a _ : Be mE IS . TRADE PRACTICES - interlocutory injunction - carpet sale - carpets advertised as salvaged from factory fire - substantial discount offered - not all products offered originated from factory fire - misleading impression in advertisement - public interest as factor in balance of convenience. BARRETT CARPET COMPANY PTY LTD v NO. 1 RABEREM PTY LTD, NO. 2 RABEREM PTY LTD AND NO. 3 RABEREM PTY LTD WAG 43 OF 1987 FRENCH J. 16 April 1987 PERTH IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION No. WAG 43 of 1987 BETWEEN: BARRETT CARPET COMPANY PTY LTD Applicant and No. 1 RABEREM PTY LID No. 2 RABEREM PTY LTD and No. 3 RABEREM PTY LTD Respondents MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 16 April 1987 WHERE MADE: PERTH THE COURT ORDERS THAT: UPON THE applicant's undertaking to pay to any party adversely affected by the interlocutory injunction such compensation (if any) as the Court thinks just, 1n such manner as the Court directs:- 1. The respondents be and are hereby restrained by themselves the1r agents or servants until further order or the determination of this application from further publishing or causing to be published any advertisement 1n the form and with the text and layout of the advertisement published by them on page 14 of the Sunday Times Newspaper of 5 April 1987. 2. 'the costs of this motion for interlocutory relief be reserved. There be liberty to apply on 48 hours written notice. Note: Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT } OF AUSTRALIA ) WESTERN AUSTRALIA ) DISTRICT REGISTRY ) ) GENCRAL DIVISION NO. WAG 43 of 1987 BETWEEN: BARRETT CARPET COMPANY PTY LTD Applicant and No. 1 RABEREM PTY LTD NO. 2 RABEREM PTY LTD and No. 3 RABEREM PTY LTD Respondents CORAM: FRENCH J. 16 April 1987 REASONS FOR JUDGMENT On 7 March 1987 there was a fire at the premises of Minster Carpets at Dandenong in Victoria. The fire left stocks of carpet damaged by smoke and water and they were put out to tender. Two parties interested in acquiring the damaged stock were the applicant, Barrett Carpet Company Pty Ltd and the respondents who trade as Solomons Carpets. Both organisations sell carpets and floor coverings throughout Australia. Both organisations submitted tenders and the respondents were successful. 2. Pursuant to their tender they acquired 3,624 metres of carpet. There is evidence, presently uncontradicted, that they purchased a further 3,505.7 metres of similar carpet from insurance loss adjustors on 3 April 1987. On 5 April 1987 the respondents placed an advertisement in the Sunday Times Newspaper which bore the following headlines in large print:- CARPET MILL BURNS EMERGENCY FIRE SALE SOLOMONS RESCUE THOUSANDS OF METRES OF QUALITY MINSTER CARPETS To the left of the last mentioned headline was an inset reproduction of a newspaper account of the fire with the headlines "MINSTER CARPET MILL INFERNO - Carpet factory $2m fire". Below this inset in large white lettering on a black background appeared the words "UNDER HALF PRICE". The word "MANY" in considerably smaller black lettering was superimposed on more words and to the left. Below this was set out in a tabular form a list of some ten products. For each product there were four entries - its description and accompanying rhetoric, its former price under the ue 3. heading "WAS", 1ts sale price under the heading "NOW" and the difference expressed as a percentage of the former price under the heading "SAVE". Below this table and set off to the right was the statement "SUPPLEMENTED BY SOLOMONS OWN BULK BUYS". In response to the advertisement and certain associated television commercials the applicant has instituted proceedings in this court claiming injunctive relief against the respondents. By a motion filed 13 April 1987 and returnable on 15 April, 1t claimed interlocutory relief in the following terms:- "1. Pending suit or until further order the Respondents be restrained by injunction from continuing to carry on the publication and broadcasting of the advertisements referred to in paragraphs 6 and 9 of the Statement of Claim filed herein. 2. The Respondents do forthwith direct their servants and agents to cease the publication and broadcasting of the said advertisements. 3. The costs of this application be reserved. 