JOHNSON v. EASTERN MICRO ELECTRONICS PTY. LTD. & ORS. VG No. 113 of 1985 Ryan J. 5 December 1986 Melbourne. Pete wot IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY VG No. 113 of 1985 GENERAL DIVISION wwe ewe Between: PETER JOHNSON (Applicant) And: EASTERN MICRO ELECTRONICS PTY. LTD. (First Respondent) And: JOSEPH LAZAR (Second Respondent) And: LES SMITH (Third Respondent ) Judge Making Order: Ryan d. Date of Order: 18 December 1986 Where Made: Melbourne. MINUTE OF ORDER THE COURT ORDERS THAT: The respondents pay to the applicant, by way of damages, the amount of $5,552.00. The respondents pay the applicant's costs of the application excluding all reserve costs but the costs of any amendments to the statement of claim. Such costs to be taxed. NOTE: Settlement and entry of orders is dealt with in r.36 of the Federal Court Rules. 14 ' ci IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY No. 113 of 1985 § GENERAL DIVISION Between: PETER JOHNSON \Applicant) And: EASTERN MICcRo ELECTRONICS EFTY. (First Respondent) Ana: JOSEPH LAZAR (Second Respondent) And: LES SMITH (Third Respondent) Coram: Ryan J. Date: 5 December 1986 REASONS FOR JUDGMENT By this application, the applicant seeks damages against each of the respondents pursuant to s.82 of the Trade Practices Act 1974 ("the Act"), or at common law, for the loss allegedly sustained by him as a result of the purchase from the first respondent of a video amusement machine. The applicant noticed the following advertisement among the classified advertisements in the issue of the "Age" newspaper for 30 June 1984: "BUSINESS OPPORTUNITY Be part or che piggest money market opportunity ever! An investment of 35,500 will earn you approx. $200 pw. We have a number of top Melbourne locations now. Finance can be arranged. Ring 699 3088, AH 683 3268 or call down to our showroom 92-94 Bank St, South Melbourne" On 2 July 1984 the applicant telephoned the number shown in the advertisement and spoke to the second respondent, Mr. Lazar. He was then told that the "business opportunity" which had been advertised was connected with amusement machines and was invited to the snowroom to inspect them. On the same day, tne applicant attended at the First Fespondent's showroom where he was mer by Mr. Lazar who handed him a business card indicating that he, Lazar, was the managing director or the first respondent. The applicant was then shown several video amusement machines aincluding one which displayed five cards in the form of a poker hand. Mr. Lazar demonstrated to the applicant, Mr. Johnson, how the machines worked, by opening one to reveal computer boards imside which regulated the display of five cards across the screen. When the player pressed a button the meards turned over so that their faces were visible on the screen, Each machine was fitted with a coin-in-the-slot mechanism by which a charge of twenty cents was exacted for e@acn game. In addition, the machine recorded a score according to the value or the poker hand dealt to the player. LRN) According to Mr. Johnson, these points were listed on the screen (apparently cumulatively) "and allowed the person playing the game to get a number of free games'. In the course of the meeting on 2 July, ceference was Made to the statement in the advertisement that finance could be arrangei, and Mr. Lazar ainaicated that 1t could be provided throuan avco Financial Services. On the first respondent s "with compliments" slip, he indicated that the purchase price of $5,250 could be paid by instalments of 3208.58 a month over three years at the end of which the machine would have a residual value of $50. Mr. Johnson claimed that he was particularly concerned about the earning capacity of the first respondent's Machines, as to which Mr. Lazar stated that "they had Machines earning to the operator $200 per week. That was after the division of the takings between the site owner and the operator". There was also discussion about the location of the sites, in the course of which Mr. Lazar indicated that his company had a number of sites which it was selling, and that, 1% Mr. Johnson were interested in proceeding with the transaction, his machine would be located in one of those sites. On Mr. Johnson expressing concern about whether there was any form of site agreement to assure him of security of tenure of a given site, Mr. Lazar replied that his company did not have site agreements but would relocate the machine 1f the owner were unhappy with the site. On Me. Johnson pointing out that if the occupier of tne site wanted him out, he could simply turn off the power, Mr. Lazar responded that for the first three months his company would arrange locations free of charge, but that there would be a charge if the machine were relocated after the initial three months. There was also discussion of insurance and servicing of the macnine but the evidence did not disclose any details of that discussion. By way of extolling the advantages of the machine which displayed the poker hands, Mr. Lazar said that 16 was a "Classic" game which remained attractive to players, and, unlike other games, did not require to be changed, with the consequential expense of new computer boards, to maintain its appeal. On 4 July 1984, the applicant, having decided that the business opportunity which had been offered to him was a viable proposition, attended again at the first respondent's showroom where he met the third respondent, Les Smith, as well as Mr. Lazar. He was then given another business card which bore the name of the first respondent and the legend "Sales Rep". On tne pack of that card the name "Les" was inscribed in handwriting together with a private telephone number. At that meeting Mr. Johnson paid a deposit of 250 for which he was given a2 receipt in the name of the first respondent. a . In the course of the meeting on 4 July 1384, Mr. Sohnson was told that the first respondent had a numpeér of possiple locations at which machines could be placed, and that Mr. Lazar and Mr. Smith were concerned to secure for him a site where the occupier was compatible, and which would he within a reasonable distance of his residence. At the same meeting, an application was completed to enable Mr. Johnson to borrow from Avco Financial Services the balance of the price of the machine. Something over a week then elapsed before Mr. Johnson received a telephone call from the manager of the South Melbourne branch of Avco Financial 3 ip EVICES, enquiring whether he wished to take up the Jloan which had been approved. He told the manager that he nad not neard from the company, the first respondent, and was losing interest in the transaction. Thereupon, the manager of Avco Financial Services undertook to contact the first respondent, and shortly afterwards Mr. Johnson received telephone calls from each of Mr. Lazar and Mr. Smith. Mr. Lazar apologized for the delay in finalizing