Clark Equipment Australia Ltd v Covcat Pty Ltd

[1987] FCA 96

Re: CLARK EQUIPMENT AUSTRALIA LIMITED and COVCAT PTY. LIMITED AND ORS.
(Cross-Appellants)
And: COVCAT PTY. LIMITED AND ORS. and CLARK EQUIPMENT AUSTRALIA LIMITED AND
ANOR (Cross-Respondents) No. G311 of 1986
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Fox J.
Sheppard J.
Jackson J.

CATCHWORDS

Trade Practices - consumer protection - misleading and deceptive conduct - purchase of tree felling and bunching machine - misleading and deceptive representations as to suitability and tree felling capacity of machine - finding that representations made - finding that representations induced purchase - review of trial Judge's findings on appeal - whether findings justified on the evidence.

Trade Practices Act 1974 s. 52.

Petera Pty. Ltd. v. E. A. J. Pty. Ltd. (1985) 7 FCR 375

Byers v. Dorotea Pty. Ltd. (1987) ATPR 40-760

HEARING

SYDNEY

#DATE 11:3:1987

Counsel for the appellant/Cross-respondents: J.L. Trew, Q.C. with P.M. Wood

Solicitors for the appellant: Messrs Freehill Hollingdale & Page

Counsel for the respondent/Cross-respondents: J.B. Whittle

Solicitors for the respondent: Messrs Daly Bussoletti & Co

ORDER

The appeal be dismissed with costs.

The cross-appeal be dismissed, with no order as to costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

I agree that the appeal in this matter should be dismissed. The case is one which turns entirely upon facts. I have been of more doubt than my colleagues whether the conclusions reached by the trial Judge were correct but their correctness turns very much on matters of interpretation and impression.

1. His Honour the trial Judge was in several senses closer to the scene than myself and principle requires that weight be given to his conclusions. I am the more reassured in this result by the fact that the other two members of the Court on their own analysis would agree with the trial Judge.

2. The appeal should therefore be dismissed with costs and the cross-appeal dismissed without any order as to costs.

JUDGE2

In question are an appeal and cross-appeal from a judgment of a single Judge of this Court (Wilcox J.) in which it was ordered that the respondents recover from the appellant damages for breaches of s. 52 of the Trade Practices Act 1974. The first respondent was adjudged entitled to recover the sum of $81,146.74 and the second and third respondents, $55,947.46. The sum of $55,947.46 (which also formed a component of the amount recovered by the first respondent) was in respect of the liability of the respondents under a lease agreement entered into by them with a company associated with the appellant, namely, Clark Equipment Credit of Australia Limited. The lease was in respect of equipment supplied by the appellant and known as a "1080 Feller Buncher". The machine was designed to cut standing trees at their base and convey them to a stockpile. The machine was capable of bunching together a number of cut trees before travelling to the stockpile. The recovery by the respondents of the sum of $55,947.46 put them in a position to discharge the liability they had under the lease agreement because of their failure to comply with its terms.

1. The grounds of appeal challenge the finding by the learned primary Judge of certain representations said to have been made on behalf of the appellant and his further finding that the respondents were induced to enter into the lease agreement by reason of the making of the representations. The cross-appeal was brought by the respondents because his Honour had not dealt with other causes of action upon which they relied. One of these was a cause of action for negligence, it being alleged that a number of statements made on behalf of the appellant had been made negligently.

2. The representations found by the learned primary Judge to have been made by or on behalf of the appellant were that the machine acquired by the first respondent was suitable for the selective cutting of ironbark in a natural forest and that the machine, working in such a forest, could cut between 800 and 1,200 trees per day. A reading of his Honour's judgment discloses that he accepted in large measure the substance of Mr. Covington's evidence about the conversations he had with Mr. McMurray who was the appellant's representative. Mr. Covington told Mr. McMurray that he wanted the machine for cutting ironbark or hardwood in Goonoo State Forest near Dubbo in New South Wales. He told him that he was cutting pit props for mining work. The trees which Mr. Covington wished to cut were up to 30 centimetres in diameter. According to Mr. Covington, Mr. McMurray said that there was no problem, the cutting capacity of the machine being for trees up to 16 inches (approximately 40 centimetres) in diameter. Mr. Covington said that Mr. McMurray stated that he knew the Goonoo State Forest and also that he expressly said that the machine would cut 800 to 1,200 trees a day. His Honour made no finding whether Mr. McMurray had said that he knew the Goonoo State Forest or that the machine would cut 800 to 1,200 trees a day.

