Aberford Holdings Pty Ltd trading as Carpet Cleaners Warehouse v Awad
[2013] NSWDC 303
•20 December 2013
District Court
New South Wales
Medium Neutral Citation: Aberford Holdings Pty Ltd trading as Carpet Cleaners Warehouse v Awad [2013] NSWDC 303 Hearing dates: 1, 2, 3, 4 and 14 October 2013 Decision date: 20 December 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Plaintiff's claim dismissed.
(2) In the event that no submissions in respect of costs are filed and served within 28 days, there shall be an order that the plaintiff pay the defendant's costs. In the event that submissions on costs are received, judgment on costs will be reserved so as enable the other party to serve any responsive submission within a further 14 days.
Catchwords: MISLEADING CONDUCT - employee - trade or commerce - whether representations made - whether misleading - reliance - belief of representee - damages - lost profit Legislation Cited: Fair Trading Act 1987, s 41
Trade Practices Act 1974 (Cth), s 75BCases Cited: BBB Constructions v Aldi Foods [2010] NSWSC 1352
Ballantyne v Raphael (1889) 15 VLR 538
Bradken Consolidated Ltd v Broken Hill Pty Co Ltd (1979) 145 CLR 107
Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60
CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37
De Costi Seafoods (Franchises) Pty Limited and Anor v Wachtenheim (No 3) [2013] NSWDC 54
Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307
Helton v Allen (1940) 63 CLR 691
Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553
Remedial Building Services Australia Pty Limited v Pony (NSW) Pty Ltd [2013] NSWDC 128
Smith v Anderson [1880] 15 Ch D 247; [1874 -80] All ER Rep 1121
TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd (2008) 71 NSWLR 323
United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1
Watson v Foxman (1995) 49 NSWLR 315Category: Principal judgment Parties: Aberford Holdings Pty Ltd trading as Carpet Cleaners Warehouse (plaintiff)
Merwan (Mark) Awad (defendant)Representation: Mr S Gray (plaintiff)
Mr T O Bland (defendant)
HWL Ebsworth Lawyers (plaintiff)
Harb Lawyers (defendant)
File Number(s): 2011/268260 Publication restriction: No
Judgment
A. INTRODUCTION
This is a matter about air movers. An air mover is a fan powered by an electrical motor that blows air over the surface on which it sits. The plaintiff, Aberford Holdings Pty Limited ("Aberford"), says it was misled about some air movers and claims damages.
B. BACKGROUND
Aberford trades under the name, Carpet Cleaners Warehouse, and is one of two Australian dealers of Dri-Eaz, an apparently reputable American made air mover. Dri-Eaz air movers assist in the drying of carpets, including carpets in buildings that are affected by storms and other incidents. Aberford sold at least one Dri-Eaz air mover to the defendant, Merwan (Mark) Awad, for use in Mr Awad's carpet cleaning business. That business was owned by M & A Awad Pty Ltd ("M & A"). Mr Awad and his wife were shareholders and directors. Mr Awad did most of the carpet cleaning work.
Mr Awad was not proficient in the English language. Up until 2006 he worked as a brick cleaner. He was introduced to Nicholas Bredhauer, the Chief Executive Officer of Aberford. Mr Awad did a carpet cleaning training course with Mr Bredhauer and purchased from Aberford about $65,000 worth of machinery and chemicals to start a carpet cleaning business. Mr Awad used Aberford to service his carpet cleaning machinery and he obtained his carpet cleaning supplies from Aberford. In 2008 he sold the equipment and machinery and moved to Africa for three months. When he returned in late 2008 Mr Awad purchased another set of machinery and supplies from Aberford, again for about $65,000, and continued to be a customer of Aberford.
In mid-2009 Mr Awad injured his back and underwent surgery. This prompted him to look for an alternative line of work. His familiarity with carpet cleaning led him to purchase an air mover, green in colour, from China. Mr Awad found the air mover from China to work satisfactorily in his carpet cleaning business. He decided to import a container of about 240 such air movers.
Mr Bredhauer saw Mr Awad's green air mover when Mr Awad attended Aberford's premises on about 12 November 2009. A conversation occurred, although the contents of the conversation are disputed. It is common ground that Mr Bredhauer viewed the operation of the green air mover, was informed of Mr Awad's intention to import a container of Chinese air movers and stated, "I am not interested in this Chinese shit."
Mr Awad went ahead with his plan to import a container of Chinese air movers, but apart from a disputed conversation a few days later, had no discussions with Aberford about the air movers until early March 2010.
On about 5 March 2010 the container of air movers, red in colour, arrived in Australia. On 6 March 2010 a severe storm struck Melbourne. On 8 March Mr Bredhauer of Aberford called Mr Awad. Again the contents of that discussion are disputed, but Aberford purchased a total of 230 red Chinese air movers from M & A with 100 delivered on each of 8 and 9 March 2010, and a further 30 on 11 March 2010.
Each of the three invoices for the air movers indicated that the sale was by " Domaine drying equipment", a business name owned by M & A. The invoices contained the bank details of M & A, recorded the number and price of the air movers and also stated, "12 months warranty" underlined.
Each of the red air movers had at least two labels on them. One of the labels, identical with the label on the green air mover, was affixed in a prominent location immediately behind the handle. It commenced with a large bold " WARNING " preceded by an exclamation mark in a triangle and stated "DO NOT EXPOSE TO RAIN OR USE IN DAMP LOCATIONS".
Adjacent to this warning was a circle with a line through it and within the circle was a two-pronged power plug with water indicated below and rain indicated above. This symbol plainly reinforced the adjacent warning.
Mr Bredhauer asserted in his affidavit that in a later conversation with Mr Awad, Mr Bredhauer said, "the label means that they should not be used for water damage". It was not disputed that the reference "water damage" meant "water damage restoration work".
Further, two experts called by the respective parties, when asked to consider whether the red air movers were suitable for use in water damage restoration work agreed that, "as shown on the unit's label this air mover is unsuitable for use in damp conditions i.e. NO".
The other label on the red air movers was a sticker that specified the name and contact details of M & A. At least some of the air movers also had a large label reading "TURBO DRYER AIR MOVER" on the casing.
