FEDERAL COURT OF AUSTRALIA Rinbridge Marketing Pty Ltd v Walsh [2000] FCA 1738 TRADE PRACTICES – "accessory" liability – s 75B of Trade Practices Act 1974 (Cth) – requirement that person sought to be made liable as accessory knew all essential elements of contravention, including falsity of representations. Yorke v Lucas (1985) 158 CLR 661, applied Trade Practices Act 1974 (Cth) s 75B RINBRIDGE MARKETING PTY LIMITED v PETER THOMAS WALSH N 744 of 2000 LINDGREN, NORTH, HELY JJ 1 DECEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 744 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: RINBRIDGE MARKETING PTY LIMITED (ACN 064 554 810) APPELLANT AND: PETER THOMAS WALSH RESPONDENT JUDGES: LINDGREN, NORTH, HELY JJ DATE OF ORDER: 1 DECEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The appeal be dismissed. 2. The appellant pay the respondent's costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N 744 OF 2000 ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA BETWEEN: RINBRIDGE MARKETING PTY LIMITED (ACN 064 554 810) APPELLANT AND: PETER THOMAS WALSH RESPONDENT JUDGES: LINDGREN, NORTH, HELY JJ DATE: 1 DECEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT THE COURT: introduction 1 At first instance, the present appellant ("Rinbridge Marketing") sued Rinbridge Pty Ltd ("Rinbridge") and two of its directors, John Prosper Cullen, and the present respondent, Peter Thomas Walsh. Rinbridge Marketing pleaded that Rinbridge had made representations to it fraudulently and in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the TP Act"). In terms of s 75B of the TP Act, it pleaded that Mr Cullen and Mr Walsh aided, abetted, counselled or procured the contravention of the TP Act, or were directly or indirectly knowingly concerned in or a party to the contravention. 2 The action against Rinbridge was stayed because it was in the process of a creditors' voluntary winding up. The primary Judge gave judgment for Rinbridge Marketing against Mr Cullen for $560,000.00 and costs, but gave judgment for Mr Walsh in respect of the action claim against him. It is in this respect that Rinbridge Marketing appeals. The grounds of appeal are that the primary Judge erred in failing to find that Mr Walsh was knowingly concerned in the contravention by Rinbridge of s 52 of the TP Act, and in ignoring Mr Walsh's own evidence of his knowledge of the facts found to be fundamental to Rinbridge's misleading and deceptive conduct. background facts 3 On 4 October 1991, Mr Cullen obtained a patent in relation to an electric power socket known as the "Protecta Point". The particular advantage of the product was that it was supposed to safeguard against the possibility of the electrocution of children. 4 By agreement of 28 April 1994, Mr Cullen granted Rinbridge an exclusive licence to import, manufacture and distribute the product. By an agreement of 22 June 1994 Rinbridge Marketing undertook to Rinbridge to market the product. In anticipation of that agreement and subsequently, Rinbridge Marketing spent money promoting the product, in reliance on representations as to the product's efficacy. His Honour found that Rinbridge made misleading or deceptive representations in contravention of s 52 of the TP Act, and that Mr Cullen was the author of those representations. His Honour further found that Mr Cullen knew of their falsity and was involved in the contravention. But his Honour said that Mr Walsh was "in an entirely different position" and found that he was not knowingly involved in the contravention. 5 The following more detailed outline of the background facts is taken from his Honour's reasons for judgment. 6 In May 1990, Mr Cullen, who lived in Wagga Wagga, invited several people, including Mr Walsh, to a meeting to hear his proposals for the development and exploitation of his invention. Mr Walsh also attended later meetings on the same subject organised by Mr Cullen. 7 Rinbridge was a shelf company that Mr Cullen had acquired in 1987. Mr Cullen decided to use it to exploit the patent. Capital was obtained from the issue of shares to Wagga Wagga residents. Mr Cullen was chairman and managing director of Rinbridge. Mr Walsh became a director of the company at the end of 1991. 8 During 1992 Mr Cullen visited several Asian countries to investigate manufacture of a prototype of the invention. In January 1993, three other persons were appointed as directors of Rinbridge: Gordon Saggers, Scott Breust and Glen Seymour. 9 Mr Cullen procured the manufacture of a prototype. On 5 November 1993 the New South Wales Government Office of Energy issued Certificate of Approval No 13553 in respect of a sample "Protecta Point". 