3. There was in evidence a brochure which it was common ground was handed by Mr. McMurray to Mr. Covington at the relevant time. The brochure shows the machine operating in a plantation type area cutting softwood. Amongst the statements in the brochure is one which says, "Cut 800 to 1,200 trees a day". Of this matter his Honour said:-
   
   

"Mr. Covington asserts, although Mr. McMurray denies, that a range of 800 - 1,200 trees per day was orally mentioned. Mr. Covington's affidavit evidence was that the first reference to 800 - 1,200 trees took place during the conversation in the car. Under cross-examination he said that the first reference might have been after arrival at the motel but the timing does not matter. Nor does it really matter whether an oral statement was made, although I think it likely that one was. The brochure relating to the 1080 feller buncher which Mr. McMurray handed to Mr. Covington clearly claimed - without qualification as to manner of operation or species - a cut of 800 - 1,200 trees per day. The handing of this brochure - without qualification or reservation - to Mr. Covington, for his consideration in relation to the particular type of operation he had outlined to Mr. McMurray, amounted to a representation that the 1080 feller buncher would cut 800 - 1,200 trees per day in that operation".

1. The brochure was given to Mr. Covington in the context of conversations in which he made it clear that he did not require the machine to cut softwood in plantation type conditions, but rather to cut hardwood in natural forest conditions. In those circumstances the statements in the brochure, particularly that relied upon as to the cutting capacity of the machine, became applicable to the conditions for which Mr. Covington required the machine and he was justified in relying on them. It was submitted on behalf of the appellant that the statement in the brochure was not to be regarded as more than "puff" so that Mr. Covington was not entitled to rely upon it. I do not accept that submission. It seems to me that, if companies such as the appellant in selling equipment make statements of that kind in a brochure describing the qualities and capacities of equipment which they sell, they should be held to them. It is true that the statement would not have been applicable to the conditions for which Mr. Covington required the machine had it not been for Mr. McMurray's proferring of it to him without qualification. But the fact that he did so in the context of discussions the two of them had about the projected use of the machine for the selective cutting of hardwood in a natural forest made the statement about the cutting rate in the brochure as applicable to Mr. Covington's requirements as they were to the conditions shown therein. Especially is that the case when one takes into account other statements in the brochure such as, "To keep ahead of the toughest demands of every logging operation, the new 1080 Feller Buncher has . . . ", "A solid compact heavyweight . . . " and "more than 16,000 lbs. of agile durability and a low center of gravity will give you the quickness, power and stability you need for grinding out hour after hour felling/bunching cycles anywhere grapple skidders can move out the trees".

2. Although the case must be approached upon the basis that Mr. McMurray was not familiar with the Goonoo State Forest, there is evidence that he was familiar with natural forests in the Oberon District of New South Wales and with a forest at Karuah in that State. The Goonoo State Forest apparently differs from forests in the Oberon area because of the nature of the terrain, the Goonoo State Forest being in fairly flat country and forests in the Oberon area being in very hilly and undulating country. It would appear from statements which are in the judgment that his Honour may have used local knowledge he has of the nature of forests in the Oberon area in order to make a comparison between conditions in those forests and conditions existing in the Goonoo State Forest. There was evidence of the conditions in the latter forest, but not, so it was submitted, of conditions in the former. In consequence it was submitted by counsel for the appellant that his Honour was not entitled to draw on his knowledge of forests in the Oberon area. I do not find it necessary to reach a conclusion on this submission because I do not regard his Honour's use of knowledge he has of conditions in forests in the Oberon area as critical for the outcome of the case. The important fact is that Mr. McMurray led Mr. Covington to believe that the machine was suitable for use in a natural forest where the machine would need to be operated selectively in contrast with a plantation type area where it could proceed to cut each tree as it came to it.

3. There was evidence of trouble in the operation of the machine which had been encountered by Mr. Covington and a Mr. O'Neil, who operated the machine for him. This led to cross-examination of them both on how the machine was used to approach a tree which was not growing perpendicularly. The correct method is to approach the tree from above or below, that is in the direction of its slope, and never from the side. The answers given by Mr. Covington and by Mr. O'Neil would suggest that at times the wrong method of cutting was adopted. I do not regard this as critical to the success or failure of the respondents' case. What is clear is that on no basis could the machine cut as many as 800 trees per day in natural forest conditions. This was because of the need to operate it over much greater distances than would have been involved in the plantation area conditions illustrated in the brochure. The machine was slow moving and could achieve nowhere near the expected rate.