Upon delivery of the first batch of red air movers and before the sale to Aberford's customers, Mr Bredhauer and others from Aberford opened the individual boxes containing the machines, removed the plastic covering, and removed the sticker displaying the M & A name and contact details.
Within days after the sale by Aberford of the 200 air movers two fires occurred in buildings where it seems the red air movers were being used. It would be going too far to conclude that the red air movers were determined to be the cause of the fires, but certainly there were suggestions expressed in the media and concerns expressed by customers to Mr Bredhauer that an air mover might have been the cause. Subsequent enquiries into the fires did not alleviate that concern. Aberford relied upon both an expert report and a YouTube video to establish that these concerns were reasonable and justified. The video briefly showed a fire commencing in a red air mover in a demonstration apparently conducted by Aberford. I found it unconvincing, both because of the absence of any detail in the video as to the precise experiment being conducted and the fact that it was carried out by representatives of a party, Aberford, rather than by an independent expert.
However, the report by Mr Holder, an expert qualified by Aberford, gave a reason why the red air movers could have caused the flame, and although no flame occurred in his testing of a red air mover I am satisfied that the theory that a red air mover caused the fires was not fanciful and remained a real possibility. The question of whether a red air mover caused either of the fires was not an issue either party asked me to decide and was not central to any issue that needed to be determined.
In the evening of 14 March 2010, Mr Bredhauer was first contacted by a customer and became aware of a fire at Melbourne Grammar School. It was possibly caused by a red air mover. Mr Bredhauer than telephoned Mr Awad. Mr Awad said the telephone call was not amicable. That is perhaps understandable. The parties were in issue as to the contents of the conversation.
Mr Bredhauer says that the next morning, 15 March 2010, he noticed the warning label on a red air mover. He was also contacted by another customer who complained of smoke being created by an air mover (although whether this was a red air mover was not apparent on the evidence). Mr Bredhauer's evidence is to the effect that as a result of these four matters - the two complaints from customers, the conversation with Mr Awad, and his own understanding of the warning on the label, he decided to recall the air movers. He refunded the purchase price paid for the air movers and met the cost of their return to Aberford.
On 20 May 2010 M & A was voluntarily deregistered by Mr Awad. Although there was no issue that M & A was the contracting party, Aberford took no steps to re-register M & A. Rather, it sued Mr Awad originally for misleading conduct and in deceit and negligence, although the deceit and negligence claims were abandoned prior to hearing.
The present claim for damages by Aberford for misleading conduct by Mr Awad is made under the Fair Trading Act 1987. Aberford also claims under the Trade Practices Act 1974 (Cth) alleging that Mr Awad was knowingly concerned in the misleading conduct by M & A. The conduct by M & A is the same conduct as is alleged against Mr Awad, and ultimately the question of knowingly concerned did not receive much attention by the parties.
The Trade Practices claim had significance if the representations were made in trade and commerce, not by Mr Awad but by M & A alone. Those issues - whether Mr Awad or M & A made the representations, and whether the representations were made in trade and commerce - also received little attention by Mr Awad. In any event, the authorities of Houghton v Arms [2006] HCA 59; (2006) 225 CLR 553 at [35], CH Real Estate Pty Ltd v Jainran Pty Ltd; Boyana Pty Ltd v Jainran Pty Ltd [2010] NSWCA 37, and TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd (2008) 71 NSWLR 323 at 333, [48], establish that the conduct can be in trade and commerce even if it is not in the trade of the person engaging in the conduct so long as it is in the trade of the person to whom the representation is made. I leave aside the particular circumstances of a person making representations in the course of selling their home when the sale is to someone in the business of buying and selling houses: cf Bradken Consolidated Ltd v Broken Hill Pty Co Ltd (1979) 145 CLR 107.
Further, the fact that the representor is an employee rather than a business proprietor, that the employee's activities were in trade or commerce of the employer company but not in the trade or commerce of the employee, does not mean that the employee has not made a representation in trade and commerce. The employee's representation may still be conduct by the employee in trade or commerce within the ambit of the Fair Trading Act 1987.
Accordingly, the question of whether Mr Awad was "knowingly concerned" in the conduct of M & A under s 75B of the Trade Practices Act 1974 (Cth) is not necessary to decide.
C. THE REPRESENTATIONS
Each of the alleged representations were said to have been made orally by Mr Awad, some in November 2009, others in March 2010. There was no contemporaneous record made of them, although in respect of some of them other witnesses have given evidence that provide some corroboration to the making of the representations.
In De Costi Seafoods (Franchises) Pty Limited and Anor v Wachtenheim (No 3) [2013] NSWDC 54, I refer to the words of McClellan CJ in Equity in Watson v Foxman (1995) 49 NSWLR 315 at 318-319 which are important in the present case. His Honour stated that in an oral representation case, to prove a case:
"...it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances. In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition. Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
Aberford bears the onus of proof. In respect of a representation alleged, the court "must feel an actual persuasion of its occurrence or existence" (Helton v Allen (1940) 63 CLR 691 at 712) in order for Aberford to succeed. It is not enough, in my view, to establish the likelihood of some discussion about the subject matter of the representations. The representations, or statements to the same effect, must on the balance of probabilities be established to have been made by Mr Awad.
As was noted in Watson v Foxman at 319, this:
"...can pose serious difficulties of proof for a party relying upon spoken words as the foundation of a causes of action based on s 52 of the Trade Practices Act 1974 (Cth) (or s 42 of the Fair Trading Act), in the absence of some reliable contemporaneous record or other satisfactory corroboration."
In BBB Constructions v Aldi Foods [2010] NSWSC 1352 at [6] to [10] McDougall J affirmed and adopted these principles.
In Watson at 319 McLelland CJ concluded that:
"There is no contemporaneous document in evidence which supports the making of any such promise or representation as is relied on and no other satisfactory corroboration."