10 In December 1993 Mr Cullen, on behalf of Rinbridge, ordered 20,000 sockets to be manufactured by Mai Chung Metal Works Ltd ("Mai Chung") of Hong Kong. One of the batch delivered in response to the order was evaluated from the viewpoint of safety by Qualtest Consumer Product Testing Services ("Qualtest"), a division of Woolworths Limited. Gerard Putt, Qualtest's senior technical officer, produced a report dated 3 February 1994. His conclusion was that the size, shape and angle of insertion of the probes able to contact live parts had been considerably restricted compared with commonly available socket outlets. The final sentence of Mr Putt's report was as follows: "While not providing complete protection, the item does considerably reduce the possibility of a child with a probe contacting live parts in a socket outlet." The primary Judge does not make a specific finding as to when Mr Walsh became aware of the Qualtest report. There is no evidence that he was aware of it prior to an important meeting of 2 May 1994, referred to below. No such suggestion was put to him in cross-examination. The only evidence on the point is that of Mr Walsh to the effect that he was not made aware of the report "for many months after May". 11 Peter Shanks was a salesman whom Mr Cullen asked to help Rinbridge sell the product. Mr Shanks operated through Cullshan Marketing Pty Ltd, of which he was the managing director. He interested Frank Ceh, a builder, and his younger brother, Stephen Ceh, a plumber, in the possibility of marketing the Protecta Point. 12 Mr Shanks arranged for Messrs Cullen and Walsh to meet Stephen Ceh at a hotel in Parramatta on 2 May 1994. Each of the participants in the meeting deposed to what he recalled of the discussion on that occasion. His Honour said: "Mr Walsh is said by Stephen Ceh to have offered reassurance that all problems were solved, but I am satisfied that Mr Walsh never conveyed any impression other than that he relied entirely on Mr Cullen for information about the production and performance of the product." Mr Cullen agreed he described the product as "child safe" but denied he said it was "child proof". He accepted he said it was the safest power point on the market in Australia but insisted he added "according to the Qualtest report". None of the other participants recalled him qualifying his statement in that way or, indeed, referring to such a report at all. 13 The group had lunch in a restaurant at the hotel. Stephen Ceh probed the outlet with a toothpick. Stephen Ceh, Mr Shanks and Mr Walsh recalled this, but Mr Cullen denied it happened. Stephen Ceh said he claimed he could contact the live parts of the outlet. Mr Shanks recalled Stephen Ceh making that claim, but Mr Walsh did not. His Honour said: "I am satisfied that, at the very least, Stephen Ceh did use a toothpick to probe the outlet and that, from the outset, it was apparent to Mr Cullen and Mr Walsh that he was concerned about the possibility of a child inserting a fine object into the outlet." 14 On 4 May 1994, Stephen Ceh and Mr Shanks arranged to acquire Rinbridge Marketing as a shelf company. They were appointed directors that day. On 5 May 1994, Mr Cullen wrote on behalf of Rinbridge to the Cehs and Mr Shanks confirming that pending the signing of a marketing agreement, it would be in the best interests of both parties to proceed "as if final papers were signed, safe in the knowledge that we are fully and totally committed to do so". On 9 May 1994, Rinbridge Marketing entered into a lease of warehouse premises at Wetherill Park for a term of six months. 15 The trial Judge found that Frank Ceh first met Mr Cullen and Mr Walsh on 2 June 1994. On that day Mr Cullen and Mr Walsh visited Rinbridge Marketing's premises at Wetherill Park where they met both of the Ceh brothers. Frank Ceh testified that on this occasion he expressed great concern that pins and needles could be inserted into the outlet and sought an assurance that, in addition to protection against intrusion, the outlets functioned as intended. Stephen Ceh confirmed that his brother expressed those concerns. Mr Cullen contradicted their evidence, yet said that he was going to visit the manufacturers in Hong Kong in a couple of days when any problems would be solved. 