4. Counsel for the appellant submitted that, assuming the representations to have been made and further assuming that they amounted to deceptive and misleading conduct on the part of the appellant, the respondents' case should nevertheless fail because it was not established that Mr. Covington relied upon the representations which were made when he decided to purchase the machine. In support of his submission counsel relied on the answers Mr. Covington gave to a series of questions asked Mr. Covington in cross-examination. One of the matters raised with Mr. Covington was the fact that he had signed a lease agreement for the machine in which was contained a provision that, before Mr. Covington signed the agreement on behalf of the appellant, he examined the goods and, relying on his own skill and judgment, satisfied himself that they were reasonably fit for the purpose for which he required them. Mr. Covington said in his evidence that when he signed the acknowledgment he did not consider that it applied to the speed or rate at which the machine would cut trees. Be that as it may, a vendor of goods may not successfully rely on an exemption clause such as that in question here in answer to a cause of action under s. 52 of the Trade Practices Act. That is because the conduct of a respondent in making representations is antecedent to the contract in which the exemption clause is contained. The effect the representations have in inducing a purchaser to enter into a contract will usually be spent before or at the instant the contract is signed.

5. Parties may agree that statements and representations made antecedently to their entering into a contract are not to form the basis of any remedy in the event of there being a subsequent disagreement. Except in cases of fraud, the common law will give effect to their contract. But the remedy conferred by s. 52 of the Trade Practices Act will not be lost whatever the parties may provide in their agreement. If a vendor of goods has engaged in misleading or deceptive conduct, the law makes him accountable for loss and damage suffered as a result of his unlawful conduct. That conduct will usually have been committed, as in this case, prior to the signing of any contract. If, as a result of the conduct, a person is induced to enter into a contract and suffers loss, an action to recover it lies. The terms of the contract are irrelevant. As Wilcox J. said in Petera Pty. Limited v. E.A.J. Pty. Limited (1985) 7 FCR 375 at p 378:-
   
   

"Whatever may be the effect of cl. 19 (the exemption clause in that case) in relation to an action brought in contract, in which reliance is placed upon an alleged warranty or condition not included in the contract of sale, that clause should not be allowed to defeat a claim based upon sec. 52. To permit such a clause to defeat such a claim would be to accept the possibility that a vendor might exacerbate his deception, as by actively misleading a purchaser as to the existence or nature of such an exclusion, and thereby ensure that he would escape liability".

I refer also to Byers v. Dorotea Pty. Limited (1987) ATPR 40 - 760 per Pincus J. at p 48230.

1. In fairness to the submission made by counsel for the appellant in reliance upon the exemption clause in this case, it should be said that the matter really relied upon was an evidentiary one. The statements in the clause were said to provide evidence that Mr. Covington had not relied upon the representations which were made to him. But, as I indicate in the next paragraph, it is clear from the evidence that the representations in fact did continue to play a substantial part in persuading Mr. Covington and his wife, and thus the company, to enter into the lease agreement.

2. The cross examiner went on to suggest to Mr. Covington that before he decided to acquire the machine he weighed up a number of matters, many of which were unconnected with the representations found by his Honour in this case. I have considered the answers given by Mr. Covington to these questions. Having done so, I am persuaded that the representations which were made played an appreciable part in Mr. Covington's decision to acquire the machine. In reaching this conclusion I have taken into account evidence given by Mr. and Mrs. Covington of a conversation they had before deciding to acquire the machine in which they calculated their ability to maintain the payments provided for in the lease. For the purpose of this exercise they assumed that the machine would cut not 800 trees, but 400 trees per day. It was submitted that this was a clear indication that they had not relied upon any of Mr. McMurray's statements but were making a decision to acquire the machine in the exercise of their own independent judgment of what it was capable of doing. I do not accept this submission because it appears plainly that the statements which Mr. McMurray had made continued to operate on Mr. Covington's mind. His selection of a cutting rate of 400 trees per day for the purposes of his calculation was made as a conservative estimate for the purpose of ensuring that the payments required by the lease were well within the capacity of the respondents to make.

3. For the reasons I have given I would dismiss the appeal with costs. In the circumstances the cross-appeal does not arise for consideration. It should also be dismissed. I would make no order as to the costs of it.