The problem that the meaning of representations can change substantially with the change of a single word or the order of words is exacerbated by the different treatment afforded under s 41 of the Fair Trading Act 1987 to representations "with respect to a future matter". Mr Awad is alleged to have made representations in November 2009 about four months prior to receiving the Chinese air movers. Whether his language conveyed representations about his present intention (a present matter) or what qualities he would or will receive in the air movers when they arrive (a future matter) makes a significant difference to the nature of the proof required. In the latter case, the focus is on whether there were reasonable grounds for the representation (s 41(1)) and the onus lies on the representator (s 41(2)). In the former case, the onus lies on the party acting on the representations and the reasonableness of the representation might not be determinative.
This is not to discount the possibility that a representation about a present intention might in some circumstances amount to a representation "with respect to a future matter".
Bearing these matters in mind, I propose to consider separately the various representations alleged. The wording of the representations is quoted from an agreed Statement of Real Issues in Dispute provided by the parties.
(a) The Chinese air movers "would be suitable for use in water damage restoration work"
This representation is alleged to have been made on 12 November 2009.
In late May 2010 Mr Bredhauer made some notes that purported to be a record of his dealings with Mr Awad in respect of the red air movers. The notes were not, as Aberford submits, contemporaneous with the discussions on 8 March 2010. These notes were made after the dispute between the parties had arisen. Mr Bredhauer's notes name seven people who were present and witnessed the representations on 12 November 2012. Mr Awad's name is not listed, indicating perhaps that the list was completed for Mr Bredhauer's forensic purposes. Of these seven witnesses, four gave evidence in the proceedings.
In his notes of late May 2010 Mr Bredhauer recorded no statement by Mr Awad to the effect that the Chinese air movers would be suitable for use in water damage restoration work. Neither of his affidavits dealing with conversations on 12 November 2009 makes mention of the words "suitable" or "water damage restoration work", yet the pleading alleges that Mr Bredhauer made these representations orally to Mr Awad. Similarly, the affidavits by Emma Bredhauer, Aaron Lenton and Anthony Koral do not use these words. Mr Awad denies that he made this representation.
Furthermore, Mr Bredhauer inspected the green air mover on 12 November 2009. It displayed the warning label and the words "Do not expose to rain or use in damp locations". Mr Bredhauer asserted to Mr Awad subsequently that these words mean that the air movers could not be used for water damage restoration work. Thus, to Mr Bredhauer the label on the machine conveyed the contrary representation.
For these reasons, I am not persuaded that this representation was made.
(b) The Chinese air movers "were exact copies of the Dri-Eaz Sahara Pro air mover", "would have effective thermal cut out switches", "would be compliant with Australian safety requirements" and "would be certified as meeting European Community safety standards"
These representations are alleged to have been made on 12 November 2009.
Mr Bredhauer says that he made some notes of this conversation about six months later in May 2010. These notes relevantly record:
"WAD stated to that he had sent one of the Dri-Eaz airmover that had purchased from CCW on 07/01/2008 to China to be copied. AWAD said that it was an exact copy of the Dri-Eaz air mover with the same specifications and purpose of use as the genuine Dri-Eaz airmover. AWAD stated that he could have them made for us in different colours and with our logo ...AWAD stated that the airmovers would have thermal cut out switches on the motors and that they would be fully safety compliant and that they would carry the CE safety certification. Thermal cut out switches are designed to turn of the unit if the motor overheats." (Errors in original).
The notes of Mr Bredhauer generally support the substance of the representations alleged by Aberford. I read, "would be fully compliant" as, in substance, the same as "would be compliant with Australian safety requirements". Further, I read the allegation, "would be certified as meeting European Community safety standards" as meaning, "would carry the CE safety certification". The CE label evidences that the air mover is compliant with European Community safety standards.
However, in respect of thermal cut out switches no mention is made of the word "effective" in the 2010 notes of Mr Bredhauer and Mr Awad denies that he made such a representation. Nor do any of the affidavits make reference to the word "effective".
The affidavits also do not attribute the final sentence of the above quotation from the notes to Mr Awad, and the form of the quotation leaves open the possibility, perhaps the likelihood, that the final sentence purported to record the thoughts of Mr Bredhauer rather than the words of Mr Awad.
In any event, the final sentence provides no support for the additional component of the representation that the thermal cut out switches would be "effective".
For these reasons, I am not persuaded that Mr Awad made any representation to the effect that the thermal cut out switches would be effective.
That leaves for consideration whether on 12 November 2009 Mr Awad represented that the Chinese air movers were "exact copies" of the Dri-Eaz air mover, would be "fully safety compliant", "would carry CE safety certification" and perhaps, "would have thermal cut out switches".
In his affidavit sworn 30 April 2012, Mr Bredhauer does not, as stated above, attribute to Mr Awad the first or last sentence of the passage from the notes quoted above, but attributes to Mr Awad the additional words, "This is a Chinese made airblower". Otherwise the quotation is repeated.
Mrs Emma Bredhauer works in administration. She was not involved in the conversation but claims to have overheard it. She kept no records of the conversation. In an affidavit dated 8 December 2011, Mrs Bredhauer deposes to a conversation precisely as it appears in Mr Bredhauer's notes as quoted above but excluding the final sentence. Mrs Bredhauer separates the conversation into two components consistent with the notes and identical to the manner in which Mr Bredhauer has separated the conversation.
Mr Anthony Koral was "employed as a subcontractor" by Aberford to repair machines. Mr Koral, in an affidavit sworn 30 April 2012, records Mr Awad's words precisely the same as Mrs Bredhauer and Mr Bredhauer and in Mr Bredhauer's notes. Mr Koral also kept no notes. In Mr Koral's affidavit the same words are used and the two components of the conversation are divided in a form identical to Mrs Bredhauer.
Mr Koral also says he asked Mr Awad about the horsepower, the hertz, the amps, the weight and the decibel noise level and to each question he received exactly the same answer, "My Air Mover is an exact copy of this one."
This memorable event, because of its repetition and unusualness, was not recorded in Mr Bredhauer's notes. Mr Bredhauer, however, recalled this event in his affidavit, also sworn on 30 April 2012, and recalled Mr Awad's words and actions in almost identical terms. Mrs Bredhauer did not recall the event.