16 On 6 June 1994 Mr Shanks resigned as a director of Rinbridge Marketing, Frank Ceh was appointed as a director, and the share held by Cullshan Marketing Pty Ltd was transferred to a company controlled by the Cehs. 17 Also on 6 June, Stephen Ceh collected 2,400 socket outlets from Rinbridge's customs agent. Rinbridge's advertising leaflets were delivered to Rinbridge Marketing's warehouse. They claimed that the Protecta Point was "child safe" and was manufactured "in the interest of child protection", but Stephen Ceh said that on inspecting the socket outlets, he found he could contact the "live parts" through a hole in the plug receptacle. Over approximately the next two weeks, Stephen Ceh made complaints to Mr Cullen or, when he was in China, to his wife for transmission to him in China. On one occasion Stephen Ceh telephoned Mr Walsh who told him he should speak to Mr Cullen. On 21 June Mr Cullen returned to Australia and faxed the Cehs the next day stating, inter alia: "The power point is perfect and it cannot be faulted in any way. The locking tab has been metal faced to prevent wear and the active terminal is completely covered, so that in the event of intrusion of an object, it cannot get to the power." 18 On 22 June 1994, the solicitors for Rinbridge Marketing sent two copies of the marketing agreement executed by Rinbridge Marketing to Rinbridge's solicitors. On 6 July, Rinbridge's solicitors sent a counterpart executed by Rinbridge to the solicitors for Rinbridge Marketing. 19 Over the period from 22 June to 24 October, the Cehs expressed on numerous occasions their dissatisfaction with aspects of the product, to which Mr Cullen responded by having the product modified several times. During this period, Mr Cullen and Frank Ceh travelled together to Mai Chung's factory in Hong Kong on 12 July where they discussed with the manufacturer changes that were required. The product was "launched" at the Darling Harbour Home Show commencing on 13 August. LaterProspect County Council informed Rinbridge Marketing that tests of the Protecta Point outlets from an inspector had revealed faults. 20 On 23 October, Mr Walsh faxed Stephen Ceh advising that Mr Cullen was returning from China with modified samples "where no jamming under any adverse force occurs", but the next day, 24 October, Rinbridge Marketing gave notice terminating the marketing agreement. Mr Cullen returned to Australia on 26 October and Rinbridge subsequently arranged for all stock to be collected from Rinbridge Marketing's warehouse at Wetherill Park. reasoning of the primary judge 21 In its statement of claim, Rinbridge Marketing pleaded that Rinbridge made eight particular representations to Rinbridge Marketing; that each of them was made by Mr Cullen and Mr Walsh to Frank Ceh and Stephen Ceh; and that acting on the truth of the representations and induced by them, Rinbridge Marketing executed the marketing agreement of 22 June 1994. According to the pleading, the representations were false and were known by Rinbridge to be false when they were made. The statement of claim pleaded that Rinbridge Marketing suffered loss totalling $400,033.46. In the alternative it was pleaded that by reason of the eight representations, Rinbridge contravened s 52 of the TP Act with the result that Rinbridge Marketing suffered the same loss. According to the statement of claim, Mr Cullen and Mr Walsh were, relevantly, knowingly concerned in or party to the contravention of s 52 constituted by the making of the eight misleading or deceptive representations. 22 His Honour noted that senior counsel for Rinbridge Marketing described the essential representations as being: "that the product worked, that it was capable of being manufactured economically so as to be marketed in Australia as a child safety device, and that it would achieve the object for which it was designed." His Honour described this as a fair and realistic way of approaching the case put against Mr Cullen and Mr Walsh. He stated that Mr Cullen and the two Cehs did not impress him as careful witnesses, but that Mr Walsh was "a far more impressive witness". Of Mr Walsh, he said: "He paid attention to questions and gave his answers in a straightforward manner. Although he must have realised that his interests were ultimately not the same as those of Mr Cullen, I detected no attempt on his part to trim his evidence in order to inculpate Mr Cullen." 23 His Honour was satisfied that Mr Cullen used the expression "child proof" at the initial meeting on 2 May 1994 and in a telephone conversation between Mr Cullen and Stephen Ceh in June 1994 on an occasion when Mr Cullen was in China. His Honour said: "In broad terms, Rinbridge did represent that it had an effective, functioning product from the time of the meeting on 2 May up until the first supply in early June. That representation was repeated and reinforced by the assurances given by Mr Cullen in the most explicit terms of every one of his communications after that time." 24 The learned primary Judge found that "[t]he fundamental representation that the outlet was safe and capable of functioning in accordance with its design was, at every turn, shown to be misleading or deceptive." 