Mr. Johnson's purchase, and Mr. Smith advised that a suitable site was available for Mr. Johnson at the Flower Hotel, Port Melbourne. In the course of that, second, conversation, Mr. Smith told Mr. Johnson that' the occupier of the Flower Hotel was an easygoing person with whom Mr. Johnson would have no trouble. He also mentioned a that a previous operator of an identical machine at that hotel had earned at least $150 a week during the winter months and in excess of $200 a week during the summer, over a period of eightean months, before the company installed at that site its own machine which was still being operated there. It was then arranged for Mr. Johnson to meet Mr. Smith at the Flower Hotel. That meeting apparently tock place on 16 Juiy 193+, when Mr. Johnson was introduced to the licensee or th 1D hotel, a Mr. John Broom, and was shown a machina available for purchase which was in the public bar, together with another machine offering a game of the "Space Invaders" type. Mr. Johnson was shown around the hotel by Mr. Smith who told him that the higher return from the machine during the summer months was due to the operation of the garden bar, the provision of bistro meals and the patronage of the local cricket team. Mr. Smith repeated his earlisr statements about the earnings of the previous operator, and used his key to unlock the machine to show Mr. Johnson its internal mechanism. Within a day or two of the meeting at the Flower Hotel, Mr. Johnson telephoned the company and advised that he wished to procead with the purchase. He also notified Avco Fanancial Services, and wit was arranged fhat he should pay the balance of the price to the first respondent on 24 July 1984, On that day the applicant collected a cheque representing the proceeds of the loan from Avco Financial Services and attended at the pramises or tne f first respondent. He there signed a document, under che Letternead of the fir tu recited that : "THE BUSINESS AGREES TO SELL AND THE OPERATOR AGREES TO PURCHASE THE FOLLOWING MACHINES AND ACCESSORIES 1 FRP Poker Machine Price Per Unit sited at Flower Hotel $5,500" There were then set out under the sub-heading "TERMS", PLOVLSLONS: - "lL. The Business warrants the above machine(s) against defective parts and manufacturing defects for a period of 7? months from the above date. tu The Company agrees to make any minor adjustments and will supply parts and service to the operator's machines. us The Business will arrange for the location of the operator's machine(s) on suitable sites, approved by the operator. *6 months 4. The Business agrees that all profits from the operator's machine(s) shall belong to the operator. The operator agrees to indemnify the business against any claims arising out of the use of the machine(s). 5. The Business retains all advertising rights on all of the operator's equipment. The Operator acknowledges that he/she does not rely on any warranty representation (whether regarding the machine(s) hereby agreed to be sold or any other financial return which may be anticipated from such machine or otherwise), howsoever, made by the Business, its servants or agents except as are in this Purchase Order." tc vespondent, headed "Purchase Agreement", whach these or The Purchase Agreement was also signed by Mr. Lazar on behalf of the first respondent. In the course of the meeting at which the Purchase Agreement was executed, Mr. Lazar told Mr. Johnson that the company intended to keep 1ts customers happy because py doing soa, 1k might induce them tao purchase other machines. He instanced the other machine of the ": wa pace Invaders" type at the Flower Hotel as heing available for purchase by Mr. Johnson. He also said that Mr. Johnson was fortunate ain that the card-game machine which he had purchased had been cleared on 25 July so that he would get an extra day's takings between then and the time of settlement. Mr. Smith reiterated that the earnings of the previous owner of the machine at the Flower Hotel had been $150 a week an the winter months, and in excess of $200 a week during the summer. He also repeated his earlier statement that tne takings from the company's machine had been consistent with those of the earlier owner. Arrangements were then made for Me. Smith to attend with Mr. Johnson at the Flower Hotel an the first occasion on which Mr. Johnson was to receive a share of the takings from his machine. It was suggested that the takings should be collected at a regular time each week 50 as to minimize disruption of the business of the occupier of the site. Pursuant to those arrangements, Mr. Johnson first attended with Mr. Smith to collect his share of the w takings on 7 August 1984. On that day, Mr. Johnson received $95 as his share of the takings for the two weeks which had elapsed since 24 July. Mr. Smith then commented that the takings were very low, and suggested that because 1t was winter and the Olympic Games were being shown on television, people were staying at home rather than going to hotels. Mr. Johnson next attended at the Flower Hetel on 13 August 1984, again in company with Mr. Smith. On that occasion Mr. Jonnson s share of the takings from the machine amounted to $86, and Mr. Smith again expressed the view that such low earnings were attributable to the winter weather and the televising of the Olympic Games. Mr. Johnson's third visit to tne Flower Hotel as owner of tne machine was on 20 August 1984 when he received $51 which included an amount of $11 paid to him by Mr. Smith as a "compensatory gesture" from the takings from the other machine of the "Space Invaders" type which was also located at the hotel and cleared at the same time by Mr. Smith. On that occasion Mr. Smith ventured the same reasons for what he still regarded as low takings from Mr. Johnson's machine, and indicated that 1t would be given one more try, after which, 1f takings were still at the same level, he would arrange another location. On 28 August 1384, Mr. Johnson again met Mr. Smith by arrangement at the Flower Hotel and receivea, as his share of the takings from his machine, the sum of 355 which, he suggested, was also augmented to some extent from the takings from the other macnine. On that occasion, according to Mr, Johnson, Mr. Smita indicatea thac he had a location at the Red Bluff Hotel which would generate earnings at tha average of $3200 a week which he had earlier stated that the machine would yield. Mr. Johnson agreed that his machine should be removed to that location, and was told that it would take two or three days for the company to arrange for its truck to effect the transfer. After something more than a week had elapsed from 28 August, Mr. Johnson telephoned the premises of the first respondent to find out what had happened ta his Machine. He first spoke to Mr. Lazar who referred him to Mr. Smith. What was said ain the course of tnat first telephone conversation does