Although this alleged event recalled by Mr Koral and Mr Bredhauer is memorable, it is also peculiar. Why would Mr Koral, a person with some technical expertise in air movers, ask those questions of Mr Awad, formerly a brick cleaner? When each answer was identical and unresponsive, why would Mr Koral continue to ask the questions? Why would he not consult the label if the information was of genuine interest to him? And why are these matters of interest to Aberford when Mr Bredhauer has already decided that the machines are of poor quality and that Aberford has no interest in them?
These are questions that cause me to doubt the existence of this conversation. Mr Awad denies that it occurred. Mr Koral also recalled that in November 2009 the Chinese air mover was red. It was not in contest that it was green. This also causes me to doubt his evidence because the colour of the machine was, in my view, more memorable than the details of any conversation. That the green air mover was a copy can be deduced by a cursory visual inspection of the Dri-Eaz air mover and the green air mover. I am not persuaded that Mr Awad made a representation about the green air mover being an exact copy.
Mr Aaron Lenton, formerly an employee of Aberford, recorded the same conversation as Mrs Bredhauer, again in identical terms.
None of the witnesses called by Aberford explained the circumstances of how Mr Awad came to be demonstrating a green air mover and making the representations.
Mr Awad gave evidence in the following terms:
"On or about 12 November 2009 I came to Nick's warehouse and he saw the Green airmover/blower in my van next to the Dri-Eaz air movers and asked me where I had bought it from...I would have previously only purchased similar items from his business for a cost of about $400-$500[.] I showed him the air mover and I then told Nick [of] my intention of importing a quantity of the airmovers/blowers. Nick expressed no interest at all in the blower because it was made in China. Nick said to me words to the effect of:
'I am not interested in this Chinese shit'."
As noted, Mr Bredhauer accepted the accuracy of the final part of this conversation.
In deciding which of these versions to accept I note that Aberford has called four witnesses to support its version of the conversation and that those witnesses all give a consistent account of the conversation. There are also the notes of Mr Bredhauer which, in this respect, are consistent with the testimony of the witnesses.
But there are a number of matters that tend to support Mr Awad's version, or to weaken the strength of the claim by Aberford.
First, the witnesses' accounts are recollections more than two years after the event. No one kept notes at the time. Unassisted recollections of conversations after such a long period tend to be at best general, rather than specific. In this case, the witnesses purport to recall specific details, including reference to "thermal cut out switches", "on the motors", "fully safety compliant", "CE safety certifications", "exact copy", "genuine Dri-Eaz air mover" and "purchased from Carpet Cleaners Warehouse". These are words of detail unlikely to be recalled after such a long period.
In contrast, Mr Awad purports to recall no detail of the conversation other than Mr Bredhauer said, "I am not interested in Chinese shit", which is both conceded by Mr Bredhauer and may be likely to be remembered because it is a very strong personal criticism of Mr Awad's machine. None of the other Aberford witnesses recall this comment.
Secondly, there are other matters that impact adversely on the likelihood of the Aberford witnesses accurately recalling the conversation. Mr Koral incorrectly recalled the colour of the air mover. That detail is more likely memorable than the specific details of the conversation purportedly recalled. No other Aberford witness mentioned the colour of the air mover in his or her initial affidavit.
The fact that no transaction occurred at the time of the conversation also renders the conversation less likely to be remembered. On the account of the Aberford witnesses the conversation in November 2009 had no impact on their conduct. The conversation was no more than sales talk that occurred at a time when no Chinese air movers were available for sale, when at the outset, Chinese air movers were scorned as being of low quality and all interest in them was rejected. The unlikelihood of the Aberford witnesses, Mrs Bredhauer and Mr Lenton, recalling details is increased by the fact that neither of them participated in the conversation.
Mrs Bredhauer seeks to explain her recollection by asserting in her affidavit that she was actively listening to the conversation because the conversation involved the potential of purchasing air movers from a different supplier, when previously Aberford only purchased air movers from the American manufacturer of Dri-Eaz. In her oral evidence, Mrs Bredhauer offered a different reason, suggesting that the conversation was memorable because of the reference to the copying of Aberford equipment. While this reason might appear more plausible it suffers from being different from the reason given in her affidavit.
Thirdly, Mr Bredhauer's notes are of little value in assessing what was said in November 2009. These notes are written six months after those representations were alleged to have been made, at a time when the parties were in a contest over liability and legal action was contemplated. In these circumstances, I do not think that the notes strengthen Mr Bredhauer's affidavit in respect of the November conversation.
Fourthly, in my opinion the witnesses' accounts are too similar to represent an independent recollection. As noted above, the statements containing the alleged representations are effectively identical with each other and with Mr Bredhauer's notes. Whatever is the belief of the witnesses now about those words being used, I think it likely that their recollections have been assisted, that is, corrupted, by reference to Mr Bredhauer's notes.
Fifthly, Mr Bredhauer's notes record three other people as witnesses, Greg Baker, David Stelzer and Peter Ruggeri. Mr Baker was a workshop technician at Aberford and an affidavit was filed for David Stelzer but none of these three gave evidence by affidavit or otherwise. I must assume that these witnesses could not assist Aberford.
Sixthly, all of the Aberford witnesses at the time of the alleged representation were Aberford workers. Mrs Bredhauer in cross-examination admitted that she had an interest in the business. There was evidence that she was the wife of Mr Bredhauer, although she gave no evidence in her affidavit of her relationship to him.
Seventhly, Mr Awad's account seems more plausible. The conversation takes place on an occasion when Mr Awad has not yet ordered any air movers and where he is initially told that his green air mover is "Chinese shit". I think it unlikely that he would proceed to make the asserted representations about the air mover, or the future air movers, to someone who has rejected any interest in them. Nor do I think, especially in those circumstances, that he would volunteer that he had sent an Aberford machine to China to be copied, a matter denied by him and not corroborated by any other material.
Eighthly, and perhaps most importantly, I do not believe Mr Awad could have said what is attributed to him. His limited ability with English did not extend to him saying such things as "specifications", "genuine Dri-Eaz air mover", "thermal cut out switches", and "CE safety certification". Although Mr Awad was not a stupid man, his language was simple and I do not believe he would have been able to say those matters in ordinary conversation.