25 Of Mr Walsh's involvement, his Honour observed as follows: "He was certainly present at the first meetings with both Stephen Ceh and Frank Ceh. He was not a passive observer, but any limited information he gave about the outlet was plainly derived from Mr Cullen. He did not know of the deficiencies in prototype, nor should he have been aware of those matters. Mr Walsh played no part in the assurance given after the initial supply of defective products in early June. Stephen Ceh wrote to him, but he also wrote to Mrs Cullen. The reassurance came from Mr Cullen overseas. The Cehs did not look to Mr Walsh for assurance. On his trip to Wagga Wagga in July, the substantial discussions of Frank Ceh were with Mr Cullen not the other directors, including Mr Walsh. Mr Walsh then largely disappeared until 1 October when arrangements were coming to an end. Mr Walsh's situation was like that of the director in Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539. In my opinion, he was not involved in the contravention by Rinbridge." His Honour declared himself "satisfied that the Cehs acted on the basis of the representations by Mr Cullen". reasoning on the appeal 26 There is no dispute about the following propositions: · In order to be "knowingly concerned in" a "contravention" of s 52 of the TP Act for the purposes of s 75B of that Act, a person must not only have an appropriate connection with the conduct in question, but must know "the essential facts constituting the contravention", including the fact that the conduct is misleading or deceptive (in the present case, that the representations were false); see Yorke v Lucas (1985) 158 CLR 661 at 670 (per Mason ACJ, Wilson, Deane, Dawson JJ), 677 (per Brennan J); followed in, for example, Sutton v AJ Thompson Pty Ltd (1987) 73 ALR 233 (FCA/FC) at 242, and Crocodile Marketing Ltd v Griffith Vintners Pty Ltd (1989) 28 NSWLR 539 (Cole J) at 544-546; and cf Giorgianni v The Queen (1985) 156 CLR 473 at 488, 495, 505-508. · It was incumbent on Rinbridge Marketing, if it wished to establish the accessory liability of Mr Walsh, to put to him in cross-examination that he knew of the falsity of the representations in the making of which he is said to have been "concerned": cf Browne v Dunn (1893) 6 R 67 (HL); Precision Plastics Pty Ltd v Demir (1975) 132 CLR 362 at 370; Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 (Hunt J) at 16 (senior counsel for Rinbridge Marketing submitted that this was put to Mr Walsh in cross-examination). · An appellate court should interfere with a primary Judge's findings that are based on credibility only with caution and in exceptional circumstances: cf Devries v Australian National Railways Commission (1993) 177 CLR 472 at 479; Walsh v Law Society of New South Wales (1999) 198 CLR 73 at 92. 27 We have read the evidence referred to in Rinbridge Marketing's written submissions and by senior counsel for Rinbridge Marketing on the hearing of the appeal. However, we think it is clear, as his Honour found, that Mr Walsh's understanding of the product was heavily dependent on what the inventor of it, Mr Cullen, told him. Indeed, the Ceh brothers appear to have been more familiar with the product and with the deficiencies of the successive versions of it, than Mr Walsh was. As early as the restaurant meeting on 2 May 1994, Stephen Ceh tested the product by probing it with a toothpick and from that time onwards the Cehs were in communication with Mr Cullen about its perceived shortcomings and ways of overcoming them. In late June 1994, Stephen Ceh arranged for Qualtest to test the modified socket outlet for exclusion of probes from contact with live parts and this led to a report by Mr Putt of Qualtest dated 30 June 1994 which Stephen Ceh sent to Mr Cullen indicating concerns he had as a result. Frank Ceh accompanied Mr Cullen to Mai Chung's factory in Hong Kong on 12 July. 28 There is little that Mr Walsh said to the Cehs on which Rinbridge Marketing can rely. At the meeting on 2 May 1994 he said, according to his affidavit: "We think it is child safe. It is designed to stop a child from putting household objects like bobby pins into the socket." (our emphasis) His Honour was entitled to conclude, as he did, that this statement truly reflected Mr Walsh's state of mind at the time based on what Mr Cullen had told him. 29 While his Honour recorded that Mr Walsh as well as Mr Cullen was present at the second meeting with the Cehs, the one held on 2 June 1994 at Rinbridge Marketing's warehouse, only Mr Cullen said Mr Walsh was present. His Honour said of this occasion that Mr Cullen met the marketing and sales staff engaged by Rinbridge Marketing, and that that night the Cehs took Mr Cullen out for a dinner which lasted well into the night. 30 His Honour was entitled to find, as he did, that "any limited information Mr Walsh gave about the outlet was plainly derived from Mr Cullen". There is no suggestion that Mr Cullen privately told Mr Walsh that his dealings with the Cehs were less than candid. 