JUDGE3

This is an appeal from a decision in which damages were awarded against the appellant in favour of the respondents in respect of contraventions by the appellant of s.52 of the Trade Practices Act 1974. The contraventions arose from representations made in the course of negotiations between the appellant and the respondents leading to the entry by the first respondent into a lease to it by Clark Equipment Credit of Australia Limited of a Clark 1080 "feller buncher" machine distributed in Australia by the appellant. The second and third respondents were guarantors of the obligations of the first respondent under the lease.

1. By the judgment appealed from the first respondent obtained judgment against the appellant in the sum of $81,146.74 and the second and third respondents obtained judgment against the appellant in the sum of $55,947.46. The latter sum was the amount which each of the respondents was liable to pay the lessor under the lease. Consequential orders were made to ensure that there was no double-payment of the respondents.

2. The Clark 1080 feller buncher is a tracked machine designed, as its name implies, to fell trees and to assist in placing them in "bunches" for treatment and easy removal. It has arms which grasp the tree while hydraulically operated blades cut into the tree near its base, the blades meeting along a diameter of the tree and thus severing the trunk from the base by a shearing motion.

3. The second respondent is a director of the first respondent, and his interest in the 1080 feller buncher was in order that the first respondent might use it to cut pit props from ironbark in the Goonoo State Forest, a large forest some 30 km from Dubbo. The Goonoo State Forest contains a mix of timber species, including two varieties of ironbark, and the second respondent had licences from the Forestry Commission of New South Wales to cut timber in specified parts of it.

4. The events leading to the making of the representations in question were set out in the reasons for judgment of the primary Judge as follows:-
   
   

"In June 1981 Mr Covington telephoned Mr Peter Beddows of Clarklift (South Coast). Mr Covington was already aware that a new model feller buncher -- the 1080 -- was available. He asked Mr Beddows about the possibility of having a demonstration of the 1080 in ironbark. Mr Beddows told him that a program of demonstrations had been arranged, which could not be interrupted. However, shortly afterward, he invited Mr Covington to attend, without expense to him, a demonstration of the 1080 working in pinus radiata which was to take place at Mt Gambier in South Australia.

Mr Covington went to Mt Gambier in early July 1981. Upon arrival, he was met at the airport by David McMurray, Product Group Manager of Clark Equipment, whom Mr Covington already knew, and Tom Luddy, an American who had been sent to Australia by the American parent of Clark Equipment to operate the machine during the demonstrations. During the drive from the airport to the motel there was the first of a number of conversations about the machine. These conversations give rise to the allegations of misleading conduct."

1. The Judge then proceeded to find that certain representations had been made to the second respondent by Mr McMurray and that they were in fact untrue. Those representations were:-
   
   

(a) that the feller buncher was suitable for the selective cutting of ironbark in a natural forest; and

(b) that the feller buncher would cut 800 - 1200 trees per day in the type of operation which the second respondent had in mind.

1. The submissions made on behalf of the appellant are that the primary Judge erred in finding that those representations had been made and that he should have found that although the appellant had represented that the feller buncher would cut ironbark, it had not represented that it would cut it at a particular rate in the respondent's operation, and had not represented that the machine was suitable for the respondent's intended purposes.

1. Before turning to deal with the first of these representations it is convenient to set out some matters relating to the capacity of the feller buncher. In this regard it is apparent on the evidence, and His Honour's findings to this effect are not really challenged, that whilst the feller buncher was in fact capable of cutting a tree of the size and hardness of ironbark, it could not be said that it was suitable for felling ironbark in the natural forest conditions in which the first respondent intended to work.

2. Ironbark, as His Honour found, is an extremely hard tree and, again as His Honour found, ironbark trees - at least in the Goonoo State Forest - often have "stem lean", i.e. the trunks of the tree grow at angles from the perpendicular. As Mr Kielb, the person in charge of designing the feller buncher, said in his affidavit in the proceedings, the feller buncher assembly was made in such a way that it could not tilt to either side and upon approaching a tree which was on an angle other than a right angle to the plane of the cutting knives the application of the cutting knives was no longer "to the plane of the fibre to be cut". He said that, leaving aside minor variations from the true perpendicular, to close the shears against a tree in a plane other than at right angles to the axis of the tree could give rise to a distribution of eccentric forces and in addition to the straight application in the true direction of cutting:-
   

"forces will be directed up or down, according to the direction of the angle. That eccentric force will then have a tendency to force the knives apart, that is, similarly up or down. Instead of the true cutting action then applying, a poor scissor effect will be created, approaching in inefficiency the feel that one gets trying to use domestic scissors which have loosened at their fulcrum. Once slightly out of alignment, the continued application of the very heavy forces that apply in the operation of the assembly will have the effect of continuing to force the blades out of alignment, the material to be cut coming to operate as a wedge between the blades and a scissor-like tearing action over from a clean cut."