Aberford proposed a number of reasons why Mr Awad's testimony should be rejected. Those pressed most strongly include the allegedly false terms of a form signed by Mr Awad and submitted to the Australian Securities and Investments Commission to have M & A de-registered, Mr Awad's initial denials of the existence of a warranty, Mr Awad's reason for de-registering the company and Mr Awad's answers to Mr Bredhauer seeking insurance details.
In applying for the voluntary de-registration of the company on 20 March 2010, Mr Awad signed a form which contained a declaration that M & A was not carrying on a business, had assets less than $1,000, had no outstanding liabilities and was not a party to legal proceedings. Aberford submitted that M & A was carrying on a business at that time because the 12-month warranties were still operative.
I do not think that the circumstance that the warranty period had not expired of itself proves that a business was being carried on. The carrying on of a business involves a degree of repetition (see Smith v Anderson [1880] 15 Ch D 247 at 277-278; [1874 -80] All ER Rep 1121 per Brett LJ, Ballantyne v Raphael (1889) 15 VLR 538, United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 15, Ferguson v Federal Commissioner of Taxation (1979) 26 ALR 307 at 311) and is not established by the circumstance that a promise remains extant. Even less can it be concluded that Mr Awad believed that he was carrying on a business because the 12-month warranty period had not expired.
Although it was not the primary contention of Aberford, I accept that the existence of the 12-month warranty may establish that M & A did have outstanding contingent liabilities, but again this says little about the belief or knowledge of Mr Awad. I do not think the existence of liabilities arising from the warranties is a self-evident matter. It is insufficient to persuade me that Mr Awad knowingly submitted a false declaration.
It must be remembered that at the time of the declaration M & A's air mover venture was in some disarray. He was facing the likelihood of a claim by Aberford and any remaining air movers it possessed were likely to be unsaleable. The future of M & A was bleak.
Mr Awad stated that the reason for de-registering the company was that M & A had "served its purpose", but this is not a complete explanation of why the business was closed down. It is doubtful whether it purports to be. The complaint and the potential claim of Aberford seem to me to have been at least part of the motivation for the end of the M & A business. In circumstances where Mr Awad's grasp of English is limited, I am not disposed to find that a brief general statement is an example of false swearing by Mr Awad merely because it does not detail all the reasons for his conduct.
It may be that the company should have been wound up rather than simply de-registered because of the possibility of future liability arising from claims.
Mr Awad was challenged in cross-examination about carrying on a business. The manner and content of his answers were not such as to cause me to reject his evidence, nor do I find much assistance in Mr Awad's denials of a warranty. The defence denied that, "warranties...were made about any machine", but this is in answer to the allegation that Mr Awad made representations in a telephone conversation about a warranty. The defence leaves uncertain whether the denial pertains to the existence of a warranty, or a representation of a warranty, or whether a warranty was made by Mr Awad as distinct from M & A. It shows some confusion in the defence but is not inconsistent with the acceptance that M & A gave a warranty as part of the sale of the red air movers.
Mr Awad's response to the question about insurance is peculiar. He deposes to having responded to a request for insurance details, "I told him that I could not do that because I did not know the cause of the fire".
Aberford submits that this is "illogical" because Mr Awad held no insurance. I was uncertain whether Aberford was contending that Mr Awad's affidavit was correct but that his statement to Mr Bredhauer in conversation was wrong, or whether the answer could not have been given and therefore the affidavit was false. Only the latter seems to be important on the question of Mr Awad's credit, yet Mr Bredhauer does not deny this conversation, only that it was the "second" conversation. It is unsurprising, after "things got ugly" and Mr Awad was being threatened with litigation, that Mr Awad would be less than frank in conversations with Mr Bredhauer about matters of insurance.
In the result, I do not find much assistance from these collateral matters in assessing Mr Awad's credit. He seemed to me to be careful in the witness box, answering what he could and admitting his inability when he could not. Mr Awad's evidence was accepted to be true in relation to Mr Bredhauer expressing disdain about Chinese machinery. Mr Awad's evidence that:
"In relation to paragraph 19 of Nick's affidavit I deny that the conversation as deposed to by Nick is true and correct. I say that on or about 7 March 2010 I was approached by Nick...At the time Nick said to me words to the effect of:
'give me a good price and don't interfere with any of my customers and I'll buy the whole container off you'"
is consistent with what occurred, Aberford buying almost the whole container and (before delivery to customers) removing labels on the machines that connected the machines with M & A. The conversation is repeated in the following paragraph of Mr Awad's affidavit and is not disputed by Mr Bredhauer in his responsive affidavit in respect of either paragraph.
Considering all these matters, I am not persuaded by the circumstance that Aberford had four witnesses against one. All of the four tell the same story derived from Mr Bredhauer's notes created six months after the conversation when the dispute had arisen. At least at the time of the conversation in November 2009, all had some interest in supporting Aberford, although of course Mr Awad also had his own interest.
I am not persuaded that Mr Awad made any of the representations alleged to have been made on 12 November 2009.
(c) The 12-Month Warranty
Mr Bredhauer gave evidence that on 17 November 2009, five days after the earlier conversation, Mr Awad offered that air movers "sold to Aberford would be replaced with appropriately working machines if they were faulty within 12 months of being purchased". This representation, although again said to be made at Aberford's premises, was not supported by any other witness.
Mr Awad denies this conversation. He says that he did not raise with Mr Bredhauer the subject of the air movers again. This seems more likely to be the position on 17 November 2009, less than a week after all interest was rejected and his machine denigrated. Mr Bredhauer's account that Mr Awad would persist with negotiating terms, especially when there was no evidence that the air movers had been ordered, that their delivery to Mr Awad remained four months away, and that Mr Awad's approach had recently been rejected, seems to me to be less likely.
I am not persuaded of the existence of any of the representations that Aberford alleges to have occurred in November 2009.