not emerge from the evidence. However, Mr. Johnson testified that from that time, he had conversations with both Mr. Lazar and Mr. Smith about the location of the Machine, and on a number of occasions when he was umable to speak with either of them, left messages with a female receptionist asking for his calls to be returned. Between 9 September and mid-October 1984, according to Mr. Johnson, he telephoned both the company's showroom and Mr. Smith's home between twice and four times a week. In one of the earliest of these telephone conversations, he was told by Mr. Lazar that the location of his machine was Mr. Smith's, responsibility. When he was able to speak to Mr. Smith, he Was varlously told that the machine was at the Pier Hotel, and was at an otherwise unspecified location, and that Mr. Smith was arranging the Mentone Hotel asa_e site. Mr. Johnson, who 15 himself a solicitor, then instructed solicitors to act for him, and on17 October 1984 the Following letter, omitting formal parts, was written on his behalf to the manager of the first respondent: - "We wish to advise that we act on behalf of Mr. Peter Jonmnson of 13 Bundoora Parade, Mentone. We are instructed by our client that in or about Juiy, 19384, our client, tarougna financing arranged by your Company through aAvco Finance Ltd., acquired a coin operated 'poker machine'. We are further instructed by our client that the acquisition was in response to an advertisement in 'The Age' newspaper on the 30th June, 1984. From our instructions the said advertisement 15s unequivocal that a purchaser of your product 'will earn approx. $200-00 per week'. Qn our client's instructions, he advises us that the most he has received in a week 15 $95-00 and that as at the 28th August, 1984, his return had fallen to $42-00 per week. He anstructs us that Since that date he has not had any returns whatsoever and also that his requests for profit figures have met with no response. Mr. Johnson now instructs us that the machine has been removed from 1ts ariginal location and that presently, he has no idea as to its whereabouts. Mr. Johnson 15, naturally, quite angry and extremely disappointed by the management of his 'investment' by your Company. He has ainstructed us to request the immediate refund of the $5,500-00 paid for the machine, less returns to date of $213-00, leaving a balance due to him of $5,287-00. Please be advised that unless the sum referred to above 15 refunded within seven days of the date hereof, we are specifically instructed to institute peoceedings ¢ or damages, loss profit, breaches of tne Trade Fractices Acct for false or misleading advertising. ' The following repiy, dated 19 October 1384, signed "Ann Lazar" was received from the first respondent: - "We wish to advise that Mr. Peter Johnson currently has a 'coin operated poker machine' located at the 'Mentone Hotel' Beach Rd. Mentone, whose contact is Mr. Charles Riley. We further advise that Mr. Peter Johnson 15 well aware of this as our location manager advised him of this last week and made tentative arrangements to meet him there to collect. Mr. Johnson also has the keys and can empty the machine after contact with the manager of the Hotel. We moved his machine from 1ts original location at his instructions and placed it at its currant location approximately three weeks later on the 10.10.84, We feel that his contract has been honoured, although we would have wished for a Little more monetary succass earlier." After that exchange of correspondence, Mr. Johnson persisted in his efforts to contact the company and Mr. Smith by telephone. On -Ehose occasions when he was able to speak to Mr. Lazar, the conversation, he said, was strained, with Mr. Lazar saying only that "I (Johnson) had no business with them and he (Lazar) did mot want to discuss the matter". When he spoke to Mr. Smith he was told that the machine had been at the Pier Hotel, that 1t had been for a period (apparently specified) in the company's workshop, and that it had heen at Preston. However, according to Mr. Johnson, he was unable, in those telephone conversations, to "obtain information on the takings at those sites nor when thay were located, and ra Li the period of location at those 31tes nor where the machine was at the time" of the relevant telephone call. On 22 Octoper 1984, after making two monthly vayments under his loan contract with Avco Financial services, Mr. ~] Johnson vaid an amount of 34,927.17 to discharge his obligations cthsreuncer. He told the Court that he nad been unable to make any alternative investment arrangements, and that he had been attracted by the first-named cespondent s advertisement because it offered a good level of income. Mr. Jchnson was cross-examined extensively by Mr. Anderson who appeared for the respondents other than Mr. Smith. It was strongly suggested in the course of that cross-examination that Mr. Johnson was aware, at least from the time when he first collected the takings from his machine, that 1t was being used as an illegal gaming davice because winnings from certain hands or points scores were paid to players out of the hotel till. Support for that suggestion was derived from a notebook in which entries were made oy Mc. Johnson on eacn occasion on which he attended to collect takings from nis machine. For example, the entry far 7 August 1984 inciudea the rollowing notations: "Opening 70 $1 Closing 165 13 20c 1275 114 payout 717 $226.80 113.40" - beside the words ''paYOUG" represented. He was referred ta the cards from which, he acknowledged, the antries in his notebook were taken. Some notations on the vards, he told the Court, were in his handwriting. The rest were said to be in the handwriting of Mr. Smith, and the cards wera described by him as an attempt to reconcile the counters in the machine to what was actually received out of the machine." Mr. Johnson ultimately concedad that he nad heard the uu suggestion made by Mr. Smith that the number of points accumulated by a player of his machine might re used by tne occupier of the site where the tacnine was Located as the basis of a money payment to the player sut of the hotel till, or atherwise our of the occupier's own moneys. He also conceded that he appreciated that, used in that wav, the macnine 'would earn more than otherwise". Finally, Mr. Johnson confessed that he could provide no other explanation for the figures entered in his notebook than that the machine had been used for gambling. When cross-examined about other locations at which, he Sald, ne had been told that his machine had been placed, Mr. Johnson said tnat he had never Deen ts the Fier Hotel, the Red Blutf Hotel or the Mentone Hotel, and had not contacted Mr. Charles Riley who was nominated by the first respondent, in its letter of 19 Octoher 1394, as tas contact at the last- mentioned hotel. There were tendered in evidence certain interroqatiries adminiscered