1. It was thus correct, in my view, for His Honour to take the view that the feller buncher was in fact unsuitable for the selective cutting of ironbark in a natural forest. The critical question, however, is whether it was correct for His Honour to find that a representation to the effect of that to which I have earlier adverted was made.

2. I should mention at this point that His Honour said that it was not necessary to determine the detail of what had occurred in the relevant conversations between the second respondent and Mr McMurray, saying:-
   
   

"Whatever may be the precise detail of the conversations, there is no doubt that Mr Covington sought, and received, repeated assurances as to the suitability of the machine to carry out the selective cutting of ironbark in natural forests."

and: "Mr McMurray's version of this assurance referred to

the cutting of hardwood in a natural forest similar to that in the Lithgow/Oberon area. He made clear in his oral evidence that his reference to the forests of that area was a reference to natural forests, and he spelled out its significance:

"So your understanding of Mr Covington's proposal was that he was going to be using the machine in natural as distinct from planted areas and native timber as distinct from pines?--- I did, yes.

And with the sort of topography that can be found in the Lithgow and Oberon area?---Yes. And you were telling him it would be suitable for that sort of application?---Yes. I said it would work there."

1. The Lithgow/Oberon area, it may be noted in passing, was stated by Mr McMurray in his cross-examination to be "quite hilly and undulating" but also flat in some parts whereas the Goonoo State Forest area was "as flat as a pancake".

2. His Honour's reasons for judgment then proceeded:-
   
   

"The natural bushland in the Lithgow/Oberon area consists of scattered timber of diverse species growing upon undulating to steep land. No doubt there are significant differences in species distribution, but in density, tree shape and tree size it is not unlike the portions of the Goonoo State Forest depicted in the photographs which are in evidence; with the exception that it is generally steeper. Having regard to the evidence in this case, I have no hesitation in finding that the 1080 feller buncher would be quite unsuitable for the selective felling of timber in such country."

1. There was no detailed evidence before His Honour as to "the density, tree shape and tree size" of the natural bushland in the Lithgow/Oberon area nor was there evidence as to the "species distribution" in that area, and it is urged in consequence that His Honour was not entitled to make a comparison between the bushland in the Lithgow/Oberon area and that in the Goonoo State Forest.

2. It seems to me, however, that whether His Honour was so entitled or not is ultimately irrelevant. I take that view because the representation made was that the feller buncher was suitable for use in a natural forest containing native timber, and in a native forest where selective cutting would take place. The representation was not qualified by reference to species distribution, density, tree shape or tree size. In these circumstances it seems to me not to matter whether there was or was not a substantial correspondence between the detail of the Lithgow/Oberon bushland and that of the Goonoo State Forest.

3. The second representation was that the feller buncher would cut 800 - 1200 trees per day in the type of operation which the second respondent had in mind.

4. As the primary Judge found, the brochure relating to the feller buncher which had been handed to the second respondent asserted that the feller buncher could cut 800 to 1200 trees per day, that it kept ahead of "the toughest demands of every logging operation" and that it "works in areas where other machines can't move." While these statements were made in conjunction with photographs in the brochure showing the feller buncher working in softwood Mr McMurray had also shown the second respondent photographs of the feller buncher felling hardwood at Karuah and he said that the then production rate was 2.5 trees per minute, i.e. 150 trees per hour or, as the primary Judge said, 975 - 1050 trees per day over a 6 1/2 - 7 hours day. Mr Mc Murray did not inform the second respondent that that rate was achieved with clear felling, rather than selective felling, although he was aware that the first respondent wished to use the feller buncher for the latter purpose.

5. In these circumstances the primary Judge was plainly entitled to accept that a representation of the nature in question was made.

6. I agree with the reasons for judgment of Sheppard J. in all other respects.

7. I would dismiss the appeal and in consequence the cross-appeal. The appellant should pay the costs of the appeal, but there should be no order as to the costs of the cross-appeal.