(d) 2010 representations of suitability for water damage restoration work, were Australian safety approved and had effective cut out switches
Aberford alleges that Mr Awad represented in March 2010 that the Chinese air movers:
(a) were suitable for use in water damage restoration work;
(b) were Australian safety approved; and
(c) had effective thermal cut out switches.
Aberford asserts that these representations were made in a telephone conversation between Mr Awad and Mr Bredhauer on 8 March 2010.
Mr Bredhauer's notes dated late in May 2010 record the following:
"NB received a lot of calls of contractors over the March long weekend expressing interest in purchasing equipment. I was certain that we would be running low on stocks as a result of demand generated by the storm. I called AWAD to ascertain what stocks he had of his new airmovers. AWAD said that he has approx 200 available for sale. I again checked with AWAD to make sure his airmovers were Australian safety approved and that they were suitable for water damage restoration work and the motors had thermal cut out switches. AWAD assured me that this was correct. AWAD and I negotiated a new price of $220 plus GST per unit including 12 months unconditional replacement warranty. AWAD's price change was due to a slight weakening on the Australian dollar and the additional cost of offering an unconditional warranty. AWAD again assured me that if anything went wrong he will take them back no questions asked."
Mr Bredhauer's affidavit is slightly different. Relevantly he deposes the conversation as follows:
"I called Awad to ascertain what stocks he had of his new Air Movers. We had a conversation in words to the following effect:
Awad: 'I have approximately 200 available for sale.'
Me: 'Are you sure your Air Movers are Australian Safety approved and are they suitable for water damage restoration work and are you sure the motors and thermal cut out switches are suitable?'
Awad: 'That is correct. The price of each unit is $220 plus GST. That includes a 12 months unconditional warranty. Don't worry, if anything goes wrong I will take them all back, no questions asked.'"
Mr Awad's alleged answer, "that is correct", is unclear as to whether it refers to all of the questions put by Mr Bredhauer or only the final one. This illustrates the difficulty in establishing that oral representations to the effect alleged were made. The problem is exacerbated by Mr Awad's limited grasp of English.
Mr Bredhauer's affidavit refers to the suitability of the thermal cut out switches but there is no reference to suitability or effectiveness of the cut out switches in the notes. I do not accept that Mr Bredhauer's recollection improved two years after the notes were made. In any event, Mr Bredhauer disavowed in his oral evidence that his recollection improved.
I do not accept that any representation was made regarding the effectiveness or suitability of thermal cut out switches.
Mr Awad's account of the conversation is as follows:
"On or about early March, being a day or two after the container of the airmovers/blowers that I imported had arrived in Australia I was approached by Nick...I recall the date being a couple of days following a severe storm that struck Melbourne. At the time Nick said to me words to the effect of:
'give me a good price and don't interfere with any of my customers and I'll buy the whole container off you'.
He also says:
"On the 7th of March, being a day or two after the container of the airmovers/blowers that I had imported arrived in Australia I was approached by Nick to take...the whole container...that I did not want to sell the blowers yet because they had just arrived. Also I was very surprised for Nick to call me and ask for the blowers because he did not like 'Chinese made'...to sell him a 100 pieces because as he said he needed them urgently. The next day he called again and asked for another 100 pieces and a few days later another 30 blowers."
There were no other witnesses who gave an account of this conversation.
I have already mentioned that the air movers were labelled with a statement that Mr Bredhauer and the experts for each party understood to be inconsistent with using the machines for water damage restoration work. I do not accept that Mr Bredhauer did not see that label until after the fires. On his own case he examined the green air mover in November 2009 and he must have seen the label when in March 2009 he systematically removed from the air movers other labels referring to M & A.
In these circumstances, I am not persuaded that Mr Awad represented in terms that the machines were fit for water damage restoration work. Mr Awad believed that the air mover could be used for such work (not necessarily without supervision) but this says little about what was represented.
On the other hand, the machines did carry the CE safety certification. Any reference by Mr Awad to that certification is not the same thing as independently representing that the machines were safety compliant. A reference to the certification is merely passing on the representation of another (cf Butcher v Lachlan Elder Realty Pty Limited [2004] HCA 60). This is especially so in circumstances where as between Mr Awad and Aberford, Aberford were the relative experts in carpet cleaning equipment. Mr Bredhauer's scornful response in viewing the machine in November 2009 evidences that to his mind, and I think correctly, he knew much more about the quality and characteristics of air movers than did Mr Awad.
Accordingly, I prefer Mr Awad's evidence than Mr Bredhauer's. I am not persuaded that in March 2010 that Mr Awad made representations about the suitability of the machines, the effectiveness of the thermal cut out switches or that the air movers were "Australian safety approved".
(e) The 2010 representation that machines that became faulty within 12 months of purchase would be replaced
The M & A invoices contained a statement "12 month warranty". I think the ordinary meaning of this phrase (without more) is that machines would be repaired or replaced by M & A if they became defective within 12 months of purchase. I am not persuaded that anything said by Mr Awad went beyond this warranty. In the context of the writing on the invoice and because of the written statement being more reliable evidence than recollection of past oral statements, I think it is more likely that the oral statements were to the effect that M & A would give a 12-month warranty on the machines, replacing them if they are faulty. This is a representation about the warranty by M & A, not about what would happen in the future.
(f) The 2010 representation that Mr Awad had product liability insurance for Chinese air movers
The pleaded case of Aberford relies on a telephone call between Mr Bredhauer and Mr Awad on 8 March 2010 during which the oral representation was said to have been made. Although that pleading was twice amended, this aspect of the case did not change, yet Mr Bredhauer's evidence of that telephone conversation does not contain any reference to product liability insurance. Mr Bredhauer gives evidence that he relied on assurances from Mr Awad about product liability insurance in purchasing the first 100 air movers, but gives no evidence about the content of any such assurances, when they occurred or what was said.
The only reference in the evidence to a statement by Mr Awad about product liability insurance before the fires is that, according to Mr Bredhauer, Mr Awad volunteered a comment about having product liability insurance, after purchase, at the time of delivery of the first tranche of machines. Mr Awad denied making this comment.