om behalf of the arcplictant, and the answers thereto or the first and second cespondents. une such interrogatory enquired, 50 far as relevant, whether the second respondent stated, warranted, suggested, reoresented or implied to the applicant that for a period of eighteen months immediately prior to the first respondent locating its own video amusement machine at the Flower Hotel, an owner of another video amusement machine located at the Flower Hotel with an adentical game to that af the applicant's video amusement machine had enjoyed taking of $150 per week during Winter months and in excess of 3200 ber week during the summer montns. in answer to that inteérrogatory, tne second respondent, cn behalf of the first respondent and himself, deposed: "No. Before the machine referred to in Exhibit BE was sold tto) the Applicant and delivered ta the Flower Hotel on some date after 4th June, 1584 neither the first nor second Respondent had any Machine at, nor any business dealing with, the Flower Hotel or any person connect (sic) with rt." Two other interrogatories administered for the examination of the first and second respondents, which were tendered in evidence, were un the following terms: ~ > "21.Was the applicant's video removed from the said Flower Hotel? ba tl » If yes to anterrogatory "1 state - a) by whom 16 was removed? (b) the date of its removal? (cz) the date of its relocation? td) the place of its relocation? 1) \e) tne place of any relocations following tne initial relocation; \t) the reason for 1ts removal? (f} 1US3 present location? (gq? in whose possesstan it now resides?" To these unterrogatories Mr. Lazar, on benalf of himself and the first respondent, deposed: "22.In answer to interroagatory 21: Yes. 23.In answer to interrogatory 22: (a) By a carrier arranged by the Third Respondent; (b)-(c) not known to the First or Second Respondents; (dad) Hampton Hotel, Hampton: (e8)~-(g) not known to the First or Second Respondents." No evidence was adduced on behaif of the first or second respondent. On 15 August 1986, Northrop J. ordered that judgment be entered against the third respondent for default in answering interrogatories delivered for his examination on 1g behalf of the applicant. His Honour then reservea the question of the amount of damages for which that default judgment might oe enter nas tne the -s! tank ry!) jay fu Fal w i =) a ragfad ni) cr rn io al o re ow ul xa) cpan a pa) iT mono further park in ta bi Hu Li D pal ry fal ie rH) wy G t- pa yy at The appiicant 3 statement of ciaim vas twice amended, second amendment being by leava at the commencement paragraph -F, that the following four "representations E grag warranties" were made to the applicant: - Tt "representations and warranties" the applicant agreed we a. that the operator of an amusement machine at the Flower Hotel with an aidentical game had enjoyed takings of at least $150 per week during the winter months to in excess of $200 per week during the summer months for a period of 18 months immediately prior to the First Respondent locating its amusement machine at the Flower Patel. b. that the Fir Was operating 165 own amu tdentical game to that of E tar at Flower Hotel for a period preceding the Applicant entering aunto the agrsement with the First Respondent, and that it was enjoying average net takings of at least $3150 per week and consistent with tne level of net takings received by the previous operator at Flower Horel. Cc. that the business would continue to enjoy average nét takings of at least $200 per week over a 12 month pericd ranging from at least $150 Ber week during the winter months to in excess of $200 per week in the summer months. d. that the First Respondent would rdlocate the amusement machine at the request of the Applicant 1f tne location at Flower Hotel did not produce the level of takings as referred to in paragraph 6(c) hereof." was then pleaded that in reliance on of hearing before me. In 1ts finai form, i1t alleged by and those bo 14. purchase che video amusement machine, and that those representations and warranties were incorporated as terms of the agreement. In paragrapn 3 of the statement of claim as Finally amended, 1t was pleaded that the said representations ware made in the knowledge that they were false in that:- "ae tne oserator of an amusement machine at Flower notel with an identical yame nad not enicyed takings of ath least 3150 duriny the winter months to in excess of $230 during the summer months for a voerisd or 18 months imméaiately prior to the First Respondent instaliing 1ts amusement machine at Flower Hotel. b. the amusement machine operated by the First Respondent at the Fiower Hotel for the seriod immediately preceding the agreement was not enjoying average takings of at least $150 per week. c. the business did not continue to enjoy average net takings of at least $200 per week over a 12 month pericd ranging from at least $150 per week during the winter months to in excess of $200 during the summer months but instead, for the pericd from 24th July 1984 to 28th August 19384 net weekly takings averaged only $42.60 per week. Since the 28th August 1934 no takings have been received by the Applicant. de the Applicant made a request to the Third Respondent on 28th August 1934 at Flower Hotel to relocate the amusement machine ts a location that would produce the level of neat takings as reoresented in paragraph 6, put no such site was acated although the amusement machine was removea from Flower Hotel on or about 28th August 1384 by the First Respondent alternatively the Second Respondent alternatively the Third Respondent on behalf of the First Respondent." By a new paragraph BA, it was asserted that: "The First Respondent failed to relocate the amusement machine and ta inform the Applicant of 1tSs Wnereanouts in September - Decamber inclusive L384 aespit= being requested to a0 50.' It was then pleaded that tne publication of the advertisement an the "Age", the making of the four "representations and warranties" set out at p.17 above, and the conduct referred to in paragraph SA, constituted conduct that was misleading or deceptive af trade or commerce in breach of s.52 of the Act. Further or alternatively, 1t was contended, the conduct alleged in paragraph 6(c) "was made reckless indifferent to their accuracy (s1tc) of without belief in its truth and was M2Ssieading of derzeptcive in trade or commerce ain breach of s.52 of" the Ack. Again furtner oe aitsrnatively, it was then vleaded thas che publicarion of the advertisement and the conauct referred to in saragraph 6 was ''ralse or misleading in a material particular in trade oe commerce in breach of §.53(2) of" the Acr. ng There were alternative pleas that the representations referred to in paragraph 6 were made fraudulently or negligently. Again in the alternative, it was pleaded that the representations and warranties referred to 1n