4. The time limited for service of this notice of motion be abridged." By consent I ordered that the time limited for service of the motion be abridged to enable 1t to be dealt with on 15 April. Argument proceeded on that day and I reserved my decision until 16 April. The applicant's complaint about the newspaper advertisement as set out in the statement of claim is as follows:- "6(ii) The floor coverings advertised for sale and (sic) not the product of Minster Carpets and could not therefore be offered for sale at reduced prices because of the fire because:~- (a) Minster Carpets did not and does not sell vinyl floor coverings. Two of the 11 items of floor coverings advertised for sale are vinyl floor coverings and therefore the offering of such vinyl floor coverings for sale at whatever price could not be related to the fire; (b) the carpets purchased by the Respondents were water and smoke damaged and could = not therefore truthfully be represented as quality Minster Carpet; (c) the Respondents purchased 3,624 linear metres o£ carpet by tender and the extent of water and smoke damage was such that there could not be 2,000 metres of quality carpet amongst the stock purchased; and (d) the carpets purchased by the Respondents were of salvage quality and not suitable for sale to the public for installation 1n domestic or commercial locations." The complaint was supported by an affidavit sworn by Mr Emmett Barrett, the managing director of the applicant who says he has been engaged in the business of buying and selling carpets for about 33 years. On 18 March he inspected the carpet ultimately purchased by the respondents at the premises of Minster Carpets where the fire had occurred. Fee me ee ee 5. He exhibited photographs taken at the time of his inspection. In particular one photograph, Exhibit C3, to the affidavit showed a warehouse used by Minster Carpets but adjacent to that in which the principal fire had occurred. In this warehouse there was said to be only minor fire damage but quite severe water damage to stock on the lowest level of storage racks where carpet was kept in rolls. The stock in respect of which tenders were invited was that on the lowest level rack and that, according to Mr Barrett was the stock purchased by the respondents, together with a small quantity of carpets near the fire door that were fire and water damaged. He observed that it was saturated with water when he examined it on 18 March. He was informed (apparently later) by an employee of Minster Carpets that the stock was rotting when it left the warehouse after being sold to the respondents. This accorded, he said, with his own experience of what was likely to occur to severely water damaged carpet left in rolls for a period of about 17 days. 6. Mr Barrett went on to say:- "T am further of the belief on the basis of my experience in the carpet industry that the stock purchased by the Respondents was unfit for sale, and could not be solid to, members of the public who wished to buy carpet for domestic or commercial locations. It is simply not the sort of carpet that any retailer would sell to homeowners or persons wishing to install floor coverings in a commercial location." Despite these unpromising attributes the Court, upon enquiry of counsel for the applicant, whether 1t too had submitted a tender for the stock was told that it had. Mr Barrett in his affidavit went on to argue that the stock now being sold by the respondents and described in the advertisement as "quality carpet" could not answer' that description because of the damage it had sustained. Further he contended that certain of the stock Listed in the 10 item table in the advertisement was not produced by Minster Carpets. This fact was confirmed by an affidavit filed for the respondents and sworn by their general manager, Christopher Hastings Malcolm. In particular at paragraph 5(vi) he said:- 7. "Of the ten categories of items for sale advertised in the Solomons advertisement, the Minster stock comprised 4 of the 10 categories. The Minster stock constituted approximately 70 to 80% of the total volume of carpets released in Western Australia." Mr Malcolm exhibited to his affidavit a copy of the Solomons advertisement with an asterisk next to those items comprising the Minster stock. A copy of the advertisement so marked is annexed to and forms part of these reasons. Mr Barrett in his affidavit, went on to refer to the assertion in the advertisement that "thousands of metres" of carpet had been rescued by the respondents. On the basis of his inspection of the stock he did not believe that the undamaged parts could amount to anywhere near 2,000 metres. Two reply affidavits were filed by the respondents, one sworn by the managing director Mr Stephen Morris, the other by Mr Malcolm who as already mentioned, is the general manager. Mr Morris said he inspected the stock in question prior to the respondents submitting a tender. It was apparent from the znspection that the stock was damaged but the extent of that damage could not be ascertained as the carpet was rolled up. He concluded that in all probability some 40% of the carpet would be damaged and the price offered by him was based on that assessment. 