In these circumstances, I am not satisfied Mr Awad said anything to Mr Bredhauer about product liability insurance prior to the purchase of the machines in March 2010.
It follows that I am not persuaded of any of the representations alleged to have been made by Mr Awad.
D. WHETHER THE REPRESENTATIONS WERE MISLEADING
Against the possibility that I am wrong about whether the representations occurred, I propose to consider whether the representations alleged were misleading.
(a) The Chinese air mover was a copy of the Dri-Eaz air mover
A visual comparison of the two air movers indicates that the Chinese air mover is a copy. The outer housing has a similar appearance and is approximately the same size. The design and position of the handle appears very similar. Although the power (230 volts) is the same, the label on the red air mover indicates a frequency (50 hertz), a resistance of the motors (3.3 amps), output (.75 horsepower) and rpm (1200 to 1400) that is not replicated in the Dri-Eaz Sahara Pro.
In my view, it is not misleading to say that the Chinese air mover is a copy if the designed appearance of the Chinese air mover is derived from, or designed to look like, the Dri-Eaz air mover. To say something is a copy, even an exact copy, is not to assert that it is identical in quality and value. Aberford did not show that the Chinese air mover was not a copy. Rather, it is submitted that it was an inferior copy and thus, not an exact copy. If "exact copy" means identical then the Chinese air mover was not an exact copy. But that was obvious at the time of the alleged representation in November 2009. It has a different colour, was not visually identical and had a label displaying specifications that bore some similarities and some differences.
In my mind, the circumstance that the green air mover was an inexpensive and inferior Chinese copy of a reputable American machine does not establish that it was not a copy.
A statement that the air mover was made in China, was cheaper and was a copy of an American air mover itself denies that the machines are identical, and I do not think a reasonable person would conclude otherwise. Certainly Mr Bredhauer did not regard Mr Awad's green air mover as an identical machine to his Dri-Eaz mover when he proclaimed that he was not interested in the inferior Chinese product.
For these reasons, I do not regard a representation about the air mover being a copy as misleading. Such a representation says nothing about its colour, its specifications, its quality and its internal workings. The principal meaning of a copy (other than of an image) is that it is an imitation of the original. A copy of artwork is not identical in quality or value, although like the air mover it may appear to be similar.
(b) The 12-month warranty
M & A provided a 12-month warranty. It was a term recorded on the invoice. The warranty lost value once M & A was de-registered but I do not think it was misleading for Mr Awad to represent that M & A would provide a 12-month warranty in circumstances where M & A did so. In my opinion such a representation is a representation about a term being provided by the seller, M & A, not a representation of whether the seller would remain able and willing to honour the warranty. It is a representation about a present fact and not a future matter.
(c) Safety certification
The Chinese air movers carried the CE certification label. There was some evidence that there was no other safety test applicable to air movers. The expert witnesses considered the question whether the Chinese air movers were compliant with Australian safety requirements or were certified as meeting European Community safety standards and jointly responded:
"3(d) Neither Mr Dick or Mr Holder can comment on this qu. As we have not be [sic] given any official Australian testing lab test reports or certificates".
In those circumstances, Aberford has not established that the Chinese air mover failed Australian or European safety standards. Accordingly, I cannot find the representation misleading.
(d) Other representations
It was not disputed that the Chinese air mover had "thermal cutout switches". When asked if these switches were effective the experts concluded:
"(c) Mr Dick is unable to comment as he did not perform any tests on the airmover.
MR HOLDER IS OF THE OPINION BASED ON HIS INSPECTION & TESTS THAT THE CUT-OUT SWITCH ALTHOUGH FITTED WAS NOT FITTED IN A WAY TO ACHIEVE BEST 'EFFECTIVE' OPERATION."
To say that a thermal switch is not fitted "in a way to achieve best 'effective' operation", without more, is insufficient to persuade me that it was misleading to represent that a thermal cut out switch was effective (even if I found such a representation which I do not).
Both experts agree on the unsuitability of the Chinese air mover to do water damage restoration work because of the unsuitability for use in damp conditions. I accept this conclusion. If an unqualified representation about the machines being suitable for water damage restoration work was made, on the evidence before me it would be misleading.
I should add that the experts accepted that the air movers were not suitable for water damage restoration work and in the context of the two reported fires it seems to me reasonable and appropriate for Aberford to have recalled the air movers.
It was common ground that Mr Awad did not have product liability insurance. It follows that any representation that he did have such insurance in respect of the Chinese air movers would be misleading.
E. RELIANCE AND CAUSATION
I have not been persuaded that Mr Awad made any misleading representations. In case I am wrong about that I have considered the issue of reliance and causation. Mr Bredhauer gave the following evidence:
"20. On the basis that Awad had assured me that his airblowers were exactly the same as the Dri-Eaz Sahara Pro, that the airblowers he was selling were compliant with safety requirements and that they came with a 12 month unconditional warranty, and Awad's assurances that he was insured for product liability, the plaintiff purchased 100 units from Awad. Had I not received these assurances the plaintiff would not have purchased the airblowers from Awad or anyone else. Rather the plaintiff would have sourced airblowers from the other providers it normally used in times of peak demand."
The form of this paragraph renders it capable of being challenged but no objection was taken. It makes no express reference to the belief of Mr Bredhauer. If Mr Bredhauer did not believe a representation by Mr Awad then he cannot have relied on it in choosing to order the Chinese air movers.
The first matter raised by Mr Bredhauer is that Aberford purchased the air movers "[o]n the basis that Awad had assured me that his airblowers were exactly the same as the Dri-Eaz Sahara Pro". There is some evidence that the Dri-Eaz air mover placed next to the green air mover in November was a Sahara Pro. However, it seems obvious to me that Mr Bredhauer did not believe the green air mover was "exactly the same" as the Sahara Pro. Rather, he described it in strong terms as a defective or lower quality Chinese product, not a description that Mr Bredhauer would apply to the Sahara Pro. Thus, Mr Bredhauer in November 2009 plainly did not believe that the green air mover and the Sahara Pro were identical. Nor do I think this view of Mr Bredhauer changed in March 2010.