paragraph 6 were aiuncorporated "into the said contract between the Applicant and First Respondent as conditions or warranties whicn formed the basis of a colilateral contract between the Applicant and First Respondent in consideration far which the Agplicant agreed cto enter into tne saia agreement for the purchase of tne business". The pleader tnen invoxed another tJ c section of the Acc oy reciting that "In the premises as a consequence of "he Said conduct or the First, Second ani Taied Respondents of some compinatisn of them, the First Respondent 15 liapie to compensate the Applicant in damages in terms or 3.42 of the Trads Practices Act L3a74 alternatively at common law. ' Tt was next alleged that tne first, second ano third respondents, sr some combination of them, wer2 "lianple no compensate the Applicant bv reason of the conduct of the Second and Third Respondents in aiding ana abetting th2 First Respondent and alternatively persons involved in terms of s.75B of" the Act by making the representations and warranties pleaded in paragraph o which are set out at p.1l7 above. The applicant, accordingly, sought in his prayer for relief, damages and orders under 5.87 of the Act. It 15 appeorriate to determine whether the applicant s onus of proof nas been aischargea by considering which of the representations or othar allegedly misleading or deceptive conduct relied on was made or engaged in by or on benalf of the first or second respondent, which of the representations made were shown to have been false, and by which of the proven false representations or other misleading or deceptive conduct (if anv), the applicant has established that he suffered loss or damage. If a conclusion is reached that the applicant has satisfied the Court as toa a cambination of those matters which makes out a cause of action, it will be necesary to consider the measure of damages or any other relief to wnich he may be entitled. A. MAKING OF REPRESENTATIONS AND ENGAGEMENT IN OTHER ALLEGEDLY MISLEADING OR DECEPTIVE CONDUCT (a) I am satisfied, as already indicated above, that Mr. Smith told Mr. sGohnson that a previous Operator oF a machine identical to chat which he was purchasing, which had been located at the Flower Hctel, had earned at least S150 a week during the winter months and in excess of $200 a week during the summer over a period of eighteen months before the company located 1ts own machine at that hotel. (b) It is part of the finding which I have just recorded that Mr. Smith resresented to Mr. Johnson that the company's own earnings from that machine had been consistent with those of the previous operator, that 1s at an average of $150 a week during the winter months. .c) I consider tnat tne répreasentations which I have Just detailed, together with the terms of the 'Age" advertisement entailed a representation, at least by amplication, that the machine when td) a oweek auring che wiirer montns, and more taan 3200 a waek im thea summer months, or at least that the cespondents enew of no reaton why vields of that order should not be maintauinea, I am further satisfied, as also indicated above, that Me. Lazar told Me. Johnson in effect that the first-named respondent would relocate the machine without charge if a site chesen for ait proved unsatisfactory. The substance of that répresent- ation was incorporated as Term 3 or the purchase age ane Ment 5s@c out at o.7 above, ain which the G mu Fl a a or the company's liability to relocate che mMacnine was fixed at six months. Tne offer by Mr. Smith on 20 Augusc 1584 to arrange another location, and his request on 728 August 1584 for Mr. Johnson's consent to the removal of the machine to che Red Slufr Hotel, all tend to eonfirm the making of such a representation and 1tsS ancorporation as a term of the purchase agreement. Tf it be needed, further confirmation of the making of such a representation, and 1ts incorporation as a term of the purchase agreement, 15 provided by the terms of the company s letter te ua of 19 October 19584 quoted at p.l2 above. The acknowledgement on nehalf of the first respondent that 2t had moved tne machine from its original location at Mr. Johnson's instructions, accompanied by the statement that 'we feel that m1S contract has séen nonoured", goes a long way, Ln my View, to reinforcing the conclusion that tne company aad bound atselif cao move the machine to hi at ano ite £5 be approved by tne owner, should wm mn ul fo n ia re sting location prove unsatisfactory. (@) It is clear that, from time to time between the end of August and the end of October 1584, statements were made on oehalf of the first respondent that the machine would be moved to the Red Bluff Hotel, and that ait was at the Fier Hotel, was at some other unspecified location, and was at the Mentone Hotel. Those statements, except the last which was contained in the letter of 15 October 1984, were made orally by Mr. Smith. FALSITY OF REFRESENTATIONS OR MISLEADING OR DECEPTIVE CHAPACTER OF OTKER CONDUCT {a) There 1s no avidence nefore the Court, apart from Mr. Smith's representations to Mr. Johnson, as to whether there had ever been a previous owner ofr (hb) iterator «ather than che first respondent) of a Gathine located ac tne Flower Hotel which was ldentical to the macaine Dircnased by the applicant. For some veason which was never stated, Mr. Broom, the licensee of the hotel, was not called to give evidence. Nor was any attempt made to call the third respondent, Mr. Smith, to Give evidence of the basis, or lack of it, of the first representation made by him on which th Tl applicant relies. I am therefore unable fo find that fiest representation to have been false, or that the making of it constituted misieading or deceptive conduct within the meaning or s.52 of rhe Act. It 15 clear from the firat respondent's answer 62 the applicant's interrogatory quoted at 0.15 that fir Mr. Smith's reworesentation that the company had located one of its own machines at the Flower Hotel which was still there while Mr. Johnson was considering the purchase of his own machine, was false. It 15 equally clear that the first respondent made that representation through its employee or agent, and that the making of tt Cconsituted conduct that was misleading or deceptive in contravention of 5.52. (ce) The representations about the earnings which the machine would continue to vield to Mr. Johnson, on their proper construction, were not as to existing or past facts but constituted forecasts or predictions as to the future; cf. Reardon vy. Aquajyet Holdings (5.a.) FPty. Ltd. £19821 ATPR 40-328 applying the test enunciated in Thompson v. Mastertouch T.V. Service Fty. Ltd. (No. 1) (1977) 29 FLR 270, at 278, where, after reviewing some authorities on the application of s.14{1) of the Trade Descriptions Act 1968 (U.K.) Franki J. observed at 278:- "Therefore in order to establish that the words "Should earn $400 per week