8. Closer inspection after the purchase disclosed that in fact about 85% of the carpet was completely undamaged. It was therefore possible to sell the carpet at Large discounts "in many instances under half price". Despite this contention I note that the 4 items in the advertisement identified by Mr Malcolm as Minster products were offered at stated discounts of 25%, 26%, 30% and 46% respectively. The respondents "supplemented" their sale of Minster stock with other stock not acquired from Minster Carpets. Mr Morris said that "in the newspaper advertisement it is stated in bold type this is the case". He said that he did not believe the advertisement to be misleading because:- "7.1 The Respondents were conducting an emergency fire sale; 7.2 The Minster Carpet Mill Warehouse did burn; 7.3 The Respondents did have thousands of metres of rescued quality Minster carpet; 7.4 Many of those carpets were being sold at under half price; 7.5 The carpet so sold was supplemented by the Respondents own bulk buys." 9. In Mr Malcolm's affidavit he deposed that before making the Minster stock available for sale in Australia the respondents in each state had carefully examined all the carpet, excised the portions which had been subject to visible fire and water damage and dried out any other portions that had not been badly affected by water. He said he had personal knowledge of that process having been carried out with the Minster stock sold in Western Australia. After the completion of this recovery process, according to Mr Malcolm, approximately 85% of the quantity of Minster carpet purchased by the respondents was in merchantable condition. He further asserted his belief that the stock currently advertised and offered to the public for sale 1s quality Minster carpet and took issue with the applicant's assertion to the contrary. He also disputed the proposition that the stock being sold by the respondents could not be used in domestic and/or commercial locations. He pounted out that the Minster stock now offered for sale to the public is subject to the usual trading conditions applicable to all carpet sales made by the respondents. That involves a 12 month guarantee of the carpet against deterioration from all latent defects together with an installation guarantee. Turning to the television commercial, the applicant alleges in its statement of claim that on 6 April 1987 by advertisements broadcast on Channel 9 in Perth and on various 10. dates through Melbourne commercial television stations, the respondents engaged in conduct that was misleading or deceptive or likely to mislead or deceive the public generally in Perth and i Melbourne. The text of the commercial as alleged in paragraph 9 ' of the statement of claim was as follows:- "The Minster Carpet Mill suffers a disastrous two million dollar fire. Now Solomons rescue thousands and thousands of metres of carpet. Once only emergency fire sale. Pure wools, cut and loops, fine deniers and ' superb plushes, antrons, every possible colour, many ' sacrificed to well under half price. Its a red hot, one only opportunity as thousands of metres of carpet get the axe. Huge emergency fire sale at Solomons." It was said that this commercial was misleading or deceptive or likely to mislead or deceive the public for the reasons set forth in paragraph 6(ii)(c) and (d) of the statement - of claim they being:- eo ne TSR "(c) The Respondents purchased 3,624 linear metres of carpet by tender and the extent of water and smoke damage was such that there could not be 2,000 metres of quality carpet amongst the stock purchased; and (d) The carpets purchased by the Respondents were of —_ salvage quality and not suitable for sale to the : public for installation in domestic or commercial tows. Locations." The screening of the commercial was verified by Mr Barrett's affidavit. = wee - -.. stat cae, aaa a Mee et SE ll. Mr Malcoim in his affidavit said that the fire sale had been advertised by television not only in Perth and Melbourne but also nationally. As to the aumpact of injunctive relief upon the respondents, Mr Malcolm said that the respondents are