Aberford does not allege a further representation to this effect was made in March 2010, nor is there any evidence of such a representation.
Mr Bredhauer does not give evidence that he changed his mind about the quality of the Chinese air mover. Moreover, he knew it was substantially lower in price, of a different colour, from a different country of origin, and with identifiable differences in appearance and specifications. He does not say in terms that he believed the machines were identical or an exact copy and any submission to that effect must be rejected. Accordingly, I am not persuaded that Aberford relied on any representation about the Chinese air mover being an exact copy of the Dri-Eaz Sahara Pro.
The second matter said to be relied upon by Mr Bredhauer is that the Chinese air movers were compliant with safety requirements. I accept that Mr Bredhauer may have believed that the Chinese air movers were compliant with safety requirements. Whether that belief was informed by reading the label on the machine, a belief that the machine could not be sold without safety certification or his own assessment of the machine, I cannot conclude. However, I am not persuaded that any such belief arose from a representation made by Mr Awad.
Mr Bredhauer knew that Mr Awad was not someone with the technical expertise to assess whether the air movers were "safety compliant". There is no suggestion in the evidence that Mr Bredhauer asked Mr Awad how CE certification was obtained, or how compliance was achieved. While this circumstance does not exclude Mr Bredhauer from relying on a representation by Mr Awad, in my view it supports my conclusion that Mr Bredhauer did not regard Mr Awad as having any information about safety compliance or certification that was important to him, and that Mr Awad could only pass on what appeared on the machine's label.
For this reason, I do not accept that Mr Bredhauer relied on anything Mr Awad said about safety certification or compliance.
Mr Bredhauer also deposes to having purchased the Chinese air movers on the basis that they came with a 12-month unconditional warranty. The invoices record a 12-month warranty and I accept that Mr Bredhauer did believe that he was entitled to have the machines replaced if found to be defective within 12 months, but what was important to Mr Bredhauer was the existence of the warranty not Mr Awad's assurances about it. That warranty was recorded and underlined on the invoices. Mr Bredhauer relied upon the existence of the warranty.
Finally, Mr Bredhauer asserts that Aberford purchased the first 100 air movers on the basis of Mr Awad's assurances that he was insured for product liability, but the evidence discloses no assurance by Mr Awad prior to the purchase of those air movers. Nor is there evidence that Mr Bredhauer asked about insurance before the purchase. In those circumstances, I do not accept that Mr Bredhauer had a belief about product liability insurance that contributed to Aberford purchasing the air movers.
In my view. Mr Bredhauer decided for Aberford to purchase the air movers from Awad because they were cheap, because Aberford had an urgent need to supply air movers, and because Mr Bredhauer feared that someone else, perhaps Mr Awad, would satisfy Aberford's customers with air movers if he did not move quickly. Aberford stood to make a quick profit on the air movers and Mr Bredhauer was motivated by that opportunity for profit. Mr Bredhauer's action in removing all the labels with the M & A contact details supports Mr Awad's account that Aberford was concerned about the price and its customers, and were prepared to take the risk on what Mr Bredhauer believed to be a lower quality Chinese product.
F. DAMAGES
Aberford claims damages under three heads: cost of purchase, cost of recall and lost profits. In the event that Aberford was successful in its claim, there is no contest about the first two heads of damage, namely the $55,660 inclusive of Goods and Services Tax ("GST") as the cost of purchasing 230 air movers and $16,384.74 being the cost of the recall of the air movers, a total of $72,044.74. Net of GST this amount is $65,495.22 (see Remedial Building Services Australia Pty Limited v Pony (NSW) Pty Ltd [2013] NSWDC 128 at [31]).
There was, however, a contest about the claim for lost profits. Aberford sold the machines for $86,218.27 inclusive of GST. Aberford refunded this amount on the occasion of the recall. The difference between the sale price and the purchase price is the sum of $30,558.27 which net of GST is the additional amount of lost profit claimed. This amount is $27,780.25.
As quoted earlier, Mr Bredhauer deposed that had Aberford not bought the Chinese air movers from M & A it "would have sourced airblowers from the other providers it normally used in times of peak demand". Mr Bredhauer's affidavits do not depose to the availability or cost of other air movers and do not identify these "other providers", although he does identify "alternative wholesalers" from whom Aberford "may source equipment".
Mr Koral gave evidence of a conversation with another potential supplier concerning the availability of other Chinese air movers but that evidence was not admitted as to the truth of the words of the potential supplier and thus did not establish availability or cost of alternative machines, or whether in any event these machines were different from those supplied by M & A.
Mr Bredhauer's notes purported to record communications by other Aberford employees with a potential supplier but none of these employees were called as witnesses. Further, the timing of the phone calls in this part of the note was not established (given the note was made two and a half months after the purchase), and in any event it is third-hand hearsay. It is insufficient to persuade me that the same profit as was made on the red air movers (before the recall) would have been achieved had the red air movers not been purchased.
Furthermore, Mrs Bredhauer gave evidence, referred to earlier, in the following terms:
"I was concerned about purchasing Air Movers from a different supplier. Prior to this point in time, Air Movers had only been purchased through the American manufacturer of Dri-Eaz Air Movers".
This evidence is contrary to Aberford ever using "other providers" prior to November 2009, casting a shadow on the evidence of Mr Bredhauer that Aberford "normally used" other providers.
Because of the absence of cogent evidence about the machines available, their type and quality, from whom they were available and their cost, and the evidence from Mrs Bredhauer that other providers were not used, I am not satisfied that Aberford could have purchased alternative machines. Mr Bredhauer's evidence does not disclose any phone calls to alternative providers in early March 2008 so I must conclude he made none.
Accordingly, in my view, the appropriate level of damage, if the claim was otherwise established, would be $65,495.22.
G. ORDERS
The orders of the Court are:
(1) Plaintiff's claim dismissed.
(2) In the event that no submissions in respect of costs are filed and served within 28 days, there shall be an order that the plaintiff pay the defendant's costs. In the event that submissions on costs are received, judgment on costs will be reserved so as enable the other party to serve any responsive submission within a further 14 days.
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Decision last updated: 21 March 2014
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