minimum" constituted a false statement concerning the profitahility of a business activity it is necessary for the informant to prove that the defendant did not believe that the forecast or prediction would be Satisfied or was recklessly andifferent concerning the forecast or prediction." There is no evidence before the Court from which any state of mind or belief, one way or the other, about the profitability of machines of the kand purchased by the applicant can be imputed to any of the respondents. By contrast with Reardon v. Agquajet Holdings (S.A.) Pty. Ltd. (supra) no evidence was called From the owners or operators of similar machines to show that their average earnings were, to the knowledge of the No a respondents, less than $200 a week. Moreover, as I have already noted, no evidence was adduced from Mr. Broom, the licensee of the Flower Hotel, to establish the level of previous earnings of the similar machine previously installed there. Nor was any avidence called from persons experienced or knowledgeable ain the industry of operating entertainment machines. Evidence of just that kind, however, was adduced on behalf of the applicants in Jones v. Glenhoun Holdings Pty. Ltd. (in Liquidation) (1985) ATFR 40-604 to which I was referred by counsel for the present applicant. Of course, a representation by way of a forecast or prediction can be erected into a promissory term of a contract, for non-fulfilment of which a vaight of action accrues to the other party. (See e.g. Chitty on Contracts, 25th Edn. Vol.l p.412) However, I am unable to conclude that there was a contractual warranty by any of the present respondents that the applicant would derive earnings from his machine at an average of $200 a week, or $150 a week during the winter, and in excess of $200 a week in summer. There was no express term of the written purchase agreement to the effect that a minimum level of average weekly earnings from the machine would be maintained. It was suggested in the statement of claim that the (d) reoresencation as CoO minimum average Barnings formea che basis ar a ecoaliateral contract in Tonsiceration for which tne apsiicant anterea into the purchase agreement. However, any such on would be iunconsistent with the ba] i 'a bal iD ii o a ct rity cr v obligation, imposed by che written agreement on the first respondent, during a period of 51x months to arrange for the location of the machine on suitable sites approved by the applicant, presumably, if any given site failed to yield a satisfactory level of earnings. Had both parties understood the first respondent toa guarantee an average weekly aiuncome of $200, or anv other amount, from the machine, there would have been no need to ancluat such aA teem in the bpurcnase @ yelocation of the machine a a] a] Tm is =} a a fom FI waeLNT th subject, as ait did, bo the approval of the applicant. That any representations as to averace Future earnings from the machine were not intended by the parties to have any contractual force, is further confirmed by the fact that at no time was any period specified over which the average was to be calculated, or the earnings were to be Maintained. The statement by Mr. Lazar that the first respondent would relocate the machine without charge 1f a chosen site proved unsatisfactory, was also ip cespect of a fubure contingency. On the aggroach discussed in paragraph ic), the making of 16 would only constitute deceptive or misleading Conduct 1f at wero shown that, at the time of making it, the company, acting through Mr. Lazar, nad no intention of carrying out that promise, or had been recklessiy aundifferent to whether the machine would, or could, of relocated at some suitable site, The evidence does not permit the imputation of such a state of mind to Mr. Lazar or any other officer cr ¢ iz) loyee of the company. Indeed, the fact that che machine was removed from the Flower Hotel after the takings there during July and August had proved disappointing, and the fact that Mr. Smith sought Mc. Johnson's approval For ats relocation at the Red Bluff Hotel, yustifies the inference that the company intended, wnen tnat promise was made, to honour it if necessary. However, hy contrast with the predictive representation about average earnings, the statement that che comsany would relocate che macnine without charge if a Tthosen site should prove unsatisfactory, was incorporated as a term of the written purchase agreement. Tarm 3, as I construe it, obliged the first respondent to te) arrange at its expense for tne machine cto £f tl installed at another 31te approved oy Mr. Johnson, in the event of any given site proving unsultable. That obligation continued for six months from the date of the agreement. It 1s equally clear that the first respondent was in breach of that obligation. The only alternative location approved by Mr. Johnson was the Red Bluff Hotel, but the machine, apparently, was never taken thers. Te was var1lously claimed, on behalf of the first respondent, to nave pecn moved to the Pier a a) Hotel and to the Mantone Yotel, amd, im answer ta interrogatories on behalf of the first respond a a hes ' lt was deposed that it had been relocated at the Hampton Hotel. None of 'those locations naa the approval af the applicant. The assurance given by Mr. Smith to Mr. Johnson that his machine would be removed to the Red Bluff Hotel was another representation as toa future eavent. I am unable to find, on the state of the evidence before the Court, whether or not Mr. Smith, on 28 August 1984, believed that the machine would be removed to that location within two or three days, or whether or not, on that date, ne had any reasonable nasis for such a belief. By contrast, the other statements as to oO a0. the location of the machine each purported ta be as to an existing fact. In the light of the first and second respondents answer to interrogatory 22 quoted at p.16 above, the statement made between 3 re r=) it ptember and mid-October that the machine was at the Pier Hotel, and the statement in the letter of lS Getooer 1384 that it nad bean at the Mentone Hot tr ni Since 10 Gcto o i te ve, were botn false. it 1s clear that deceptive and misieading conauct engaged in after antry into contractual relations may no less contravene $§.52 of the Act, chan Similar conduct which induces one party to enter into an agreement. see Tiplady v. Gold Coast Carlton Pty. Ltd. (1984) ATFR 40-472 at 45,443. i am therefore satisfied that, in making the false statements which I have identified about the location of the machine, and in failing after 28 August 1984 to keep the applicant informed of its true whereabouts, the first respondent was guilty of a breach of 5.5211). CAUSATION Or £055 OR DAMAGE BY PROVEN MISREPPESENT- ATIONS OR OTHER CONDUCT WHICH WAS MISLEADING OR DECEPTIVE OR IN BREACH OF CONTRACT Section 82(1) of the Act provides that: "A person who suffers loss or damage