halfway through a national advertising campaign in relation to the Minster stock. He exhibited to his affidavit a schedule of the respondents' approximate advertising expenditure for that campaign. He said they are committed to the expenditure and should the television advertising campaign be halted, will sustain loss to the extent of about one half of the media company costs. In summary the approximate costs of the campaign are said to be:- $198,244.60 in respect of media budget costs $12,220.20 in respect of production costs. These figures did not take account of further subsidiary advertising carried out throughout individual states which would be in the region of $30,000.00 to $40,000.00 nationally. The test for the grant of interlocutory relief requires the Court to be satisfied that there is a serious question to be tried and that the balance of convenience favours the grant of the relief. a ae - . Fo et ee Et ee 12. AS was pointed out by the Full Court in Bullock v The Federated Furnishing Trades Society of Australasia (1985) 5 FCR 464 the two factors are not independent. At 472 Woodward J. said:- "Thus, an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience 1s fairly even. A more doubtful claim (which nevertheless raises "a serious question to be tried") may still attract interlocutory relief if there is a marked balance of convenience in favour of 1t." Applying that test to the television commercial complained of, I may say at once that while in my opinion it may be possible that the applicant will at trial establish that the respondents have been guilty of misleading and deceptive conduct in relation to that commercial, its claim 1s, I think, a doubtful one and having regard to the disruption effected by interlocutory relief, that relief 1s not warranted in these circumstances. I now turn to consider the advertisement appearing in the Sunday Times of 5 April 1987. Accepting that 1t embodies representations as to the quality and quantity of salvaged carpet the evidence as to their truth or otherwise is conflicting. Mr Barrett's assessment of the quality of the carpet is based upon an inspection of it rolled up in a rack. It is also based upon the comment of an employee of Minster Carpets evidently made at some time after the respondents took delivery. 13. On the other hand the respondents' affidavits based their assertions as to the quantity and quality of saleable carpet on direct inspection of 1t by Mr Malcolm and other employees. I would not on this basis be prepared to find that a case has been made out by the applicant sufficient to warrant the inconvenience imposed by a grant of interlocutory relief. There is however a matter properly raised on _ the applicant's motion which falls into a different category. The advertisement does create the impression that each of the products listed in the table contained in it forms part of the products "rescued" from the Milli fire. I do not consider that that impression is mitigated by the insertion of the words "SUPPLEMENTED BY SOLOMONS OWN BULK Buys!!" Indeed the language of that statement and its location in the advertisement tends to reinforce the impression that everything listed in the table originated from the Minster acquisition. It 1s what 18 in the table that 1s "supplemented". There 1s nothing to suggest that some, indeed 6 out of 10, of the listed items fall within that supplement. 14. It 15 clear that there 1s some perceived commercial advantage in advertising a sale of goods on a salvage basis. No doubt there are sections of the public who would think that significant bargains are to be obtained in such a sale because of the origin of the goods. If they are thereby led to attend at the premises of the seller only to find that some of the classes of goods on sale which they thought had been rescued from the fire did not come from the fire at all, then they have been led into error. They would in such a case have been led into error in their capacity as consumers and the advertisement would in the relevant sense constitute conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive. It could make no difference to the quality of the conduct that the consumer was able to purchase quality carpet at bargain basement prices. It is the representation conveyed by the advertisement that 1s in issue. In my opinion, on this aspect there is a serious question to be tried. Indeed I would go so far as to say there is a strong prima facie case. 15. I make that observation conscious of the fact that there has not been