31 Rinbridge Marketing submits that Mr Walsh's being "knowingly concerned" in the contravention of s 52 by Rinbridge is to be found in Mr Walsh's acquiescence in what Mr Cullen told the Ceh brothers at times when he knew that Mr Cullen was speaking untruthfully. There was no evidence from Mr Walsh to this effect and it was not put to Mr Walsh in cross-examination that he stood by knowing that his co-director was making particular statements which he (Mr Walsh) knew were untrue. 32 The cross-examination of Mr Walsh, who was accepted as a creditworthy witness, included the following: "I believed that it would not take the market by storm. You did think, however, that there was a potential of a profit to Rinbridge Pty Limited as the effective manufacturer of the product running into many hundreds of thousands of dollars, didn't you? – I did. All that was necessary, as you saw it in April of 1994, was to match the theory contained in Mr Cullen's patent with the practical reality of manufacturing a product that was both functional and reliable, is that right? – Correct. But in fact, by late October 1994 to your knowledge, theory and practice never coincided, did they? - I was quite confident that the Protecta Point as produced by late September was a very, very good product." Further, Mr Walsh gave evidence that in his belief as at 2 May 1994 the Protecta Point was a marketable product which was then being successfully sold by Rinbridge. Mr Walsh conceded that he may have said at the meeting on 2 May 1994 words to the effect that the product was a child proof power point, that it was the safest power point on the market, and that it was impossible for a child to contact live parts in the Protecta Point. He also agreed that he did not intervene to correct statements that were being made by Mr Cullen. But we think it clear, as his Honour did, that Mr Walsh accepted at face value what Mr Cullen said. It was not put to Mr Walsh that he knew that any particular statement made by Mr Cullen to the Cehs was untrue. 33 There was some debate on the hearing of the appeal concerning the significance of the following passage in the cross-examination of Mr Walsh: "You know now, don't you, that attempts were made throughout the period from 2 May 1994 until 23 October 1994, to rectify various problems in the Protector [sic – Protecta] Point unit, so as to render it marketable, which attempts were not successful, that is so, is it not? – No, that's incorrect. At what stage during the period 2 May 1994 to 23 October 1994 did you say that all of the problems that obtained and bore upon the marketability of the Protector [sic – Protecta] Point product were solved by the manufacturer? – I believe[d] that up to the product launch at the Darling Harbour [Home] show [commencing on 13 August 1994] that the product had all its problems solved. Throughout that period you did not profess any technical expertise in matters pertaining to the Protector [sic - Protecta] Point product, did you? – That's correct. You relied entirely upon Mr Cullen in that regard, did you not? – I did." In the context in which the passage occurs, including the line of questioning which precedes and follows it, we think it tolerably clear that Mr Walsh meant that by the time of the product launch at the Darling Harbour Home Show commencing on 13 August 1994,based on what Mr Cullen had told him, he understood that there were no outstanding problems, although later he became aware of further problems as they came to light. 34 The trial Judge's finding that, at relevant times Mr Walsh did not know of the deficiencies in the prototype is not "glaringly improbable" or "contrary to compelling inferences" or otherwise such that this Court should come to a contrary conclusion on that issue notwithstanding the credibility findings made by the trial Judge. 3435 Having regard to Mr Walsh's clear dependence on Mr Cullen for all technical information relating to the product, the trial Judge's acceptance of Mr Walsh as a creditworthy witness and the failure to put to him directly that he acquiesced in the making by Mr Cullen of any particular statement he knew to be false, the grounds of appeal are not made out. conclusion 3536 For the above reasons the appeal will be dismissed with costs. I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court. Associate: Dated: 1 December 2000 Counsel for the Appellant: Mr D E Grieve QC and Mr G F Cohen Solicitor for the Appellant: Cutri & Associates Counsel for the Respondent: Mr R J H Darke Solicitor for the Respondent: Corrs Chambers Westgarth Date of Hearing: 24 November 2000 Date of Judgment: 1 December 2000