by conduct of another person that was done in contravention of a provision of Part IV or Vomay recover the amount of the loss or % damaye Dy action against tnat other per Of against any wversun Vv SOnRCrAVEeNntion. Tt 18 therefore not sufficient in a case such as the present for the applicant to establish that a respondent has engaged in misleading or deceptive conduct contrary to s.52(1). The applicant must go further and show that he has suffered loss or damage by the misleading or deceptive conduct of which he complains. That formulation obviously requires some causal connection between the conduct and the loss or damage: Brown v. Jam Factory Ftv. Ltd, (1581) ATPR 40- 213 at 42,929. In view of the conclusions whicn I have alreacy reached, 1t 15 only necessary to consider whether the requisite causal connection nas been astablished between some loss or damage suffered by the applicant, and either the first respondent's breach of the purchase agreement in failing to relocate the machine at another site approved by the owner, or its misleading and deceptive conduct in making false statements as to its location after 28 August 1984, and failing to keep the applicant informed of its true whereabouts. The loss suffered by the applicant has been of the machine itself, and the earninas which might have peen derived from it, had 1t been operated after 28 August 1984 at some site under an arrangement c generating some income for the apolicant. In my view both of raocse heads of loss are attributable to the first resvcndent 5 breach of the purchase atyreement, and to 1ts conduct in misleading the applicant as toa where the machine actually was arter ca August. Hada the first respondent continued to perrorm 1ts a fa] a) pan uw n p aoO rc Ee fanfi <! im E continued ti share intome rrom the machine witn the occupier of each new site approved by him. He would also have known, at the end of the six months during which the farst respondent's obligations under Term 3 subsisted, where the machine was and would have been able to assert sole control over its use and disposition thereafter. Likewise, had the first respondent not misled him as tc the whereabouts of the od ces] machine, the applicant could have taken steps to ensu that he received a share of all earnings from it from time to time, and could have exercised his Full rignts of ownership over 1, Dy moving 1t to some other Location, or, if he saw fit, sy selling 1t. MEASURE OF LOSS OR DAMAGE: for a breath of iy Ordinarily, the measure of damage warranty by a seller of goods which results in the goods being lost entirely to the buyer, is the market value of the goods, represented by the purchase price ana the cost of any improvements effected to them by the buyer. See e.g. Mason ov. Burningham C1345] 2 KB 545. ocowever, 1t is a reasonible inference that the purchase price of this video amusement Machine reflected not only its intrinsic market value, but the "business opportunity" afforded by the readiness of the first respondent to introduce the buyer toa "top Melbourne Locations", and to relocate the machine should a selected location not live up to expectations. There 23 no avidence hefore the Court to establish the instrinsic market value of the machine at the time of sale, or what such value would have been after the machine had been used for 51x months. Howevar, the applicant 15 also antitied to recover as damages 'the business ioss which must reasonably have been supposed to have been, in the contemplation of both parties at the time when they made the contract, the probable result of the breach". (Cullinane v. British "Rema" Manufacturing Co. Dd. £19541) 1 OB 292 per Evershed M.R. at 301.) In my view, it is appropriate to use asa basis for calculating that business loss, the forecast or prediction of the profits to be earned from the machine, which was made on behalf of the first-named respondent and which has not been shown to have been made knowingly without any belirer that ait could be fruifilled, or recklessiy, without caring whether or not it couid be fulfilled. fu The damages, theretore, sutferead by the apolicant as gesuit of tue first respondent 5 oreach or warranty are tme prorits, estimated in accardanzte WLtn tna r2spondent 5 forecasts, over tne oeriod of 51x months auraing which the first fa@spondent was obliged to find suLtaple Locations for the machine, less thea esarnings actually derived trom it by the applicant during that irs a riod. Allowing an average income of 3150 per weak from 24 July to 24 October 1984, and an average of $200 aweek from 25 October ta 24 January 1985, profits uw estimated in that way amount to $4,550 from which must be deducted the amount of $287 actually received by the applicant from the machine whilst 1t was at the Flower Hotel. Accordingly, I assess the applicant's damages for breach of the warranty contained in Term 3 of the a us purchase aqreement at $4,2 a bt FI lll oe apparent that the fact that che first vaspondent s Breach of the warranty contained in Term 3 of the purchase agreement was overlain hy 1ts misleading or deceptive conduct im misinforming, or failing to advise the applicant, of the whereabouts of the machine does not add to the measure of damages recoverable in this case, It may be, on strict analysis, that the loss of the machine as a_ physical entity was attributable to that conduct rather than toa the breach of the warranty. However, as I have already us ui indicated, tnere 15 no evidence from which the Court can assign any amount of damages to the loss of the a rh cr unmtrinsic value h it) achine as a 'bare" chattel, a ry devoid of the ¥ ue} it-earning qualities which it, presumably, would have had in locations to be arranged by the first respondent. Nor has the applicant relied on a ny cause of action in detanue or conversion. we "Me. Frankxcsm for the apolicant urged that the aboropriate measure of danaqges was represented by thea total amount of $5,325.08 yvepaid to Aveo Financial Services, which included interast paid on the loan from that firm until 22 October 19434, and a furrher amount to compensate for the lass of an alternative investment opportunity in accordance with the principles enunciated in Gates v. City Mutual Life Assurance Society (1386) 60 ALJR 239, Geale v. Glenhoun Holdings Pty. Ltd. (in liguidation) (1335) ATPR 40-615 and T. N Lucas Pty. Ltd. v. Centrepoint Fresholds Pty. Ltd. (1984) 1 FCR 110. However, in each of those cases, i1t was neld that an applicant who has changed his position in reliance om aA Misrepresentation, 15 entitled to recover damages on tne me@asure appropriate to an action Ol fl * in deceit, In the present ca as JI have already indicatea, the only proven loss has been suffered as a result of a breach of contract. The applicant 15 therefore not entitled to something in respect of ae shy pratins (126 any) which ne might nave made nad he ro entered int>d some