a substantive hearing of the issues between the parties and the respondents have not had an opportunity to put their full case in answer to the applicant's contentions. Nevertheless, insofar as this particular representation 1s concerned, 1t 1s based upon factual material which is not in dispute. There 1s of course inconvenience to the respondents if interlocutory relief 1s granted in respect of the advertisement. However 1t does not involve bringing the entire media campaign to a halt. It impinges on the text of one advertisement. I have no doubt that it is well within the capacity of the respondents to find some alteration to the text or layout of the advertisement that will overcome the impression that 1t presently appears to convey. The applicant is unable to point to any significant detriment to itself to put in the balance in the absence of injunctive relief. In my view however, where the case is strong enough the public interest in preventing conduct of the kind prohibited by s.52 of the Trade Practices Act is a factor that may be taken into account. en wimenpeage aeons me ee etree yee yy Se yee 16. In this case the public interest enjoys the support of the uSual undertaking as to damages which is offered by the applicant. I am of the view that the case is an appropriate one for an injunction in relation to the advertisement as published in the Sunday Times and I will make an order accordingly after having heard from the parties as to the appropriate terms thereof. I certify that this and the preceding fifteen (15) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice French. Associate: Mtgabelh Ayelea0en pate: [6 Aprcl 1987 Counsel: . for the applicant: Mr A. Metaxas instructed by Phillips Fox - for the defendant: E.M. Heenan QC and Mr K. Martin instructed by Parker & Parker Date of Hearing: 15 April 1987 Date of Judgment: 16 April 1987 © 100% WOOL BERBERS unied rocss ony Ch On vereaise Chany tev log Deroes CANT LASTT @ FULLY IMPORTED eros w0-tuccpeen wily Stunning pate iange. Cicily WA urabertool OTOP QUALITY in eme ncety mysed, corsa pian Ome. 1 corwempacary decor inne, @ UNBEATABLE VALUE! canis teow pavertfuyty frave soueel cue tare' @ ELEGANT PLUSH sayht Sewind ia 4 econsor colour eanga. Scokchgard protected and @ MAGIC GOLOUR RANGE Siracseny "() eculparad bne demer 5oothgerd protecton. HURATT © GENUINE FINE DENIER "Gata ce Cornag ttre. A qreesamey 2 Eat UNDeETREIE Pics. @ VINYL SCOOPt J hang evocrtcg wi tay bat ken wide wd ONLY © ONGE ONLY OFFER! EuScnadee ®@ CONTEMPORARY STYLING noone low crotee yeran tint pe. NO) wnecng, SUPER GARGAN METRO MAIN SHOWROOM 81 Sheopention Ad Cre Leach Hwy & Noun Lake Ad Myaiee (fetund ALCO) 42 Ennaase Aa Cm Lumsden ang Guckinyhan 201 Sheng Hwy Car Loc St Orress, Wanneroo. Ural € 245 Gawat Easir Hwy EE" Cre Abany Hwy & Froemanite Ad, Genus avadabie in 2 magnbcant colour SUPPLEMENTED BY SOLOMONS OWN BULK BUYS! Carpets LIA'S BIGGEST CARPET i SPECIALISTS Be oasneis:an0 ree | F BUNBURY: (0977214788 | Shop 139A Sth Hedued Sh Cu 72 Spencer Si WALGOORLIE: (090) 24874" COLLIE: (087134396 - COUNTRY 0) Hannan St 52 Theusee St ALBANY: (O30)41730 MME KARRATHA: (O3IV65 1500] 101 Loamyet Ace Bolmoral Way (Gunreng s Conve) GIA Domguter St $6 Paryerta Rd Thulty Yana Cols Arh SIO ate betel Quenines Prices ate hor carpet Onty Guaranteed wistallsLon asadatin Sore Ochs WK Bebtitow at all aed SUNDAY TIMES, APRIL 5, 1987 Tee Ae ae em nner (OY 8 ee ere es AER RETR SET Serene tee IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION BrtTw wee ew NO. WAG 43 of 1987 F EN: BARRETT CARPET COMPANY PTY LTD Applicant and No. 1 RABEREM PTY LTD NO. 2 RABEREM PTY LTD and No. 3 RABEREM PTY LTD Respondents COURT OB FEE TUSTRALIA ADDENDUM », PRINCIPAL REGISTRY i> Upon publication of the Reasons for Judgment of his Honour Mr Justice French on 16 April 1987 the respondents offered an undertaking in lieu of the injunction sought and orders were thereupon made in the following terms:- Upon the undertaking of the respondents that they will not by themselves, their servants or agents until further order, or the determination of this application, further publish or cause to be published any advertisement in the form and with the text and layout of the advertisement published by them on page 14 of the Sunday Times Newspaper of 5 April 1987, the motion is dismissed. Costs of the motion for interlocutory relief be reserved. rad 2. 3. Liberty to apply to vary or discharge the undertaking on 48 hours written notice. y It. AYO - Associate to Mr Justice Prench sate: dpal (187.