other venture, a5 we amount in respect cf the auncome which ne would have derived from the purcnase agreement but ror the first rE tl spondent''s breach. Similar reasoning dictates the refusal of the claim that the interest paid to Avco Financial Services should be included as a component of the applicant's damages. Where loss of income has been awarded as damages for breach of a contract for the purchase of an income-earning asset, 1t would allow a double recovery to award interest on the purchase price as well. That 15°15 not to say tnat 2 a rag mh ot iu Ww cr Ww Fas o c aa fa Pa is) cr oe Nd w p a 1D a ov a an awara of damages oursuant to 5.514 of the Federal t Court of Australia Act 1376 a5 amended. On tha assumption that application will be made For an order for interest under that section, and will bea granted, I consider that the following observation of Fisher J. in Yorke v. Ross Lucas Pty. Ltd. (1982) 45 ALR 299 at 321 is applicable to the circumstances of the present case: "IT do not regard the cost of financing the borrowings from Electrical Investment Ltd. or Treasureway under the two bills of sale as being a direct consequence of the purchase of the business. They were the result of the dacision, albeit obligatory in the carcumstances, of Mr. Yorke to Finance his purchase in this way. To some extent the interest component is partially compensated for by the interest allowed on Is and the purchase vrice, and the balance interest was not a direct consequence of the purchase but of Yorke's lack of ready money." E. OTHER PELIEF: mM iD qi vr B a a So far 3.87(2) B7(1A) of the Act proviies that: 'Without limiting the generality of section 30, the Court may, on the application of a person who has suffered, of 15 i1keiy to suffer, loss or damage by conduct of another person tnat was engaged ain (whether before or after the commencement of this sub-section) in contravention of a provision of Part V, make such order or orders as it thinks appropriate against the person who engaged in the conduct or a person who was involved in the contra- vention (including all or any of thea orders mentioned ain Sub-section (2)) aif the Court considers that the order or orders concerned will compensate the first-mentioned person in whole or in part for the loss or damage or will prevent or reduce the loss or damage." a5 15 relevant to tne present applicatios specifies that the following are che order referred to in sub-s.(lo:- (a) an order declaring the whole or any part of a contract made between the person who suffered, or 15 likely to suffer, the loss oar damage and the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct, or of & collateral arrangement relating to such a contract, to be void and, if the Court thinks fit, to have been void ab initio or at all times on and a fw 4 ty "4 u i c a ie fu cw iu u w ball a nt rr rt tl fi iy fal ib eu ba) ul ch the order "1 L ecified in the ord 'G (Do; an o¢der varying such a contract of arrangement 1n such manner as 15 specified in the order and, if the Court thinks fait, declaring the contract or arrangement to have had effect as s0 varied on and after such date hefore the date on which the order 1s made as 15 so specified; {c) an order directing the person who engaged in the conduct or a person who was involved in the ecntravention canstituted by the conduct to refund money or return property ¢ > the persen who suffered tna loss of damage; (da) an oraer directing the person wna engaged in tha conduct or a person who was anvelved in the contravention constituted by the conduct ta pay Fo the person who suffered the loss or damage tne amount of the loss or damage." It was noted by a Full Court of this Court (Fox, Lockhart and Fitzgerald JJ.) an Gates v. City Mutual Life Assurance Society Ltd. (1983) 68 FLR 101, at 104, that: "Certainly, there is scope for debate as to the iunter-relationship between ss.82 and 837 of the Act. However, s.&7 1s concerned with loss or damage 'by' the offending conduct ..." I have already found that the only eavidence of loss or damage caused to the applicant by conduct which t 5.52 165 that referable to the acts and ww offended again tal Pea omissions of the respondents in misleading the applicant a5 to where the machine had been moved from tne Fiower morel, and failing to keen him iunrormed of its true whereanouts. Since ftnat canduct was largely co-extensive with the firsc respondent s breach of Term 2 of the purcnoase agreament, there 1s no need to make an order under 35.87 against tnat respondent in addition to the award of damages for breach of contract which I have already foreshadowed. However, the second and third respondents, who are not liable in contract to the applicant, were clearly engaged in tne offending conduct and anvolved in the contravention of s.52 constituted by that conduct. It is appropriate, therefore, to make an order under 5.87(2)(d) against each ot the second and third resoonaents that he pay to the applicant the amount of tne iss ta or damage which bit} have earlier assessed, together with any interest which may be awarded under s.S51A of the Feaeral Court of Austrailia Act. I have considered whether oar not orders might alternatively be made under s.87 declaring the purchase agreement to be void and requiring repayment of the deposit and the balance of the price paid thereunder, However, except for the representation that the first respondent itself operated a similar machine at the Flower Hotel, the misleading and deceptive conduct 40. which the applicant has beer able to prove did not induce him to enter aiunto the ageeement, but accurred, rather, 1n purported performance of ut. Accordingly, and having regard to the applicant's acceptance of four instalments of takings From the machine whilst 1t was at the Flower Hotel, and to his unexplained delay in not instituting this application until 6 May 1335, I decline to exercise my discretion to make any other order under 3.87. A cross-claim was filed on pehalf of othe first and second respondents seeking contributicn or andemnity from the third respondent. However, Mr. Anderson for the cross-clatmants conceded that there was no evidence from which it could be concluded that Mr. Smith had Made the representations which he did without the authority of th tm first or sécond respondent, or negligently. The cross-claim must therefore be dismissed. I propese to hear counsel for the parties on th 1D questions of interest and costs. I certify that this and the preceding thirty-nine (33) pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice Ryan. Dated: 7 re se Pa POS Ve 1 ce uo Associate «Foy VG No. 113 of 1985 Counsel for the Applicant: Mr. J. E. Franckom Solicitor for the Applicant: Mr. P. Johnson Counsel for the First and Second Respondents: Mr. G. R. Anderson Solicitors for the First and Second Respondents: Alex Lewenberg & Associates Date of Hearing: 23 - 24 October 1986